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Logistics providers broadsided by auto industry decline
April 20, 2009By David Biederman
Revenue for third-party logistics providers in the automotive world declined 37.5 percent in the first quarter of 2009 compared to the same quarter a year ago. By comparison, the hard-hit retail and consumer goods logistics sector was down a modest 8.1 percent, while overall 3PL revenue was down 6.7 percent, according to supply chain consultant Armstrong & Associates.
Domestic Fortune 1000 companies spent $11.1 billion on automotive logistics in 2008, said Evan Armstrong, president of Armstrong & Associates. The 3PLs that have diversified into sectors such as service parts are generally faring better than those that rely on inbound manufacturing.
“Those types of operations are completely driven by consumer demand and have been hit dramatically,” Armstrong said.
With car companies serving as symbols of the global economic collapse, Jeff Hurley, senior vice president of the global automotive sector for CEVA Logistics, wants to put in a good word for the industry. CEVA is one of the world’s leading automotive logistics providers.
The industry has done a phenomenal job over the years of managing supply chain complexity, he said. Say what you will about car design and marketing, automakers are among the world’s most sophisticated manufacturers.
“No one should underestimate what it takes to be successful in that industry,” Hurley said. “They were pioneers of a lot of supply chain best practices.”
CEVA is coping with the downturn by aggressively pursuing new business opportunities, especially in the sector’s few bright spots. The aftermarket parts business remains strong as consumers avoid buying new cars and hold on to older vehicles. Also, companies in cost-cutting mode often turn to outsourced logistics providers.
“There are re-evaluations going on as to what their core competencies are, and opportunities to share assets to avoid making capital investments,” Hurley said.
CEVA’s automotive logistics business is worth around $2.6 billion annually, about a third of the total revenue for the Netherlands-based company. The business is split between Europe, North America and Asia-Pacific. Key services include aftermarket parts distribution and manufacturing support services, such as in-plant materials handling, production preparation, small parts management and inbound transportation. The company has significant parts distribution and warehouse operations and acts as lead logistics provider for major automakers around the world.
All segments of the automotive logistics sector are under tremendous pressure to cut costs, said Tom Sanderson, president and CEO of Transplace, a non-asset-based 3PL based in Plano, Texas. It’s a tough challenge; declining volumes lead to more empty miles and lower asset utilization rates for trucking companies, which drive up the cost of service.
Transplace has only limited exposure to the auto industry, which even before the recession was not regarded as a growth sector. As a non-asset-based provider, Transplace must pay its carrier partners whether or not the customer pays. Creditworthiness is a high priority, and on balance, there was too much credit risk in the automotive industry for Transplace to aggressively pursue it.
“The auto industry is notoriously slow at paying suppliers, and we need to pay our carriers on time,” Sanderson said.
Tags: automotive manufacturers, supply chain, third-party logistics
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