Capacity Crisis & the Efficiency Factor in Finished Vehicle Logistics (FVL) Europe

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Good news for those involved in the FVL industry! New car registrations in Europe are up by 17.9% in the first quarter of 2023, as per data from ACEA. But behind the scenes, a logistical nightmare is ballooning.  

“Europe sales are up, but ports are blocked with a backlog of getting vehicles out to market!” says one industry executive. “Production volumes at a peak, compounds over saturated,” says another. “New entrants taking capacity, then going it alone” another bellows.

“30% loss of FVL capacity due to inefficiency,” a strong voice says, and everyone nods.

This month ECG Business Intelligence highlights the finished vehicle logistics capacity crisis and the rise in inefficiency which is further hurting the industry. To find a solution to the problem, the message is clear—we need to work together.

Let’s start at the beginning. What is the Capacity Crisis? “The current capacity crisis was caused by five years of underinvestment in the fleet from 2016, and over-exuberant scrapping by shipowners in year one of Covid-19. Resulting in today’s short supplied record high freight rate,” says Daniel Nash, Head of VC & RoRo at VesselsValue. Unfortunately for OEMs, Nash says, this situation is not going to change for the next 12 months or so.

Meanwhile in the road transport sector, the driver shortage continues to be a problem, but LSPs have expedited solutions.  “We are recruiting actively from outside the industry. Have set up a Training Centre to take new recruits from a car licence to being qualified for driving a transporter in 3-4 months,” says Mark Hindley, Sales & Marketing Director at BCA Logistics.

And new capacity is on its way. Specialist car carrier producer Rolfo says the order book has never been this good, so good that even the stock of used car carriers has been sold “We are living in a period of incredibly high demand and this year will be very positive from our point of view, in terms of quantities produced for the European market,” says Diana Chikmareva, Area Manager, Rolfo S.p.A.

In the maritime sector, RoRo vessels are on order. In the first quarter of 2023 just under 30 new vessels, with CEU between 7,000 to 9,100 have been ordered at Chinese Shipyards. PCTC order books are full, by end 2026 there will be over 100 new RoRo vessels on the seas based on orders from 2021 till today, tallied by ECG Business Intelligence from media reports in the public domain.

“Looking past 2023, we expect supply growth to catch up to demand growth from the second half of 2024, based on increased vessel deliveries and low scrapping rates rebalancing the net fleet position in 2025,” says Daniel Nash of VesselsValue.

So now we know capacity is coming. The question is, can we, as an industry work together to reduce the overall inefficiency, which is now hurting delivery times, costing each player more due to higher levels of empty runs and therefore lost capacity. And in the longer term, the lack of efficiency in the FVL industry will manifest itself as higher CO2 emission levels. Something each one of us is working hard to cut.

What is inefficiency? 

“Empty running can be considered clear evidence of the under-utilisation of transport capacity, leaving carriers exposed to the criticism that they are not using their assets efficiently,” Alan McKinnon, Professor of Logistics at Kuehne Logistics University of Hamburg explains. “Operational efficiency is also compromised when vehicles are only partially loaded,” he adds in his paper on Performance Measurement in Freight Transport. Speaking to ECG Business Intelligence, the guru of logistics explains the concept of ‘Triangulation Optimization’ to maximize efficiency levels by high utilization of capacity. And, he adds, the focus on decarbonizing logistics today is fast gaining ground.

The new ISO14082 standard plus the CSRD and CSDD requirements add further weight to the issue of working together to decarbonize the logistics chain.

“In an ideal world all freight vehicles would run fully laden on every kilometre travelled.  While this vision of complete asset utilisation is unattainable, the potential does exist to raise vehicle load factors well above their current level,” says McKinnon in the latest 2021 edition of ‘Global Logistics and Supply Chain Management.’

So is capacity utilization being optimized in the FVL industry today? The simple answer is NO. Lets quickly look at the reasons why this is not happening today, and together how we can solve the current doldrum.

“The problem is the 2nd market system—where capacity is being bought at any price,” explains one senior executive. With capacity going to the highest bidder, utilisation of the overall market is dropping fast.

The facts are that today there are a certain limited number of ships, trains and trucks used for the movement of finished vehicles in the market today. These are specialised vehicles, with specific dimensions and adaptations for use in the FVL industry. New assets are in the pipeline and are on the way. In the meantime, an ad hoc market with limited collaboration and cohesion has developed. This practice is removing existing capacity from the overall market, for the gain of a single player. Meanwhile the congestion at the ports, the inland compounds and the consequent delays are affecting all.

“Fulfilling orders efficiently is key for FVL,” says Tobias Carlén, CTO, Axess Logistics. “Minimizing total time and driven distance for fulfilling orders within SLA leadtime and maximum average load factor across all trips is what planners shoot for.”

“Empty runs are avoided wherever possible, but especially on longer trips…In order to improve load factors trucks will attempt to serve several dealers located in proximity at the same time.”

For more information please see the latest ECG Business Intelligence report here.