Navigating the intricacies of Europe’s car manufacturing logistics

Current state of the car manufacturing industry in Europe

To begin with, let’s look at some key figures related to industrial output and vehicle registrations, both of which can help to form a picture of how many cars are being produced and sold in the continent.

Germany

Germany is of course renowned for its vehicle manufacturing industry, making its performance a key barometer for the region as a whole. Data recently published by Germany’s statistics office paints a nuanced picture of the industry’s health, with industrial output in Germany experiencing a modest uptick in January 2024, signalling potential signs of recovery after a prolonged manufacturing recession. However, challenges persist, including economic uncertainties and geopolitical tensions. 

Moreover, in February, the business climate within Germany’s automotive industry experienced a slight deterioration following a notable improvement observed in January, as revealed by the ifo Institute.  Despite this decline, the industry index stands at -10.1 points, markedly higher than its low point in 2023, notes Anita Wölfl, an expert at the ifo Center for Industrial Organization and New Technologies. The downturn in the business climate is primarily attributed to less optimistic expectations for the upcoming six months, with the respective indicator dropping to -30.0 points in February from -24.3 points in January. Conversely, assessments of the current business situation remained largely stable at 12.2 points. Wölfl remarks that the automotive industry has made significant progress in addressing the order backlog that began accumulating in 2021 due to supply chain disruptions. This observation is supported by data from Germany’s Federal Statistical Office. 

Furthermore, the ifo Business Survey indicates that, on average across all companies, the current order backlog is adequate for approximately 5.6 months, which represents a decrease of two months compared to 2022. However, it still exceeds the long-term average by one month.

2024 EU vehicle registration data 

When it comes to how many cars are being registered across the EU, in January 2024, the EU’s new car market experienced a resurgence following a slowdown in December 2023, with car registrations increasing by 12.1% year-on-year to reach 851,690 units. Significantly, the major automotive markets within the bloc all witnessed notable growth rates, with Germany (+19.1%), Italy (+10.6%), France (+9.2%), and Spain (+7.3%) achieving substantial gains in either high single digits or double digits.

• During January, battery electric cars captured a market share of 10.9% (up from 9.5% in January 2023), while hybrid-electric cars accounted for nearly 30%, solidifying their position as the second most preferred choice among EU car buyers. The combined market share of petrol and diesel cars stood at almost 50% in January 2024, marking a decrease from 54% one year ago.
• In January 2024, new registrations of battery-electric cars also surged by 28.9% to 92,741 units, constituting a total market share of 10.9%. Moreover, the four largest markets in the region, collectively covering 66% of all battery electric car registrations, witnessed robust double-digit gains: Belgium (+75.5%), the Netherlands (+72.2%), France (+36.8%), and Germany (+23.9%).
• Meanwhile, hybrid-electric cars saw a 23.5% increase in new EU registrations in January, driven by significant growth in major markets such as Spain (+26.5%), France (+29.9%), Germany (+24.3%), and Italy (+14.2%). This resulted in the sale of 245,068 units, representing 28.8% of the EU market share.
• Sales of plug-in hybrid electric cars also rebounded after a decline in December 2023, rising by 23.8% to 66,660 units in January 2024. This growth was primarily propelled by significant increases in key markets like Belgium (+65.2%) and Germany (+62.6%), with plug-in hybrid electric cars now accounting for 7.8% of total car sales in the EU.
• When it comes to fossil-fueled cars, in January 2024, the EU petrol car market expanded by 4%, with notable increases in markets such as Italy (+26.7%) and Germany (+16.9%). Despite maintaining its lead with 35.2% of the market, the share of petrol cars decreased from 37.9% in January 2023.
• Conversely, the EU diesel car market contracted by 4.9% in January, evident in markets like France (-23.4%), Spain (-10.2%), and Italy (-8.7%). However, Germany experienced a growth rate of 4.3%. Diesel car sales reached 114,415 units in January 2024, accounting for a market share of 13.4%, down from 15.8% in 2023.

Logistical challenges faced by car manufacturers

Although Europe’s car manufacturing industry has seen better times, the figures above do at least indicate modest uptakes in vehicle registrations and industrial output. All of these vehicles nonetheless have to go somewhere, and, of course, vehicle logistics is not immune from all of the present-day challenges that global shippers are experiencing. In addition, the nature of vehicle logistics also entails complexities unique to the industry. This is very much highlighted in a survey recently published by the European The Association of Vehicle Logistics (ECG).  The survey results reveal a myriad of challenges faced by both Original Equipment Manufacturers (OEMs) and logistics service providers (LSPs), ranging from capacity constraints and rising transport costs to regulatory uncertainties and operational inefficiencies.

The research gathered insights from both logistics service providers (LSPs) and Original Equipment Manufacturers (OEMs), offering a comprehensive view of the challenges and trends within the automotive logistics industry. Beginning with the overarching concerns, both LSPs and OEMs identified pressure on capacity and cost as significant issues. Specifically, 36% of respondents from both groups highlighted capacity constraints, while 23% emphasised cost-related challenges as business-critical factors.

Delving into the specifics of cost-related challenges, LSPs pointed to energy costs and the cost of equipment as primary concerns, with 40% and 36% respectively rating them as having a very high impact. Conversely, OEMs cited rising transport rates, pressure on transport budgets, and the need for chartering dedicated resources as key cost challenges, with 69%, 47%, and 47% of respondents respectively noting their significant impact.

Capacity emerged as another critical area of concern for both LSPs and OEMs. LSPs expressed challenges in committing to volumes, with 41% highlighting this issue as having a very high impact. They also identified congested ports as a major contributing factor, with 53% emphasising its significance. On the OEM side, the lack of transport and storage capacities were primary concerns, with 60% and 52% respectively noting their considerable impact.

Lead time emerged as a significant challenge, particularly for OEMs, who expressed frustrations with the lack of transparency in delivery dates and long lead times, noted by 36% and 26% of respondents respectively. Operational challenges were also highlighted, with LSPs pointing to issues such as waiting times, frequent changes, and cancellations, while OEMs expressed concerns about transparency when subcontractors are involved and overall visibility and transparency of vehicle movements.

The survey also addressed environmental awareness within the industry, with LSPs feeling pressure to invest in green assets and reporting CO2 emissions, while OEMs emphasised the importance of transparency regarding CO2 emissions. Invoicing processes posed challenges primarily for LSPs, with issues such as long payment times and manual processes cited as significant hurdles.

Disruptions in road transportation were identified as another major concern, though it was noted that this perception might be influenced by the proportion of road transporters among the respondents. Additionally, the survey explored the level of digitalization within the industry, highlighting data exchange as the most digitised process among respondents, followed by fleet and compound management.

Regarding investment areas, data exchange with customers and partners, as well as route planning, were identified as top priorities. The survey also revealed a positive correlation between investment and the level of digitalization within companies. However, correlations between investment and specific operational challenges varied, with some yielding only slight or inconclusive results.

Preferred Transport Modes

In response to these challenges, car manufacturers employ a diverse array of transport modes to move vehicles across the supply chain. Sea freight remains a preferred choice for long-distance transportation, offering cost-effective and environmentally sustainable solutions.

Preferences in Spain

A report from the Spanish Association of Automobile and Truck Manufacturers (ANFAC), published in November 2023, also offers insights into the transportation of vehicles via sea freight, rail freight, and road freight. The report is based on an ANFAC survey conducted among its members to gauge their satisfaction levels with various aspects of each transport mode in 2022.

In terms of overall volumes, the report indicates that in 2022, a total of 4.59 million vehicles were transported via road, rail, and sea freight, marking a modest 2.6% increase compared to 2021. However, this volume still falls short of the pre-pandemic levels, which exceeded 5 million vehicles. Economic fluctuations since 2020, coupled with the impacts of the COVID-19 crisis and the Russian invasion of Ukraine in February 2022, have posed significant challenges to the automotive sector, making recovery efforts challenging.

The use of sea freight for vehicle transportation experienced a notable increase of 9.2% in 2022, with a volume of 2.2 million vehicles. This growth comes after three consecutive years of decline and is attributed to a 5.8% increase in vehicle production. Moreover, sea freight emerges as the preferred mode of transportation for 48.4% of ANFAC’s members, representing a 2.9% increase compared to 2021.

The report also delves into the satisfaction levels of ANFAC’s members with the main ports for vehicle import and export. Among these ports, Santander received the highest satisfaction score of 4.4 out of 5, followed by Tarragona and Sagunto at 4.2. Notably, several ports, including Santander, Sagunto, and Malaga, improved their scores compared to the previous year. However, the overall average rating for Spanish ports dropped slightly to 3.9 out of 5. Customs procedures received the highest rating among the rated categories, followed by access to warehousing, loading and unloading of trucks, storage area management, and incidents related to vehicle handling.

Rail freight saw a significant growth of 10.9% in 2022, with over 550,000 vehicles transported via rail. The modal share of rail transport reached 12.1%, indicating the automotive sector’s increasing reliance on railways. Challenges such as a shortage of train drivers, freight wagons, and locomotives have hindered further growth, despite both national and international transport contributing to the overall increase.

Conversely, road transport volumes experienced a decline of 6.5% in 2022, with 1,812,325 vehicles transported via this mode. International road transport saw a sharp contraction of 26.2%, while national transport increased by 6.8%. The report attributes this decline to a shortage of capacity exacerbated by a lack of truck drivers.

Modal preferences of European car manufacturers in Q1 2024

In February of this year, I had the opportunity to speak to Mike Sturgeon, Executive Director of ECG – the Association of European Vehicle Logistics. During our discussion, Sturgeon emphasised the continued utilisation of rail transport by car manufacturers. Sturgeon stressed that OEMs tend to favour rail over road whenever possible.

However, despite the automotive industry’s efforts to maximise rail usage, Sturgeon believes it is challenging to further increase reliance on rail freight. The ECG Executive Director explained that factors such as the relocation of automotive factories to Central European countries, and a lack of east-west rail lines, pose significant obstacles. Sturgeon added that infrastructure projects in Germany aimed at upgrading railways have also led to disruptions and reduced volumes for major automotive rail users like Volkswagen.

The implications of these infrastructure projects are profound. Sturgeon noted that trains are travelling longer distances, thereby requiring more trains, wagons, and drivers. Moreover, cross-border rail freight faces challenges due to varying gauges and voltages, as well as a shortage of locomotive drivers. Specific to vehicle transport by rail, the industry mainly utilises block trains, and loading and unloading costs are relatively high, making rail economically viable only for distances over approximately 250 kilometres.

Sturgeon did acknowledge exceptions during our conversation, such as shuttle services from car factories to ports for export, but he additionally highlighted that rail freight operators often prioritise other industries over the automotive sector. In terms of sea freight, Sturgeon saw a more optimistic outlook with the delivery of new ships. However, challenges in the Red Sea may delay the balance between supply and demand in deep-sea shipping until late 2025.

Regarding road freight, Sturgeon noted a return to balance, attributed partly to lower demand and OEMs winding down chartered trucks. The reduction in dedicated trucks chartered by OEMs is expected to increase the efficiency of existing capacity in the market. Finally, Sturgeon stated that the ordering of more car transporters would contribute to a boost in road freight capacity.

EU Weights and Dimensions Directive

A month after that interview, a significant development occurred that is set to influence car logistics by road – the recent agreement on the revision of the EU Weights and Dimensions Directive. This directive, aimed at harmonising loaded length regulations for vehicle transporters crossing EU borders, is aimed at creating a more cohesive and efficient transportation framework.

The plans have been backed by industry stakeholders such as the ECG and ACEA, who hope it will address the fragmented nature of national legislations and streamline cross-border operations. It has also been suggested that the directive will pave the way for a more integrated and sustainable transportation framework, driving operational efficiency, reducing emissions, and driving cost savings for vehicle transporters and the automotive sector at large.

However, the directive has its fierce critics, with rail freight associations particularly vocal about their opposition.

For example, Ralf-Charley Schultze, President of the International Union for Road-Rail Combined Transport (UIRR), told me in February proposals in the directive were “extremely shocking,” arguing that the directive would likely undermine efforts to promote intermodal transport while reducing CO2 and pollutant emissions.

Schultze made it clear that he and his colleagues in the UIRR would continue to lobby for changes to the directive, leaving open the possibility that it could be revised in the future.

Automation

Porsche’s cloud-based system for automated warehouse-production line deliveries

Elsewhere in the automotive supply chain, automation is being used to yield efficiencies. A case in point is German sports car giant Porsche, which recently announced that it had implemented a cloud-based software that’s integrated into its factory’s existing IT infrastructure. The software is used to automate the operation of lifts and gates among other things, allowing automated guided vehicles delivering components to move from its warehouse to its production line. 

Commenting on the system and its advantages, Albrecht Reimold, head of production and logistics at Porsche, said:

New obstacles, but the same challenges

Like any form of logistics, vehicle logistics involves addressing constantly-changing obstacles, whether it be extreme weather, geopolitics, infrastructure problems, or so-called ‘black-swan’ events like the pandemic. Modal preferences have not changed dramatically in recent times, with ocean shipping being the number one choice due to its cost, followed by rail and road. Road is naturally always part of the picture as it is required for the last mile section of the journey.

At the time of writing, the rail infrastructure disruption in Germany seems to present the most pressing logistical challenge for car manufacturers, putting more pressure on road transport. On a positive note, plentiful capacity in ocean freight should mean rates are kept low.