Amid the myriad issues affecting the
global automotive industry, lowering
risk and increasing efficiency within
the logistics arena are critical. Escalating fuel
costs and increasingly strained facilities
and transport links, combined with the
constant pressure to reduce one's carbon
footprint, offer only a sample of the challenges
facing this industry. Other issues
include pressures to speed products to the
consumer, lower total inventory, minimize
transport-led damage and never let one's
foot off the efficiency pedal.
Despite these issues, the opportunity for
logistics to be an integral cog in one's competitive
set has never been more crucial. As
this world continues to globalize and the
capabilities of new players improve, maximizing
the effectiveness of transporting components
and final products is a differentiator.
Logistics in the automotive industry have played a critical role over the past century. In the early years, the world's vehicle manufacturing centers (U.S. and Western Europe) would export CKD (Complete Knock-Down) kits or CBU (Completely Built-Up) vehicles to destinations across the world as other nations witnessed the economic power of the automobile. In these cases, ships and rail were the preferred delivery methods. Many governments understood the promise of building their own automotive industry as an opportunity to further industrialize their economies. Thus stiff tariffs, quotas and the less obvious non-tariff barriers artificially drove importers to seek alternative sourcing. As today's mature vehicle markets grew in size and breadth, the opportunity to refocus vehicle imports toward second sourcing or niche products enabled domestically produced offerings to play a critical role in developing an internal industry.
The track record of various countries to have open and barrier-free market access over the past 50 years is spotty at best. Many trading partners understood the power of scale and focused their economies toward their inherent competitive advantages. As such, several multilateral trade agreements opened possibilities - lowering overall costs, raising scale and increasing quality simultaneously. Substantive examples include the formation of the European Union, the U.S.- Canada Autopact and automotive trade relaxation within South Africa, Turkey and Mexico. Automotive logistics had to respond accordingly within this dynamic.
Shuttling of low-run CKD kits gave way to higher volumes of CBU vehicles and components/ systems, as economies expanded and scale improved. Several countries need to reexamine high tariff boundaries (official or unofficial) to drive greater efficiency and integration with trading partners. This list includes China, Brazil, ASEAN members, Russia, India and locations in the Middle East. Each of these locations has relative high trade "hurdles," which are hindering access to their growing markets.
A strong case can be made for improved volume flow among the globe's major automotive trading partners. The volume of OEM light-vehicle flow (vehicles imported and exported) between major regions will continue to rise in the future, although the dynamics and drivers are shifting. In the past, several OEMs used their home bases as an export point, while increasing co-location of highvolume, mass-market offerings within regions of rising sales success.
The best examples of this sourcing shift are the Japanese OEMs in North America and later in Europe. Exports from Japan have not shifted substantially in volume, although the types of offerings have. Today, Japan exports focus more on second sourcing for products already produced in a major market, niche/luxury offerings and exports to emerging countries such as Asia and Africa. This shift has taken the better part of a quartercentury, but is more accelerated as OEMs in Korea, China and India raise their global stature. Automotive logistics had to adjust to these new realities.
Fewer numbers of vehicle architectures have drawn the industry closer and made it more interconnected. This consolidation, coupled with the intense competition to meet increasingly complex customer demand, is uncovering a host of challenges for automotive logistics. Movement of vehicles is becoming more "choppy" as the numbers of nameplates and variants rise globally, and more competitors emerge from China and India. As many OEMs lower currency risk through production co-location to major markets, home countries for most OEMs (J-OEMs in Japan, Hyundai/Kia in Korea, PSA & VW in Western Europe) focus more on niche offerings and production for their home markets. This new reality will continue as new OEM players from India and China seek to expand their global reach.
Much has been written about the globalization of the light-vehicle industry - increased vehicle trading volume is a substantive component of this trend. A 2006 study by CSM estimated 18% of global sales volume was sourced between 10 major trading regions. These regions included Western Europe, Central/Eastern Europe, South America, Middle East/Africa, U.S./Canada, Mexico, China, India, Southeast Asia and Japan/Korea. The aim was to better understand sourcing trends from a cost or emerging- market perspective. As one examines trends affecting the logistics component of the automotive industry, there is no doubt changes are inevitable. New players, global platforms, currency/cost-risk abatement, access to markets and carbon footprint considerations will all affect the flow of vehicles going forward. It is estimated that as emerging-vehicle markets expand in both the sales and production arenas, the "flow" of vehicles will rise by 2020. An estimated 26% of all production volume will be sourced between the outlined regions - a rise of 125% in absolute volume.
And increased volume is not the entire story - we also must consider the shift in segments, players and regional flows. Given the need to move closer to the customer from an inventory/reactiveness perspective, and the importance of currency neutrality and trade/political realities, it is estimated that almost 60% of the increase in sourcing will be focused on short-haul routes. These include Central/Eastern Europe with Western Europe, U.S./Canada with Mexico and ASEAN with Japan/Korea. This rise enables the shifting to lower cost production locations (enabled by global platforms and processes) as well as speed to market, carbon footprint and risk-abatement strategies.
In summary, the mastery of automotive logistics by a global OEM (both internal and through strategic supplier partnerships) will be a key differentiator. Impacted by several dynamics, flexibility to changing conditions will be paramount. Look for the Japanese and Korean OEMs to continue to use strong logistics as a competitive edge, although the European, North American and emerging players will learn swiftly in a global industry. In this highly competitive industry, the difference between success and failure is converging quickly.
Michael Robinet can be reached via email at michaelrobinet@csmauto.com.
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