Investment drain from vehicle logistics in Europe

Despite rising profits among many carmakers, Europe’s finished vehicle logistics industry is threatened by a lack of investment coupled by rising costs and stagnant rates, a scenario already causing capacity bottlenecks, according to the president of the European Association of Vehicle Logistics (ECG), Costantino Baldissara (pictured).

 

Speaking to Automotive Logistics News ahead of this week’s ECG Assembly in Warsaw, Poland, where he is expected to be re-elected as president of the ECG–an association representing more than 100 vehicle logistics companies across the continent–Baldissara warned that carmakers needed to consider the cost structure of vehicle logistics companies more carefully. Today these providers must invest at least €5 billion ($7.25 billion) in car carrier ships, trucks and rail wagons to get capacity back to pre-crisis levels.

 

“Rates are not moving in line with the costs of vehicle logistics,” said Baldissara. “I’m afraid that in the next 12 months, unless there is another economic shock, there will be a lack of capacity [for vehicle logistics] because companies don’t have the resources to invest.”

 

Baldissara has been warning the industry in speeches and interviews over the past 18 months that vehicle logistics could be become “the bottleneck of the recovery” in Europe without investment in equipment following the economic downturn. But to make those investments, providers need support from their customers to help align their operating costs and expenses.

 

But despite carmakers’ improved balance sheets, the vehicle logistics market remains “in poor shape”, Baldissara asserted. “We are becoming the bottleneck in some markets,” he said.

 

In Russia and Germany, where car sales and production are strong, Baldissara said that capacity issues are delaying lead times across all transport modes. In the UK, during the March registration period (when the market typically reaches a peak), there was a significant lack of truck capacity, compounded further by cabotage restrictions that limit foreign trucks on British roads. “Capacity has stabilised now in the UK but it will be under stress again during the September registration period,” Baldissara said.

 

But even in markets where sales are down, Baldissara said there is a troubling lack of trucks. This shortage is especially visible in Italy, despite new car sales down more than 20% in the first quarter. “This is the because the smaller owner-operator truck companies–known as the padroncini in Italy–are simply going out of business. Larger companies should be able to invest but they cannot.”

 

The troubled Italian market defies the typical expectations that a shrinking market would have an excess of supply. But Baldissara believes vehicle logistics has suffered from a serious investment drain, and that private equity and capital investors are receding from the sector. One consequence could be a major player, or even a carmaker–such as Fiat’s iFast trucking company–buying up a lot of capacity, which would effectively shrink the competitive market.

 

While Baldissara believes that the sector needs more attention from carmakers, he does not simply believe that the solution is higher rates. Sales remain sluggish or declining in several European markets, even if on the whole European carmakers are more profitable. But he acknowledged that providers determined rates, and that many could be accused of “rate dumping” by taking on business at a loss.

 

“The primary enemy of this sector is often itself,” he said.

 

OEMs have a responsibility to avoid “dumping offers”, he said, but even more than focusing on rates Baldissara believes that carmakers should communicate more with providers to improve efficiencies that would help both.

 

As an example, Baldissara pointed to the practice among carmakers of rushing cars for delivery by the end of the month, often to meet sales targets. But this end of month focus leads to huge imbalances in the vehicle logistics network, as many providers scramble to position assets to move vehicles in the first half of the month, only for them to sit idle for much of the other half.

 

“Not only that, but during the rush period the sector often has to subcontract assets to meet demand at a higher cost. So we are losing money during the idle periods, and paying more during the peaks,” Baldissara said.

 

A more balanced and stable delivery pattern would remove distribution costs at no damage to customers, although Baldissara recognises that responsibility for the order-to-delivery cycle is often out of the hands of vehicle logistics managers.

 

Further efficiencies for logistics providers could also be found by investing in new equipment. Baldissara has first hand experience of these benefits, namely as the logistics, operations and commercial director for the Grimaldi Group, which has seen its profits rise in part thanks to more efficient new vessels (read more here). But Baldissara said that only a few companies, Grimaldi among them, are in a position to invest right now.

 

He believes that more coordinated communication would go a long way towards helping to iron out inefficiencies. “We would like to see our clients set up a kind of control room where they can talk to providers about the future,” he said. “GM, for example, has a supplier council for logistics, which is a great idea.”

 

Baldissara has hopes that the ECG might become more of a forum for carmakers and LSPs to share ideas and set standards together. Among the groups that Baldissara believes the ECG should coordinate more with is the ACEA Logistics working group, which brings together logistics managers at member carmakers. The ECG will take an important step towards aligning these groups this week at the Warsaw assembly, where Egon Christ, head of worldwide vehicle transport at Daimler–who has taken a leading role at the ACEA working group–will present on its progress.

 

 

The association’s main annual event, the ECG Conference in Paris, France will be held later this year on 13-14th October (www.ecgconference.org). The event is organised by Finished Vehicle Logistics.