ECG Business Intelligence: Outlook 2024

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Where to begin? The world is changing daily and a month ago we did not envisage the delays in the Red Sea to drag on into the New Year, and yet they are likely to be here to stay, for a while. The implications of the delay of transporting cargo, and in our case, finished vehicles, across the globe will now take longer. RoRo vessels are choosing the longer route around the Cape of Good Hope, at the southernmost tip of Africa, to avoid the Suez Canal. This extra 8 to 10 days plus of travel time now means that RoRo is in direct competition with rail transport from China to Europe, which takes between 20 to 30 days. And the story will be the same for all components and raw materials travelling from Asia to Europe. And those finished vehicles travelling from Europe to Asia will be affected as well.

So, 2024, the year of War & Peace. The year where growth forecasts were made envisaging a relative peacetime environment, and in which case light vehicle sales are anticipated to rise by 2.9% in Europe to 15.9 million units, according to S&P Global outlook issued 14 December 2023.  Meanwhile AutoForecast Solutions expects 2024 to see ‘EU sales will grow by 6% while U.S. sales will expand just over 3%,’ in a statement issued 18 December.

But delays and uncertainty now add caution to the outlook and those projecting slight recovery in 2024 are likely to now be a little bit more uncertain.

Dan Nash, head of RoRo at VesselsValue, states that the scale of the disruption in the Red Sea could result in significant supply chain issues. “The big question for me is the timeframe involved [in the Red Sea disruption] which nobody really knows yet. If disruption continues say into mid-January, then this would be worse than the Ever Given incident in 2021, resulting in midterm pent-up demand from depleted inventories, squeezing up freight rates and asset values because significantly less capacity has been supplied for a sustained period of time with notable variations by sector (Container, RoRo, Tanker, Bulker etc),” states Nash in a statement sent to ECG – the Association of European Automotive Logistics.

Sam Fiorani, vice president of forecasting firm AutoForecast Solutions adds that significant delays will hinder sales. “The expansion of the Israel/Gaza conflict to the Red Sea is more direct as shipments rerouted from the Suez Canal will add considerable time and expense to shipments, potentially delaying production and hampering sales of vehicles,” says Fiorani, adding: “An extended interruption of the flow of goods will lead to seeking alternative sources of components. Delays in shipping of full vehicles could change buyers’ minds if the wait time is too long.”

With that in mind, the localisation of production in Europe by Chinese automaker BYD will suddenly be more urgent. Indeed, BYD has seen a lot of press recently. Most notably about the annual sales volumes of BYD new energy vehicles. In 2023 BYD has sold 3.024 million vehicles, up 62.3% year on year. However, only 8.02% of this mega volume is sold outside of China. That is, as per BYD’s filings on the HKSE, the automaker exported a total of 242,765 vehicles in 2023. While its sales in China reached 2.78 million, it has yet to gain solid traction in the world outside its home market. And now more than ever, it needs sales in mature markets to gain traction. Its production plans at its new plant in Hungary, will now be more urgent, and indeed its base in Uzbekistan which commenced production last year will become more important as a route into Europe.

Tesla, meanwhile, has sold a total of 1.8 million cars in 2023, the automaker states. Of this, sales from its China plant have hit 948,742 units, marking 52% of its global sales of 1.8 million units. While only a third of Tesla’s China production is for exports, the Red Sea crisis brings it home.

PCTC delays due to rerouting will mean those Tesla cars leaving Shanghai’s Nangang port destined for Europe will be arriving at least 2 weeks later than planned, and then the issue is finding space at the ports to offload. For Tesla too, expanding its Berlin plant is now even more crucial as its China competitor moves to compete in Europe.

And as PCTC delays increase, rail services announce fast links to Europe. With Hellman Logistics highlighting that routes via Russia are possible. “Rail transportation through Russia and Belorussia is possible,” the company states, highlighting it now offers an express rail service for electric vehicles from China to Europe in 30 days. “Yes, we do see increased demand for Eurasian rail due to the developments in the Red Sea,” Pavel Lagov, Product Management Director for Rail Solutions International at Hellman Logistics told ECG Business Intelligence.

Read here the latest ECG Business Intelligence report