Whilst others boom, automotive logistics suffers

Whilst the shipping lines, express carriers and freight forwarders rake in huge profits, a howl of pain has emerged from the automotive sector.

“The current microchip crisis threatens the very existence of the logistics industry that moves new cars. Inventories are close to zero, volumes have fallen dramatically, factories are closing without notice, unbalanced flows are destroying efficiency and thus profitability. The result is empty yards, empty workshops, idle and underutilised car transporters, trains and ships” said Wolfgang Göbel, President of the European finished vehicle logistics providers trade association, the ECG on Wednesday (8/9)

As almost every vehicle manufacturer has their production schedules wrecked by their inability to source semiconductors in sufficient volumes, the logistics service providers supporting production have been suffering. Whereas the major contract logistics companies providing inbound services to assembly plants and major component suppliers have generally had businesses in other sectors to which they can shift resources, sectors such as e-retailing that are booming, finished vehicle logistics providers tend to be specialists wholly dependent on their large automotive customers. As a result, they are suffering. It seems the problems finished vehicle logistics providers are facing is not just lack of volume but also unpredictability. As Wolfgang Gobel comments “FVL industry is seeing huge variations in volumes at very short notice making capacity planning almost impossible. The problems are not so much in the logistics chains, but mainly in the production lead times and also a bit in the classic bullwhip effect”. What he does not say is that many in this sector are owners of considerable fixed assets that are expensive to sustain if under-utilised.

There are longer-term implications of this crisis. One of these will be a shortage of capacity if, as is likely, vehicle manufacturers need to increase production in order to catch up on unfulfilled demand. The other is a structural change. The automotive supply chain is in the process of being transformed, something which will affect the finished vehicle logistics providers almost as much as those who serve component suppliers and assembly plants. If logistics providers are financially weakened the sector will find it difficult to respond to such change.

Source: Transport Intelligence, 9th September 2021

Author: Thomas Cullen