Investment returns to North American outbound logistics.
More than 320 delegates gathered in California this year to discuss an industry that is growing and investing once again in equipment and systems. But with many changes still to come, especially growth in Mexico, there is uncertainty over infrastructure and services across the outbound chain. Christopher Ludwig and Marcus Williams report from Newport Beach
NEWPORT BEACH, 6 JUNE 2013.The fourth annual FVL North America conference revealed an industry running with strong momentum. There is not only the good news on sales and manufacturing, with the US market heading back towards 15m new passenger cars and production increases planned by many carmakers; the industry is finally able to put more trucks on the road and wagons the track.
“In the last year, we estimate that the industry has added around 1,500 trucks,” said Mike Riggs, the chairman of Jack Cooper, which currently has the largest active car haulier fleet in the US. “There is more financing and we can get more access to capital.”
North American railways are also investing heavily. Linda Brandl, vice-president and general manager for automotive at Union Pacific Railroad, said that the railways would add 4,000 railcars (wagons) this year to the collective North American pool, a capacity increase that executives from carmakers admitted was above what they had originally anticipated. Steve Tripp, head of worldwide vehicle transportation at Chrysler, and Mike Nelson, national manager of rail strategy and operations at Toyota Logistics Services, also praised the railways for process improvements that they had made over the last year, including faster cycle times. Tripp said that such improvements were part of the reason the North American industry had been able to maintain reasonably good service and avoid wider capacity issues.
“The railroads have done a tremendous job improving asset utilisation over the last 18 months,” said Tripp. “Honestly, they have done more than I thought they could.”
“The railways have made massive capital investments in railcars,” said Nelson. “We still have tremendous pinch points in the network, such as in Chicago, but we have probably seen more progress over the past two years than we have over the past 20.”
Besides equipment itself, executives from carmakers and logistics providers also reported investment and interest in areas that include IT systems and network engineering. Riggs said manufacturers and carriers were turning more to technology such as electronic proof of delivery (ePOD) systems and on-board tablets.
He also pointed to good results for the “intelligent network” that Jack Cooper has set up, which invites carriers to share information on their backhaul flows to help fill empty trucks.
“As a union company, we are now exchanging flows with non-union companies, as well as working with railroads and the secondary market to build load interchanges between carriers,” he said. “Jack Cooper even lost a lane where the backhaul worked better for someone else, and we supported that.”
Mexico on the mind
The conference could almost live up to its theme, ‘The times they are a-changin’ based on the equipment and systems investments that companies discussed. But perhaps the biggest change for the sector is still to come, with increased production and export out of Mexico. Honda, Mazda, Nissan and Audi will all open new manufacturing sites that, together with investments by Detroit carmakers, could see exports out of Mexico rise from 2.4m units last year to nearly 4m in the coming years, with US-bound imports from Mexico growing from 1.5m to nearly 2.5m units.
Executives are worried, however, about rail and port infrastructure, as well as the capacity and service levels to move Mexican exports. Given the crime and violence in parts of Mexico, there are also concerns about the security of staff members and vehicles.
But there has also been progress for Mexico as carmakers firm up plans for their export flows. As revealed in the cover story of the current issue of Finished Vehicle Logistics, American Honda has opted for a multimodal strategy that will exports vehicles by both rail to the US, and by sea from the ports of Veracruz and Lázaro Cárdenas. Dennis Manns, vice-president of logistics and sales planning, said the plan had been built with hedging and flexibility in mind, given the concerns over port and rail capacity.
WWL’s John Felitto, president and CEO of WWL Vehicle Services America, showed that shipping lines and port processors were making investments in the industry’s growth as well. Felitto revealed that the company would begin a new, twice-monthly service this summer leaving Veracruz and delivering to the east coast. The provider will also add its seventh vehicle-processing centre in the country, which will be on site at Nissan’s new plant in Aguascalientes.
Challenges old and new
But while the conference was full of praise for the progress made by carrier and OEM partners, the industry faces challenges to service and profitability. Some of these problems appear endemic to vehicle logistics around the world. John Jansen, president and executive vice-president of client relations and business development at Allied Automotive Group, pointed to a “shadow fleet” that operates across North America in the form of 40% of trucks making empty return hauls. Allied has tried to address the issue by posting all of its empty return flows online, at a discounted price, but Jansen admitted that improvements in wider fleet utilisation were happening slowly.
Likewise, even if carriers are buying trucks, many report issues with recruiting and retaining drivers. Bill Schroeder, general manager of the Autohaulers Association of America, which was established last year to represent car hauliers, said driver shortages were among the biggest issues for its members. “Even if there is financing available now for trucks, we need to find ways to grow the driver pool, as this is a looming crisis for the industry,” Schroeder said. Changes to the Hours of Service rules in the US this year could compounds a driver shortage, as drivers’ operating hours are restricted.
While capacity might be better balanced this year for many OEMs, it is not evenly distributed. Several OEMs pointed to issues, including in the Midwest and Mexico. General Motors’ Matthew McCoy, operations manager for finished vehicles, said the company still faced shortages.
“We’ve had to pull cars out of rail facilities to different areas that aren’t always appropriate for storing inventory,” he said. “It increases handling and the potential for damage, and risks further delays to customers.”
Mexico remains a big unknown. Even as carmakers make plans and sign service contracts, Manns admitted that the export supply chain depended on considerable investment from both private and government entities at ports and for rail. “Not everything that needs to be in place for our plans to happen is in place today, and the government change in Mexico means that the people we had been talking to are no longer there,” he said. “We’re optimistic, but we would like to see things happening faster.”
As with Mexico, some areas of growth are prompting new difficulties. Carmakers including Toyota, Honda and Chrysler are exporting more vehicles from the US than they ever had before. At the same time, efforts to balance global production capacity has led some OEMs to import models from other locations, such as Europe. Toyota has begun imports of around 25,000 units per year of the French-built Yaris to North America, while Chrysler is importing from Fiat production in Europe. Many of the new exports and import flows are small and fragmented, requiring new network configurations or reliance on less developed ports and trade lanes. Lead times are longer and visibility of the vehicles are often much worse than domestic distribution or more traditional imports from Japan.
“The biggest challenge for our Yaris imports and our exports is that they are small volume,” said Brian Mason, national manager for strategic planning and communications at Toyota Logistics Services. “From Japan we could contract the entire vessel and dictate where it would land. For these flows, we have to co-load and go where the shipping lines are going.”
At previous FVL North America conferences, debates around transport capacity tended to be more heated, with carmakers often expressing concern that logistics providers were not investing in new equipment. At this year’s event, there was wider agreement that capacity levels were more balanced. Mike Riggs said simply that, with the improving market, “capacity is correcting itself” as providers buy more equipment.
American Honda’s Dennis Manns agreed that logistics providers were finally starting to feel confident enough to invest following initial reluctance.
“If you go back a year and a half, when we were just starting to see volumes pick up again, who the hell was investing in anything?” Manns said. “During the crisis, we didn’t know how deep was deep, and like children jumping into a swimming pool, we wanted to see just how far we had to go until we touched the bottom. But now the industry has rebounded stronger and longer than any other part of the economy, and we’re seeing investment.”
Looking for quantum capacity leaps
But just because most agreed that today’s capacity was relatively balanced, it didn’t mean that carmakers didn’t want to see further improvements, or that they aren’t worried about what might happen over the next year or two. Steve Tripp said that the industry seems to have a crunch around the early spring each year that needs to be solved, but otherwise he was more worried about railcars next year.
Tripp also called on logistics providers to make further changes to how they operated. Chrysler has realigned its production schedule to three shifts with workers each doing four, ten-hour shifts each week. However, outbound providers had not necessarily adjusted their pickup and delivery times to match those of Chrysler.
He also challenged railways and trucking companies to look for “quantum leaps” rather than tweaks in their network. He pointed to average unloading and turnaround times for railways of up to 48 hours. “If you took just one site, the IHB switch point in Chicago, for example, and could reduce turnaround times from 43 hours to 24, I calculate that it would save the industry $100m per year,” he said.
He also thought railway providers should improve their velocity. Vehicle carrying trains average around 24mph, however they are subject to many stops and slowdowns along routes. “Moving by rail from Detroit to LA takes about ten days, but if you could move at a steady 24mph, it would take only five days,” he said. “That kind of change would save billions of dollars a year.”
Tripp also challenged trucking providers to improve their asset utilisation. A major way would be to get more dealers and carriers to agree to afterhours delivery, as is often done for service parts. He also felt that the industry should get more creative in hiring drivers. Using two drivers per truck would greatly increase the utilisation, allowing vehicles to run nearly around the clock and greatly improve delivery and turnaround times – he even suggested hiring husband and wife ‘tag team’ drivers.
Other carmakers revealed the progress they were hoping to make in their networks. Jim Kasamis, manager of national import and domestic logistics at Mercedes-Benz USA, said that the company had tried to have better coordination between its US factory in Alabama, its vehicle processing centres and its carriers on providing information on vehicle releases and destinations. “Our goal is to work with our logistics partners to increase efficiency to compensate for carrier capacity constraints,” he said.
He also agreed about urging more dealers to accept afterhours deliveries. An analysis of lead times to a region in Florida found that they were twice as long compared to Long Island, for example. “The reason was because we didn’t have any afterhours receiving in Florida, and in some cases drivers would have to spend a weekend waiting for a dealership to open again to receive the vehicles,” he said.
Providers responded to these calls for improvements in good spirit, even if some of the improvements named by Tripp would be very difficult to achieve. Linda Brandl pointed to the improvements that the railways were continuing to make, including faster cycle times. Since 2011, for example, the cycle time for bi-level railcars has improved from 16 days to 14 days, and for tri-levels from 19 days to 15 days. “Each day that we save on the cycle time actually equates to about 1,800 bi-levels and 850 tri-levels,” she said.
Brandl also pointed to ongoing projects to improve interchanges and loading efficiencies, as well as the amount of time it takes to service and repair railcars. The industry is also investing in new technology such as hybrid yard locomotive and automatic start and stop functions.
The power of IT
Building more efficiency into the finished vehicle logistics network has always been the main challenge for vehicle logistics in North America. Tom Kroswek, senior director for supply chain management for Ryder, which does logistics engineering for outbound, pointed to a network of 71 plants, more than 30 ports, 120 rail ramps and 15m vehicles to move. “There is a great opportunity to use better systems and processes to find logistics density and improve efficiency,” he said.
But in recent years, amid financial struggles and an uncertain economy, there was limited appetite for investment in new IT tools. But with new capacity coming online, logistics providers are looking towards systems that would improve capacity utilisation. Mike Riggs praised Chrysler for mandating that its carriers and dealers switch to ePOD by 2014, for example. He also pointed to relatively cheap tablets that are changing vehicle logistics dramatically.
“For $100, you have a tablet that can take geo-tagged pictures of damage, communicate real time info, handle tracking, billing and delivery notification,” said Riggs.
He added that the industry should commit to going entirely paperless. “The days of hundreds of pages of printouts to detail inventory should be over, but they are not,” said Riggs, holding up a large printout from a customer about inventory at a terminal. “This is still being done the same way as when I worked at General Motors in 1968. It’s inefficient and it’s bad for the environment.”
Ryder’s Kroswek pointed to systems that it uses to forecasts costs and inform network changes, including a port system called Tableau and a JDA system for land transport. “We have the capability of determining where we have the most logistics density and what the costs would be to switch locations,” he said.
The ePOD transition
The outbound sector has arguably been slower to adapt ePOD-type technology than other sectors. Along with needed capital, the switch to paperless also demands a change in business processes, such as getting auditors and accounting departments to move away from paper documentation. There have been concerns amongst the dealers about relinquishing hard copy damage reports and other implementation costs. Carmakers had also shown little appetite for driving change, which was perhaps most critical, as they are the ones that must convince dealers and coordinate processes in the supply chain.
But with the likes of Chrysler mandating a switch to ePOD by 2014, the tide may be turning; meanwhile, the latest technology available on mobile devices means investment cost is less of a barrier.
According to Greg May, president and CEO of Car Delivery Network (CDN), which provides cloud- and mobile-based tracking software, the technology needs to be applied uniformly and to give a comprehensive review of the supply chain. Demonstration of CDN software on an iPhone showed how OEMs could capture more information without imposing costs on providers, while carriers stand to benefit from lowering the costs and delays related to printed documents.
Volkswagen Group of America’s port operations manager, Stuart Kessler, agreed that ePOD was useful for refining estimated times of arrival (ETAs). He also pointed out that the technology provides information for yard mapping, transit times and route options.
Speaking from the carrier’s perspective Bradley Childs, vice-president of sales and operations at Proficient Auto Transport, pointed out that ePOD can improve cashflow for carriers and OEMs through such possibilities as real-time dealer draft logging.
“We definitely see the intrinsic value of going paperless but there is also an economic benefit,” Childs said. “Once the driver makes a delivery, we can’t invoice the OEM until he either calls in or shows up at the terminal later. But if it is real time information we are able to invoice and get paid faster.”
Childs was keen to point out that the sector’s shift to ePOD needed support from the OEMs in getting dealer approval. “The check-in person likes to have that piece of paper as does the guard at the exit. It is going to take a change and the OEMs are going to have to support us in making that change [but] it can be done.”
Speakers also pointed to the financial benefit that ePOD technology can bring to the damage claims process. Marty Colbeck, from Auto Warehousing Company, pointed out that ePOD can show where damage is on the spot, which could help to eliminate costs in disputed claims. It also provides better information on addressing where to avoid damage, he added.
Some carriers and OEMs have moved ahead independently with the technology, making them part of their own transport management systems (TMS). Justin Newell, Porsche’s manager for vehicle logistics and port operation in North America, has implemented a new vehicle management system (VMS) this year with tracking and delivery information streamed into it that is giving its dealers real time ETA information and making supply chain calculations more accurate, including the time it takes to get from factory to dealer or port.
“We have been talking for a couple of years about how companies like FedEx and UPS can do these applications and we can’t,” said Newell. “OEMs are going to have to share in this technology. It doesn’t matter if the carriers buy the technology and it is embedded into the rates or if we share in the technology, but it has to go in that direction ultimately.”
Being a smaller volume producer, Newell said he didn’t see a reason why Porsche could not be on some form of ePOD for all of its dealers within a year.
But many OEMs have remained faithful to the paper-based legacy, unwilling to give up such things as printed gate reports. The end result is inconsistency. Partly in response, the AIAG has started a project to establish industry standards for ePOD, said Bill Kerrigan, head of KGI Consulting who is doing work for the AIAG. Greater uniformity in standards and application would be a win-win opportunity for OEMs and carriers, said May.
Improving fuel and emissions technology
Aside from pushing for Tripp’s ‘quantum leaps’ or implementing new IT systems, the trucking industry is under pressure to respond to changing regulations and efficiency improvements. Stricter fuel and emissions requirements, in particular, could mean that the trucking industry looks very different by the end of the decade.
Wade Long, director of product marketing at Volvo Trucks North America, said that environmental regulations are demanding greater complexity in design and manufacturing. Three emissions rulings will tighten standards in phases between next year and 2020. By that year, Long said trucks and trailers carrying general freight could become one complete unit to improve fuel efficiency through more advanced aerodynamic design. “Trucks of the future are going to resemble the design of the Bullet Train,” said Long.
However, he said that there would be exceptions for car carriers because there is a greater aerodynamic drag and the same savings are not achievable unless the unit is covered. Greater fuel efficiency through design for lower turbulence will concentrate on cab design, including cab skirts, aerodynamic bumpers and mirrors, and mid- hood (bonnet) bug screens to improve airflow around the cab, under the hood and under the unit.
Volvo Trucks is bringing in more efficient engines that run at 1,150 rpm at 65mph (104kmph) and is working on versions that use alternative fuels. Although Long said that diesel would remain the dominant fuel for the next 50 years, by 2020 around 15% of the fuel used is likely to be an alternative, which could include compressed natural gas (CNG) and liquefied natural gas (LNG). Volvo has recently introduced dimethyl ether (DME) fuel made from biomass. Using DME could reduce greenhouse gas emissions by as much as 95% and can be filled into and stored in the vessel in the same way as diesel fuel.
Convertible trailers held back by regulations
While fuel technology will be important, the outbound trucking industry remains burdened by empty capacity on return hauls. According to Bill Pawluk, CEO of Convertible Trailer Manufacturers (CTM), 42% of car carrier journeys are logged with empty trailers – the highest empty factor in the transport industry.
Pawluk believes the answer is for trucks to carry both cargo and finished vehicles. CTM’s auto transporters can collapse in a number of configurations to accommodate containerised cargo. He said the company wanted to ship a 100% capacity outbound and could manage an 85% load factor for return shipments on the same rig.
The company is also working on a container for components called Autobox, which is collapsible and can be loaded by forklift.
CTM is currently lobbying to change US and Canadian transport policy, which rules that you cannot haul general cargo besides motor vehicles on the tractor portion of the stinger system, although you can haul it on the trailer portion.
“We don’t understand the logic behind that,” said Pawluk. “As a matter of fact we don’t think there is a logic behind it. We think it is accidental legislation and that somebody else wrote it when this option was not available. Today the option is available and we need to amend it.”
Outlining the history of the legislation for car carriers, Bob Farrell, executive director of the Automobile Carriers Conference (ACC), said that when the 1982 Highway Bill was mapped out, the federal government initially proposed prohibiting a tractor unit carrying any cargo on top of it. After some successful lobbying, the US Congress redefined the truck tractor as non-cargo carrying power unit except when transporting motor vehicles, including cars and caravans. Further amendment to the statute about 20 years ago allowed carriers to also put collapsible trailers on the power unit. However, the Highway Administration has refused any further amendment.
CTM, working with lobbyists, has now drawn up a proposal to clarify the definition of a truck tractor semi-trailer that transports vehicles to allow other freight to be added to the power unit.
“Right now we are working that through the halls of Congress and hope to get the definition changed for the next Highway Bill, which is out at the end of next year,” said Farrell.
However, Toyota Logistics Services’ Brian Mason, national manager of strategic planning, said he was not sure whether legislation was the only barrier. He said that convincing a North American outbound sector that already struggles with capacity could also be a challenge.
“I’m not sure that it is in the best interest of the OEM. It may be greener and a good thing for the industry, but the challenges right now in the current capacity situation mean we want that truck back [after it makes a delivery],” said Mason. “If you are going to take time to haul some other commodity on that truck to some other location before it comes back to pick up vehicles, that is a challenge to us.”
Acknowledging the issue of quick return of car carriers, Pawluk it might not apply to all situations but with the right scale and combination with the different OEMs, that problem could be addressed with another asset nearby.
Rising interest in benchmarking
When it came to improving efficiency, the conference also revealed rising interest in benchmarking common key performance indicators (KPIs). Tom Swennes, vice-president of strategic planning and admission at ICL Systems, which will track the operations of nearly 6m vehicles this year, highlighted the importance of setting goals for benchmarking in the areas such as velocity, consistency, quality and cost.
ICL recently surveyed around 18 OEMs to gauge their interest in benchmarking and a vendor scorecard that would recognise the top industry performers, amongst other things. More than 40% said they were interested and 35% very interested, with interest in a vendor scorecard 90%.
Swennes said that when ICL put a benchmarking solution out to the industry in 2008 the response was hesitant in terms of cost information but that now there is a lot more interest. He said the answers on the scorecard would be weighted by volume.
By far the area with the biggest potential to change vehicle logistics and impact transport capacity is Mexico. John Felitto pointed to Global Insight forecasts predicting that Mexican production will increase by 8% each year until 2020. Bill Garrett, the president and CEO of Vascor, said that Mexico had captured twice as much investment from carmakers than had the US in recent years, with more than half of the planned production increases going to Japanese OEMs, 18% to German carmakers and the balance among the Detroit three.
He also pointed out that while Mexico still sends 64% of its exports to the US, the percentage had been declining as free trade agreements gave Mexico preferential access to European and Latin American markets. “Mexico is becoming a truly powerful, global player,” said Garrett.
Felitto said that Mexican exports currently move 66% by rail and 33% by ocean, however the majority of ocean shipping goes to markets other than the US and Canada. Ford, Nissan and Volkswagen use ocean shipping for some of their Mexican exports, however a significant majority of vehicle exports move to the US by rail.
But carmakers are calling for more short-sea options from Mexico, with Honda setting an important tone for the sector with its plan. Thomas Banholzer, manager for NAFTA vehicle distribution for Mercedes-Benz, which includes commercial vehicles such as Freightliner, says that he would like to see a short-sea service to move the trucks that the company builds in Mexico. The truck volume, which is about 60,000 units per year, currently moves entirely by road to the US.
“We would like to add short-sea shipping to the network,” he said. “We believe that we can add high-and-heavy volume to the decks of ro-ro carriers. However, it would need to be weekly service because otherwise it wouldn’t be cost effective to have inventory building up at the plant or port for two or three weeks.”
More short-sea services appear to be on their way in Mexico. Honda has signed up with MOL for service to the US. Felitto said that the new WWL service would call every 12 days from Veracruz to the east coast. The challenge, however, will be for return flows, of which there currently are not enough moving to Mexico to allow for a shuttle service. Felitto said that WWL would most likely triangulate flows between Mexico, the US and Europe or the Middle East (which is similar to what Höegh already does as well). OEMs wanting a weekly service would currently need to use a combination of ocean carriers.
The growth in shipping and rail services are encouraging, but there are questions over whether there will be space at ports or enough rail trackage to support them. “I’m more worried about 2014 and 2015 as the new factories start to come online,” Felitto said. “Veracruz is already very full, and land around the port is very expensive to develop. Mexico really needs another east coast port.”
On the west coast, the consensus seemed to be that Lázardo Cárdenas is the port that will emerge as the most significant option. However, there are currently legal disputes at the port, and there could be delays to its development. However, there are plans in place to develop an auto terminal at the port. “I’m very optimistic that there will be significant growth in Lázaro and that a second east coast port will emerge,” Felitto said.
Danger south of the border
Another issue that cannot be ignored in Mexico is security. Violent crime and gang-related violence have become notorious in many regions, and executives admitted that there were safety concerns for staff in the country. Dennis Manns said that one of his managers had a gun pulled on him twice when visiting the
country recently. “Once by the ‘federales’, and once by the ‘banditos’,” he said, referring to both police and gangs. “So you have to worry about both the so-called good and bad guys.”
Garrett said that Vascor managers visiting the country could not travel alone, and did not go out at night. Chrysler’s Tripp said that in some instances it was necessary for foreign managers to vary their working hours and commuting routes to avoid potential attacks.
Along with the safety of staff, there are concerns about the security of vehicles. While it was agreed that the quality of production and labour in Mexico was high, Garrett said data showed there is more transport damage, vandalism and theft in the supply chain. Mike Nelson pointed out that there is particular risk of vandalism when a vehicle moves by rail.
“If a train is stopped for whatever reason in Mexico, you will absolutely have a problem with vandalism and damage,” he said.
However, Nelson, Tripp and Manns all agreed that the railways had made tremendous progress in reducing such incidents and the overall quality of service. “The railroads and providers have invested tremendously in making improvements, and it is no coincidence that we see less damage,” he said.
“We wouldn’t see carmakers all deciding to build more vehicles in Mexico if the quality of the vehicle and transport hadn’t improved,” said Manns.
Banholzer also stressed the importance of using local talent in Mexico. While Daimler is integrating processes across the NAFTA region, he said that it was important that local staff take ownership of their operations. “Everything we do in Mexico is done by Mexicans,” he said. “When we truck vehicles to the US, we use a Mexican driver until we reach the US border, and then we switch to an American driver.”
As American and transplant carmakers increase their production in North America, many have also increased exports beyond the continent. Chrysler’s exports have reached around 300,000 units per year, while Toyota exported around 125,000 vehicles last year and Honda more than 100,000. Further growth is anticipated; American Honda has forecasted export growth of 77% over the next four years, according to Karen Yukawa, assistant manager for sales operations and logistics export sales division.
Honda exported a similar number of vehicles back in the early 1990s as it did last year, but the flows then were simpler, said Yukawa. A large number of vehicles went mainly to Japan, Europe and Australia. Now, vehicle flows tend to be more fragmented between markets in Central and Latin America, Russia, Africa and the Middle East. Yukawa said that she recently oversaw the movement of cars all the way to Mongolia.
In general, lead times for exports are long, visibility of transport is poor and there is little systems integration – Honda uses ten different systems to interface exports with its front-end systems, said Yukawa.
“It’s difficult to track and trace, and we currently do everything manually each week in an excel spreadsheet,” she said. “We also don’t really have good data for vehicles even as they move in the US, as they might fall off the grid at some point between destinations for us. We’re working on a new project that will help improve this.”
Both Toyota and Honda use a large variety of ports to send exports, partly to piggyback onto each OEM’s domestic network, and also based on available shipping services. In some cases, the ports are underdeveloped or lack the facilities that the carmakers would expect at their traditional import or export terminals. Toyota and Honda both use Port Everglades to ship to the Caribbean and Central America, although the port has no processing services. If a vehicle is damaged, there is nothing that can be done at the port. Yukawa said that she would be interested in working with other OEMs and carriers to build better services for such destinations.
“Over the next few years I’m interested in working with others on exporting to Central America and the Caribbean, especially out of Mexico. Maybe we can get together with other OEMs and get a carrier to move those vehicles,” she said.
More complex, fragmented flows
Carmakers faces issues over fragmented vehicles flows as their networks become more diversified in some instances. For example, BMW’s John Marion, vehicle logistics manager, revealed that part of its network actually became less efficient after it increased production out of its plant in South Carolina. Previously, BMW imported vehicles into Charleston and bundled its volume with the plant to distribute to the US. But with the extra production in Greer, BMW no longer had room to bundle import and domestic volumes. Instead, it imports to the ports of New Jersey, Baltimore, Brunswick and Hueneme. Since most production out of Greer is for export, the domestic volume, although growing, is smaller than the combined volume with imports. “We have struggled a bit with trucking out of our plant for domestic volumes since we don’t have the import flows anymore,” he said.
Marion said that BMW is looking at other changes to improve lead times, including the possibility of reopening a vehicle distribution centre that it had closed 20 years in Houston to serve Texas and surrounding states.
Chrysler’s Tripp also said that the company is facing new challenges for imports. Starting this year, it began importing the Fiat 500L from Serbia into the ports of Baltimore and San Diego. The volumes are relatively low compared to what Chrysler is used to managing, said Tripp. “But in the future we will import more from Italy as we bring Alfa Romeo to the US,” he said.
A notable example of a new import logistic challenge was found at Toyota, which is now importing the Yaris from France rather than Japan. Brian Mason said that the company ran 26 different cost scenarios before finding an option that would cost a similar amount to importing from Japan.
From Japan, Toyota would normally ship Yaris to the west coast ports of Portland, Benicia and Long Beach and move by land to consumption points in the Midwest and Texas. But for European imports, the carmaker had to use more east coast ports, including New Jersey and Jacksonville to move to the Midwest, southeast and Texas. Toyota will use Long Beach and Benicia for western markets, including the northwest.
“Since we are moving into our existing ports, we will blend the Yaris volume into our existing network and use our existing carriers,” said Mason.
While the cost is neutral to Japan, the French Yaris will have a longer lead-time than the Japanese one. While Japanese service would normally arrive 4-6 times per month, the European imports will be just 1-2, meaning longer waiting times for customers. Deliveries will start to fleet customers to help manage the longer lead times and to phase out the Japanese production of the Yaris for North America, said Mason.
“As volumes increase, we are also looking into the opportunity of feeding into short-sea for Mexican production at the Mazda plant,” Mason said.
As ever, reducing damage was a top priority for carmakers at the conference.
Speakers agreed that communication, training and good analysis of data were the most important factors in reducing damage.
“There is a lot of momentum in the industry right now as people start to spend money again, but it’s still important to carry the message that the best way to control and prevent damage is to be constantly vigilant and to measure it,” said Tim Doonan, vice-president at insurance and claims specialist Tokio Marine Claims Service.
GM’s Matthew McCoy talked about how the company’s quality team carries out “hotline reports” that include site-specific feedback, mentoring calls on best practice and quarterly reviews with carriers’ senior management. “We carry out facility audits and lane detail analysis,” he said. “I try to get my team on the ground as much as possible to see how they can get involved.”
McCoy stressed the benefit of working together and sharing information. For example, the carmaker holds an annual test-loading day at its proving ground in Milford, Michigan, where hauliers and trailer manufacturers join GM’s logistics and engineering teams to test load upcoming vehicles. “It allows us the opportunity to review best practice and eliminate clearance issues that we might have,” McCoy said.>
Several carmakers pointed to issues around the popularity of low clearance vehicles, many of which don’t fit properly into existing equipment, particularly for rail. Glenn Clift, president and CEO for Glovis America, which handles Hyundai and Kia vehicles in the US, said Glovis was spending a lot of money on woodblocks that raise cars up to the appropriate clearance.
“The industry is behind on appropriate standards for chocks, and as a result we’re spending time and money putting these woodblocks under cars,” said Clift.
McCoy echoed Clift about using such ‘risers’ to secure the vehicle in the chock. “It has been a challenge to move vehicles on these chocks. We’re looking for a low profile chock that would eliminate the use of risers.”
McCoy added that GM is currently using a variety of chocks that it plans to phase out as the next generation of chocks becomes available.
Toyota’s Mike Nelson added that the new railcars coming into service would add more variety of chocks and technology that requires training for operators. “In the next 12-18 months we’re going to get 4,000 railcars from four different [rail]roads with four different kinds of chocks,” he said. “With all this newness and technology, we’re concerned about training and making sure that we get the proper use of chocks.”
Yard and repair improvements
Another important project for GM is the redesign and expansion of its vehicle yards. GM has consolidated production to produce a higher volume of vehicles across fewer plants, but McCoy said that it has not expanded its shipping yards. “We need to expand the yards so that we’re not double handling and moving vehicles offsite to other locations,” he said. “Communicating with our yard managers is extremely important as we look into where we’re going to expand our sites.”
Doonan pointed to several areas of concern for damage, particular for exports out of North America. Many North American-made cars don’t have marine tie-down hooks as would cars built in Japan, for example. “It means that you don’t have the right angles and it exposes the vehicle to more damages,” he said.
He also said that Tokio Marine’s statistics suggests that wraps and covers for vehicles don’t make much of a difference in protecting during transport.
“It is potentially different if you’re going to be storing the vehicle for a period of time, but statistically wraps and covers don’t make much of a difference while the vehicle is in transit,” he said.
Jim Gerenscer, president and CEO of repair specialists Nationwide Autoservices, highlighted several new innovations for repair, including a single-edged razor blade method to repair paint overspray contaminations without damaging the paint finish. “It looks pretty scary at first but it works really well and it’s better than using sandpaper,” he said.
Gerenscer also highlighted a new dry ice sand blasting process that is effective for removing corrosion from aluminium.
The return to general health of the industry gave some executives pause to reflect on just how difficult things had been following the financial crisis. Steve Tripp said that it was heartbreaking to see Chrysler lose more than half of its team members for logistics during the bankruptcy in 2009. “We felt that we had built up a great logistics organisation in which we had a lot of pride,” he said. “When so many people left, I was damn near in tears. It was like a death in the family.
“But here we are four years and we’re rebuilding,” he said. “We have a lot of young people in the organisation, and it’s very exciting.”
There were also signs that logistics management has been reorganised in some cases, with more appreciation for outbound logistics compared to before the crisis. Chrysler reorganised its logistics division under a new supply chain management organisation, for which the vice-president reports directly to Fiat-Chrysler CEO Sergio Marchionne. Before that, Tripp said that outbound logistics had been something of a “backwater” in the view of the company’s top management. They didn’t necessarily see it or understand it.
“At that time, when the vehicle was KZ’ed [released from the factory], it was mainly out the door and out of mind,” he said. “Since we became part of supply chain management, which includes logistics and some other functions, we’re in much closer contact to the dealers.”
Tripp added that he’s met with Marchionne a number of times, and more often than his inbound counterpart, for example. “Five years ago it would have been the reverse,” he said.
At Honda, Dennis Manns said that the company’s management also considers the views and costs for vehicle logistics much more than in the past, and says that he meets more regularly with the president of American Honda (Tetsuo Iwamura) than in any of his previous posts.
“We were talking about Mexico with our top management for a long time before we decided on the Celaya plant,” he said. “It’s a lot different to just being told the address to the building.”
Toyota’s Nelson said that the carmaker’s senior management had also become more focused on monitoring lead times and reducing the order-to-delivery cycle. “We have an ‘ETA’ project that involves all areas of the supply chain, production and sales to get a better understanding of when a vehicle is going to arrive,” he said. “The project is a result of the dealer council beating on our heads and saying that we couldn’t tell them where their cars were.”
Carmakers have also been doing more to integrate their operations across North America. Manns says that American Honda is working more closely with its counterparts in Canada and Mexico, and doing more to integrate systems, planning and purchasing. “It’s mission critical that we are all aligned, especially as we increase our volume out of Mexico,” he said.
Mercedes-Benz has also centralised its logistics in North America, integrating its passenger and commercial vehicle brands. “You might not think there would be many synergies between moving trucks and passenger cars, but there are many common processes, carriers and systems and we’re finding a lot of savings,” said Banholzer.
The industry salutes Mike Nelson
Many at the conference also paid special tribute to Toyota’s Mike Nelson, who will retire in January after 20 years with Toyota and more than 40 years in the automotive logistics industry, including positions at trucking carriers prior to Toyota. At Toyota he held roles across inbound and outbound logistics, including running Toyota’s in-house trucking fleet and afterwards heading up Toyota’s outbound road and rail logistics.
During this time he was instrumental in the industry switching from securing vehicles on trucks using metal chains to soft straps, which have greatly reduced damage. Nancy Davies, vice-president of Toyota Logistics Services, and Nelson’s boss, joined other industry veterans in complimenting his work at Toyota. “Mike has filled a great role at Toyota, and there will be a void in our office when he leaves,” she said. Nelson has also been a regular speaker and contributor to Automotive Logistics events, and played a key role in supporting the creation of FVL North America events in 2010. His knowledge and passion for the industry, along with his good humour, will be missed. However, it’s not necessary to say goodbye just yet. Nelson will again be a speaker at this year’s Automotive Logistics Global conference in Detroit.
A still uncertain future
While most outlooks remain positive, speakers expressed uncertainty about what the future would bring, including the economy. Manns said that the housing recovery would be essential to maintaining higher vehicle sales, and fortunately this has shown signs of improvement lately. Manns and others also admitted that it was too soon to tell whether the right capacity and services would be in place to serve flows out of Mexico. Even today, Manns said that Honda meets many of its delivery targets only at the last minute, and he doesn’t imagine that it will get better as more production comes online in Mexico. “If I’m already struggling with capacity in the middle of the US today, it can’t be better for Mexico. We’ll find out.”
Manns said that it would be very interesting to come to the conference in five years and compare notes on how things had developed for Mexico. Indeed, it will be equally interesting (and necessary) for the industry to meet regularly to discuss the developments together along the way as well, including this autumn in Detroit for Automotive Logistics Global 2013, and once again next year in California for FVL North America 2014.