Automotive Manufacturing Solutions

Pricing pendulum swings in favour of carriers

DETROIT 28 Sept 2005:  The conference opened with a session that analysed logistics companies from an investment point of view. Tom Jones, Senior Vice President: Automotive, Aerospace and Transportation Management, Ryder Systems, said: "Logistics company mergers and acquisitions are becoming less frequent but more valuable… From 1999 to 2005, there was significant consolidation, from 34 logistics companies to 17."

Jon Langenfeld, Vice President and Senior Research Analyst at investment firm Robert W Baird and Co, argued that third-party logistics providers have proved to be good investments. "The strength of the underlying freight trends points to how strong the economy has been. Although the record high price of fuel is an ongoing concern, last year was the best year ever from a carrier's perspective. The pricing pendulum has swung in the direction of the carrier. Truck and rail carriers are obtaining price increases after a long drought," he said. The increasing globalisation of sourcing was a recurring theme.

GM SPO's Charlie Hyndman announced that GM SPO intends to increase its non-North American sourcing from 10% to 50%, saying "The amount of lead time and inventory you need to inject in order to do that and the management of that supply chain is what keeps me awake at night."

During the session on globalisation, George Wilkinson, Vice President: Global Logistics at Tier One supplier Dana Corporation, said, "Since constraints such as capacity and congestion are external, there is a need to collaborate with competitors as well as logistics providers.
Communication means that shippers need to have visibility in order to execute their plans correctly. Shippers also need to communicate to our logistics providers how we want to set up our network, and we need to coordinate in order to make sure that we execute the play."

Congestion at the ports in North America is exacerbating the situation. The constraints create delays for automotive shippers. "Most of the growth has been in the Far East; China has moved to the forefront of the region, shipping more than seven million TEUs in 2004. With the massive volumes and a level of inefficiency in handling, many shippers were looking for other options, but there was nowhere else to go," said Noel Winger, Senior Manager, Global Ocean and Air Procurement at Ryder Integrated Logistics, during the third session.

On Day 2 of the conference, the sessions divided into two streams and the Finished Vehicle Logistics forum provoked some lively debate…
Finished vehicle distribution patterns centre on the need for appropriate transportation capacity. In the first Finished Vehicle Logistics session, Bob Barnard, Department Manager: National import and domestic logistics for Mercedes-Benz, says the company is experiencing a huge shortage of bilevel railcars. As the price of fuel rises, vehicle manufacturers will see an increase in demand for smaller cars and thus a shortage of tri-level railcars.

On the road haulaway side, VMs also grapple with capacity shortages, but the circumstances are somewhat different from rail. "The haulaway issue is basically related to driver shortage and retention," Tom McMillen, Director of Logistics at GM, said. "We need to maximise the assets of the haulaway carriers. Instead of running one or two vehicles to a given dealer, we need to work with the haulaway carriers so they get full loads and maximise their assets. Carmakers could also improve their working relationships with the haulaways from a network design point of view."