Logistics service providers face record losses, putting investments and recovery at risk
The Finished Vehicle Logistics (FVL) industry is staring into the abyss as further material shortages threaten production schedules that are already volatile.
The FVL industry continues to be decimated by the massive reductions in volume resulting from material supplies that appear completely unpredictable. Many manufacturers have been unable or unwilling to issue production volume forecasts since the start of the year. Few are able to predict with any certainty when the situation will improve. In part, this is no longer simply because of the well-documented global shortage of semi-conductors as further material shortages, ranging from aluminium and magnesium to leather, are now overhanging the industry.
As has become usual in the sector the carriers are left with all of the utilisation risk as a result of unbalanced service contracts for delivery of new cars. ECG President, Wolfgang Gӧbel, stated “This is not just about the reduced volumes. The unpredictability makes meaningful planning impossible. Efficiency in transport operations has fallen significantly and we are implementing all possible solutions to protect the business including capacity reduction or even reduced days of operation on compounds. All of this is happening at a time when most of our costs are rising rapidly and inflation is rocketing.”
ECG is therefore calling for contractual commitment to minimum volumes by the industry.
Even more worryingly, the current circumstances are resulting in unsustainable reductions in capacity as assets are laid up or disposed of. In the road sector drivers are being lost to other industries and will likely never return to vehicle logistics which will compound the existing driver shortage and make the restoration of capacity almost impossible. Many operators are registering significant losses and will be unable to invest in increased capacity when volumes eventually return. Indeed, pre-determined rates in longer contracts may no longer be financially viable with such rapid increases in operating costs.
ECG Executive Director, Mike Sturgeon, said “It is a fact that the outbound logistics sector is treated completely differently from suppliers in inbound logistics. The OEMs have for years taken advantage of their finished vehicle logistics suppliers with overstated tender volumes, no volume guarantees and with LSPs expected to absorb whatever market fluctuations may occur while still achieving demanding service levels.” He added “I cannot think of any other industry where such a one-sided relationship exists. In my experience the manufacturers work in a true spirit of partnership with inbound suppliers and yet the same people are happy to abuse their relationships with outbound suppliers. It is really quite extraordinary.”
In the short-term viability of carriers is at significant risk while, in the medium-term, the industry will be left unable to respond to the eventual recovery in volume or to invest in decarbonisation and the other challenges that the industry is facing.