Shipping Shortage Wearing on Automakers
May 13, 2008
By Bill Visnic
and Michelle Krebs
If an eroding U.S. economy and commensurately sliding auto sales aren't enough to worry about, several global automakers can add a new worry for 2008: a vexing lack of ships to carry vehicles from port to port and skyrocketing increases in the cost of shipping vehicles.
A General Motors executive called the issue "a matter of global strategic importance," warranting attention from the highest levels at the automaker, and a major issue facing all manufacturers.
The Asia-to-U.S. Run
Sources at several Japanese automakers -- particularly the smaller, second-tier brands -- say the situation has started to affect supply of certain popular models to the point it is directly affecting nationwide supply.
"This has actually been an issue for a number of years -- the last two or three specifically," said Jeremy Barnes, director of corporate & product communications for Mazda North American Operations.
A high-ranking executive at another Asian automaker told AutoObserver the problem hit his company's radar screen last fall, and that the rising cost for storing vehicles awaiting shipment from Japan to North America is becoming a noticeable blemish on the company's profit margin.
Vehicles typically are shipped on two types of vessels: container ships that handle all manner of cargo, or so-called "roll-on/roll-off" vessels designed specifically to enable vehicles to be driven directly into and out of the cargo holds. Automakers tend to prefer the "Ro-Ro" ships because they almost invariably minimize handling damage often incurred in the loading and unloading process.
But ongoing macroeconomic factors in the shipping industry have limited the amount of capacity -- both of standard cargo ships and the Ro-Ros -- available for auto transportation, and the shipping-capacity shortage, which has been worsening for years, is starting to hurt.
There are several factors that could be causing the shortage -- the primary one being rising fuel costs and disfavorable exchange rates.
A recent report at the Web site cargonewsasia.com quoted Ronald Widdows, CEO of Singapore shipping line APL and chairman of the Trans-Pacific Stabilization Agreement, as saying, "Even with substantial cost recovery, the economics of serving the U.S. market from Asia will still result in a challenging profitability picture for most lines."
The same report also says a new, more costly West Coast longshore contract, new-for-2008 environmental initiatives and security measures at Southern California ports likely will lead to costly bottlenecks and rising compliance costs. It is estimated that some 40 percent of all Asia-to-U.S. container capacity comes through Southern California's ports.
The end result: Some shipping lines are shifting their carriers to other routes more profitable than the Asia-to-North America trans-Pacific run.
Another issue: Where once ships may have sailed with less than full cargo loads, mounting costs dictate that the shipper must wait to fill the ship to capacity, causing some smaller cargo parcels -- perhaps a relatively small lot of vehicles, for example -- to experience longer-than-normal delays, or be booted entirely for a cargo that will account for more of the ship's unused capacity.
Mazda's Barnes says for smaller automakers, the situation can be a double-edged sword.
"We have found that our access to ships has improved, however, in the past six to eight months," he says. "Generally, because of our size, we don't need a full ship, as (Mazda's larger competitors might), so we're able to be a bit more flexible in fitting in a couple of hundred cars here, a few thousand there, and that's certainly helped.
"Additionally," Barnes adds, "Mazda Motor Corporation has done a great job working with the shipping lines, and it's generally improved our access to open spaces on ships. All that said, though, it is still difficult to get enough access -- especially when we want it, versus when it's simply available."
Another automaker executive says some in the industry believe the situation has led shippers to cozier relationships with the larger Japanese players, particularly Toyota Motor Corp. He believes Toyota's size and dominant industry role have caused smaller competitors to lose out to Toyota in what he calls "the shipping competition," as shipping lines favor the probably more consistent and larger-capacity orders of Toyota, and to a lesser extent, Honda and Nissan.
"Trans-Pacific market dynamics this year are being shaped by a wide range of external events and challenges that directly impact customer supply chains," AFL's Widdows said in the report on ecargonewsasia.com.
The situation isn't likely to improve and many Japanese automakers might be tempted to pass on increased "destination" charges to the customer. But in the current U.S. auto market, "The last thing you want to be doing is raising your prices," says one executive.
Smaller Japanese players aren't the only entities suffering from the shipping shortage. Another story at the Web site says many Chinese automakers are experiencing problems exporting their vehicles, citing the worldwide paucity of Ro-Ro vessels, although several Chinese shipbuilders were slated to deliver several new Ro-Ro ships last year.
A remarkable statistic cited in the Web site's story claims that 1,175 different companies exported vehicles from China in 2006. Of that number, 650 exported fewer than 10 vehicles and 160 companies exported just one vehicle.
Emerging Markets = Emerging Logistical Headaches
The problem, however, isn't limited to the Asia-U.S. run for ships. Emerging markets resent a whole other set of logistical headaches, said Michael Grimaldi, General Motors head of Korean operations. In recent years, GM has gone global with its product development, manufacturing, parts purchasing as well as expansion into emerging markets, including China and Russia.
"Global logistics -- where and how we access these markets and how we optimize -- has become very sophisticated," he told AutoObserver in an interview at GM Daewoo headquarters in South Korea. "It is a global strategic issue. We talk about it at the highest levels of our company."
Like Toyota, GM has been forming relationships with municipalities, ports and logistics providers to smooth the way.
In South Korea, for instance, where GM Daewoo is smack dab in the middle of Seoul, GM has hired a "lean logistics provider" to manage the trucks in and out of the plant complex, which includes two assembly plants as well as an engine plant and a transmission plant along with a design and engineering center, to ease congestion and cut costs. GM has worked with the city and the port to come up with efficient packaging for the CKD kits that GM exports from Korea and expand its shipping operation in Incheon.
"Korea recognizes the importance of exports and the tremendous contribution to the economy so it is looking to expand ports up the coast for all exports, not just auto," said Grimaldi.
From Korea, GM ships vehicles to China, Europe and Russia as well as CKD kits to be assembled after their arrival. It also imports and exports a variety of parts, including engines from Australia's Holden and parts to and from China.
GM also has experienced the shortage of ships and shipping containers, shortages that allow the shippers to boost prices. "Shipping companies are booming. Their revenue is growing by double digits every year," said Grimaldi, adding that revenue comes out of the hides of customers like GM. "We had a budget this past year and our cost per container, despite applying presure to minimize increases, went up double digits."
GM has been working with companies on long-term contracts to secure shipping and container capacity. "But it's not an overnight fix," said Grimaldi.
Beyond the ships and shipping containers, ports in emerging markets present another set of challenges, Grimaldi said. The boom in imports, especially vehicles, to Russia has those ports clogged with ships in waiting. "We have faced tremendous delays there," he said. "There are ships waiting to get into port and once they get there, there's sometimes a wait to unload the containers."
Once the vehicles are unloaded, they have to be shipped within the country by rail or trucks. "Many countries are not up to the same level as Western Europe," he said. GM has been like a modern-day explorer looking for the best route by land and sea -- shipping via ocean from Korea all around the Black Sea to Russia, crossing Siberian railroads. "But it is a struggle," admits Grimaldi.
Posted by Michelle Krebs at 6:32 AM under Companies , Featured | Comments (0) | digg this | Seed Newsvine
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