2011 CONFERENCE REPORT
A fragile Europe inches back towards co-operation
Sales forecasts for 2012 have turned down, and high fuel costs are on everyone's mind, but the European outbound sector does seem to be inching towards longer term co-operation again. | | |
| PARIS, 14 OCTOBER 2011: First the good news; OEMs are looking for co-operation and a longer-term focus in seeking efficiencies in European finished vehicle deliveries. Toyota Europe's logistics chief, Levent Yuksel, even goes as far as to say that he wants to "inspire and be inspired" in working with LSPs to seek a better way. Now the bad news. Falls in both consumer and (more recently) business confidence have pushed forecasts for 2012's car sales down below this year's levels. | | Over 250 delegates were meeting, networking, socialising and discussing |
|  '2012 sacrificed to the debt crisis' : da Silva, IHS | | Well-publicised sovereign debt problems are taking their toll, and Europe’s OEMs are expected to have taken out 175,000 units of production capacity by the end of 2011, says forecasting company IHS. Next year’s sales are “sacrificed” to the current financial crisis, says senior automotive analyst Carlos da Silva. These contrasting messages were given to over 250 delegates attending the 2011 ECG Conference, which was has just concluded in Paris. They heard OEMs like Daimler, Renault and Toyota, along with high and heavy-constructors like JCB, John Deere and Volvo |
Construction Equipment, express a keen willingness to increase co-operation and work together with LSPs to help drive down the costs of outbound logistics. Service providers, however, remain focussed on their own bottom lines. ECG president Costantino Baldissara pointed out that profits and balance sheets of OEMs and even Tier 1s have strongly recovered from the 2008 crash, but characterized the collective profits of LSPs as 'zero'.
The ECG is the European Association of Vehicle Logistics, and its 2011 conference was organised on its behalf by
Finished Vehicle Logistics magazine. The meeting had the theme ‘Cost v Strategy: Is vehicle distribution a commodity or a marketing advantage?’. It saw carmakers, LSPs and suppliers of all aspects of outbound logistics services come together in intense networking and extensive discussions and presentations, in forums which varied from the pre-conference dinner to plenary conference sessions and break-out groups.
Sales forecasts cut, but 'more like a conventional slowdown' |  ECG President Baldissara: Europe heading for the cliff? | On the basis that politicians will succeed in quelling the current debt crisis, Da Silva, said that its impact would not be anything similar to the 30-40% drop in demand seen in 2008-09. Rather, Europe was more likely to suffer from a protracted stagnation in vehicle sales and be “the market with flattest outlook for growth in the world”. Passenger car sales in Western Europe, for example, are expected to be around 14m units this year, dipping slightly in 2012, and not being expected to return to the pre-crisis levels of 16m per annum until around 2016, according to Da Silva. “Europe might start to feel the bite of this reduction as early as this month,” he added, with renewed scrappage incentives – perhaps with the exception of Russia – deemed highly unlikely.
The ECG’s Baldissara was more gloomy. “Uncertainty prevails once again for our sector,” he said in his opening address to the conference, going so far as to add that Europe could once again be heading toward the edge of a cliff as the debt crisis became a kind of “European Lehman Brothers”. |
The bright spot is exports. European production (as opposed to sales) should remain stronger, driven by exports, mainly from Germany. Da Silva predicted further incremental rises from current record levels.
| The trend is positive, asserted Egon Christ, senior manager for worldwide transportation and vehicle distribution at Daimler. He was bullish on both global growth and European production over the medium and long term, suggesting global growth in car sales of around 30% over the next six years (though the European portion would show only 12% growth over that period). He showed a forecast chart with a lot of variation in future annual demand, but with an overall upward trend line. “Crises come and go but the long term trend remains good,” he said. |  Daimler's Christ: Bullish on Germany |
Daimler and other premium brands would continue to produce and export substantially from Europe, said Christ. Although more factories in markets like Brazil, Russia, India and China could go some way to satisfying local demand, the label ‘made in Germany’ remained important for many customers of premium brands.
Learning and questions from multiple conference streams for the first time this year
The uncertainty that LSPs are facing in planning their 2012 budgets is further complicated by rising costs, including 15% jumps in fuel prices along with 5-10% increases in operating, labour and storage costs, says Baldissara. Christ echoed this assessment, saying that transport pricing has now returned to pre-crisis levels. But he added that the rise was not the result of market demand, but rather mainly because of higher fuel costs and issues like driver shortages.
He expressed concern over the likelihood of added price rises from regulation and environmental taxes, and pointed to measures such as the maut road toll in Germany and increasing road taxes.
But perhaps the most intense cost focus at the conference was on bunker fuel. Shipping lines continued to express concern over regulation put in place by the UN’s International Maritime Organisation (IMO) – and later ratified by the EU – that will limit sulphur levels in bunker fuels to 0.1% by 2015 in the Baltic and most of the North Sea.
The regulations are also coming into effect for the east and west coasts of North America.
Juan Riva Francos, president of the European Community Shipowners’ Association (ECSA), as well as head of the Spanish ro-ro provider Flota Suardiaz, cited studies that said the cost to shipping lines would be 75% higher than currently, and could lead to a modal shift of as much as 46% of freight from sea transport to road.
After the conference, Baldissara declared: “We will fight until the last possible moment to stop or delay these regulations. Asking shipping lines to adjust to a 75% fuel price increase in 2-3 years is like asking everyone to switch to driving a car like the Fiat 500 in the same time period. It’s not going to happen.”
Commenting in an interview with Finished Vehicle Logistics, Pawel Stelmaszczyk, head of unit for intelligent transport systems and the directorate-general for mobility and transport at the European Commission, admitted that the sulphur regulations were a surprise to many in the Commission, and did seem to “have been put on the table in the middle of the night”.
But he said that operators should take a more constructive approach, rather than simply railing against the legislation. “It would be better if, collectively, shipping lines worked together to try to mitigate these costs and to meet the regulations.
"Then, after demonstrating that the proposals were too strict, they could go to the EC and governments, rather than saying a few years in advance that ‘it’s not possible’,” he said.
| A customer’s view of shipping costs was presented by Joannes Van Osta, JCB’s group transport and logistics manager. He felt that fuel surcharges put in place by shipping lines were not transparent enough, and that there was some evidence that bunker-clause adjustments are being used for profit-taking. “In some cases, the fuel clauses are just not logical at all,” he said. “For example, we have some ro-ro providers who might make a 60% adjustment for the Middle East, which has no bearing on what’s happening in the market.” Support for comments like this came from |  Charges not transparent: JCB's van Osta (right) with Volvo's Nilsson |
another high and heavy manufacturer, Stefan Nilsson, international shipping manager for Volvo Construction. “Many of these clauses make no sense. For example, some shipping lines have a more efficient fleet with newer vessels that consume less fuel. Shouldn’t there be a reflection of the vessel’s efficiency in the bunker adjustment?”
High and heavy wants ro-ro for the long term
The ECG Conference this year for the first time featured split streams of workshops to allow specific attention on particular topics. In Paris these topics were: high and heavy vehicle logistics; electric vehicle logistics; supply chain visibility; and dealer expectations.
John Deere was present along with JCB and Volvo Construction at the high and heavy session, which focused on both the complexities of this specialised segment as well as on service and price levels, particularly for ro-ro shipping.
JCB’s van Osta said that price differences between ro-ro and containers were now so great that it had led him to ship more equipment by container. “I do not want to do this. I do not like disassembling and then re-assembling a fully-built machine. But in some cases the landed cost leaves us no choice – I can save up to $2,500 per unit.
“Our engineers are now even beginning to design our products more with logistics and container shipping in mind”, he warned.”I think it’s a dangerous game that the ro-ro providers are playing, as they stand to lose share from us in the long term.”
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'Need long term relationship': Panjawi of John Deere | Neverthless, he did stress that he was anxious to build stronger, longer-term relationships with carriers. Commenting on the conference’s theme, he noted that container shipping is a commodity market and thus subject to severe fluctuations. “We appreciate the stability of the ro-ro market and prefer to build long-term relationships with these carriers.” David Panjwani, global logistics manager EMEA for John Deere, raised the idea of developing a 4PL that could work between the manufacturer and the carriers to help improve operational quality, drive efficiency and develop a more transparent exchange of information. “We do not believe that high and heavy vehicle logistics is a commodity,” he said. “Rather we need specialised carriers with a long term relationship,” he said. |
John Deere in Europe is looking at an approach taken by the company in the US, where a carrier-based LSP is being developed as a 4PL. “We helped create a separate legal entity from the asset side of the operation, and it has worked quite well. We are starting to do the same thing now with a provider, also carrier-based, in Europe.”
On similar lines, van Osta said that JCB had recently signed a contract with a single provider (DHL) to work as a global 4PL for inbound logistics. “I think it is possible to consider doing something similar for outbound,” he said.
| In another breakout session, carmakers and logistics providers discussed visibility and supply chain IT for outbound logistics. Manuel Medina Burrull, finished vehicle distribution manager for Seat, described in detail an RFID project that is being applied in the vehicle compound at the carmaker’s Martorell factory. In a presentation praised by delegates for its practical insights, Medina said Seat has trialled and tested the viability of using passive RFID tags to track cars leaving their parking spaces, and being loaded on trucks and trains to leave the factory. Medina, who has also presented the findings of the project to MIT in the US, said that the trial results proved a success with the tags showing more than 99% accuracy. | 
RFID trial at SEAT is pioneer for VW Group: Medina |
The use of RFID allows Seat to save considerably on storage capacity by releasing parking spaces in the compound closer to real time, as well as to automatically check the loading coherence. “The original ROI for the project was set to be 18 months, but now that we’ve started we anticipate it will be less,” he said.
The tags are being installed this year at the Martorell factory at seven checkpoints, plus one point for labelling. In 2012 the Setram company, Seat’s LSP, will
implement tags at its terminals at the port of Barcelona. | 
A €9 phone changes everything: Gefco's Redier | The next step would be roll-out of the system to other Spanish compounds. Medina later revealed the broader significance of the project. “We are the first example in the VW Group of using RFID for outbound logistics,” he told Finished Vehicle Logistics. VW is currently using RFID only inside its factories for manufacturing efficiency. “As such we are being considered as the pilot case,” he revealed.
Extensions to existing technology are also being used to track vehicles across the outbound supply chain. Antoine Redier, vice president of vehicle logistics at Gefco, described a complex system that included the use by drivers of a simple mobile phone costing €9 to record delivery information, damage and other important data. This can then be viewed by carmakers and dealers in real time. |
He said that Gefco is doing more and more to integrate pipeline planning into systems and distribution, and has begun to develop its distribution plans right back to the design and concept phase of vehicles. “We want to verify and check all the dimensions so that we make sure there are no surprises when the vehicle is ready for distribution.”
| A whole-supply chain view is also being taken for Volvo’s commercial vehicles. Christ Da Baere, senior vice president for Volvo Logistics, said that his company can provide a system that tracks and processes transport ordering all the way from sales planning up to the point of delivery, including pipeline planning.
“The capital expenses of vehicle distribution are very high and are still not considered enough by manufacturers,” he said, noting that vehicles like Volvo trucks can have delivery times of up to 60 days .”There is a lot of room to cut the time and cost,” he commented. | Volvo trucks delivery is up to 60 days and should be better: Da Baere |