The case for lateral thinking

I did not expect to get a blog out this week as it has been particularly hectic with preparations for our Autumn Members’ Meeting next week near Geneva and other client commitments including leading a discussion panel tomorrow at the annual conference of the European Car Transport Group in Copenhagen.  With 500 delegates this is a very impressive display of cross-industry engagement to try and address issues of common interest including current capacity constraints and reducing the environmental impact of finished vehicle logistics in the future.  However, a dinner discussion with a senior executive from Maersk prompted me to skip some sleep and keep up my weekly output.

As many readers will understand, there is currently a massive issue with capacity constraints in finished vehicle logistics in Europe.  Without the support of long term contracts, capacity was lost during the pandemic years with trucks scrapped, ships transferred to Asia and staff made redundant.  Now that demand is improving, manufacturers and others requiring bulk movements of finished cars are finding that they cannot secure the capacity they need.  This has led to some short term decisions such as Tesla contracting in fleets of car transporters, running out full from Berlin, but returning empty, thus guaranteeing that the best they can manage from that capacity is 50% utilisation.

Another action which has been seen as short term, is the use of standard shipping containers to move finished vehicles.  These have been transported between container ports rather than the ports that have evolved as the main destinations for RoRo (roll-on roll-off) dedicated car transporters, so storage compounds are limited and the ability to handle the de-stuffing of containers may not exist.  As these locations are new, flows inbound and outbound are unbalanced, so that means even more car transporters are running inefficiently to move the stock away from the container ports and on to the final destination.  The cost of shipping cars in this way is also substantially more than using dedicated RoRo vessels that take up to 6,000 cars at a time which are very efficiently managed through dedicated facilities.  On that basis, it is very easy to conclude that this is a bad option.

My conversation with Toni Fondevilla, the Automotive Vertical Head from Maersk put a different slant on this.  When considered from the perspective of port to port, with the associated need for rail or road transportation to move the cars from source to port and port to final destination, then the economics do look poor, but Toni’s point was that we need to think laterally.  A RoRo vessel may not be able to get from a manufacturing plant to the seaport or from the port to a dealer in Munich, but a container can, with no need to handle the car itself in between.  It can be moved with many other containers on a train to the port, it can be mixed with containers of toys or smartphones on the next container ship available rather than wait for enough cars to fill a 6,000 capacity RoRo, and it can be distributed onwards to a regional inland storage compound or dealership on standard container trains or trucks.  Inventory in transit can be reduced and lead times improved.  Because a container is a container regardless of contents, load build is no longer a constraint on the process.

Applying this to ICDP’s extensive research on new vehicle logistics best practice, the reduction in the minimum viable shipment quantity and the reduction in leadtime offer clear supply chain advantages.  Whilst creating a four container high storage compound brings to mind images where the car you want is always in the bottom container, why not stack the buffer stock, so that you need smaller compounds?  As we are storing containers rather than cars, why do we need dedicated car storage compounds at all?  With a smaller product offer like Tesla (now being copied by a growing number of brands) and typically a maximum of two or three cars per container, you could ship a container unopened from plant to dealer using standard container transport modes.  With the cars sitting in sealed containers, the risk of damage is also largely eliminated.

I am not suggesting that RoRo is bad and that containerisation is the only way forward.  I dd not pull out my laptop during dinner and do a full business case comparison of the two options.  My point is not even really about finished vehicle logistics.  What my dinner discussion did do however was to highlight how we often define the challenge we face in terms that are too restricted – port to port in this case – and miss the bigger picture.  In doing that we then miss a whole bundle of costs, risks and opportunities that might lead us to come to a very different conclusion.