Capacity Crunch or New Opportunities in Global Vehicle Logistics
Updated: Apr 28, 2023
There is ongoing crisis in finished vehicle logistics across the globe. The uncertainties related to the ongoing war in Ukraine, as well as the fluctuating market conditions created in the aftermath of the Covid pandemic, has left automotive OEM's without sufficient capacity to ship their cars, and automotive LSP's without the right incentive to invest in order to increase capacity. Experts indicate that this is the start to a long and cold winter for outbound vehicle logistics, where the solutions to help remedy this capacity crunch are few.
Causes and Effects
A recent report from the Association of European Vehicle Logistics highlights how European vehicle logistics is affected, and what some of the causes behind are. Road transportation is experiencing a 27% capacity loss when compared to pre-covid due to a high number of trucks being scrapped and not replaced. The ongoing driver shortage adds another 5-10% capacity loss as trucks are parked up without a driver to operate it. There have been disruptions to the market dynamics as smaller truck operators are turning to general haulage, some OEM's have turned to the spot market, and some have changed their distribution networks resulting in less overall efficiencies in the sector.
Capacity in short sea shipping has also decreased as many older vessels have either been scrapped or sold to the Far East (where there are also capacity issues). Shortage of dock labor, and congestion issues in key ports have had big impact on efficiency, estimated to equate a capacity loss of 10-15% in the first half of 2022. To add to this, the order book for new RoRo vessels is at a historic low, and it is estimated that new ships ordered today will not be ready for delivery before 2026/27.
The same reports gauge the capacity decrease in German rail transport of finished vehicles to be 35-40% beneath the required level for efficient operations. This due to scrapping of older wagons, a reduction in available traction for the finished vehicle logistics sector (war material, energy, and predictable general freight takes priority), and huge infrastructure problems from ongoing construction work causing track closures. ECG estimates that in Germany alone, the shortage of daily train departures exceeds 500.
The industry needs to be rebuilt, and this will not be a quick fix. Logistics service providers will need to both invest in new equipment and hire new drivers, dock labor, and other personnel. If the will is there to invest, the report states it will take 15 months to put a new truck on the road, and 4-5 years to put a new vessel on the water. This granted confidence returns and said LSP's feel safe they can recuperate returns on the required investments. In conclusion, the ECG predicts the imbalance between supply and demand in the finished vehicle logistics sector will continue for the foreseeable future.
*Read the full report from ECG here: https://www.ecgassociation.eu/wp-content/uploads/2022/10/ECG-Briefing-Paper-Capacity-Crisis-22.10.pdf
A Chance to Add New Modes to the Tool-belt
Whereas the ECG and the majority of the industry focuses purely on the conventional transport modes for finished vehicles, containerized vehicle transports are getting renewed interest. Where "Cars in containers" have typically been associated with secondhand cars, private moves, or deliveries to off-the-track locations, it is now getting renewed attention from prominent actors in the industry.
As we at Kar-Tainer have proven time and again, it is possible to move large quanta of finished vehicles in containers. Using professional equipment makes it possible to load up to four vehicles per 40-foot high-cube container, equipment can be folded and returned to origin in financially sustainable manners, damage rates (with Kar-Tainer equipment) are demonstrated to be less than 0.025%, and up to 6 containers can be loaded in only 15 minutes.
*Kar-Tainer's 3-Car CBU Cassette system in action
Adding containerization of finished vehicles as another mode to the tool-belt can offer great flexibility in times of uncertainty to both Automotive OEM's and LSP's. Containers are abundant across the globe, and the investment requirements into the equipment needed to efficiently load cars in containers are negligent when compared to the investment required to launch a new ship or a new truck. At time of writing there is also a huge transition happening in the container industry which has potential to greatly benefit finished vehicles shippers who positioned themselves to take advantage of this change.
From Container Scarcity to Surplus
The container industry has been plagued by under supply since the start of 2021. As anyone in the industry have experience, container rates went through the roof in the starting months of last year, and on many trade lanes increased with 1000-1500%. This resulted in shipping lines and other actors putting up record orders for both new containers and new container vessels.
As the extreme container shortage of 2021 has eased down and new capacity is made available, global container rates continue to decrease. According to Drewry (the leading independent provider of research and consulting services to the maritime and shipping industry) container rates have fallen for 34 straight weeks as of October 20th. The composite World Container Index stood then at $3,383.46 USD per 40ft container, 67% below the peak of $10,377 reached in September 2021. Still higher than average 2019 (pre-pandemic) rates of $1,420, but 10% lower than the 5-year average of $3,740.
Whereas the RoRo sector have seen declining capacity over the past couple of years, the container sector fueled by an extreme profitable year in 2021, are seeing record increases to capacity. Drewry estimates that an additional 34% effective capacity will be added to the global container shipping industry in 2023 through new built ships added to the global fleet. When subtracting for capacity reduction through scrapping, port congestion, idling, slippage, and slow steaming, the expected actual container capacity increase in 2023 will be 11.3% year of year.
Needless to say, the difficult times experienced in 2021 and the start of 2022 where container availability was a fairy tale, and shippers around the world were unable to ship their cargo to customer are well behind us.
In conclusion, the die is cast for the finished vehicle logistics industry, conventional capacity is and will be a problem for the foreseeable future. However, containerization of vehicles does have the potential to serve as a new mode which with the right planning and approach can help to add sorely needed capacity to the industry, and the market factors playing out in the container sector can amplify the benefit OEM's stand to gain through shipping their cars in containers.
At Kar-Tainer we stand ready to support our customers and partners with the equipment, solutions, and know-how needed to successfully implement containerized vehicle shipments in any shippers toolkit. Get in touch with us to explore further how a finished vehicle transportation network can be enhanced by adding cars in containers to the mix.