The so-called BRIC markets of Brazil, Russia, India and China have continued to forge ahead in demand, output and increasingly, exports. While these regions offer terrific economies to carmakers, their sheer size and often primitive logistics infrastructure mean that OEMs must take careful measure of the real costs of manufacturing and distribution in these new automotive worlds.
Brazil – uncertain market with immature infrastructure
Vehicle sales in Brazil jumped 11% to 3.14m in 2009, as tax breaks and a rebound in consumer lending lured buyers, the Fenabrave dealers association said recently and this is typical of the rising trend in the region over the last few years. Much of this is due to dealer promotions and government initiatives such as stimulating state banks to provide Brazilian Real 8bn (US$3.9bn) in credit lines for auto purchases. While sales are rising, carmakers are looking for ways to tackle the inadequate infrastructure, the oppressive bureaucracy and the constantly changing government policies that make both inbound and finished vehicles movement difficult. One of the major problems is the underdeveloped road network, poor throughout the country but particularly immature in the northern areas.
The other transport system that is central to moving cars inland, an efficient rail network, remains almost non-existent, while automotive use of ports is prey to the volatility of Brazil’s agricultural exports, which can dominate usage on a seasonal basis.
OEMs’ differing strategies
Fiat uses Ceva for its parts handling (inbound) in Brazil and Sada for outbound. The OEM saw sales drops of 50% at the end of last year but as volumes are recovering, it has not changed its agreements with its logistics partners (LSPs) as it uses very flexible contracts which include such measures as number of cars transported per kilometre and free return load sale of capacity to other industries.
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Renault differs in that it doesn’t use full-service logistics providers (3PLs), instead using an in-house team for logistics engineering activities and buying transport from hauliers. It has cut its inbound time (of parts from Spain) from 24 days to 12 by switching from importing via Uruguay to the southern port of Paranagua (in Brazil) to direct route to the same port. Renault currently transports parts straight to the Paranagua port, which takes 12 days.
Ford’s inbound strategy differs in that it consolidates inbound volumes and makes extensive use of cross docks and milk runs. For outbound, it implements pre-delivery inspection and some ‘personalisation’ of cars in its plants and at port-side vehicle centres.
Most commentators in Brazil are optimistic about the future for automotive logistics in the region, citing the government’s various fiscal incentives and the return of healthy sales figures as stimuli but direct investment in infrastructure is not a major priority for the administration and OEMs and LSPs may have to continue with imaginative solutions to the region’s problems.
Russian recovery – slow but sure
While Russia may be a top target of many OEMs’ expansion plans, the past couple of years have been very difficult, sales having more than halved in 2009 and ‘flatlining’ so far in 2010.
While the region is attractive due to low labour costs, and Putin’s government have sworn to make large investments in Central Russia, such as in the venture between Fiat and Sollers, the intransigence of the customs authorities and constantly changing legislation present difficulties to all parts of the logistics chain.
Collaboration
Working together may well be the way forward for OEMs in the region, as Renault-Nissan are trying to prove with their ‘Alliance Logistics Europe’ initiative. This is implemented through a joint logistics effort, taking in Nissan’s plant in St Petersburg and Renault’s facility near Moscow, combining inbound and outbound movement.
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By GlobalDataAs in Brazil, Renault chooses to use hauliers directly, rather than going through a 3PL and it has stated that this allows faster response to changing legislation and customs vagaries. In a distinct difference to the Alliance approach in the rest of Europe, it uses a much more multi-modal system, with greater use of train and sea carriers as well as trucking. The region needs to capitalise on its return to healthy sales and drive through rationalisation of rules and regulations; pressure from expert 3PLs is likely to be more acceptable here than from the OEMs.
India – transport cannot keep pace with growth
India is perhaps the newest player in the BRIC regions in many ways – while making vehicles of one sort or another since 1949, the major global players have really only moved in during the last 20 years. Domestic sales are booming and are putting immense pressure on logistics. Latecomers to the region have sensibly located close to ports and supply chain logistics but they are still hampered by a poor road system, an ancient and unreliable rail network and inadequate port facilities. The country is broadly divided into three automotive regions: Delhi and nearby Pantnagar and Gurgaon with Tata (Nano) and Honda, Mumbai and Pune with Maruti, Tata, GM, VW, Fiat/Mahindra and Skoda, and Chennai (formerly Madras) with Toyota, Hyundai, Renault-Nissan, Ford and BMW. An example of an oddly-placed OEM is that of International, makers of tractors and SUVs. They are high up in the Punjab and have a nine hour supply chain length. Consequently, they are almost 100% vertically integrated, making their own engine castings and forgings, plastic mouldings and upholstery.
China – mixing purchasing with logistics
A significant trend amongst transplant OEMs in China is that of joining their purchasing and logistics divisions more closely than in other territories. This makes sense where the chain can be very long and the per-part cost must include what can be extraordinary transport costs and regional customs levies. This is an interesting challenge for 3PLs as they may be called upon to quote for a total delivered part price, and this will be factored in to every RFQ – potentially a deal-breaker situation for many suppliers, particularly Chinese companies who are remotely located.
The government is naturally promoting the interior of the country as it strives to replace the agricultural economy but must improve infrastructure to match. Road and rail development is continuing at a tremendous pace and there is little doubt that the region will support the many (some guess at 1,000) carmakers and logistics will improve faster than in any other region as the infrastructure improves. This will bring great opportunities for LSPs and 3PLs who will have to think imaginatively to sue the river, rail and road network to fully exploit the available business.
Part 1 – Automotive logistics overview
