Europe’s automotive logistics sector eyes strong 2018

Hoegh Autoliners roll-on, roll-off

Europe's automotive logistics sector is poised to register another year of growth in 2018, if political issues do not interfere. (Above: A Hoegh Autoliners roll-on, roll-off ship at the Port of Amsterdam.) Photo credit: Shutterstock.com.

LONDON — Europe’s automotive logistics sector is on a roll with volumes rising across the supply chain — from ports and car carriers to trucking companies and railroads — but political uncertainties, particularly the increasingly protectionist climate in the United States and the fraught negotiations over Britain’s exit from the European Union, are souring the atmosphere.

EU car exports increased by 4.7 percent in the first nine months of 2017, compared with 2016, to about 4.2 million units, good for 94.5 billion euros ($116 billion), according to the latest figures from the European Automobile Manufacturers’ Association (ACEA).

Shipments to the United States, Europe’s top export market, were worth 0.9 percent more at 27 billion euros, even though the number of cars shipped across the Atlantic slipped 2.2 percent. However, this relatively flat performance was offset by an 11.2 percent surge in the value of exports to China to 16.3 billion euros, and a 9.9 percent increase in sales to Japan to 5.94 billion euros.

Europe’s auto logistics began the second quarter with a mixed bag of positive and negative developments, although volumes remain strong as the continent’s economic expansion remains on course for another year.

Ocean car carriers are still paying the price for colluding over freight rates, with the European Commission, the EU’s executive agency, fining four companies a total of 546 million euros in February for operating a cartel for six years, with Norway’s Wallenius Wilhelmsen Logistics (WWL) and its EUKOR unit hit with the biggest penalty: 207.3 million euros.

Another Norwegian car carrier, Hoegh Autoliners, agreed in September to pay a $21 million anti-trust penalty to the US Department of Justice in a case related to the US-Middle East market.

The “good” news is the anti-trust probes that have been under way in several countries since 2012 “are now drawing towards an end with outstanding jurisdictions likely to reach their conclusion in 2018,” according to WWL.

Meanwhile, France’s auto supply chain faces disruption as workers at SNCF, the state-owned rail company, last week began three months of rolling strikes to protest planned government reforms. The private rail freight sector, which has a 45 percent market share, is being affected by the stoppages that are planned for two of every five days.  

A 21-month transition eases Brexit fears

The auto logistics sector’s fears over the impact of the UK's departure from the European Union have eased somewhat, as the recent agreement on a 21-month transition after “Brexit” means the United Kingdom must abide by the bloc’s rules until the end of 2020, thus avoiding a cliff-edge exit next March that threatened to disrupt supply chains, particularly just-in-time deliveries.

Europe’s car carriers and ports also got a boost in December when Brussels and Tokyo signed a free trade agreement, which takes effect in about a year and will involve the phasing out of EU import duties on Japanese vehicles. 

Still, these positive moves are not sufficient to ease anxiety regarding President Donald Trump’s import tariff threat on European cars, particularly German models, despite his decision to exclude the EU from the recently imposed steel and aluminium tariffs until May 1, pending negotiations with Brussels.

“Open up the barriers and get rid of your tariffs,” Trump warned the European Union in March. “And if you don’t do that, we’re going to tax Mercedes-Benz, we’re going to tax BMW.” There is speculation the two German firms were singled out to put pressure on them to boost production at their US plants — BMW’s has an assembly line in Spartanburg, South Carolina, and Mercedes-Benz, a factory close to Tuscaloosa, Alabama. 

But so far so good, with Bremen-based BLG Logistics, one of Europe’s leading automobile handlers and a potential frontline “victim“ of US car tariffs, expected to post volume of about 2.2 million vehicles in 2017 due to larger sales of German cars in the United States and China markets, a slight uptick in Russian sales, and an “extremely dynamic” Central Europe market.

Also, Belgium’s Port of Zeebrugge is expected to report substantially higher traffic for 2017 to almost 2.78 million units, driven by a massive 47.5 percent surge in traffic with the United States that helped consolidate its position as Europe’s top auto port and one of the world’s leading roll-on, roll-off (ro-ro) shipping hubs.

Zeebrugge’s attraction was underscored earlier this year when WWL signed a concession agreement that includes the construction of a three-berth terminal that will nearly double its footprint at the Belgian port.

Smaller ports and terminals across the European waterfront have also boosted their auto volumes, although the larger hubs are expected to consolidate and increase their market share in the coming years.

Meanwhile, Gothenburg’s auto traffic soared 20 percent in 2017 to 295,000 units, the highest level since the global financial crisis in 2008. That provided some solace for Sweden’s top port that registered its worst ever container performance, as traffic plummeted 19 percent to 644,000 TEU, due to a long-running labor dispute at the terminal operated by APM Terminals, Maersk Group’s port arm. Further, the car sector took a major hit earlier this year when Atlantic Container Line, a leading transatlantic ro-ro operator that has called at the port for more than 50 years, decided to convert the service of its new G4 vessels, the world’s largest container/ro-ro units, from direct calls to a feeder service. In its decision, Atlantic cited “inflexible berth availability, steadily increasing costs, and lagging productivity.”

The Slovenian Port of Koper is rapidly consolidating its position as a significant European auto hub. Although car shipments slipped to 741,000 last year from 749,000 in 2016, it had just signed a second contract with Daimler, the German auto firm, earlier this year that will add Japan to China, Hong Kong, and Singapore as export destinations for its Mercedes-Benz cars. 

Also, Wilhelmshaven, which buried its lingering “white elephant” image for good last year when two ocean container shipping alliances added calls to Germany’s only deepwater port, is also breaking big into the auto logistics chain. The Volkswagen group will open a component packing center in 2019 that will ship parts, from headlights to steering wheels, in more than 12,000 FEU containers a year to 25 terminals in 15 overseas markets, including the United States, Mexico, and China.

Spanish ports are racing to keep pace with the country’s increasing auto output; Ford recently announced it will invest more than 750 million euros in the Port of Valencia, home to the country’s largest container port, to produce a new generation of its Kuga sport utility vehicle.

DB Cargo, the German rail freight company, has just started a weekly service carrying car parts from Stuttgart to Barcelona, the only Spanish port connected to the European rail network — with the others “trapped” in the Iberian broad-gauge track. Noatum Maritime, which last year sold its container terminal operations to China’s Cosco Shipping Ports, has integrated its vehicle operations at six Spanish ports, which handle about 1.2 million units a year.

Car carriers adapt to changing automobile market

Meanwhile, car carriers are having to respond quickly to changes in the global automobile market beyond Europe.

“Supply chain geography is changing,” says Ti Consulting, a UK logistics consultancy.” Vehicle manufacturers now have a large proportion of their production capacity located in China, with other emerging markets — such as India — growing in importance.”

“The nature of product in the supply chain will change, as new types of engineering transform the economics of the sector. Supply chains will become more globalized for some components such as electronics, increasing pressure on air and sea freight operations and performance,” according to Ti’s Automotive Supply Chain and Logistics 2018 report.

WWL split into two divisions in March — WW Ocean, focused on ocean shipments of cars and trucks, and WW Solutions, which operates land-based logistics. “The new branding reflects the new business strategy where ocean transportation and land-based logistics will operate side-by-side as distinct, yet connected entities,” the Oslo-based group said.

“We see shifts from car ownership to car usership, increase in scale of autonomy, increased level of electrification of vehicles, and new entrants providing mobility solutions in very different ways — all challenging existing supply chain, retail, and servicing models for vehicles,” said CEO Craig Jasienski. “To meet this development, we aim to develop our logistics infrastructure and service capability, on sea, and on land.”

The restructuring comes a year after the merger of Norway’s Wilh. Wilhelmsen and Sweden’s Wallenius Lines auto logistics operations and the listing of the new company on the Oslo stock exchange. It operates the world’s largest car carrier fleet with more than 120 ships able to transport 800,000 cars, accounting for about 20 percent of global capacity.

Meanwhile, European car carriers continue to update their fleets to keep pace with rising ocean shipments.

Italy’s Grimaldi Group has just taken delivery of its third 6,700-car equivalent units pure car/truck carrier, which will join its sister ships on a weekly Mediterranean-North America service. In addition, GrimadiGroup, the bullish, Naples-based owner of Atlantic Container Line, is now preparing for the arrival later this year from a Chinese shipyard of the first of seven larger vessels capable of transporting 7,000 cars, and they will be deployed on the same routes.  

Volkswagen Group Logistics is also upping its capacity with two liquefied natural gas-fueled car/truck carriers built in China that will be operated by Norway’s Siem Car Carriers on the Europe-North America route in 2019.

Intra-Europe, short-sea service 

The leading ocean car carriers are also boosting their intra-Europe short-sea services. Euro Marine Logistics, a joint venture between Hoegh Autoliners and Japan’s Mitsui OSK Lines, recently launched a weekly Iberia Express service with three ships, each with a capacity for 3,000 cars, linking ports in Spain, Portugal, the United Kingdom, and Belgium.

The auto logistics sector has also embraced the China-Europe rail route with increasing numbers of deals covering not just components, but cars as well. Gefco has been operating on the route for more than four years and recently deployed its first, dedicated block train to France, carrying car parts to a PSA plant in FEU containers. DB Cargo has been transporting BMW components from its two German plants to its factory in Shenyang, in northern China, since 2010, and is now shipping about 2,500 containers a year on the twice-weekly service. And last year Europe’s largest rail freight operator began shipping Volvo cars from a plant in China’s northeastern province of Heilongjiang to the port of Zeebrugge. 

Auto demand also played a part in the decision of Kuehne + Nagel to expand its Eurasia Express rail service just six months after it was launched in the second quarter of 2017. One of the new services is a weekly connection between Changchun, an industrial center in northern China, and Hamburg, a route that is “particularly attractive to customers from the automotive industry,” the Swiss freight forwarding/logistics giant said. “Delivery times are much faster compared to sea freight, while costs are much lower than airfreight, making it an attractive product for our customers.”

The surge in Europe-China rail traffic as part of Beijing’s One Belt, One Road project is making the headlines but is not fazing the leading ocean car carriers. “True, small volumes of niche cars could be transferred to rail in the Asia-to-Europe trade, but this loss will most likely be over-compensated by the emergence of other business opportunities when a vast infrastructure network enables access to millions of new consumers,” according to Teresa Lehovd, head of market intelligence at Hoegh Autoliners, which transports more than two million car units annually.

China’s “world-spanning” infrastructure initiative would potentially have a substantial, positive impact on the shipping industry generally, and on the car carrier sector in particular, Lehovd said.   

The automobile supply chain is in constant change, much more so than containers and other cargo sectors, as manufacturers shift production of cars as well as components between their plants, keeping transporters on their toes. PSA, the manufacturer of Peugeot and Citroën cars, announced in March that it is transferring some engine production from Asia to Europe to put components as close as possible to its plants to reduce supply times and logistics costs. The move follows the 2.2 billion euros acquisition last year of General Motors’ European car manufacturers, Germany-based Opel, and Vauxhall in the United Kingdom.

PSA is also seeking a buyer for its 25 percent stake in its former logistics unit Gefco, following the expiry in December of a five-year agreement to retain the shareholding struck after it sold three quarters of the business to Russia’s state-owned railway RZD for 800 million in 2012 when a severe financial crisis threatened its solvency. PSA remains Gefco’s leading customer after signing a five-year, 8-billion-euro contract in 2016.

Smaller logistics contracts are always changing as car manufacturers switch production sites. Ford, for example, is shipping EcoSport cars from the Port of Constanta to the United Kingdom after it moved production of the SUV model from its Indian plant in Chennai to Romania in October. General Motors has stopped assembling Cadillacs and Chevrolets in Belarus, which began when it ceased production in Russia in 2015 and will now ship the cars direct from the United States to Russia. 

UK market status question looms

These are minor changes, however, compared with the unknown impact of the UK’s departure from the EU’s single market and customs union, which could hit auto logistics harder than most other supply chains, as the United Kingdom is Europe’s second-largest car market after Germany.

The 27 EU nations exported 2.3 million vehicles worth about €38.4 billion to the United Kingdom, equivalent to 28 percent of total EU exports in 2017, and the United Kingdom shipped just more than 804,000 vehicles, worth about 14.5 billion euros, or 40 percent of UK exports. Further, the two-way trade in parts and accessories totaled 35.8 million units worth 15.2 billion euros last year.

And concerning forecasts, Dover, the UK’s largest ro-ro port, risks truck traffic jams as long as 30 miles if Brussels and London cannot strike a “frictionless” post-Brexit trade and customs deal. Understandably, the logistics sector will remain on edge for the foreseeable future.

“Given that the business operations of the auto industry are based on smooth ‘just-in-time’ and ‘just-in-sequence’ deliveries, any new customs checks as a result of Brexit would add cost, cause delays, and threaten productivity. In the worst-case scenario, they could even lead to assembly line stoppages,” said Erik Jonnaert, secretary general of the ACEA. “Regardless of which Brexit scenario is pursued, it is essential that EU and UK authorities already now start preparing to simplify customs procedures and reinforce their customs capacity. Otherwise we will see severe land and sea port congestion at both sides of the Channel once the United Kingdom leaves the European Union.”    

Contact Bruce Barnard at brucebarnard47@hotmail.com.

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