October-December 2018

automotivelogistics.media

Visions of the future

The face of the automotive
industry is changing with new
roles for man and machine

How hyperloop technology How autonomous supply How the automotive

could reduce lead times, chains could empower industry is battling to
inventories and costs human workforces attract and retain talent
Delays not only hurt your reputation, they also damage your bottom line. It’s why we’re dedicated
to getting perishable products to market quickly and efficiently. All so you can keep your promises
and your profits. It’s how we deliver confidence. Learn more at gopenske.com.

© 2018 Penske. All Rights Reserved.


R
evamped at last, after months of
discussion, much to-ing and fro-ing
between the parties involved, and some
eleventh-hour tweaks – yes, the new-look
Automotive Logistics is finally here. I do hope its
arrival doesn’t overshadow that other thing that was
redesigned recently – the free trade agreement
which has governed business between the US,
Canada and Mexico over the past 24 years. In the arc
of global history, one is rather more important than
the other, though I’m sure the new Nafta will have
some impact.
In seriousness, developments in the North
American Free Trade Agreement negotiations started
to move so fast in September, after more than a
year of talks, that it was rather difficult to keep pace
with the story. On August 27, a deal was struck
with Mexico, and at first it seemed this might leave
Canada sitting on the sidelines. But then, on October
1, President Trump trumpeted an agreement with
his northern neighbour also, and the United States-
Mexico-Canada Agreement (catchy name) was born.
In typical bombastic style, Trump described
USMCA (little better) as “the biggest trade deal in
the United States’ history” and “a great deal for all
three countries [that] solves the many deficiencies
and mistakes in Nafta”. His Canadian and Mexican
counterparts publicly agreed that the development
was positive, although Canada’s Prime Minister
Trudeau admitted that compromises had been made.
So, what is this new deal governing $1 trillion of
trade, and is it really an improvement on what went
before?
For details of new content rules, exemptions, side
letters and other complexities I will direct you to our
feature beginning on p24. As for the full implications
for vehicle-makers, tier suppliers and LSPs, these are
still being worked out and we will be sure to update
you as new developments occur, not least the results
of the US Commerce Department’s Section 232
investigation into the 'threat' to national security
posed by imports. Automotive companies were
understandably reluctant to go on the record while
negotiations were taking place, but we hope to bring
Editor Joanne Perry - joanne.perry@automotivelogistics.media
Assistant editor Victoria Johns - victoria.johns@automotivelogistics.media
Features editor Marcus Williams - marcus.williams@automotivelogistics.media
Managing editor Robin Meczes - robin.meczes@automotivelogistics.media
Associate editor David Fagan
Contributors Thomas Cullen - Tony Danby - Mike Farish - Steve Garnsey - Nick
Gibbs - Ian Henry - Karen McCandless - Vladislav Vorotnikov - Malcolm Wheatley
Content director Christopher Ludwig - christopher.ludwig@ultimamedia.com
Design director Matt Crane - matt.crane@ultimamedia.com
Senior designer: Steven Singh Bains - steven.bains@ultimamedia.com
Junior designer Nicole Masterman - nicole.masterman@ultimamedia.com
October-December 2018
EDITOR’S NOTE
you a range of perspectives and insights very soon.
Peering further into the future, this issue also
features a number of articles that present a vision of
how automotive logistics could look over the coming
decades, as the industry adapts to social, economic
and technological trends which are already underway.
Our lead story, starting on page 28, examines the
potential of hyperloop technology – a combination
of magnetic levitation, ultra-low aerodynamic
drag and low-pressure tubes – for reducing lead
times, streamlining inventories and cutting costs in
Joanne Perry inbound logistics, and asks how soon automotive
Editor companies can expect to see the benefits. While an
exciting technology, hyperloop represents the type
of transformative change that requires significant
investment, visionary thinking and the ability to push
through large-scale infrastructure projects in the face
of numerous obstacles; for this reason, the Gulf
states, China and the US are tipped as favourites to
deliver on the 'hype'.
In addition, at our AL Global conference
this September in Detroit, I learned what the
'autonomous supply chain' concept could mean
for the automotive industry: machine learning
and artificial intelligence enabling smart robots to
respond to changing circumstances, while their
human 'babysitters' tackle higher-level decisions.
According to Srini Muthusrinivasan of JDA Software
(see interview on pages 20-22), the adoption of this
autonomous supply chain has already begun – and is
accelerating rapidly.
Times are certainly changing and so have we
at Automotive Logistics, although we haven’t yet
installed robots that can write articles (I look forward
to the day). The new-look magazine is clearer, more
modern and packed with statistics, charts and maps
to make the complex picture of today’s automotive
logistics easier to take in; I do hope you enjoy it.
Whether you will also enjoy the new-look Nafta, I
don’t yet know – feel free to write in.
Joanne Perry, Editor
Contact:
T: +44 (0) 20 8987 0983
E: joanne.perry@automotivelogistics.media
Account director Gavin Andrews - gavin.andrews@ultimamedia.com
Account manager Alistair Newton - alistair.newton@ultimamedia.com
FVL publisher Matt Allard - matt.allard@ultimamedia.com ISSN 1471-6003
Group publisher Louis Yiakoumi - louis.yiakoumi@ultimamedia.com
Advertising sales support Kate Rooney - kate.rooney@ultimamedia.com
Circulation manager Justyna Makowiecka - justyna.makowiecka@ultimamedia.com
Head of marketing Chris Mott - chris.mott@ultimamedia.com
Finance manager Piers Marshall - piers.marshall@ultimamedia.com
Managing director Gavin Miller - gavin.miller@ultimamedia.com
Magazine redesign led by Steven Singh Bains with David Fagan BRAND REPORT
AL 03
 CONTENTS

CONTENTS October–December 2018

The future?
As the automotive industry
adapts to social, economic and
technological trends, we are likely
to see new methods and patterns
of logistics emerging – including
new types of interactions between
humans and machines

CONFERENCE REPORT
14 A human capital crisis
As the automotive logistics sector continues
to automate, there are some important human
factors to resolve if such plans are to succeed.
Marcus Williams reports from the AL Global
conference in Detroit

INTERVIEW
20 Srini Muthusrinivasan 28
At the AL Global conference in Detroit, JDA
Software’s senior global industry strategies
director talked to Joanne Perry about his vision
of the automated supply chains of the future

LEAD STORY
28 Futuristic logistics
Hyperloop technology offers freight shippers
the potential for aircraft-like speeds with
truck-like costs. So how long will it be before
automotive supply chains start to enjoy
the benefits of this innovative technology?
Malcolm Wheatley investigates
20 36
IN-PLANT LOGISTICS
36 Showing robots
the ropes
A new system being tested at VW Dresden
could enable self-programming robots to
support both production and in-plant logistics.
Mike Farish investigates

04 AL
 CONTENTS

COMMENT AND ANALYSIS

40 ON THE COVER...
06-13 News and People
The latest headlines and key appointments

06 Trade relations
Tariffs are disrupting the US car industry

08 Market trends
Mexico hopes for a smoother road ahead

10 Brexit
Warning over no-deal as OEMs shuffle production

12 Opinion
Growing trade war threatens supply disruption,
says Matt Grimwade at JLT Speciality
TIER FOCUS
13 Climate 44 Pressing a point
Extreme weather rocks Japanese vehicle-makers
Despite unknown Brexit implications, global parts
CONFERENCE ROUND-UP
supplier Gestamp has unveiled a new factory near
Wolverhampton to serve customers in the UK and
beyond. Mike Farish went to have a look
24
COUNTRY FOCUS
54 Rewriting the rules
Russia’s Industry and Trade Ministry is looking to rip up
existing industrial assembly agreements in favour of a
new localisation strategy. Vladislav Vorotnikov looks at
the implications for automotive supply chains

58 Cracking under sanctions

Fresh US sanctions have broken Iran's automotive
market, forcing vehicle-makers to pull out and leaving a
void that the Chinese may fill. Nick Gibbs investigates

58
TRADE RELATIONS
24 Finally, a done deal?
The announcement in August that the US and
Mexico had reached agreement in principle on Nafta
was followed by a similar deal with Canada in late
September. So does this clear up the uncertainty over
tariffs? Greg Thompson reports
START-UP
OEM FOCUS
64 Freight expectations
40 Energising the synergising British start-up Zencargo tells Victoria Johns how its
The Renault-Nissan-Mitsubishi Alliance has already technology can offer freight forwarders greater peace
achieved substantial savings from a more joined-up, of mind
cross-brand approach to manufacturing and logistics.
And there is more to come, writes Ian Henry FROM THE INDUSTRY

50 Part of the plan 48 Driving predictive

The Skoda Parts Centre in Mladá Boleslav has been maintenance
expanded for the third time since opening in 1999. Predictive maintenance is set to transform the way
Victoria Johns went to find out what it has in store for logistics companies supply spare parts. Gefco’s
the VW Group's aftermarket parts distribution Synchro Hub is leading the charge

AL 05
 COMMENT & ANALYSIS
News
The Motor and Equipment
Manufacturers Association
(Mema) in the US has
criticised the Trump
administration for imposing
$200 billion worth of tariffs
on Chinese imports. The
duties start at a rate of 10%
on September 24 and will
rise to 25% in January.
The twice-weekly CldN ro-ro
service linking Santander
in Spain, Rotterdam in the
Netherlands and Leixões
in Portugal, is to be divided
into two distinct services.
It is hoped the move will
help increase the number of
semi-trailers being carried by
around 10,000 units a year.
Audi officially premiered
its e-tron electric SUV at
a summit event in San
Francisco on September
17. The German carmaker
confirmed it was employing
autonomous technology for
the delivery of parts and
batteries to the assembly
line from onsite facilities. It
is also sequencing battery
assembly and fitment at its
Brussels site.
Groupe PSA is trialling an
autonomous tow tractor
at its Sochaux car plant
in eastern France. The
aim of what the company
describes as a world first in
the manufacturing sector,
is to improve operational
flexibility in getting parts to
the assembly line.
Mazda's joint venture with
Russian vehicle maker
Sollers – Mazda Sollers
Manufacturing Rus – has
started production at its
plant in Vladivostok. The
plant is manufacturing the
Sky Activ-G Euro-5 compliant
engine and is set to make
50,000 per year for delivery
to Mazda's plants in Japan,
with the majority going to
Hiroshima. Vehicles fitted
with those engines will be
exported globally.
06 AL
Trade relations Tariffs are disrupting the US car industry
Representatives from
carmakers, tier suppliers and
dealerships are among those
warning of the enormously
disruptive impact of continued
import tariffs in America.
A US Senate Finance
Committee hearing in late
September in Washington, DC
heard that duties on vehicles
and automotive parts into the
US, as proposed by the Trump
administration, were putting
investment and jobs at risk. The
hearing was held as part of an
investigation by the Department
of Commerce into whether
imports of automobiles and
automotive parts threatened
national security.
“The supply chain, their
customers, and the jobs
they support are highly
interdependent,” said Michael
Haughey, of the North American
Stamping Group (NASG),
speaking at the hearing. “Like
a stone in a pond, one small
change to the chain can cast off
multiple ripple effects.”
Disruption for all
Haughey cited a couple of
major disruptions to affect
the automotive supply chain
in recent times, including the
Sendai earthquake in Japan (see
p13) and the fire at the Meridian
Lightweight Technologies plant
in Michigan. He said they
showed how the US vehicle
industry relied on both its global
suppliers and its local domestic
component manufacturers.
“Disruption to one implies
disruption to all,” he said.
On the same theme, Rick
Schostek, executive vice-
president at Honda North
America, commented: “No
matter how short-lived, [tariffs]
are enormously disruptive to
the stability of a business and
reduce the value business
can provide to customers and
contribute to society.”
Tariffs threaten vehicle
development, said Schostek.
Cars and trucks contain “literally
thousands of individual parts”
and developing a new vehicle
takes up to six years. To
achieve this, Honda works with
suppliers to design components
to ensure that vehicles meet
Rick Schostek of Honda
government regulations for
safety, fuel economy and so on.
“The labour and material
content of each component
is also carefully managed to
maximise performance while
minimising cost to ensure that
the ultimate price of the vehicle
will meet the needs of our
customers,” he told committee
members.
Schostek said that
unanticipated disruptions,
such as new taxes in the
form of tariffs, represented
an unplanned addition to the
cost and process of building a
vehicle which was not factored
into the business plans of
manufacturers and suppliers.
He said the added costs
would either be passed on
to customers or borne by
manufacturers, diverting money
intended for other purposes,
including investment in
future technologies, or capital
improvements to operations.
Once production of a model
has started, manufacturers
cannot readily change suppliers
to mitigate the added cost
of tariffs, Schostek told the
hearing. “Business agreements
with suppliers generally cover
several years of production.
Further, it takes time for a
manufacturer to qualify a part
from an alternative supplier, as
well as ascertain their ability to
supply that part in the quantity
and schedule required,” he said.
Also taking part in the hearing
was Steve Gates, principal
dealer of the four-generation-old
Gates Auto Family, which has
outlets in Kentucky, Indiana and
Tennessee. He said that tariff-
related extra costs extended
into the aftermarket and had
safety implications.
Owners needing to repair
their vehicles would “feel
the pain” of 25% automotive
tariffs because more expensive
parts would drive up the
cost of maintenance, he told
committee members.
After citing an Auto Care
Association estimate that each
US household will spend an
extra $700 per year in increased
ownership costs, he said:
“Current car owners, unable
to pay the higher prices an
auto tariff would bring to our
service centres, will likely put
off needed repairs and safety
improvements, making for a
dangerous situation for them
and others on the roads.”
As parts become pricier,
insurance premiums will go up
as insurers cover their higher
costs, he added.
Steel and aluminium tariffs
The automotive industry has
had first-hand experience
of higher tariffs this year:
President Trump’s 25% import
duties on steel, 10% on
aluminium and then retaliatory
levies on automotive parts as
‘trade wars’ broke out.
In his opening remarks,
committee chairman Orrin
Hatch said that import duties
on steel and aluminium cover
almost $50 billion worth of
goods. The downstream cost
of the steel and aluminium
tariffs has added an estimated
$400 to a new car; a 25% tariff
on finished vehicles would
raise the price of an average
imported car by up to $6,400.
Honda’s Schostek told the
committee: “[That] is bringing
an array of unanticipated
harmful effects that would
only be magnified by tariffs on
automobiles and auto parts.
For example, more than 90%
of the steel used to produce
our vehicles here is sourced
in America. So, while we’re
paying relatively little in the way
of tariffs on steel, the price of
domestic steel has increased
as a result of the tariff, saddling
us with hundreds of millions of
dollars in new, unplanned cost.”

Haughey said that its costs
had increased by more than
$10m because of the steel
tariffs alone.
“As a supplier, NASG is
unable to pass steel price
increases to tier one customers
and vehicle manufacturers,
regardless of whether the
higher price was due to tariffs
or increased prices as the
domestic steel producers inflate
prices.”
To mitigate the
consequences, NASG has
reduced overtime, put hiring
on hold, reduced capital
expenditure and cut all
discretionary spending. “The
decisions of NASG have been
repeated throughout the supply
chain,” he added.
Long-term impact
The US is also imposing tariffs
on a range of automotive goods
coming in from China, with
the latest announcement of an
additional 10% tariff affecting
$200 billion worth of goods.
The US may be one of the
world’s major car-manufacturing
regions, but “tariffs on motor
vehicle parts will jeopardise the
vehicle industry’s growth and
success and, more importantly,
the US jobs and American
innovation that comes with
trade,” he said.
“The US cannot simply stand
on its own and manufacture the
most fundamental components
as well as the newest
advanced technologies and
remain competitive in a tariff-
compulsory environment.
"The supplier industry has
long urged this administration
to consider alternative policies
and actions instead of tariffs
to encourage and retain the
development and deployment
of the newest innovations in the
United States.”
Haughey then referred
to what is rarely mentioned
alongside tariffs and trade
wars: the pace of technological
change. He said that advanced
vehicle safety and efficiency
systems required substantial
development costs and that US
investment and research over
the next several years could
COMMENT & ANALYSIS
well determine the country’s
global leadership in transport People
and technology for generations.
“The United States has long
been a leader in innovation,”
said Haughey. “However, the
imposition of trade-restrictive
actions, like tariffs or quotas, on
vehicle parts manufacturers will
put these US investments in
jeopardy.”
Tariff-free success
The committee was also
addressed by David Britt, Michael Druml has taken
chairman of the economic over as vice-president
and development committee of purchasing for Magna
in Spartanburg County, South International Europe
Carolina, which has been home replacing Klaus Iffland,
to a very successful BMW plant who has retired from
for 26 years – supported by the company. The move
open trade policies. relects a new emphasis
Britt declared: “We are on collaboration across
poised for even brighter days to the group and Druml will
come – provided these tariffs continue to work as director
do not put their foot on the of purchasing and logistics
throat of growth.” at Magna Steyr, where
Steve Garnsey he oversees purchasing,
along with supplier quality,
For an update on tariffs logistics, materials handling,
connected to the Nafta customs and distribution.
negotiations, see p24.
 COMMENT & ANALYSIS
News
Volkswagen Truck & Bus is
to launch a digital logistics
portal in Brazil in tandem
with the group’s digital
brand, Rio. The Rio portal,
which is based on vehicle
data intelligence and stored
in the cloud, will offer up to
20 services that are currently
purchased individually,
including parts ordering.
Unipart Logistics has won a
new five-year contract with
VW Group to run its UK
aftermarket supply chain.
More than 450 workers at
VW’s Tamworth logistics
hub moved to Unipart after
it signed a deal with the
carmaker. The operation
will service more than 900
retailers and trade partners
across the UK.
The port of Buenos Aires in
Argentina has received its
first ever roadtrain delivery
of containers from the Toyota
plant at Zárate. The delivery
was part of a trial intended
to demonstrate the benefits
of such roadtrains, and
involved a single tractive unit
hauling two semi-trailers on
a shared axle train.
Mitsubishi Fuso Truck and
Bus Corporation (MFTBC)
has announced that it
will construct a complete
knockdown assembly plant
in Thailand. In the first stage,
the unit will put together
Fuso’s heavy-duty FJ 2528C
trucks, launched in Thailand
earlier this year and designed
for the rapidly growing
construction sector.
Newly formed battery
manufacturer Hyperbat will
open a multi-million-pound
production plant in Coventry,
UK next year. It will begin
by supplying batteries for
Aston Martin’s first electric
vehicle, the Rapide E.
Hyperbat is a joint venture
between Williams Advanced
Engineering and Unipart
Manufacturing Group.
08 AL
Market trends Mexico hopes for a smoother road ahead
After much uncertainty
around trade talks between
Mexico and the US, and the
former’s presidential election,
Mexico’s economic and political
conditions now seem clearer,
leaving OEMs and LSPs in the
country more optimistic about
the future.
Mexico, which is the
world’s fourth biggest vehicle
exporter, has enjoyed strong
levels of exports in recent
years, especially to the US,
and rising growth in demand
at home. Last year, however,
the variables changed due
to the North American Free
Trade Agreement (Nafta)
renegotiation, uncertainty
about commercial rules in
North America, exchange rate
volatility, higher prices for new
cars and tighter credit.
Mexico produced 2.6m cars
between January and August
this year, virtually unchanged
from the same period in 2017.
With some key uncertainties,
such as the bilateral trade
talks with the US and its
own presidential election,
now essentially resolved, the
country’s automotive sector is
hoping to avoid a bumpy road
ahead and aims to reach total
annual production of 5m cars
by 2020, compared with about
3.9m units last year.
Hours of change
In August, the US and Mexico
signed a bilateral trade
agreement that appeared to
ease the trade-related concerns
between the two countries. As
part of the agreement, Mexico
and the US hammered out a
new deal requiring 75% of car
parts to be produced in the
region (from 62.5% currently),
and stipulating that 40-45% of
vehicle content be made by
workers earning at least $16 an
hour. That is equivalent to about
308 Mexican pesos – or three
and a half times Mexico’s daily
minimum wage of 88 pesos.
“Some production could shift
to the US in the short term,
while production in the medium
and long term should return to
the plants that are automated
and more productive,” says
Antonio Fondevilla, executive
Ceva's Antonio Fondevilla
vice-president for the global
automotive sector at Ceva
Logistics, which provides
supply chain support for the
automotive sector across
Mexico and Central America.
According to Fondevilla, that
is because less than 0.5%
of the Mexican workforce
earns $16 per hour and a
significant improvement would
be necessary in automation,
productivity and logistics to
reach that kind of salary.
He says the salary target
should encourage Mexico
to invest more in R&D and
engineering to justify higher
pay to reach the new wage
requirement. “This was an
area in which Mexico was not
investing and it could mean that
Höegh eyes the challenges
Tomasz Lis, a specialist on
Latin America for Höegh
Autoliners, says that the
vehicle shipper carried out
more than 140 port calls in
Mexico last year, handling over
300,000 units.
Höegh operates in the two
largest vehicle-handling ports
in Mexico, being the largest
ro-ro operator at Veracruz and
a major player in Altamira.
“Our volume forecast
for the rest of the year
is somewhat lower than
expected, but it should still
come in higher than last year,”
he says.
Lis, who has recently
switched roles from
Latin America to handle
Höegh’s European sales,
says improvements are
opportunities in development
will arise as well as more
potential tier one investment in
the area,” he comments.
VW de México spokesperson
Consuelo Minutti says the
preliminary agreement should
be welcomed, but points out
that the specifics are still
unclear. VW will be conducting
a very careful examination of
the full details when they are
disclosed, she notes.
Wait and see
President-elect Andrés Manuel
López Obrador, who will take
office on December 1, won
the presidential election at the
start of July with over 50% of
the popular vote in a landmark
break with the centre-right
National Action Party and ruling
Institutional Revolutionary Party
that have governed for nearly a
century.
Ceva’s Fondevilla says
this will be disruptive. The
automotive sector in Mexico
is lobbying Obrador to focus
on security for vehicles and
automotive parts transport
within Mexico, as crime has
spiralled across the country
to become a major issue. In
addition, Mexico needs to
improve the public registration
mainly needed at Veracruz,
the busiest ro-ro port.
Improvements are not always
about infrastructure per se,
he says, but often relate to
safe transport by land, which
is heavily affected by theft and
vandalism.
While some ports do need
better safety measures,
such as Altamira and
Lazaro Cardenas, the worst
bottlenecks occur in landside
logistics and at port terminals,
he adds.
Therefore, Höegh has
invested in off-port storage in
Veracruz with shuttle services
and PDI. “This is an area we
will continue to fine-tune
in order to create supply
chain efficiencies for our
customers,” he comments.
 COMMENT & ANALYSIS

of vehicles to have an updated
platform for statistics about
sales, especially those involving
US-Mexican trade, he says.
Fondevilla adds that
economic development will
depend largely on the ability
to build the capacity for port
traffic as well as intermodal
and truck flows. Despite plans
being in the implementation
phase for new expanded airport
operations, Mexico sorely
lacks maritime, intermodal and
ground infrastructure, he says.
Fondevilla also complains
about a lack of connectivity
between the points of
Below: Kia is seeing solid growth in
Mexico, where it makes small cars
production, ports and borders
that has impacted on the
sector’s operating costs,
leaving logistics accounting for
about 12% of the cost of a car,
compared with 6-7% in the US.
OEMs look ahead
Yet the political and economic
uncertainty has not tarnished
the confidence of OEMs in
the country, with no negative
effects on sales, according to
Hugo Aguilera, head of logistics
and procurement at Kia Motors
Mexico.
Kia builds the Forte, a
compact sedan, in Mexico
as well as small cars such as
the Rio and Accent. Since it
manufactures vehicles in two
of the most active segments
of the market – compacts and People
subcompacts – there is solid
and growing demand every
year, according to Aguilera.
Kia’s plant is located in the
north of Mexico in Nuevo
León state, and exports
cars worldwide. Its facility is
surrounded by its main tier one
suppliers from Hyundai Motor
Group, such as Hyundai Mobis.
Aguilera says Kia’s target
for 2018 is to sell 90,000 units
versus last year’s 80,000, when Ulf Harring has joined
it beat its goal by 6,000 cars. tyre-maker Bridgestone as
Other OEMs, too, are looking chief operating officer for
at growth in Mexico and Europe, the Middle East and
abroad. According to Minutti, Africa.
VW is strengthening its “model He will be responsible
offensive” in the area. for logistics, supply
VW operates two plants in chain management and
Mexico: Puebla for vehicles procurement, manufacturing,
and Silao for engines. Puebla quality, IT, environment, and
is the second biggest VW health and safety matters.
factory outside Europe, with a Harring previously worked
production capacity of 2,500 for Mercedes-Benz Cars
units a day, and last December and Mitsubishi Motors in
began making the seventh- roles involving operations,
generation Jetta for the North procurement and supply
and Latin American markets. chain services.
Tony Danby

Brexit developments, new HMRC systems,

Y^Wd]_d]YkijecijWh_Żi$J^_d]iWh[^Wff[d_d]$
Is your customs system ready to master it all?
?dWjhWdi\ehc_d]Wkjecej_l[cWha[jfbWY["oekYWd¿jWŸehZh[l[dk[_cfWYjij^hek]^
XehZ[hZ[bWoi$?j¿il_jWbdemje^Wl[W\b[n_Xb[WdZ_dj[]hWj[ZYkijecicWdW][c[dj
fbWj\ehc_dfbWY[$J^[j_c[jemW_j^WifWii[Z"i^Wf[kfoekh?Jºm_j^7;8$

Customs Management Software from AEB keeps your global trade flowing and your
costs at bay: mmm$W[X$Yec%Ykijeci
 COMMENT & ANALYSIS
News
Russian OEM Gaz Group is
facing supply chain disruption
due to several European
component suppliers ceasing
trade with the company
following US sanctions on
firms owned or controlled by
Oleg Deripraska. According
to Russian news source
Vedomosti, one of the
effects is the supply of
electric buses to Moscow
as part of a 6.35 billion
rouble ($100m) contract the
OEM signed with the city
authorities earlier this year.
Thyssenkrupp Materials
Services is building a
€60m ($69.5m) logistics
centre in the German town
of Rotenburg, in Lower
Saxony, for its subsidiary
Thyssenkrupp Schulte, to
store materials including
aluminium and steel.
The company makes
steel tubes and pipes,
non-ferrous metals and
speciality materials, as well
as providing materials and
supply chain management
for a range of industries.
Kuehne + Nagel is applying
blockchain technology
to upgrade its existing
Verified Gross Mass (VGM)
portal. VGM is the weight
of cargo, including the
dunnage, bracing and tare
weight of the container. The
upgrade aims to improve
transparency on the VGM
status of all shipments.
Bridgestone has taken over
UK tyre distributor ETB
and will add 32 branches
in the south of the UK to
its distribution and service
network. ETB (Exhaust Tyres
Batteries) also trades under
the name of Britannia Tyres.
The company has acquired
100% of the shares in
family-owned ETB, which
has operated for more than
35 years and employs 265
workers. The Japanese tyre
maker said it aims to expand
in the retail sector.
10 AL
Brexit Warning over no-deal as OEMs shuffle production
While the political debate over
the UK's departure from the
EU continues, two car plants in
the UK are planning production
changes and the UK’s Society
of Motor Manufacturers and
Traders (SMMT) has warned
that a no-deal Brexit could add
at least £5 billion ($6.6 billion) in
tariffs for the EU’s automotive
industry. Nissan has also
warned that a hard Brexit would
lead to serious disruption at its
plant in Sunderland.
Jaguar Land Rover (JLR)
Above: Despite production adjustments, JLR said it was committed to its UK
plants, pointing out that it has invested more than £4 billion since 2010
said in September that it
was making some temporary
adjustments to production
schedules at Castle Bromwich
in central England “in light
of the continuing headwinds
impacting the car industry.”
Assistant general secretary
of the Unite union, Tony
Burke, said the move to a
three-day week at the car
plant was partly due to the
“chaotic mismanagement
of Brexit negotiations by the
government, which has created
uncertainty across the UK’s
automotive industry and the
manufacturing sector generally.”
The government’s
“mishandling” of the UK’s
transition to electric vehicles
has compounded the problem,
he added.
Industry observers said
the market is also affected
by weakened consumer
confidence and reduced sales
of diesel vehicles, a trend which
impacts on JLR more than
others because of its greater
reliance on diesel-powered cars
in its British sales mix.
Castle Bromwich’s 1,000
employees will remain on full
pay, despite decreased working
hours from October until the
start of December.
JLR prefaced the production
announcement by pointing out
that it is standard business
practice to regularly review
schedules to ensure that market
demand is balanced globally. It
added: “We are continuing to
over-proportionally invest in new
products and technologies, and
are committed to our UK plants,
in which we have invested
more than £4 billion since 2010
to future proof manufacturing
technologies to deliver new
models.”
Elsewhere, next year’s
annual maintenance at the
4,500-employee Mini plant in
Oxford will begin on April 1, the
first working day after the UK
is scheduled to leave the EU,
owner BMW announced.
The German company
said that “as a responsible
organisation” it would bring
forward the four-week summer
Forecast for UK/EU car and LCV price
rises in the event of a no-deal Brexit
+£1,500
+£1,700
shutdown “to minimise the
risk of any possible short-term
parts-supply disruption in the
event of a no-deal Brexit.”
BMW added: “While we
believe this worst-case scenario
is an unlikely outcome, we have
to plan for it.”
The group said that it
remained committed to
operating in the UK regardless
of the Brexit outcome.
At the Paris Motor Show at
the start of October, BMW's
CEO, Harald Kruger, admitted
that the carmaker could end up
shifting production of the Mini
from Oxford to the Netherlands
in the event of a hard Brexit.
Also speaking at Paris, Toyota
Europe's CEO, Johan van Zyl,
said the OEM might temporarily
close its Burnaston plant.
Calculating the cost
Meanwhile, recent analysis
by the SMMT suggests that a
no-deal Brexit and the resulting
tariffs on light vehicles alone
would add a minimum of £5
billion ($4.3 billion) to the
collective EU-UK automotive
trade bill. The calculations
were based on standard levies
of 10% under World Trade
Organization rules.
If passed directly on to
consumers, import duties
would push up the cost of
UK-built cars sold in the EU
by an average £2,700, and
light commercial vehicles by
£2,000. British buyers would
face rises of £1,500 and £1,700
respectively on EU-made cars
and vans. Such increases would
affect demand, profitability and
jobs, said SMMT.
The organisation also pointed
out: “Tens of thousands of
parts making up a vehicle cross
+£2,700
+£2,000
 COMMENT & ANALYSIS

supports 856,000 jobs (186,000

EU-UK component trade
x1,100/day
£34m in parts
EU borders multiple times
before final assembly, with the
majority of components going
into UK-built cars coming from
EU suppliers.”
The UK exports some £3.4
billion worth of components for
vehicles built in Europe, and
sources almost three times that
sum from EU-based suppliers.
More than 1,100 trucks cross
into the UK from the Continent
every day – the vast majority
without a customs check – to
deliver £34 million worth of
parts to UK plants for vehicles
and engines, which are then
exported back to the EU, the
£3.4bn in parts
society’s statistics show.
Europe’s automotive sector
employs 13.3m people,
represents 6.8% of the EU’s
GDP, invests around £47 billion
in innovation annually, and
produces roughly 17m cars
– almost a quarter of global
passenger car output per year.
“UK automotive is a key
component of this success,”
said the SMMT. It is the EU’s
second largest new car market,
worth around £29 billion to
EU manufacturers every
year, and the fourth largest
car manufacturing nation. Its
revenue is some £82 billion,
in manufacturing), and is
responsible for 11% of the EU’s
auto manufacturing research
and development outlay. British
buyers registered around 1.9m
cars and vans from the EU last
year.
The SMMT has described
automotive as a deeply
integrated, EU-wide industry
which has sought to maximise
the benefits of a single market
and customs union.
The society is calling on
all Brexit negotiators to be
pragmatic, secure a withdrawal
agreement and transition, and
safeguard one of Europe’s most
valuable economic assets.
Referring to the highly
integrated nature of the
automotive sector’s logistics,
the SMMT said: “Without a
withdrawal agreement, on 30
March 2019 this trade will, as a
minimum, be severely disrupted
– potentially halting production,
undermining competitiveness
and negatively impacting the
industry in the UK and Europe.”
Steve Garnsey
People
Andreas Wendt has
become BMW’s new
management board member
for purchasing and supplier
network. He was previously
director of the group’s
largest car assembly plant in
Germany at Dingolfing.
BMW’s board chairman,
Norbert Reithofer, described
Wendt as being a driving
force for innovation who has
always set new benchmarks
with his expertise in
managing quality and
complexity. He began his
career with BMW back in
2002.

Damaged Parts,
Delayed Repairs,
Dejected Customers,
Lost Business.
Sealed Air’s Packaging Application Centers
and network of technical specialists
provide support that enables you to
optimize your packing process and
keep parts moving.

sealedair.com/kpm
 COMMENT & ANALYSIS
News
Russian Trade and Industry
minister Denis Manturov has
revealed that many Russian
automotive manufacturers
are increasingly using
national currencies, rather
than the US dollar, to pay for
imported components. The
move has been prompted
by recent US sanctions on
Russia.
Carmakers and their dealers
are still assessing the
full impact on the North
American automotive supply
chain of Hurricane Florence,
which hit the east coast of
the US in September. The
event brought destruction
to large areas of North and
South Carolina. Mercedes-
Benz and Volvo took the
precaution of closing plants
in the area ahead of the
storm, which left 500,000
homes and businesses
without power.
European logistics property
developer P3 is expanding
its business in Germany
with the acquisition of a
6.5-hectare site in Horb am
Neckar, near Stuttgart. P3,
which is based in Prague,
Czech Republic, plans to
build a new 33,900 sq.m
warehouse there by the end
of 2019.
German components
supplier Sika is opening
a manufacturing plant
in Querétaro, Mexico to
supply acoustic treatments
and body structural
products to carmakers
operating in the country.
The new factory includes
an integrated logistics
centre and will also house
the Mexican subsidiary
of Faist ChemTec, which
makes sound abatement
and weight reduction parts.
Sika’s adhesives, reinforcer
systems, and acoustic
treatments are used by a
wide range of carmakers
for acoustic sealing and
damping applications.
12 AL
Opinion Growing trade war threatens supply disruption
Escalating trade wars look set
to be the new risk frontier in
the automotive supply chain.
With countries and trading
blocs starting to retaliate
against US moves to raise
tariffs, open trade borders are
closing in quickly.
The implications for the
automotive industry are
becoming clear: while initially
materials like steel, aluminium
and rubber were on the hit list,
entire vehicles are now being
targeted, and the EU is just
one of several global powers
threatening to respond in kind,
with tariffs on $300 billion
worth of US goods.
The scale of the issue
is highlighted by data from
Resilinc, insurance broker
JLT Specialty’s data provider
partner. Its analysis of 60,000
suppliers across six sectors
shows that 42,000 parts
and 5,000 companies could
be affected by US tariffs on
Chinese products alone.
Though these include
products and raw materials
supplied to a range of
industries, the automotive
sector will likely be hard hit.
High on the list
When looking at US companies
with China-based supply
chains, Resilinc highlights cars,
including electric vehicles, as
likely to be high-impact, high-
dependency products, in terms
of potential higher costs or
revenue losses and difficulties
sourcing alternate supplier sites
in another country.
This is just the beginning.
Unless an agreement can be
reached, the ongoing trade
war is likely to incur additional
tariffs on Chinese products, and
businesses at the lower end
of the supply chain will face
serious consequences.
It is estimated that US tariffs,
plus the tariffs imposed and
being considered in retaliation,
will affect 1% of global trade.
With the world’s merchandise
exports worth $17.2 trillion
at the last count, the stakes
are high. Numerous global
economies are affected by
heightened trade tensions –
not to mention the impact of
JLT Speciality's Matt Grimwade
Brexit, where the possibility
of a no-deal “hard” UK exit
from the EU could incur a hefty
charge. Furthermore, additional
costs from border delays will
undermine just-in-time delivery.
Risk on the radar
Trade barriers have the potential
to alter the risk landscape
considerably as far as supply
chain disruption is concerned.
Last year, Resilinc reported
factory fires, hurricanes and
labour strikes among the top
disruption events impacting the
auto sector, while geopolitical
risks only ranked mid-table
(15th out of 30).
Even when looking at man-
made events over the last five
years, geopolitical risk has not
been a significant feature on the
radar. This year, given current
global tensions, geopolitical
issues – and trade policy in
particular – could rise up the list
very quickly.
Considering the length and
complexity of global supply
chains, and the nature of
component manufacturing,
which can see some parts
zig-zag across borders multiple
times, for the automotive
industry perhaps more than any
other, trade wars are a major
concern.
There is a real possibility that
for some vehicle-makers, the
global supply map may have to
be radically re-designed in a bid
to ensure security of supply –
otherwise reduced access to
markets, capacity limitations,
higher prices and brand damage
could result.
Knowing where supply
chains are most vulnerable
is vital so that informed
decisions can be made,
whether that’s re-adjusting
current arrangements or
putting in place a ‘plan B’. It
will give senior management
and shareholders comfort that
all efforts have been made to
make sure the supply chain is
as secure as possible – and
there may even be competitive
advantage to be gained.
There is huge value from
such insight from an insurance
point of view. The better
the visibility automotive
manufacturers have across their
supply chains, the easier it is to
ensure that optimum coverage
for their specific needs and risk
profile is in place.
That said, it’s not easy even
for the biggest players in the
automotive sector to achieve
this level of knowledge and
visibility across the supply
chain, right down through
sub-tier suppliers across
thousands of parts.
As global economies
intensify the protectionist
rhetoric and with Brexit less
than a year away, vehicle-
makers will need to deploy
all the weapons at their
disposal, from risk mapping
to contingency planning to
business interruption insurance,
to limit the damage. They can’t
afford to pin their hopes on a
trade truce.
Matt Grimwade is a senior
partner and head of automotive
at JLT Speciality
 COMMENT & ANALYSIS

Climate Extreme weather rocks Japanese vehicle-makers

A typhoon in Osaka and an
earthquake in Hokkaido in early
September halted production at
several Toyota assembly plants
as a result of power supply
problems, parts shortages and
shift cancellations, though most
OEMs were unscathed.
Typhoon Jebi hit Osaka on
September 4 and was recorded
as the strongest storm to have
hit the Japanese mainland in
25 years. It caused widespread
damage and closed Kansei
International Airport. It also
smashed a fuel tanker into the
bridge connecting the airport,
which is on a manmade island,
to Izumisano City. Elsewhere,
the BBC reported that dozens
of vehicles had been destroyed
at a depot in Nishinomiya,
between Osaka and Kobe, as
water short-circuited electrics.
Following the typhoon, a
6.7-magnitude earthquake hit
the island of Hokkaido in the
north of Japan in the early
hours of September 6.
As the typhoon approached,
Toyota closed 11 of its factories
early, cancelling evening shifts.
The subsequent earthquake
disrupted production due to
a lack of power and parts.
Toyota implemented a restart of
production in stages between
September 11 and 13.
Toyota Motor Hokkaido,
which makes transmissions
and powertrain parts at a
plant in Tomakomai, restarted
production within days, followed
by the Motomachi plant and
then the Takaoka, Tsutsumi and
Tahara facilities. Also affected
were Toyota Group plants,
including those which supply
parts internationally: Toyota
Industries, Toyota Auto Body,
Gifu Auto, Toyota Motor Kyushu,
Toyota Motor East Japan, Hino
Motors and Daihatsu Motor.
Mitsubishi, which has plants
in the south-west of Japan,
escaped the impact of the
earthquake and reported that
damage from the typhoon was
minor. The OEM said that all of
its facilities, including three car
and two powertrain facilities,
were operating as usual.
Honda and Nissan
also reported that their
manufacturing operations had
not been affected by either
event, though Nissan did say its
proving ground in Rikubetsu had
been temporarily inoperative
due to loss of power.
“Similarly, loss of power
caused most of our dealerships
in Hokkaido to close
temporarily; they reopened
gradually during the weekend
as power was restored to
each area,” said Nissan's
spokesperson.
Mazda, which is still
recovering from the impact of
bad flooding in western Japan
in July this year, said neither its
production nor supply chain had
been affected.
Marcus Williams
For more on the impact of
extreme weather, see p32 in
October-December Finished
Vehicle Logistics.
People
Dana McBrien has moved
from being associate chief
advisor at Honda North
America to become ‘guiding
architect’ for AutoSphere
– the digital supply chain
system (previously referred
to as the Automotive Supply
Chain Data Ecosystem)
that was developed by US
information technology
and packaging specialist,
Surgere.
McBrien formerly worked
for 34 years in various
supply chain management
roles at Honda in North
America.

KEY LINK IN THE

AUTOMOTIVE
SUPPLY CHAIN
With decades of experience in transporting everything from parts and
equipment to high-end motorcycles and automobiles, Atlas Air has
become a preferred supply-chain partner in the automotive industry.

The scale of our fleet, our load planning expertise and special loads
capabilities, and our support infrastructure has resulted in an outstanding
record of performance excellence with time-sensitive shipments.

But the main reason for our success? Our commitment and ability
to provide flexible, tailor-made charter solutions that exceed our
customers’ expectations.

Find out how this legacy of excellence and reliability can work for you.

CONTACT US TODAY
www.atlasair.com
www.paxchartersales.com
sales@atlasair.com
+1.914.701.8000
 CONFERENCE REPORT AL GLOBAL
A human
capital crisis
W
hile the US car market may be
slowing down slightly, with figures
from PwC Autofacts showing that
sales are set to decline toward 15.9m
by 2021 from 16.9m this year, it is by no means
unhealthy – and forecasts are for regrowth to reach
more than 17m units by 2024.
However, as was made clear at September’s
Automotive Logistics Global conference in Detroit,
business cannot grow unless there is talent to propel
that growth; the shortage of skilled and unskilled
labour is now one of the biggest concerns across the
automotive industry, including the logistics sector.
What is more, this problem is not unique to the US.
Wendi Gentry-Stuenkel, head of supply chain
management at Fiat Chrysler Automobiles in the US,
said there had been struggles in the recent past to
keep plants running productively enough to ensure
a steady supply of vehicles to customers. That was
due to insufficient capital investment in equipment,
she pointed out, including in the factory and in the
transport sector. But now, she added, the problem
was a shortage of people to run that equipment.
The truck driver shortage, in particular, has become
a recurring topic of debate at Automotive Logistics
conferences over the last few years and discussions
continued in Detroit over how to address this
problem. Almost half of delegates canvassed at this
year’s event put transport as the sector where talent
and labour were most needed. One of the problems
is that the automotive sector, inbound and outbound,
Where is talent most needed
at the moment?
Transport 1%
17%
Warehousing
IT / Software
development 45%
Supply chain
management 33%
Legal / Regulatory
compliance 3%
14 AL
As the automotive logistics sector
continues to automate, there are
some important human factors to
resolve if such plans are to succeed.
Marcus Williams reports from the
AL Global conference in Detroit
is competing for drivers with other sectors in the
context of an overall shortage.
Fortune magazine reported in August that the
truck driver shortage in the US had risen to more
than 296,300 in the second quarter of this year.
The American Trucking Association (ATA) has also
said that tonnages in the hire-or-reward truck sector
increased through the first half of this year at roughly
double the rate of the same period in 2017, at a time
when unemployment rates are low. Meanwhile,
drivers in the US are limited to the number of hours
they can work, under regulations drawn up by the
Federal Motor Carrier Safety Administration (FMCSA)
restricting them to a maximum of 11 hours in a
14-hour period after ten consecutive hours off duty.
The transport sector is also faced with an ageing
driver population: the average age of a driver is now
over 55, according to the Bureau of Labor Statistics.
One of the consequences of this shortage is that
transport costs are being driven up.
Gary Allen, chief technology officer and vice-
president of product development at Ryder Supply
Chain Systems, said autonomous technology in the
form of truck platooning could provide the answer to
the driver problem. Platooning is the linking of two
or more trucks in a convoy that can effectively be
controlled by a single lead driver, using connectivity
technology and automated driving support systems.
“We cannot hire enough truck drivers and so we
are actively working on platooning and engaged on
autonomous trucking,” said Allen, adding that new
technology was not replacing jobs but changing them
for the better. “We have to do this to augment the
shortage we have in our business.”
Visteon’s vice-president and chief information
officer, Raman Mehta, also pointed out that
platooning would make trucking jobs more attractive
 CONFERENCE REPORT AL GLOBAL

AL Global: Fact check

$119.5 billion
Total investment by vehicle-makers in North
America between 2009 and 2017

$87.6 billion
OEM investment in the US between 2009 and
2017, compared with $24.8 billion in Mexico and
$7.1 billion in Canada

We cannot hire 108.8 billion

Total US automotive parts imports sales
enough truck
drivers and so
we are actively 8
Number of countries which account for 92% of US
by allowing drivers in an autonomous vehicle to carry
working on vehicle and parts imports
out other tasks. However, this was not a technology platooning and
that was going to appear overnight and would be engaged on 2.8%
only gradually adopted, Mehta suggested.
autonomous The UK’s share of US vehicle and parts imports
trucking
48%
Talent turnover
Labour shortages are not only occurring in the Gary Allen, Ryder
transport part of the supply chain. Jim Barnett, Percentage of US sales which were of imported
president of Americas automotive at contract vehicles in 2017
logistics firm Syncreon, said there was a big problem

12%
with staff turnover at its North American warehouses
and that 10% of the company’s hourly workers were
changing every month. Syncreon spends $2,000 Percentage of vehicles assembled in Canada
on every person it has to recruit, and is turning which stay in the country
over 45,000 people a year, with 80% of that churn
occurring in the first 90 days of employment.
The problem is both deep-seated and global. 17.2m
Delegates cited the organisational consultant Korn Predicted North American light vehicle production
Ferry’s 'Future of Work' report, which states that by for 2018, just 200,000 units up on 2017
2030 there will be 85m jobs globally that are unfilled,
something that will mean $8.5 trillion in “unrealised
revenue” for the global economy.
36m
“We have a supply problem,” said Barnett. “We Light vehicle production forecast for China in 2024,
are in danger in the US of becoming the next Japan, the same as the EU and North America combined
where you have a recessionary economy because
you don’t have a growing population and workforce,
and you have problems at the macroeconomic level.
1 billion
Number of rides Lyft has made since it launched in
Everyone needs to recognise this and we need to
2012 (1m per day)
work on public policy to address the issue.”

$500m
As for Michigan, the problem of attracting
qualified talent has not been helped by a shift in
demographics. Glenn Stevens, executive director of Invested by Toyota in Uber for driverless cars
MichAuto – an economic development initiative of

11
What are the main challenges in recruiting and Number of top 20 Fortune 500 companies which
retaining new talent in automotive logistics? cite driver shortage as a problem

The sector is not as

34%
stimulating to young
professionals as sectors such
as high tech
24%
The work is stressful
20%
Industry changes mean
17
and demanding, the skills required will
Number of vehicle-makers based in Michigan, plus
therefore less attractive be different from what is 93 of the top 100 suppliers
to millennials currently taught

13%
There are simply more jobs
available than can be filled
right now
6%
Pay and benefits are
32%
less competitive than Percentage of manufacturing personnel in south-
other sectors east Michigan who are aged 55 or over

AL 15
 CONFERENCE REPORT AL GLOBAL
the Detroit Regional Chamber – pointed out that in
2008, Michigan had 135,000 high school graduates
but that this number was expected to shrink to
80,000 in the next ten years. Added to this is the
fact that the automotive manufacturing community
in south-east Michigan is getting older. With 10,000
baby-boomers hitting retirement age every day, the
problem of available labour is being exacerbated.
Raising awareness
Demographics aside, delegates in Detroit were
divided over the main reason for the shortages and
high turnover of staff. It does not appear to be about
pay, suggested Barnett, as automotive jobs are on
average paid 17-20% more than equivalent jobs in
other sectors. In fact, he said, inflation-adjusted
income has not moved in 20 years and pent-up
demand for workers has been raising salaries,
compounding recruitment and retention issues.
One issue seems to be making younger people
aware of what a job in automotive manufacturing and
logistics is actually like.
Joe Petrosky, dean of engineering and advanced
technology at Macomb Community College, said
the network of 11,000 community colleges in
the US was one of the main sources of qualified
workers upon which the automotive industry drew,
collectively enrolling 7.1 billion students – or 43% of
the undergraduate population. What those colleges
are doing is aligning students with better jobs in the
supply chain, according to Petrosky.
“At Macomb, we have the Center for Advanced
Automotive Technology (CAAT), which has been
sponsored by the National Science Foundation
through a unique piece of government funding that
was dedicated by Congress to increase the level of
middle-skilled individuals in the country,” explained
Petrosky. He said CAAT’s charter was to increase the
pool of technicians and that meant garnering interest
as early as the sixth grade (at 11-12 years old).
This is important for carmakers, given that the
industry has dropped off the radar among younger
people. Anu Goel, executive vice-president, group
after sales and services at Volkswagen Group of
America, reflected that when he was growing up
in the mid-1980s, entering the automotive industry
seemed like a natural step to take, but that students
no longer seemed to consider it.
However, that was countered by Tim Butler,
What is the best thing the
automotive logistics sector
can do to attract talent?
Improve pay and conditions
to make jobs more
attractive and secure 12%
Change the way
jobs are structured 37%
to encourage 21%
diversity of roles
and responsibilities
Look to recruit talent
from other sectors
30%
Increase on-the-job training
and continuous learning
16 AL
associate professor of global supply chain
management at Wayne State University, who
said people did want to work in the car industry
at a boom time for automotive, reflected in good
wages. As at Macomb, what is key to Wayne State’s
provision of talent to industry is the relationships it
builds with carmakers and tier suppliers, something
that helps undergraduates to appreciate the
prospects of a career in automotive, said Butler.
Toyota is working proactively in the other direction
under its Co-op programme and attracts students
in their first semester to work at the company.
According to Steve Brown, vice-president of logistics
control at Toyota Motor North America, the company
does not have problems attracting people to
We are in danger volunteer for the programme.
in the US of “When they come in, we tell them that it is
basically a job interview,” said Brown. “They are
becoming the co-ops but we want to hire from them.”
next Japan,
where you have Not going for grunt work
However, delegates at the conference also
a recessionary recognised that working in automotive logistics was
economy because stressful and demanding, making it less attractive to
you don’t have those entering the job market.
Goel referred to the “grunt work” of supply chain
a growing management, pointing out that it accounted for 43%
population and of the cost base for VW, which meant constantly
workforce being in the unenviable position of cutting costs –
Jim Barnett, something he has done for each one of the 30-plus
years he has worked at VW.
Syncreon Gestamp’s US supply chain manager, Greg Logas,
acknowledged the shortage of talent in the industry
and asked what could actually be done to attract the
next generation of people into work they perceived
as unattractive.
A number of speakers noted that young people
entering the industry now want to rotate between
the different departments at a carmaker, tier supplier
or logistics provider. Rotation, they suggested, was
something that appealed to a millennial appetite
for variety and applied problem-solving, but also
broadened the employee’s scope of understanding
and helped to develop their decision-making skills for
a new career.
This was something FCA’s Wendi Gentry-Stuenkel
recognised, adding that a career in automotive
logistics was all about rotation. “I have rotated jobs
my entire career every few years and most of them I
didn’t know existed when I started,” she said. “Your
career can be a rotation programme.”
Nevertheless, jobs in the automotive supply chain
continue to suffer from an image problem and are
not perceived by the younger generation of workers
as being stimulating compared with other sectors,
including tech. Silicon Valley firms have more pulling
power but there was plenty of evidence at this
year’s conference that the automotive industry is
on the cutting edge of IT and software development
– though it badly needs to recruit talent in this
area. Petrosky said Macomb regarded the changing
technological requirements of the industry as a
priority and was constantly adapting and introducing
new courses to meet demand.
That seems like a necessary move, given
the number of firms rebranding themselves as
technology companies.

What technology is having
most impact on your business?
In-car technology
(telematics, autonomous
driving, digital plug-ins) 17% 18%
Big data and
analytics tools
Blockchain
18%
Advanced
automation in
factory, warehouse
and yard operations
5% 41%
Cloud-based planning
and enterprise tools
Digital twins (0%)
Babysitting the bots
Srini Muthusrinivasan, director of global industries
strategy at JDA Software (see interview, p20), said
that vehicle-makers were now seeing themselves as
leading technology providers who happened to be to
selling “computers on wheels” or mobility services.
However, in the race for technology, Muthusrinivasan
said there was a risk of human capital becoming
an afterthought. It was important to remember, he
said, that technology was only as important as its
ability to add value to business and society – and, by
extension, to the people producing it. He asserted
that there was going to be an increasing need for
cyber-human collaboration, and that workers needed
to be equipped with the skills to manage machines
that are already taking on the burden of repeatable
tasks on a scale beyond human ability.
“It is humanly impossible to match up to the
speed and the scale of what machines can do
today,” he confirmed, “whether it is robotic process
automation [RPA] or anything tied to machine
,ȇ4/"
interfaces or AI [artificial intelligence].”
Matthias Schultz, director of North America
material planning and logistics at Ford, said RPA
had brought “phenomenal improvements” at the
carmaker, which is using it to validate the bill of
materials (BoM) for future models in one application.
“Just setting [the BoM] up for a model to be
built five years out would take a guy sitting in an
office two to three months to go through all the
commodities,” explained Schultz. “Someone has now
programmed a bot and it takes five hours to get the
job done.”
The gains for the company of using that
technology are obvious, but it is also motivational
for a young worker because it embraces the latest
technology to do something completely different,
said Schultz.
Muthusrinivasan added that to exploit the full
potential of what the latest technology could do was
to embrace the acceleration of automation in the
industrial sector without losing jobs. Rather it would
attract new skills, with workers required to “babysit
the bots”.
“My answer is that we need to start building the
right skill sets the companies will be expecting,”
he said, adding that there was a fundamental gap
in what was being taught and what the emerging
technology companies were going to be expecting.
“Those skill sets are not about data plumbing, they
CONFERENCE REPORT AL GLOBAL
are about making the right decisions for the good of
the company and, down the line, the right decisions
for society.”
This chimed with the concern expressed by
delegates in polling that the logistics engineering
skills currently being taught at technical schools were
going to be at odds with what was required by the
sector in the next five to ten years.
This is not just about technical skills, either. Barnett
said behavioural skills were also important for both
high and lower level jobs, and companies needed
people who were engaged, sought experience in
different roles and wanted to solve problems.
Gentry-Stuenkel agreed that while there was
a demand for technical capabilities, FCA was
also looking for leadership skills and the ability to We need to start
work in teams. “Technical skills can be taught but
building the right
communication skills are very important,” she said,
stressing the importance of the ‘soft’ skills that are skill sets the
hard to teach and evaluate. companies will
Again, Glenn Stevens of MichAuto and Joe be expecting…
Petrosky at Macomb Community College made clear
that the institutions were flexible enough to respond. Those skill sets
Petrosky said his college had an industry are not about data
advisory programme that was tweaked according to plumbing, they
changes in industry requirements and technological
advancements, in a way that was designed to
are about making
produce the right skill set. Macomb Community the right decisions
College has a partnership with FCA to establish the for the good of
top areas for hiring, with production supervisors
being one group in short supply. He cited Macomb’s
the company and,
new FCA Production Supervisor Programme as an down the line, the
example of how it is responding to industry needs. right decisions for
society
Leading the way forward
Attracting new talent to change the automotive Srini
supply chain for the better relies on a good leadership Muthusrinivasan,
strategy and, according to Matthias Schultz at Ford,
that means empowering the next generation of
employees to use the digital tools at their disposal to
do things differently.
“I believe [leadership] is about letting the next
generation that is closer to this technology move
on [with it],” he said. “Let them get loose with the
technology and try things out so they can turn it
into something really game-changing, rather than
replicating the way we have done business forever.
The key is to do it totally differently.”
Schultz explained that developing a different view
of the complete supply chain would be the sort of
What do you think of the
recent agreement on trade
between the US and Mexico?
56%
A positive and necessary step for the benefit of
the North American automotive industry
25%
An unnecessary step and one that only
caused disruption and uncertainty with
out changing much for the better
19%
A step backward compared to
the previous agreement
AL 17
 Ea k n $2
Bo sav

rly ow 47
o e
29 – 31 January 2019

Bi an
rd d
Marquis Reforma, Mexico City
#ALMexico

Staying competitive in times of change

Managing risk and opportunity

Complimentary places available for vehicle makers and parts suppliers

Premier sponsor Gold sponsors

Global sponsors

REGISTER NOW: mexicoautomotivelogistics.com


genuine challenge that would attract new talent. He
said that, traditionally, the whole focus of supply
chain management for all carmakers had been on
supporting production, driving down inventory and
streamlining the inbound process. However, while
there may be two hours’ worth of inventory at the
assembly plants there was a massive amount further
down the supply chain, with tier suppliers holding
anything up to 80 days’ worth of parts or materials.
“Tier two, three and four companies hold
phenomenal amounts of inventory to support
our demands,” said Schultz. “That is where the
opportunity is. Our visibility of the supply chain when
you go beyond tier one is close to zero. Developing a
complete view of it would attract people. It is a really
genuine challenge – not doing what we are doing
today with typical tasks.”
He went on to say that a particular cross-function
problem that Ford had experienced for 20 years
had been solved by a group of graduates, and their
solution has now been applied by the company.
“You must accept there could be better solutions
out there,” he stressed. “Younger people organise
themselves and are creative. A tight control of the
process is holding us back and driving away talent.”
Sven Dharmani, principal of advisory services at
consultant EY, agreed that new talent should be free
to experiment, with minimal constraint.
“When I look at how we are going to make
leaps and bounds, it is about putting just enough
constraints [in place] so that they don’t fail too far,
and letting them be free,” he said. Citing the benefits
of that approach at his own company, which had
brought $200m in savings through the application
of RPA to administrative tasks, Dharmani said
leaderships should encourage tech-savvy workers to
look at problems with a different paradigm and come
up with fresh ideas.
Adam Pieniazek, senior logistics manager, North
America for tier one supplier Magna Powertrain,
added his voice to the call for more recognition
by leaders of individual talent and the ability to do
things differently in the new generation of workers.
Pieniazek said that, too often, managers locked
people into roles that risked stifling creativity and
losing talent.
“Ask how much you should teach them the old
way before asking them to invent something new,”
he said. “Ask yourself: is there a better way of doing
it? We have to challenge our workers, and they like
What can the automotive
industry do to mitigate against
climatic catastrophes?
Exploit the advances in
IT and data to develop 12%
better contingency
planning
15% 37%
Make production
and supply more
flexible and resilient
Put greater resources
into planned recovery
strategies 35%
There is nothing you can do
CONFERENCE REPORT AL GLOBAL
that. They have to be more productive or we will be
out of business.”
Dangerous curve ahead
But if disruption to established production and
logistics processes is the way forward, it is not
without jeopardy.
Dharmani said it was exciting to see the amount of
energy going into how the industry would handle the
convergence of electric and autonomous vehicles in
the new sharing economy. He said EY's automotive
clients were looking to free up organisational barriers
in an effort to beat inertia. What was even more
exciting, he suggested, was how the automotive
industry could change the way it worked.
“Instead of being able to create a new vehicle in
Let them [the next
five years, can we get to a point where we create generation] get
it in 18 months?” he asked. “That is the biggest loose with the
disruption I am excited about. How fast can we
technology and try
change our vehicle product lifecycles? Because guess
what? A lot of other industries do it.” things out so they
Disruption of traditional supply chains and the use can turn it into
of new materials associated with new technologies something really
and the transformation of the car raises other
questions, however. For instance, the minerals used
game-changing,
in batteries are in short supply. rather than
“Imagine if tomorrow, we produced 50m electric replicating the
vehicles [EVs],” speculated Dharmani. “Where am
I going to get the lithium from? And if I take all the
way we have done
lithium for cars, we are not going to have any more business forever
cellphones. Those are the kind of disruptions where I Matthias Schultz,
think: are the supporting industries ready for it?”
The switch to electric and autonomous vehicles
Ford
is a given, according to Schultz, but it is what the
customer is going to be demanding along with it that
companies need to be prepared for.
“We will need to be able to respond much faster
to customer demand,” said Schultz, adding that the
typical product lifecycle of six years will not fulfil
the demands of a customer base that expects rapid
change and instant gratification from new products.
“The companies that can change the product
lifecycle fast in response to demand like this will
win,” he said. “But how do you develop platforms
that can respond rapidly?”
Schultz also said carmakers needed to decide
whether they were going to be simple hardware
suppliers or would also be the providers of in-car
services, which is where the real money lay.
Pieniazek was more concerned with what the
development of digital technology and AI meant for
the average worker, having seen what robotics did to
manual labour back in the 1980s.
“We are right on the cusp of seeing technology,
through better use of AI and computer software,
replace a lot of overpriced clerks around the world,”
he said, highlighting that society was based on the
exchange of labour for money – but questioning, if
the unemployment rate suddenly hit 50%, whether
society would actually descend into anarchy.
“While we assume technology is good, it begs the
question: is society ready to make major structural
changes [to compensate]?” asked Pieniazek.
These are the questions that are certainly going
to test the talent of tomorrow, but will hopefully also
energise the next generation of workers in global
automotive logistics.
AL 19
 INTERVIEW SRINI MUTHUSRINIVASAN, JDA SOFTWARE
QA
Srini Muthusrinivasan
&
At the AL Global conference in Detroit,
JDA Software’s senior global industry
strategies director told Joanne Perry
about the automated supply chains
of the future
What is meant by this term ‘the autonomous
supply chain’?
The word autonomous has got very prevalent today
in the industry. [To understand] the idea of the
autonomous supply chain you’ve got to go back to
the history of how we went all the way from the
industrial revolution to the digital revolution today.
We were descriptive in nature, we were predictive
in nature and we got prescriptive in nature; and now
we are at the point, with all the scale and speed
and advantage of machine learning and AI [artificial
intelligence] that we don’t have to repeat what can
be automated.
So that element of self-learning and continuously
adopting that in your planning process or any
actionable outcome is what we would call
autonomous principles: automate, with elements of
self-learning. If you just automate, it’s robotic process
automation as we’ve seen with Industry 4.0. Now,
with a bit of self-learning that turns into a cognitive
platform, which is what I would call the next nirvana
of autonomous supply chains.
How many automotive companies do you think
understand this idea?
I think the good news here is, the automotive
industry – be it OEMs, tier suppliers or 3PLs –
understands the need to get to this point. The fact
that they’re understanding is good, it’s a starting
point. But in terms of getting there – it’s a journey.
You have self-driving cars today. [The automated
car] learns, it senses, and based on the senses there
is a response – but the question is, how do you
weed out the noise from all the data that it sends
and take the right action? That’s the trick of the trade
20 AL
and that’s really where the autonomous elements
come into play.
So the industry understands it but there are a
lot more partners and collaboration that’s going to
come into play to put this into practice and make
it commercially viable, and make it savvy for end
consumers.
Do you have a timeframe for when this might
happen, and will we see a lot of variation
across companies? Will there be a point when
an autonomous supply chain is as normal as a
production line in a factory?
It will indeed become the new normal. At a
technology level, the autonomous supply chain is
possible today and it is being adopted by various
industry subverticals. But to take it to a larger
perspective, [in terms of] the different use cases
when and where it will be applied, I easily see this
as a three to five-year journey because it is not just
The question about robotics coming together, it’s not about Factory
is, what will 4.0 or Industry 4.0 coming together. It’s also the
people do down consideration of which use cases will be ‘free for all’
and which have got to be regulated, which is equally
the line when important. So, with all these in play, the maturity
machines are would be in the next three to five years.
taking over jobs?
How do people factor into this? If we have an
Fundamentally, autonomous supply chain, what are the human
people will employees doing?
become What would humans do if everything is taken over
by artificial intelligence and machine learning? I
knowledge see it this way: the future is not about fighting the
workers machines. That [robotic automation] will continue to
exist because it’s going to make lives better; think of

a world where people have to repeat the same task
for the next 30 years on a daily basis. Those tasks
can easily be automated, they have been automated.
Now we’ve reached a point where it’s not just
robotic process automation, systems can also be
taught to take a corrective action or detour based
on the environmental dynamics. That’s the machine
learning part of it. Why have people do the stuff that
machines can do better? That’s a given.
The question is, what will people do down the line
when machines are taking over jobs? Fundamentally,
people will become knowledge workers. The reason
I say knowledge workers is, this dichotomy of life
where people think 'I don’t have to learn when I
work', or 'I don’t have to work when I learn' will soon
be gone. And I also see this as a trend where people
are focused on vision and creative engineering –
I’m using the words creative engineering because
creativity, awareness, communication and vision are
things that machines cannot bring to the table.
People also need to baby-sit these bots. There is
work to be done: you’ve got to tell the machines
what they need to do; somebody has got to write
these playbooks. The difference here is, instead
of being data analysts, people are now being
empowered to make decisions for the company and
also contribute to the industry in a very meaningful
way. So there is power in your hands; there is an
improved way of working thanks to the machines,
but there comes a responsibility as well.
It sounds as if there would be some job losses
with the creation of this autonomous supply
chain. There may be different types of jobs
available, but maybe not everybody would be
suitable for them?
The trend is not disruptive, it is not happening
overnight that you wake up tomorrow morning
and see thousands of jobs being lost today and
thousands of new jobs being created the next
moment; this is a transition. There is a timeline, or a
INTERVIEW SRINI MUTHUSRINIVASAN, JDA SOFTWARE
The trend [for
automation] is
not disruptive, it
is not happening
overnight that you
wake up tomorrow
morning and see
thousands of jobs
being lost today
and thousands of
new jobs being
created the next
moment; this is a
transition
Below: Companies will need
to help personnel to become
'knowledge workers' while
robots handle repetitive
tasks
runway – especially for the current generation – to be
prepared to run the course and take off.
But yes, indeed, there would be certain jobs
that would be taken away and there are going to
be tonnes of new jobs that are being added. And I
would say the advantage is, this trend is augmenting
people’s work lives, but it also warrants that people
improve their skills sets. The skills sets will vary;
when I say knowledge worker it doesn’t [necessarily]
mean writing a piece of software code. I want to
re-emphasise the creative engineering part of it,
which is: what to do, when to do, how to do, and
writing a playbook for these machines.
People have often been scared of change; in
certain periods of history there were even
protests against new inventions. So society as a
whole got over that difficulty and the same thing
could happen again.
Precisely. I think there has always been resistance to
changes if you go through the history of civilisations
and it’s fundamentally due to insecurities – when
there is a lack of skill sets, inertia and apprehensions.
I think those [insecurities] will come and go, but in
the longer run the autonomous paradigm will stay. It
is accelerating faster than I had thought.
What do you think automotive companies need
to do to prepare their workforces for the skills
and jobs you are talking about?
The first thing the automotive supply chains and
leaders will have to do is bring in a fresh mindset.
The automotive industry is 100 years old and one of
the most complex industries that you can see – way
too many trading partners, too-long lead times to
procure, to manufacture, to assemble and to get
[product] shipped.
There are elements of innovation that other
industries have already adopted. Today we live in a
world of ‘supply chain of one’, where every single
finished car might end up being unique for any given
consumer out there – that’s the thinking. From the
distribution angle, people are going through the idea
of node compression. What I mean is, why do you
have to go through two tiers moving the inventories
before it reaches the hands of the end consumer?
The industry has already seen elements of direct-to-
consumer approaches.
The culture of time compression means that
people are spoiled by the expectation of a lead time
of one to two days, which might become one to two
hours [in future], when back in the day, a one month
delay was alright when it came to fulfilling a given
order. These are elements of what is happening on
the downstream side.
On the supply side, factories need to be very
agile. The usual metric is return on assets; I need to
make sure my factory is 100% utilised and to get
my return on investment on the capital. But there
are other metrics that people are looking at: how
much personalisation do I need to invest in, do I get
profitable growth out of those kinds of innovations?
That brings in a mindset change. These kinds of
mindset change are not new to other industries
like consumer or high tech; they’ve done it, they’ve
seen it the past ten years. The question is, how
do you take some of these leading practices and
AL 21
 INTERVIEW SRINI MUTHUSRINIVASAN, JDA SOFTWARE

Instead of being
data analysts,
people [will be]
empowered to
make decisions for
the company and
also contribute to
the industry in a
very meaningful
way

Top: Autonomous adapt? I’m not saying automotive ought to ‘lift and
concepts threaten to drop’ because that will never work, you’ve got to
turn the automotive
adapt it to this complex supply chain world because
industry on its head
the implications are huge; you are looking at asset-
intensive industries. There are long manufacturing
lead times, long procurement lead times. Well,
all of these can also change. One fine day, the
manufacturing lead time and the uniqueness of
manufacturing might be possible in a shorter span of
time. Local sourcing might be a way for Kanban-like
fast movements of inventories, but it’s not a one-size
fits-all.
The bottom line here is, how do you create a value
network that is agile? Because when things change
you’ve got to be able to react to it and be fungible
enough to turn yourself into a fully functional,
profitable industry.
How much can we learn from Amazon?
Tonnes, for it’s disruptive nature. I like to use the
term ‘point of leverage’, not the ‘point of sale’. When
robotic
process empowered
automation analysis and
with ML/AI decision
a transaction happens, people are excited about it.
But today we live in an economy where if I have
an asset I want to maximise utilisation. There are
consumers out there who, when they buy a car or
truck, they think that asset in the yard or dock or
backyard or parking lot is not making any money.
The whole idea of ‘uberisation’ is to improve the
utilisation of every single asset, in this case mobility
assets on the streets.
So there are newer applications; the sharing
economy is paving the way for different
commercialised use cases that consumers can
take advantage of and when [they do], naturally I
think that will become the platform for industries
to take this seriously and do something about it.
That’s exactly why today you have OEMs looking
at segmented markets – not just personal cars but
fleets for 3PLs – and the autonomous nature of
transportation as a service.
Amazon has also been investigating drone
technology as a way of delivering its products.
Do you see drones being applied across the
automotive industry in future, as part of the
autonomous supply chain?
I have seen drones being applied within the four
walls of warehouses – picking inventory, inventory
counts and doing [work] that is in areas that are not
easily reachable by humans. Drones are also being
applied in areas where, geographically, it might be
difficult for people to get access.
The way I see drones being leveraged in the
automotive industry is transportation as a service.
It’s an asset. I could move cargo; I could one day
move people as well. Just like hailing a car, it could
be a case of hailing a drone. Yes, there are some
regulations that we have to go through, you’ve got to
have the highway lanes approved, but in essence it is
no different than a transportation asset and I do see
the increase of drones [in future].
I think it’s already out there in the Middle Eastern
countries today, it is available, so it’s only a matter
of time that it will be available in European and
American nations.

22 AL
 TRADE RELATIONS NAFTA
Finally, a
done deal?
T
he sigh of relief from the automotive sector
at the announcement of a breakthrough in
negotiations over the North American Free
Trade Agreement (Nafta) with Mexico in
August was almost palpable. The news at the end of
September, just as this issue of Automotive Logistics
was going to press, that a similar, last-minute deal
had also been struck with Canada must have been of
even greater relief.
It came more than 16 months after US trade
representative Robert Lighthizer originally notified
Congress of the Trump administration’s intention
to renegotiate the two-decade-plus old pact, and
multiple threats by the US along the way to impose
punitive tariffs on imported vehicles or those made
in the US from large quantities of imported parts,
ostensibly to protect American jobs and investment.
24 AL
Just a few days before the Canadian deal was
agreed, US president Donald Trump had indicated
that talks with Canada were fast approaching a
meltdown, confirming that he had recently rejected
a proposed one-to-one with Canadian Prime Minister
Justin Trudeau “because his tariffs are too high and
he doesn’t seem to want to move”, adding: “Frankly,
we are just thinking about taxing cars coming in from
Canada… We are very unhappy with the negotiations
and the negotiating style of Canada.”
By Monday, October 1, however, everything had
changed, as President Trump announced via social
media that a new United States-Mexico-Canada
Agreement (USMCA) had been struck, describing it
as “a great deal for all three countries [that] solves
the many deficiencies and mistakes in Nafta”.
Speaking later at the White House, Trump – who

The announcement in August
that the US and Mexico had
reached agreement in principle
on Nafta was followed by a
similar deal with Canada in
late September. So does this
clear up the uncertainty over
tariffs? Greg Thompson reports
had threatened to leave Canada out of the new deal
signed previously with Mexico – hailed the USMCA
as “the biggest trade deal in the United States’
history” and said it would support “hundreds of
thousands [of] American jobs”.
Canadian Prime Minister Justin Trudeau admitted
that some compromises had been made, but said
the deal was “profoundly beneficial” to Canadians,
adding: “Today is a good day for Canada”.
Commenting at the time of Mexico’s agreement
with the US, meanwhile, Mexico’s outgoing
president, Enrique Peña Nieto, said the development
would be very positive for both countries.
Details of the deal
USMCA, which covers a total of around $1.1 trillion in
annual trade between the three countries, includes a There continues
number of measures specifically for the automotive
to be serious
industry. Perhaps most importantly, it calls for 75%
of the content (by value) of vehicles assembled in bipartisan concern
the region to be from the USMCA area, if they are to over the abuse of
avoid import tariffs – an increase from the previous " 1&,+уфу1/&Ȅ0Ѹ
62.5% under Nafta. The deal also requires 40-45% of
vehicle content to be made by workers earning the which is causing
equivalent of at least $16 per hour. damage across
The deal further provides exemptions for Mexico the country… If an
and Canada from tariffs the US may begin imposing
on global automotive imports more generally,
 "-1)"ȇ
providing each country with exemption on 2.6m deal is achieved
passenger vehicles a year as well as light trucks. On +!1%,0"1/&Ȅ0
top of that, Canada gets an exemption from tariffs on
up to $32.4 billion worth of automotive parts, while
stay in place,
Mexico’s components exemption runs to $108 billion it is still very
worth of parts. problematic
It is expected that the new deal, lasting for
Bob Corker,
16 years at a time and to be reviewed after six
years, will be signed by the three countries next US senator
month before being put forward to Congress for
TRADE RELATIONS NAFTA
Sourcing of US light vehicle
sales 2017
5%
5%
3%
29%
10%
US sales of US sales of
imported
vehicles
US-produced
vehicles
11%
48% 52%
14% 23%
Source: CAR; US International Trade Administration
US firms International firms
Mexico Canada Japan
South Korea Germany Other
FCA, Ford and GM represent half of the
imports from Canada and Mexico
ratification. It is not clear how easy it will be to get
that ratification – especially given the changes in
the make-up of Congress that could result from the
looming mid-term elections – but in principle, the
long stretch of negotiation over Nafta has now come
to a successful end.
That sounds like very good news, of course, but
as pointed out by Kristin Dziczek, vice-president at
the Center For Automotive Research, who oversees
industry, labour and economics for the independent,
non-profit research organisation, while a bullet
may well have been dodged, there are still some
important unknowns. “There are still a lot more
hoops to jump through to have conforming vehicles
under this agreement. There’s also the cost of
compliance and documenting that you have met all
the rules. That process may prove to be an ordeal and
cost some money,” she notes.
Continuing threat
Despite the new agreement, there is still the
prospect of additional tariffs being imposed by
the Trump administration on global vehicle and
parts imports. Under Section 232 of the Trade
Expansion Act of 1962, the president of the US can
impose tariffs or other measures if the Commerce
Department finds via an investigation that certain
imports threaten American national security.
Earlier this year, following just such an investigation
by the Commerce Department, the Trump
administration levied a 25% tariff on imports of
steel and a 10% tariff on aluminum imports. These
tariffs continue to apply globally, including to Canada
and Mexico, and are costing carmakers dearly. Ford
recently said it would take a $1 billion hit to its
profits as a result of these tariffs, for example, which
suggests a cost of around $400 per vehicle.
In May, US secretary of commerce Wilbur Ross
AL 25
 TRADE RELATIONS NAFTA

initiated a separate investigation by the Department
of Commerce to determine whether import of
finished vehicles and automotive parts into the US
threatened to impair national security. According to
Dziczek, the results of the inquiry into the automotive
Parts that weren’t industry will be announced at some point this
laid out in the autumn.
ȇ$/""*"+1 Side letters to the new US agreement with Mexico
and Canada do exempt their automotive exports
were deemed to to the US at the levels noted above – and Dziczek
have been made says these side letters sought specifically to address
4&1%&+ȇ"3"+ circumstances in which vehicles do not meet certain
though for the guidelines, including the requirement that 75% of the
vehicle be produced in the North American region.
most part they But the side letters do not apparently afford
were not. This protection to any vehicles or parts over and above
new agreement the levels specified, and in any case, as the letters
themselves point out, modifications to the quantities
updates the list outlined may be discussed by the parties to the
Wilbur Ross, agreement “due to changes in production, capacity
US commerce or trade” – a rather vague set of criteria that seems
to open the door to a possible shift in the numbers.
secretary Furthermore, while Mexico and Canada are exempt
from Section 232 tariffs up to the specified limits,
vehicles and parts from outside the USMCA area,
such as those from the EU and Japan, might still
face them. These two areas, among others, are big
sources of content in some of the vehicles sold in
the US (see table below).
If the Commerce Department’s Section 232
investigation concludes that automotive imports of
vehicles and components do indeed pose a threat
to national security, President Trump would have the
authority to impose sizeable tariffs. It is not yet clear
how these would be calculated and whether they
would apply to the entire vehicle or just to non-
USMCA parts, but according to some estimates, they
could amount to 25% of the total vehicle cost.
Gauging the impact
The Alliance of Automobile Manufacturers reacted
strongly to this prospect prior to the emergence of
the USMCA deal, suggesting that it would have a
devastating effect on producers, vehicle sales and
jobs in the automotive sector as well as the wider
economy. A 25% tariff would add an average of
$5,800 to the price of an imported car in the US,
as well as $2,000 to the price of a US-built one, it
suggested – leaving US consumers with a total bill of
$83 billion.
The association's calculations were made prior to
the emergence of the USMCA deal, however, with
its exemptions from Section 232 tariffs for Mexico
and Canada.
Still, there is a large collection of foreign-based
OEMs with US plant operations that produce popular
models which exceed current limits on non-Nafta
content. And the implications of manufacturing a
vehicle in the US with more non-Nafta/USMCA
content than is permitted could go far beyond higher
vehicle prices in North America itself, if 232 tariffs
were applied. It could also make US vehicle exports

Main non-Nafta content by value on selected vehicles sold in the US

Audi A5 Sportback 59% 16%
Germany
BMW X3 35%
Hungary
BMW X6 40%
Italy
FCA Fiat 500X 52%
Spain
FCA Jeep Renegade 62%
Korea
Ford Transit Connect 50%
China
GM Buick Encore 69% 17%
Japan
GM Cadillac CT6 PHEV 48%
UK
Honda Civic 5D 25% 20%

Honda HR-V 4WD 30%

Mazda CX-5 90%

Mercedes-Benz CLS Coupe 86%

Mercedes-Benz GLA SUV 83%

Nissan Armada 95%

Nissan Leaf 25% 15%

Toyota Lexus GS350 100%

Source: US
Department of
Volkswagen Atlas 27% Transportation
National Highway
Volkswagen Tiguan 65% 21% Traffic Safety
Administration
Limited

26 AL

less competitive on the global market, Dziczek points
out, adding that 30-40% of Mercedes Benz and
BMW production in the south is currently exported
out of the US, for example.
Given all this, Section 232 tariffs could still prompt
substantial changes across the supply chain, it seems
– up to and including shifts in production sites.
OEM assembly plants generally involve an
investment of around $1 billion and have a projected
lifespan of many decades, and it tends to be the
larger components from non-USMCA areas, like
engines and transmissions, that force them over the
limits, making them potentially vulnerable to tariffs.
While less expensive than building an entire car
plant, the construction of engine and transmission
manufacturing facilities is still a costly prospect.
Furthermore, any thoughts of shifting production
of such components to an existing USMCA-based
facility will probably be stymied by the fact that most
existing engine and transmission production facilities
are currently operating at or near their capacity levels
and cannot handle any significant increase, says
Dziczek.
Automotive Logistics contacted a number of
OEMs, tier suppliers and logistics providers prior to
the Canadian agreement for their thoughts on all this,
but none of them was willing to comment while the
negotiations were still ongoing.
The role of politics
Politics, of course, will continue to play a major role
in this situation. Trade policies, as Trump himself
has amply demonstrated, can change with the
presidential administration in the White House – and
the next US presidential election will occur in 2020.
“That’s the bet: how long does any of this stay in
place?” asks Dziczek.
Political moves are also afoot in the US to ensure
that President Trump cannot simply impose Section
232 tariffs without the approval of Congress.
Senator Bob Corker – chairman of the Senate
Foreign Relations Committee and a Tennessee
Republican who participated in bringing Volkswagen’s
North American production plant to Chattanooga –
was one of a number of US senators seeking in June
this year to introduce new legislation that would
force the president to get Congress’s approval on any
new Section 232 tariffs, and reportedly also on any
Section 232 actions taken in the past two years.
In response to questions from Automotive
Logistics prior to the announcement of the Canada
agreement about possible impacts of Section 232
tariffs on foreign-based OEMs in the US, including
VW and Nissan, Corker said: “We have not seen any
of the details at this point, so we can’t speculate.
But there continues to be serious bipartisan concern
over the abuse of Section 232 tariffs, which is
causing damage across the country and threatens
the auto sector that is so important to Tennessee. If
an acceptable Nafta deal is achieved and those tariffs
stay in place, it is still very problematic."
Not everyone believes such tariffs are really a
possibility, however. Noël Perry, founder of the
Transportation Futures consultancy and a long-
time transport economist, does not see the Trump
administration levying Section 232 tariffs, even if the
Commerce Department finds that there is a national
TRADE RELATIONS NAFTA
USMCA: A 'fundamental'
reform of trade
Speaking to the Fox Business network after the
USMCA announcement, US commerce secretary
Wilbur Ross said it was “a huge deal”, adding
that ”it clearly vindicates President Trump’s trade
policies because this is fundamental reform”.
Commenting on the increase in the
requirement for locally produced automotive
content from 62.5% under Nafta to 75% in
USMCA, Ross suggested the change was bigger
than the figures alone suggested.
There are still a “While they had a nominal 62.5% requirement
for auto content to be produced within the Nafta
lot more hoops to region, it was specific to individual parts, many
jump through… of which are not even in use any more. And parts
There’s also the that weren’t laid out in the Nafta agreement
were deemed to have been made within Nafta,
cost of compliance even though for the most part they were not,” he
and documenting explained. “This new agreement updates the list
that you have met and the list will be revised frequently.”
Ross went on to suggest that European and
all the rules. That Asian nations, in particular, would feel the effects.
process may prove “This new arrangement by itself is going to be
to be an ordeal somewhat expensive to both Europe and Asia,
because those parts that were not covered under
and cost some old Nafta were being brought in from outside –
money mainly Asia and Europe,” he said.
Kristin Dziczek, He also confirmed that the new requirement
CAR for 40-45% of the total content in vehicles to be
produced at wages of more than $16 per hour
was “meant to ensure that the US gets its fair
share of the volume brought back into Nafta”.
“Nafta had permitted too much volume coming
in from the outside. So this will benefit the auto
parts industries in the US, Canada and Mexico –
mostly the US. And it will be tens of billions of
dollars in total,” he suggested.
security threat related to automotive imports. He
says Section 232 tariffs would not only increase
expense and cause disruption to the supply chain,
but could also damage the health of the overall US
economy. And addressing Nafta, adds Perry, has been
the primary goal of the Trump administration.
“Trump has wanted to declare victory with Nafta
and deliver on a campaign promise,” he says. “He’s
already achieved that goal. I don’t think we will see
[automotive] tariffs.”
Ultimately, of course, only the findings of the
Commerce Department’s investigation and President
Trump’s reaction to them will decide.
Automotive Logistics has contacted the US
75% Department of Commerce to see how its Section
232 investigation is progressing, whether the new
USMCA deal affects its course in any way, and when
Content by value of it expects to announce its findings. As this edition
vehicles assembled went to press, however, it had yet to respond.
in the USMCA area Whatever the outcome, it does at least seem that
that must be from there will soon be more certainty around the trading
the region, if they are conditions facing the North American automotive
1,3,&!1/&Ȅ0Ҏ2- sector, now that the long road of Nafta renegotiations
#/,*ȇҀ0чуѷц‫ہ‬ is at an end – as long, that is, as the new USMCA is
ratified by Congress in a few weeks’ time.
AL 27
 LEAD STORY HYPERLOOP

28 AL
 LEAD STORY HYPERLOOP

Futuristic
logistics
Hyperloop technology offers freight
shippers the potential for aircraft-like
speeds with truck-like costs. So how
long will it be before automotive supply
chains start to enjoy the benefits?
Malcolm Wheatley investigates

A
manufacturing plant in Pittsburgh with
an urgent requirement to send a pallet
of freight to Chicago has few attractive
options, as there is currently no direct
highway route between the two. But if the
visionaries at Virgin Hyperloop One have their way,
that will soon change.
By loading the cargo into a pod inside a low-
pressure ‘hyperloop’ tube that passes via Columbus,
Ohio, Virgin Hyperloop One reckons it can move
freight along the 490-mile (785km) route in just 47
minutes – and for around the same cost as trucking
it. Given that some 5.9m tonnes of freight worth
$16.7 billion moved between Columbus, Pittsburgh
and Chicago in 2015, that is going to be of obvious
interest to the region’s manufacturing industry.
The Pittsburgh-Columbus-Chicago route is one
of ten winning hyperloop paths selected in the
Virgin Hyperloop One Global Challenge, which
began in May 2016 with the aim of identifying
promising opportunities for hyperloop technology.
Drawing together governments, quasi-governmental
development bodies, engineers and urban planners,
the competition saw over 2,600 teams showcase
instances where improved connectivity would
alleviate congestion, connect labour pools and create
economic synergies.

AL 29
 LEAD STORY HYPERLOOP
Hyperloop
technology
requires a leap
of imagination
and could be
like the Channel
Tunnel – stalled
for decades, but
an instant success
once built, with
supply chains
,+‫ޖ‬$2/"!
around it
Richard Wilding,
/+‫ !)"ޖ‬%,,)
,#+$"*"+1
Top: Hyperloop technology
combines magnetic levitation
with ultra-low aerodynamic
drag in low-pressure tubes
Bottom: Cargo and
passengers could be
transported in capsules
625
Average speed in
miles per hour of
pods in a hyperloop
system, according
to Virgin Hyperloop
One. A 490-mile route
could be run in just
47 minutes, it says
30 AL
Among the other winning routes were two in
India: one linking Mumbai on the country’s west
coast to Chennai on its east coast; the other
between Bangalore and Chennai, at either end of the
Bangalore-Chennai Industrial Corridor. Elsewhere, in
Mexico, Guadalajara would be connected to Mexico
City and in the UK, London would be connected to
Edinburgh, and Glasgow to Liverpool.
As with Pittsburgh-Columbus-Chicago, the
connection in each case would not just be between
pairs of cities but would involve intermediate
locations. Glasgow to Liverpool, for example, would
also connect Edinburgh, Newcastle upon Tyne, Leeds
and Manchester. Likewise, Bangalore to Chennai
would connect Kolar, Palamaner, Chittoor and
Kanchipuram.
Such connectivity would prove both disruptive and
transformational, says Amar Ramudhin, director of
the Logistics Institute at the UK’s University of Hull.
In terms of both logistics operations and economic
impact, he asserts, the development of hyperloop
links could transform a region’s prospects, shifting
the focus of economic activity away from congested
areas and unlocking the latent economic potential
of parts previously poorly served by logistics links
and thus starved of investment. In the UK, he points
out, 60% of the population as well as a significant
proportion of the country’s manufacturing industry
and warehouse space lies north of Milton Keynes, a
city just 50 miles from the centre of London, and yet
90% of the country’s inbound freight arrives through
ports that are south of that line, and subsequently
has to be driven north.
“So why not use the Humber ports, Liverpool and
others in the north of England for incoming freight?”
he asks. “This would add more resilience to the UK’s
freight network and cut down on carbon emissions
and possibly costs. A hyperloop could be exactly the
type of technology and bold thinking that could tip
Photo courtesy of Virgin Hyperloop One
the balance for freight to move to the northern ports
instead.”
It is safe to assume that connectivity on this scale,
and at the speed such technology permits, would
have obvious appeal for anyone with palletised freight
to shift in the vicinity of a hyperloop route’s access
points. Promising to send freight from London to
Edinburgh in 56 minutes and from Guadalajara to
Mexico City in 38 minutes at a projected cost close
to that of traditional trucking, the proposition is
clearly game-changing. Yet many of today’s vehicle-
makers, tier suppliers and logistics service providers
have no idea what hyperloop technology actually
entails. Certainly, the technology has yet to enter
mainstream consciousness.
Modern-day maglev
Despite appearances, the idea of hyperloop
technology is not new. Back in 1909, early rocket
pioneer Robert Goddard proposed something
very similar. In the 1970s, meanwhile, the Rand
Corporation think-tank produced a number of detailed
engineering studies based on the concept. And more
recently, Elon Musk – of SpaceX and Tesla fame –
took up the idea, with SpaceX reportedly building a
short test track.
Somewhere along the way, the original vision
of hyperloop links being buried underground was
reviewed, and while the hyperloop technology being
advocated today by Virgin Hyperloop One can indeed
be buried in tunnels, it can also be built above
ground.
A hyperloop is essentially just a tube from which
most of the air has been evacuated and along
which ‘pods’ are sent using magnetic levitation and
linear motors. In other words, it is today’s maglev
technology – but with aircraft speeds, thanks to the
ultra-low aerodynamic drag when moving through the
low pressure tubes.
Photo courtesy of Virgin Hyperloop One
 LEAD STORY HYPERLOOP
Q&A: Bob Lloyd, CEO,
Virgin Hyperloop One
Our Virgin From a regulatory point of
view, hyperloop for freight
Hyperloop One would appear to be an
system doesn't easier ‘sell’ than hyperloop
need to be for passengers. Do you
passenger-only agree?
Our Virgin Hyperloop One
or cargo-only, but system doesn’t need to
can be a mixed- be passenger-only or cargo-only, but can be a
use system... mixed-use system that fully utilises capacity
for both passengers and palletised freight, thus
maximising the maximising the economic and social benefits.
economic and However, it’s certainly possible to run cargo
0, &)"+"‫ޖ‬10 commercial operations while certification and
regulation is still ongoing for passenger use.
,),6!Ѹ&/$&+
6-"/),,-+" What is the thinking on how hyperloop
projects will be financed? How will
construction be funded?
We expect most projects to be carried out as
a public-private partnership with a significant
emphasis on local participation. Once a
government signs an ‘intent to build’ agreement,
the project starts with an in-depth feasibility study,
which analyses and defines the route alignment,
including the environmental impact, economic
and commercial aspects of the route, and the
cost and funding model recommendations.
When can we expect to see hyperloop systems
in action?
That depends largely on the speed of regulatory
processes. So far, we are seeing a very positive
response from governments to our technology, as
governments understand that hyperloop offers an
efficient backbone for cargo as well as passenger
journeys.
For example, in February 2018, the State of
Maharashtra announced its intention to build
the first hyperloop route in India beginning with
an operational development track. Once we
commence building the demonstration track, this
could take two to three years to complete, and
constructing an entire route could take five to
seven years.
Fully autonomous and enclosed, the technology
is impervious to pilot error and weather hazards,
and produces no direct carbon emissions. While
90%
tunnelling is time-consuming and expensive, steel
tubes above ground can be erected more quickly,
just like the oil and gas pipelines that already snake
across counties and continents.
Percentage of It might sound like the stuff of science fiction, but
inbound freight to hyperloop technology can already be seen working at
the UK that passes DevLoop, Virgin Hyperloop One’s full-sized 500-metre
through southern development testbed in Clark County, Nevada.
ports and has to be Hyperloop technology can be used to move people
transported north to as well as freight, but the regulatory and certification
major manufacturing barriers to be surmounted in respect of human
and warehouse areas transport are likely to be higher than those in the
way of autonomous freight transport. That said, a
32 AL
successful freight operation will obviously help build
a case regarding the safety of hyperloop technology
for passenger transport.
Best of both worlds
Virgin Hyperloop One chief executive Rob Lloyd
points out that whereas freight transport is normally
a balance between speed and cost – ground
transport being relatively cheap but slow, for example
– hyperloop technology should be able to offer both
speed and economy. He believes it will also offer
savings beyond mere reductions in transit time
and shipping costs: the ability to cost-effectively
ship goods quickly over long distances means that
inventory replenishment lead times can be shrunk,
leading to reductions in inventories and warehouse
space. According to Lloyd, consulting firm McKinsey
has estimated these reductions at 25%.
In short, says Lloyd, hyperloop-driven supply
Virgin Hyperloop One
Global Challenge winners
Chicago – Columbus – Pittsburgh, US
Pueblo – Denver – Cheyenne, US
Toronto – Montreal, CA
Orlando – Miami, US
Mexico City – Guadalajara, MX
Dallas – Laredo – Houston, US
Glasgow – Liverpool, UK
Edinburgh – London, UK
Mumbai – Chennai, IN
Bengalaru – Chennai, IN
chains can help to deliver agile, just-in-time-based
manufacturing and replenishment practices, the
savings from which can dwarf any economies in
shipping costs. Throw in the fact that the technology
is electrically-powered and could therefore be based
on renewable energy, and its transformational
potential is clear, he argues.
This is a prospect which has persuaded one of
Virgin Hyperloop One’s investors – a group that
includes Richard Branson’s Virgin Group, French
rail firm SNCF, GE Ventures, Sherpa Capital and a
number of venture capital firms – to move to a closer
relationship with both Virgin Hyperloop One and
hyperloop technology in general.
Dubai-based container-handling specialist DP
World, which owns and operates 78 marine and
 LEAD STORY HYPERLOOP

inland terminals across 40 countries in six continents, Hyperloop hotspots

has partnered with Virgin Hyperloop One to launch
DP World Cargospeed, a business dedicated to
revealing hyperloop technology’s freight potential.
“Throughout history, cargo has always been
the catalyst for transport revolutions,” notes Sultan
Ahmed Bin Sulayem, DP World chairman and CEO.
“We believe in Virgin Hyperloop One’s long-term
vision and have made a significant investment in it
because we see the need for a hyperloop-enabled
cargo network to support rapid, on-demand deliveries
globally. It’s the sort of transformative change that
the global supply chain industry has been waiting
for.”
That said, hyperloop represents the sort of
transformative change that calls for deep pockets,
expansive (if not visionary) thinking, and the ability
to bring large-scale infrastructure projects to fruition
in a meaningful timescale. All of which, according to
India, says Lloyd, is especially interesting. Today, 25%
of the cargo travelling through the port of Mumbai
‫ڨ‬цц+
has its origin or destination in the city of Pune, with
much of it travelling along the congested Mumbai
Value of socio-
Pune Expressway. Not only could a hyperloop link
" ,+,*& "+"‫ޖ‬10
reduce the journey time to a matter of minutes, he
over 30 years
asserts, but it would also help to combine the two
expected to result
largest economic centres in the state of Maharashtra
from a hyperloop
into a thriving, competitive mega-region.
between central
Progress towards achieving this has been made.
Pune and Mumbai
Already, the government of Maharashtra has signed
a framework agreement with Virgin Hyperloop One
to build a Pune-Mumbai hyperloop route that would
link central Pune, Navi Mumbai International Airport
and Mumbai in 25 minutes, connecting some 26m
people. This, says Lloyd, would create a regional
freight infrastructure that pre-feasibility studies have
indicated could bring $55 billion in socio-economic

Mumbai
90 miles (145km)
in 25 minutes

Pune

INDIA

600 miles (966km)

in 76 minutes

Jeddah Riyadh

SAUDI
It’s going to be
ARABIA easier to establish
hyperloop links
in some countries
than others… in
some observers, calls for a high level of government benefits over 30 years of operation. Europe, there are
involvement. Saudi Arabia is another country where Virgin many stakeholders
“Inevitably, it’s going to be easier to establish Hyperloop One has high hopes. It is also, perhaps who must be
hyperloop links in some countries than others,” says not entirely coincidentally, a country where decision-
Wolfgang Lehmacher, head of supply chain at the making powers are again concentrated in relatively convinced; in
World Economic Forum. “China, for example, will few hands. China, there’s
be easier than Europe: in Europe, there are many According to Lloyd, Hyperloop technology could just one major
stakeholders who must be convinced; in China, connect Riyadh and Jeddah in just 76 minutes, as
there’s just one major stakeholder [the state] to opposed to ten hours by road. As well as helping
stakeholder [the
convince.” to position the country as a gateway to three state] to convince
Other observers add certain Gulf states, India continents, he points out, hyperloop could connect ,)#$+$
and the US to the list. Lloyd confirms that Virgin a number of major cities throughout the Middle East
Hyperloop One is working with governments and in under an hour. Lloyd adds that economic impact
"%* %"/Ѹ
transport authorities around the world, with active estimates suggest that hyperloop links could increase ,/)! ,+,*& 
projects underway with governments in the UAE, the GDP of the UAE by one percentage point, and ,/2*
Europe, the US, Saudi Arabia and India. that of Saudi Arabia by one to two percentage points.

AL 33
 LEAD STORY HYPERLOOP
Q&A: Sultan Ahmed Bin Sulayem,
chairman and CEO, DP World
The history of How and why did DP World
come to be involved in a
transport is disruptive and innovative
littered with great technology like hyperloop?
ideas that simply We have made a significant
investment in Virgin Hyperloop
didn’t make good One because we see the
business sense. need for a hyperloop-enabled cargo network to
Will hyperloop support rapid, on-demand deliveries globally. Our
make good interest was sparked in the very early stages, and
we have subsequently been a major investor and
business sense? represented on the board.
We’ll have to wait
and see How will DP World Cargospeed complement
your existing capabilities and operations?
1"-%+ /"& %")Ѹ We believe that DP World Cargospeed is an
ŧ)++&3"/0&16,# innovative solution with great potential for
--)&"! &"+ "0 revolutionising the transport of goods. It could
complement our existing operations by connecting
marine and inland terminals, industrial parks and
free zones through another transport option. By
delivering palletised cargo it can also provide for
high priority, on demand goods, transporting freight
at the speed of flight and closer to the cost of
trucking. And the closed-system architecture offers
zero weather delays, no noise restrictions and real-
time tracking and scheduling.
Automotive implications
So what does all this mean for the world’s
automotive industry? It is difficult, at the moment, to
reach any conclusions about this – not least because
limited awareness of hyperloop technology among
senior automotive logistics executives means that
few feel qualified to comment.
At least in North America and Western Europe, it is
difficult to imagine meaningful hyperloop investments
transforming the industry’s logistics operations
anytime soon. It is likely to be the next generation
of automotive logistics executives who will actually
deal with the emergence of hyperloop links and
hyperloop-enabled supply chains.
Even so, assuming that commercial hyperloop
operations gain a foothold, it would be unwise
for any automotive manufacturer or logistics
service provider to assume they won’t then be
emulated elsewhere. Seeing is believing, points
out Richard Wilding, professor of supply chain
strategy at Cranfield University’s Cranfield School
of Management – and once the genie is out of the
25%
bottle, it will be impossible to put it back in. He
believes that hyperloop technology will probably
require a successful showcase operation in a far-
sighted Asian or Middle Eastern nation in order to
Anticipated cut in demonstrate its commercial viability.
stockholding and “It takes a lot of effort to break the mould and
warehouse space in think ‘out of the box’, and both organisations and
a hyperloop-enabled individuals find that difficult,” he says. “There’s a
supply chain, tendency to think incrementally, rather than in big
according to DP jumps; as Henry Ford is supposed to have remarked,
World if he had asked people what they wanted in an
ideal transport system, they would have said ‘faster
34 AL
How will DP World Cargospeed’s vision of
hyperloop for freight impact on global supply
chains?
Air cargo currently accounts for less than 1% of
world trade tonnage and yet 35% of world trade
value is carried by air. We see an opportunity to
expand the capacity for high priority, on-demand
goods that are typically served by air – an
expanding market that is currently limited by
capacity challenges.
DP World Cargospeed will support the growth
of on-demand, palletised cargo by delivering
exceptional service for high-priority, on-demand
goods at much less cost and with technology that
is 100% electric, and which can be powered by
renewable energy, enabling a more sustainable
solution for cargo transport.
Hyperloop technology doesn’t just get goods
from point A to point B faster and more cheaply; it
also revolutionises supply chain manufacturing.
A hyperloop-enabled supply chain can help to
reduce finished goods inventory by 25%, cut
required warehouse space by 25% and shrink
inventory lead times – gains that can add up
to far more than the savings in transport costs
alone, especially for high-value and time-sensitive
products.
horses’. Hyperloop technology requires a leap of
imagination and could be like the Channel Tunnel
– stalled for decades, but an instant success once
built, with supply chains configured around it.”
That said, notes Stephan Freichel, professor of
distribution logistics at Köln University of Applied
Sciences, the industry will have to make some
adjustments if hyperloop is to have a meaningful
impact on automotive supply chains. Palletised
freight is not a significant element of many inbound
automotive supply chains, he points out, with the
industry going to considerable lengths to design
out pallets and switch to returnable ‘custom-fit’
packaging instead – often designed for lineside use,
sequenced builds or both. Reconfiguring inbound
packaging for hyperloop links can be done, but such
issues as the economics and shipment mode of the
empty return leg would have to be considered.
So to begin with, reckons Freichel, a more obvious
application of hyperloop links might be aftermarket
parts shipment. Central and regional distribution
centres, sited close to hyperloop access points,
could supply parts very quickly over long distances,
boosting customer service levels while also
consolidating and reducing inventory holdings.
“The key question with hyperloop is the business
case,” he concludes. “Freight shippers are looking
for a balance of timeframe and cost. And unless
that balance is correct, no mode of transport can
capture market share – no matter how innovative it
is. The history of transport is littered with great ideas
that simply didn’t make good business sense. Will
hyperloop make good business sense? We’ll have to
wait and see.”
 IN-PLANT LOGISTICS SMART ROBOTS
Showing robots
the ropes
V
olkswagen’s Transparent Factory in
the eastern German city of Dresden
is arguably one of the more unusual
automotive manufacturing sites in the
world. Named due to its highly glazed exterior, it is
not only the production location for the company’s
e-Golf but also home to a number of other related
activities. These include acting as a showpiece for
the automotive industry, by allowing members of the
public to get within a few feet of the production line;
and being an ‘incubator’ for VW’s mobility-related
technologies through collaboration with start-ups.
Since early this year, VW has also been working
at the site with a company called Wandelbots, a
local operation that was founded in 2017 to bring to
36 AL
market a new technique for programming industrial
robots, which aims to dispense entirely with the
need for specialist skills.
The Wandelbots technique involves a programmer
using a jacket fitted with an array of sensors and
actuators, linked to a robot via a computer. The
programmer’s physical movements are recorded
and ultimately translated into corresponding robot
motions.
Marco Weiss, head of new mobility and
innovations for VW at Dresden, says the technology
came to his attention when he was giving a talk at
the city’s Technical University, where it was originally
developed, and that he immediately recognised its
potential for helping to solve a common problem in

A new system being tested at
VW Dresden could enable self-
programming robots to support both
production and in-plant logistics.
Mike Farish investigates
industry – the time delays in production schedules
often caused by a shortage of skilled robot
programmers.
Such delays, he says, are something VW has
experienced in its own operations. “There aren’t
enough staff to satisfy demand for programming
new robot solutions,” he states. This not only inhibits
current operations but also future plans to implement
robotics in other aspects of production, he adds.
“We want to extend automation out from the
bodyshop and paintshop to include assembly
operations as well,” Weiss explains. The major
robotics suppliers that VW deals with at present,
he says, “simply did not have a solution they could
offer”.
Wandelbots CEO and one of its six co-founders,
Christian Piechnick, says that although the company
only formally came into existence in December last
year, its origins can be traced back to research work
carried out in Dresden’s Technical University over the
previous five years. He is adamant that the capability
the company has to offer is unique, stating: “There is
nothing comparable available on the market”.
While talks between the two parties only started
in January, an agreement to work together was soon
reached and a test cell was set up in the Transparent
Factory in March. Apart from Wandelbots’ own kit,
the cell is equipped with a Kuka iiwa robot with a
14kg lifting capacity, suitable for use in a human-
robot collaborative working environment, and some
further equipment such as vision systems for object
recognition.
Testing the concept
So far, three pilot projects have been carried out or
planned for implementation, each of them using a
specific e-Golf application as its focus.
The first has involved the fitting of a loudspeaker
to the vehicle’s door, a task currently carried out
manually, but which is awkward for the operator
because of the combination of part manoeuvring and
screwing into place.
“Ideally, the operator needs a third hand, so
we thought: why couldn’t that be a robot?” Weiss
states, adding that VW has tested an approach in
IN-PLANT LOGISTICS SMART ROBOTS
There aren’t
"+,2$%01Ȅ1,
satisfy demand for
programming new
robot solutions…
We want to extend
which the part handling is taken care of by the robot, automation out
leaving the operator free to concentrate on the more
from the bodyshop
complex fixing process.
The second project has involved applying adhesive and paintshop to
stickers to the inside of car doors, a process which include assembly
Weiss says is “inefficient” when carried out by a operations as well
human and could be greatly improved if performed
by a robot. Marco Weiss, VW
The third project, which is still at the planning
stage, is much more challenging and involves the
tightening of 16 screws holding in the vehicle’s safety
bulb. Beyond the installation process itself, Weiss
points out, it is “also necessary to document the
torque”.
This third project involves at least one other
partner, which Weiss will not identify, saying only that
the focus is on using sensor devices to ensure the
safety of human operators working in close proximity
to the robot. He says he hopes that real project work
will begin in the test cell by the end of the year.
By then, Weiss suggests, the loudspeaker
application will have gone live as a real-world
production procedure. “Our target is to achieve that
by the end of this year,” he confirms, explaining that
the work in the test cell so far has convinced VW
that the approach is truly credible as a production
programming technique.
“We have seen that the teaching is very fast,”
Weiss says, adding that the optimisation of the
process through the system’s artificial intelligence
capability is another feature that has been vindicated.
The task facing VW before it can implement the
technology for real, he says, is to ensure it will
comply with all relevant legislation covering the
safety of people working in close proximity to robots.
After that, Weiss says, there are no obvious
limitations to potential application of the technique,
whether in terms of geography or task. “We want to
be able to push it out to VW plants worldwide,” he
states.
Interestingly, he also says that VW expects it to
have some application in the programming of heavy
standalone robots, though perhaps only for “major
initial movements”, with fine-tuning carried out later
via more conventional programming techniques.
AL 37
 IN-PLANT LOGISTICS SMART ROBOTS
Logistics applications
According to Weiss, VW sees potential for the
Wandelbots technology in wider logistics operations.
He suggests the technique might be used, for
example, to program a robotic arm mounted on
a ‘shopping cart’ or some form of mobile stand
to assist with selection and picking of parts from
containers. In such an application, the robot could
hand the part directly to an assembly worker, carrying
out all selection and handling routines for a part prior
to its addition to a vehicle.
The potential savings that could bring would
be considerable. “One-third of the logistical costs
in the brand are associated with sequencing,” he
comments.
We want to hide But as well as helping to get things right, Weiss
all the complexity suggests that the technique could also come in
from users. useful in programming robots to undo mistakes.
“It could enable robots to be used for repacking
Basically you just operations instead of people, when parts have got
show the robot into the wrong container,” he says. More routine
what you want it tasks, he explains, might include the “breaking-up
of large lots of parts into smaller ones” and “the
do a few times so delivery of small load-carriers to an assembly line and
1%11%"0,ȇ4/" their exchange with empty ones”.
learns the process Weiss stresses that the full potential of the
Wandelbots technology has yet to be determined and
Christian will be subject to further exploration – not least, to
Piechnick, identify what other technologies might complement
Wandelbots it most effectively.
De-skilling the process
Back at Wandelbots, Piechnick says the impetus to
Below: Christian Piechnick
develop the technology grew from a perception that
and Marco Weiss with one existing robot programming techniques were simply
of the Wandelbots too slow and inflexible to meet changing demands.
38 AL
There are often just not enough people with the
appropriate skills to meet the need for frequent
reprogramming in environments characterised
by short-run production schedules arising from
continuous product modifications, he says, which
explains the company’s aim to completely ‘de-skill’
robot programming.
“We are developing a product that will allow
anyone, regardless of their technical background, to
program an industrial robot,” he explains. “We want
to hide all the complexity from users. Basically you
just show the robot what you want it do a few times
so that the software learns the process and then
generates the code to enable the robot to perform
the task autonomously.”
Piechnick says the hardware comprises standard
components such as accelerometers and gyroscopes
in the jacket. Intriguingly, it also makes use of the
same technology found in the ‘home button’ of an
Apple iPhone to enable a flat sheet of material to
imitate the tactile response of a button-push.
The software to drive the whole system is also
component-based, he says, being configured as a
number of small, separate but interlinked modules.
An important implication of this is that the
software being run becomes indifferent to the
source of computing power that drives it. It can
operate in part on local hardware and in part on a
remote server.
At the time of going to press, Piechnick, whose
company now employs 15 people, said he was
expecting the first commercially available version of
the technology to appear on the market under the
name of Wandelbox around the end of September.
Programming robots, it seems, might just have
become something anyone can do.
 QUICK TO DELIVER
GLOBAL SOLUTIONS 24/7 365

WHEN YOU’RE AGAINST THE CLOCK,

WE’RE THERE FOR YOU.
We’re a leading time-critical logistics specialist, supporting
major automotive manufacturers and suppliers to meet complex
and urgent transport challenges by adding speed and flexibility
to their supply chains. Operating 24/7, 365 days a year, we
display a constant commitment to providing the fastest, most
t +44 (0)203 805 77 33
cost-effective and reliable solutions, time and time again.
Your freight is our priority. www.priorityfreight.com
 OEM FOCUS RENAULT-NISSAN-MITSUBISHI

Energising
the synergising
The Renault-Nissan-Mitsubishi
Alliance has already achieved
substantial savings from a
more joined-up, cross-brand
approach to manufacturing
and logistics. And there
is more to come, writes
Ian Henry

R
enault and Nissan began their wide-ranging
alliance and set up cross-shareholdings
in each other back in 1999, and since
then Daimler, Avtovaz and most recently
Mitsubishi have also become part of this evolving
structure. Numerous shared vehicle platforms,
manufacturing and logistics operations, and back-
office functions have been developed. Furthermore,
impressive results have been claimed – although
other than cross-shareholdings and project-specific
information, the Daimler figures are excluded from
the numerous figures quoted by the Alliance to
demonstrate its success.
The Alliance was, however, able to report that
Renault-Nissan-Mitsubishi sold just over 10.6m
vehicles in 2017, making it the second biggest
automotive group worldwide, behind Volkswagen
(10.7m) and ahead of Toyota (10.47m).
Significant savings
In June 2018, the Alliance reported that it had
achieved synergy savings in 2017, across the Renault,
Nissan and Mitsubishi brands, of €5.7 billion ($6.6
billion), a 14% rise on the synergy savings from 2016,
reflecting the first full year of Mitsubishi’s presence
within the Alliance. The aim is to reach €10 billion of
savings by 2022; and to do this, greater alignment
in aftersales, quality and customer satisfaction, and
business development processes is underway.
In addition to the synergy cost-savings, the Alliance
has a mid-term plan to 2022 that aims to raise
sales across the three brands to over 14m units, of
which at least 9m will be built using four common

20-30% At the core of the Alliance are the cross-

shareholdings between Renault and Nissan; Renault
holds 43.4% of Nissan and Nissan holds 15% of
Projected saving in Renault shares; the two companies have 50% each
part costs for the in the Renault-Nissan BV Dutch holding company,
Alliance due to the which has a board made up of executives from each
roll out of its CMF company. Nissan also has a 34% stake in Mitsubishi,
programme a ratio that under Japanese law gives it effective
managerial control.
platforms, including electric vehicles, and with
common powertrains achieving 75% penetration, up
from a third today.
Shared platforms and engineering have yielded
significant benefits and are in operation throughout
all the brands’ line-ups. For example, not long after
Mitsubishi came within Nissan’s orbit, the two
companies started work on a joint programme
to develop the next generation of kei (sub-660cc

40 AL

engined) cars for the Japanese market.
Other synergy developments since then have
included:
• Mitsubishi using Nissan Sales Finance and
Renault’s RCI Bank rather than third-party financing
sources
• Extensive benchmarking between Nissan and
Mitsubishi throughout the ASEAN area
• The establishment of shared spare parts
warehousing between Renault, Nissan and
Mitsubishi – initially in Australia (see box right), with
other sites to follow in Europe and Japan
• Manufacturing co-operation and further use of
shared platforms, notably with the Datsun Redi-
Go and Renault Kwid small SUVs for emerging
markets; and the production of the Renault Alaskan
(and Daimler X-class) pickup on the Nissan Navarra
platforms in Nissan plants in Barcelona, Spain and
Cuernavaca, Mexico
• Building on the above pickup manufacturing
arrangement, the creation of a single LCV (light
commercial vehicle) business unit to maximise
potential for savings in development, manufacturing
and general costs. This arrangement brought Alliance
models to nearly 80% market coverage, with 18
models made on shared platforms across the three
brands.
Referring to this progress, Alliance chairman Carlos
Ghosn said “deeper convergence and increased
synergies will cement the sustainability of the
Alliance for the long term.”
With Mitsubishi now also part of the Alliance, it
is not surprising that the first half of 2018 produced
another set of record results, with sales of 5.54m
vehicles suggesting that 2017’s total will be
OEM FOCUS RENAULT-NISSAN-MITSUBISHI
Sharing parts distribution
in Australia
The Alliance’s first shared parts warehouse is a
Deeper
37,000 sq.m site operated by Ceva in Melbourne, convergence
Australia. Opened in July, it will also support the and increased
Infiniti brand, Nissan’s premium offering.
synergies will
Kent O’Hara, global senior vice-president
of aftersales in the Alliance, described the cement the
warehouse’s launch as “a significant milestone sustainability of
(and) another example of how the Alliance the Alliance for the
continues to generate synergies to the benefit of
our companies, customers and shareholders at a long term
global level”. Carlos Ghosn,
The facility currently houses more than 90,000 Renault-Nissan-
parts and accessories with a capacity for 100,000
and receives 11 incoming containers arriving by
Mitsubishi
sea daily, as well as parts which are air-freighted Alliance
or locally sourced. Eight 'B-double' transporter
trucks, which consist of a tractive unit hauling
two trailers, deliver 8,500 parts to dealerships
across Australia from the site per day
The warehouse, which employs over 90
people, has been designed with sustainability in
mind and features a roof-mounted solar power
system, LED lighting and both daylight and
motion sensors to help reduce electricity use.
surpassed. The Alliance’s goal of achieving combined
sales of 14m by 2022 would be a 30% rise on 2017.
The integration of Mitsubishi into the group has
broadened the international spread of its business.
China is now the Alliance’s number one market,
followed by the US (despite the absence of Renault
from this market). France is in third position, followed
by Japan in fourth and Russia in fifth.
Common programmes
Renault and Nissan’s co-operation centres on their
shared CMF (Common Module Family) programmes,
which cover the main B, C and D segments; the
best-known and biggest programme here is the CMF-
C/D platform which underpins the Renault Mégane,
Scénic, Kadjar, Koleos, Talisman and Espace, the
Nissan Qashqai, X-Trail and Rogue and the Samsung
QM6 (sister vehicle to the Korean-made Koleos)
especially.
Bottom: The Dacia brand is
Similar programmes cover the A and B segments: part of the Alliance, which
the Renault Kwid and Datsun Redi-Go small SUVs recently added Mitsubishi
€10bn
Value of synergies
the Renault-Nissan-
Mitsubishi Alliance
hopes to achieve
by 2022, compared
with synergies of
€5.7 billion in 2017
AL 41
 OEM FOCUS RENAULT-NISSAN-MITSUBISHI

Renault-Nissan Alliance programmes

PRODUCT/TECHNOLOGY LOCATION APPLICATION

Production of Mercedes’ Nissan Powertrain, Decherd, Various US-made Infiniti and Mercedes models
2.0-litre, four-cylinder petrol Tennessee, US (original supply was
engines Mercedes Germany, with Nissan
production starting mid-2014)

Supply of Mercedes 2.1-litre Production in Europe for US supply Infiniti Q50 sedan
turbo diesel engines

Supply of Mercedes seven- Production by JATCO, Nissan’s Infiniti Q50 sedan

speed automatic and six-speed transmissions affiliate in the US
manual transmissions

Cross-supply of trucks Japan Mercedes Canter and Nissan Atlas F24 (1.15-1.5 tonnes)
supplied to each other to broaden each brand’s range

Supply of vans by Nissan to Japanese production for Middle East Nissan NV350 Urvan sold as Mitsubishi Canter Van
Mitsubishi for export markets markets initially, to be extended in
due course

Development of Infiniti models Sunderland, UK Q30 and QX30

using Mercedes MFA platform

Production of models based on Nissan, Aguascalientes, Mexico Originally planned to make Mercedes A-class derivatives
MFA for Infiniti and Mercedes and Q30/QX30 but Q30/QX30 will not now be made
there, only Mercedes models

Licensed manufacture Jatco in US North American-produced Nissans and Infinitis

for Mercedes nine-speed
automatic transmission

One-tonne pick-up on Nissan Nissan Barcelona Nissan Navarra, Renault Alaskan and Mercedes X-class
NP300 platform for Renault and Nissan Cuernavaca (Mexico) to be made on same lines (though no Mercedes models
Mercedes brands Renault Cordoba (Argentina) made in Mexico for now)

Shared rear-wheel-drive Novo Mesto, Slovenia Smart ForFour and Renault Twingo; Smart ForTwo
architecture for smart and Renault made in France also uses shared Edison platform

Joint development of three- France Smart and Twingo models

cylinder engines

Small van (Renault Kangoo) Maubeuge, France Citan made by Renault for Mercedes

Low fuel consumption small Valladolid, Spain Production of Renault 1.5-litre petrol and 1.6-litre diesel
diesel and petrol engines engines for small Mercedes models, including A and
B-class, plus CLA and GLA; diesels also used on the
Renault-made Citan small van and Mercedes’ Vito van

Electric motors from Renault Zoe Production in Cleon, France, for use Powertrain fitted to electric versions of ForTwo and
in cars made in France and Slovenia ForFour

42 AL

are made on CMF-A, while from 2019 the Renault
Clio and Captur, and Nissan Juke will be produced
on the CMF-B platform, with the third generation
Dacia Sandero and Logan adopting this programme in
2020. A new B-segment Mitsubishi model will adopt
the CMF-B shortly after 2020. The fourth generation
Mitsubishi Outlander will adopt the CMD-C/DS
platform in the early 2020s.
CMF allows vehicles within each segment to
combine standardised engine compartment, front
and rear underbody structures, and cockpit designs
to create differently-sized vehicles with variable
heights, according to market profiles and positions.
The modular approach is intended to generate a
30-40% saving in each vehicle’s development costs
and a 20-30% saving in part costs.
However, it is the way in which the Alliance’s
co-operations with Daimler have expanded which
really shows the spread of CMF into different
segments. There are more than a dozen major
projects in action now, across Europe, Japan and
Americas (see chart, p42).
Future programmes are expected to see
Mitsubishi’s kei car expertise being used more widely
at Nissan, while Mitsubishi’s plug-in hybrid expertise
is expected to be heavily used going forward at both
Renault and Nissan. Neither of the original Alliance
partners have any substantive capability in hybrid
technology.
Mitsubishi’s impact
It did not take long for Mitsubishi’s role within
the Alliance to become clear. In April 2017, a new
combined Renault-Nissan-Mitsubishi LCV business
unit was founded. This has a specific focus on
merging Renault’s van expertise and Nissan’s truck
production, along with Mitsubishi’s expertise in
pickups and utility-oriented SUVs.
The overall aim is to have one business unit
with three brands having enough ‘space’ to
differentiate themselves while maximising the use
of development, technology and manufacturing
resources.
This has long-established programmes, especially
in Europe where Renault has made the NV300/
Primastar and NV400/Interstar for many years; the
Nissan NV200 (currently made in declining volumes
in Spain) is expected to move to a version made
on the Renault Kangoo in the next couple of years.
The Nissan NP300 is also used as the basis for the
Renault Alaskan.
In future, this arrangement will be extended to
allow the business unit to benefit from Mitsubishi’s
expertise in the development and manufacturing
of Nissan’s body-on-frame SUVs, especially the
US-market Armada and the internationally oriented
Patrol. Nothing definite has been decided or
announced regarding whether a Nissan (NP300)
or Mitsubishi (L200) base will be used for future
pickup models. Certainly, only one platform would be
required here for the combined operations.
No mood for a merger
Periodically, as was the case in 2017 when reports
emanated from Japan, claims from one side or the
other suggest that a full merger of Renault and
Nissan into one company is under consideration.
OEM FOCUS RENAULT-NISSAN-MITSUBISHI
If Nissan’s
bargaining
position increases,
Renault’s relative
position will
appear to have
declined, which
could upset the
existing alliance…
to maintain the
power balance, it
may be necessary
for Renault to
invest in Mitsubishi
Takeshi Miyao,
Carnorama
Left: Electric vehicles such
as the Renault Zoe will
play their part in Alliance
platforms
Top: Mitsubishi has now
come onboard the Alliance,
complicating the synergy
process
14m
Target for global
vehicle sales across
the three brands
by 2022, of which
9m will be built on
common platforms.
In 2017, Renault-
Nissan-Mitsubishi
sold just over 10.6m
vehicles
Such reports are usually quickly denied but it
would not be surprising for this idea to be revived
in the near future. One of the reasons for this is
that Carlos Ghosn chairs both companies, and also
now Mitsubishi. Securing his legacy once he retires
through merging the companies into one could be
very attractive for the man who has done so much to
create the current set-up.
However, executives within each company
are keen to maintain each brand’s autonomy and
uniqueness, and for now this viewpoint holds sway.
Significantly, Trevor Mann, who has played senior
roles at Nissan, both in Europe and Japan, is now
in charge at Mitsubishi, steering its turnaround.
Interviewed by the Financial Times in July, he
suggested that now was “probably not” the right
time for a merger, but added that it was possible in
the future, stating “you have got to do it when it’s
right and it makes sense for you” and adding that
Renault’s lack of a direct holding in Mitsubishi could
be an issue. Yet he also suggested that this was “not
stopping us from looking for synergies with Renault
because [Mitsubishi is] part of the larger Alliance.”
There is also a fine political balance between
Renault and Nissan, with Renault effectively having
de facto control of its stablemate via a 43.4% stake
in it (just like Nissan’s 34% stake in Mitsubishi gives
it control there). Nissan has just 15% in Renault, by
contrast.
One Japanese observer, Takeshi Miyao, Japan
analyst at consultancy Carnorama, told the Financial
Times that “if Nissan’s bargaining position increases,
Renault’s relative position will appear to have
declined, which could upset the existing alliance
between the two companies”, adding that “to
maintain the power balance, it may be necessary for
Renault to invest in Mitsubishi”.
Much remains to be done to complete Mitsubishi’s
turnaround and any direct involvement by Renault
will almost certainly wait for this to be completed.
However, as Mitsubishi models come up for renewal,
they will adopt more technologies, components and
platforms from Renault-Nissan and also contribute
the company’s own expertise, especially in plug-in
hybrid technology (something in which Renault and
Nissan have been sorely lacking) and in pickup/SUV
technology.
AL 43
 TIER SUPPLIER FOCUS GESTAMP
Pressing a point
S
lightly to the north of Wolverhampton in
the UK’s industrial Midlands – and perhaps
more crucially just a few miles off a key
transport route, the M6 motorway – lies
one of the latest additions to the worldwide roster
of production facilities for stamped automotive metal
parts. In mid-September, Spanish-owned tier one
supplier Gestamp officially opened a 50,000 sq.m
production facility built at a cost of nearly £50m
($65m), after slowly ramping up over the previous 12
months. It is now one of seven production plants the
company operates in the UK, plus an R&D centre,
which altogether employ some 3,000 people and last
year generated revenues of £557m.
This impressive-looking facility with its gleaming
white exterior, known simply as Gestamp West
Midlands, will by 2020 replace the operations that
currently take place at a facility five miles away at
44 AL
Cannock. But, as plant director Paul Felton confirms,
the new operation is far more than just a facsimile
of its older counterpart. Instead, it will house several
new types of production process that mark a
significant advance in capabilities.
Perhaps the most notable of these is hot
stamping. In this manufacturing process, boron steel
50,000
is heated before being stamped and then rapidly
cooled in order to generate enhanced strength.
Felton confirms that the technique is already in
operation at the new site using two lines, one for
Number of square extra-large and one for medium-sized parts. These
metres covered by are supplementing two other such lines that the
Gestamp's £50m company operates elsewhere in the UK. The first
factory in the West can produce four parts ‘per blow’, a number that can
Midlands, unveiled in be doubled by an integrated laser cutting capability,
September while the second line can produce two which can be
doubled to four.

Despite unknown Brexit implications, global parts
supplier Gestamp has unveiled a new factory near
Wolverhampton to serve customers in the UK and
beyond. Mike Farish went to have a look
Cold stamping capabilities have also been
enhanced. In this case, the upgrade is represented
by a 2,500-tonne force servo press used mainly
to process steel blanks, though a small number
of aluminium blanks are also handled. The year
after next, though, a completely new process is
due to come online: the machining of aluminium
extruded lengths and their subsequent assembly,
without any prior stamping, into the battery housing
structures for purely electric and also hybrid vehicles.
As such, Felton describes the new plant as “a
modern platform specifically built to showcase the
technologies Gestamp now has to offer”.
New production, new logistics
Supporting these new or enhanced manufacturing
processes is a logistical functionality that also
represents a step-change from previous capabilities.
The new factory comprises a single building with
only a ground level, whereas the Cannock site has
eight separate structures and several different levels.
Felton candidly describes the older facility, of which
he is also the director, as a “logistics nightmare”.
Even before the new capabilities are exploited
through enhanced materials handling, flow and
storage facilities, Felton points out that there
has been a fundamental change in the nature
of the incoming raw materials due to the new
manufacturing technologies, particularly the hot
stamping processes. At Cannock, those materials are
TIER SUPPLIER FOCUS GESTAMP
We can’t just be in
primarily in coil form with a small amount of pre- a few countries.
shaped blanks. At the new location, all the incoming We need to be
raw materials are blanks made at another Midlands- global to give us
based Gestamp company, Steel & Alloy in West
Bromwich. However, Felton says that in future the
the critical mass
use of coil is “not ruled out.” to interact with
Straightaway, that means there is no need for the the carmakers,
heavy-duty cranes to unload incoming trucks that the
sheer weight of coil material would demand. Instead,
otherwise we
forklift trucks both unload the deliveries and carry will never be a
the blanks to the stamping machines. “It is easier to strategic supplier
unload blanks than coil,” Felton confirms.
Blanks are delivered according to a schedule set
for them
out one week in advance, with enough blanks in Francisco
the plant at any one time to support “four or five” Riberas,
sets of stamping operations, or about 12 hours
Gestamp
of production. These are stored in racking on the
shopfloor adjacent to the stamping machines.
The controlling software for the operation is an
SAP ERP system. Felton says the new plant has
upgraded from an older version of the software
that previously ran in the UK to the latest version,
which is being adopted as a standard for Gestamp
worldwide. The intention is that there will be just a
single “corporate, global” version of the software for
use throughout the whole company, he explains.
Making use of AGVs
After stamping, a small proportion of the formed
parts are despatched straight to customers, but
Left: The main method of
material movement inside
the factory is by tow truck,
with the use of forklifts
limited by health and safety
6
Number of AGVs that
will eventually move
materials around the
new facility
AL 45
 TIER SUPPLIER FOCUS GESTAMP

the majority are transported by automated guided
vehicles (AGVs) to interim storage within the plant
prior to their delivery to further production areas
onsite, where they will become part of larger vehicle
assemblies.
The AGVs use a laser guidance system that
enables them to navigate by recognising reflective
markers situated along their prescribed routes; they
do not use the older technique of following buried
tracks in the floor. The intention is that ultimately
there will be six of these machines in the plant.
Felton explains that the use of AGVs will not
just save on labour costs over the longer term, but
will also contribute to the automation of the pre-
assembly storage of stampings as the AGVs will be
able to offload the stamped parts into the storage
areas. He says parts produced by the hot stamping
process will go to a “dynamic, gravity-fed storage

Staying local, yet global

The new Gestamp West
No-one [at the Midlands plant increases the
new facility] is number of production sites the
shying away from company operates worldwide to
107, with another five currently
the challenge of under construction. Adding a
new technologies. further 13 R&D centres makes
In fact, people for a presence in 21 countries
and a total of more than 41,000
want to get to employees. Having been set up
grips with them as a specialist supplier to the
Paul Felton, automotive industry in 1997, the
company now has a turnover of
Gestamp more than €8.2 billion.
According to Gestamp’s
executive chairman, Francisco
Riberas, that global footprint
is a requirement of remaining
a tier one supplier to the
worldwide automotive industry
in the design, development
and manufacture of metal
components and assemblies.
“We always need to be very
close to where the vehicles
are assembled because that is
what makes us competitive,” he
states.
Riberas says the fundamental
operating principle of the
company takes precedence over
all other considerations. As he
made clear at the opening of
the new West Midlands facility,
that includes the UK’s impending
departure from the EU. “We
need to follow our customers,
not wonder whether other
things are happening or not,” he
stated. “So we are investing in
our plants in the UK.”
He argues that as long as
“common sense” prevails
among legislators and
companies, Brexit ought to
prove a surmountable hurdle.
After all, “European countries
are exporting to the UK” he
points out, as well as the other
way around. Riberas’ view is that
“Brexit and tariffs are important
in the short term but they are
not game-changers”.
He identifies four factors
that he believes will shape
the automotive industry over
the near future: “connectivity,
autonomous driving, the
provision of mobility services
and the move from combustion
engines to electrification”. But
of these, he thinks only the
latter will impinge on the way
Gestamp needs to serve its
customer base. “Electrification is
the most important,” he states.
“The others aren’t our business.”
As such, he says Gestamp’s
own R&D activities must remain
focused on “reducing weight
and increasing safety” while
taking account of the need
for new ways to do so. In the
case of electric vehicles, this
will involve satisfying the need
for onboard battery storage –
compartments which he says
constitute “a completely new
type of structural element”. For
instance, they can be integrated
with the safety cell of the
car and can also alter weight
distribution across the vehicle.
Enabling carmakers to cope
with such challenges therefore
“presents an opportunity for us”,
says Riberas.
But meeting technical
challenges cannot take place in
isolation from that fundamental
requirement to be present as
a local manufacturing force
wherever OEMs are making
cars: “We can’t just be in a few
countries. We need to be global
to give us the critical mass to
interact with the carmakers,
otherwise we will never be a
strategic supplier for them.”

Right: Maintaining a global

manufacturing footprint is
key to Gestamp's success,
according to its chairman

107
Number of
production sites
Gestamp operates
4,/)!4&!"Ѹ4&1%‫ޖ‬3"
more under

46 AL

system”, while those formed by the cold process
will be handled by a “very narrow-aisle, high-
bay racking system”. He describes both storage
systems as currently being “semi-automated”,
with full automation targeted as volumes at the
plant increase.
Health and safety regulations mean the
use of forklifts within the assembly areas
is severely curtailed, so the main method
of material movement to and from them is
tow trucks. The material movement within
the plant from first entry to completion of all
manufacturing procedures essentially consists of
two operations that rely on human control and
navigation encompassing one that is automated.
Felton is keen to emphasise that the new
plant boasts a range of different materials
handling equipment. “We’ve got reach trucks,
forklifts, mobile elevated work platforms and
very narrow-aisle pick-and-place systems, for
instance,” he says. In addition, data gathering
using manual scanning takes place to monitor
and record all product movement within the
plant. “We know where everything is all of the
time,” states Felton.
Serving changing OEM needs
The major output of the plant is body-in-white
and chassis assemblies, all of which are built to
order for customers that currently include Jaguar
Land Rover, Renault-Nissan-Mitsubishi, Volvo,
Ford, BMW, Toyota and Honda. Felton says
that, while the bulk of the output is delivered
to British sites in line with Gestamp’s policy of
locating its operations as close as possible to
those of its customers, a proportion is delivered
to one client in Austria and a small amount is
sent as far as Brazil.
When asked about the possible implications
TIER SUPPLIER FOCUS GESTAMP
€8.2bn
Global turnover
achieved by Gestamp
last year, equivalent
to $9.5 billion. UK
operations generated
revenues worth
$724m
Left: The new facility is laid
out over a single storey,
unlike the older site in
Cannock
of Brexit next year, he simply says “we are working
with our customers to mitigate the risk”.
Given that all product is made to order, there is no
reason for assemblies to remain in the plant longer
than is necessary to collate a batch for despatch as
a single truck load. As such, there is no substantial
in-house storage for completed products. Instead,
says Felton, the maximum time any products will
remain in storage onsite after assembly is 24 hours.
Felton explains that loading onto customers’
trucks is accomplished “side on” by forklift trucks.
“We don’t have loading bays,” he says. The primary
reason for this set-up, he explains, is simply
customer preference, but it also benefits Gestamp
by dispensing with the need for fixed structural
elements for the building itself, therefore giving
the flexibility to allow for future reconfiguration and
expansion.
One upcoming challenge on Felton’s mind is the
manufacture of battery compartments for electric
vehicles, which is due to get underway in 2020.
He says this will require the plant to start receiving
aluminium extrusions that are six metres in length, in
other words several times as long as the blanks for
both cold and hot stamping operations, which range
from 0.6-2.0 metres in length. “We will need new
handling and storage capabilities,” Felton states.
By then, of course, the new site will have taken
over completely from its predecessor. Felton says the /"5&1+!1/&Ȅ0
plan is that the whole of the 800-strong workforce important in the
in Cannock will transfer to the new site; 150 have
short term but
already done so. He says the benefits of the new
facility for the workforce compared with the older they are not
one are already becoming apparent. “The fact that it game-changers
is all on one level just makes things a lot easier,” he Francisco
states. “Morale is significantly better.”
Felton adds: “No-one is shying away from the Riberas,
challenge of new technologies. In fact, people want Gestamp
to get to grips with them.”
AL 47
 COUNTRY FOCUS IRAN
FROM THE INDUSTRY
Driving
predictive
maintenance
C
onnected cars are set to hit the
mainstream; market penetration
is expected to soar from 38.9% in
2018 to 80.7% in 2022, according
to statistics provider Statista, which will
have a significant impact for logistics
companies in the aftersales market.
In particular, connected cars are paving
the way for predictive maintenance.
Traditionally, when a car breaks down,
the driver takes it to an independent repair
centre or dealership, where mechanics
diagnose the problem, order the spare part,
and fix the car when the part arrives.
With connected cars, the process can be
made faster and driven by the dealership.
Through over-the-air connectivity, dealers
can remotely monitor the state of the
car, spot a potential problem in advance,
diagnose it, arrange for the driver to bring
the car in, and have the part ready and
waiting when the customer does so.
Dealership logistics
While this type of predictive maintenance
is not new, it will impact on the dealership’s
logistics provider, which has to make sure
there is enough stock in the warehouse
and that it can be delivered as needed. And
that means a step change for automotive
logistics companies like Gefco, which have
not traditionally operated this way.
Vincent Delamare, market line manager,
car manufacturers at the company, says that
traditionally, spare parts have been delivered
on an overnight basis.
“A dealer placed an order with its brand
central warehouse before 4pm or 5pm on
any given day. This was then processed
in the central warehouse and shipped
overnight, with the aim of delivering it
before 8-9am the next morning,” he says.
The problem with this, according to
48 AL
Delamare, is that it’s a reactive situation: a
dealer will only order or receive parts when
a car is already in their garage. If the dealer
can diagnose a problem remotely or predict
a failure in advance, however, the stock can
be ordered ahead of time.
“When we get this extra lead time and
visibility into orders, we can get the parts to
the dealership before the customer arrives
for their appointment, so their car gets fixed
quicker,” he comments.
Better stock management
This has a direct impact on stock
management for the dealer, removing the
need for them to maintain a large stock of
spare parts themselves.
“Dealerships can get rid of their in-house
stock, which allows them to create
additional maintenance space, so they can
repair more cars every day,” says Delamare.
This will provide a competitive
differentiator for OEMs and dealerships,
he says, allowing them to provide extra
customer service in the aftersales market
and giving them an edge over independent,
third-party mechanics and e-commerce
companies like Amazon. It also means
logistics providers can better manage their
stock, as they have a better idea of what
orders they will need to fulfil, with fewer
rush jobs and fewer orders for general stock
to be held in the warehouse.
“We can go leaner on stock, and improve
filling ratios,” says Delamare.
New type of logistics management
To successfully schedule appointments on a
predictive basis, dealerships have to be able
to rely on their spare parts providers and
logistics partners to deliver the parts when
they need them, so they are ready for the
appointments.
Sponsored by
Predictive maintenance is set to
transform the way logistics companies
supply spare parts. Gefco’s Synchro Hub
is leading the charge
This requires more (and more frequent)
deliveries, as dealerships still have to work
on other, non-predictive maintenance jobs,
like planned maintenance, regular problems
and urgent jobs.
Helping to enable this is a logistics
service from Gefco called Synchro Hub,
which is based on a series of connected
local distribution centres in high-density
geographical areas within 50km of
dealerships. These warehouses can stock
parts from multiple OEMs and are fed
information about orders directly from the
central warehouse.
“These warehouses can deliver up to
three times a day, not just to the dealership,
but also to drop-off points such as parcel
shops and lockers and even a car owner’s
home, working in a similar way to Amazon
pick-up points,” says Delamare. “If an
order is placed at 9am, we can ship it by
11am, instead of delivering it the next day.
Dealerships can extend their workshop
hours due to the extra stock delivery
provided by these local distribution centres.
The warehouses are also able to stock a
wider range of products, as requested by
OEMs and dealerships.”
Overcoming predictive challenges
Synchro Hub also helps Gefco to decide
how much stock to keep in its warehouses,
allowing it to more accurately predict a
dealership’s consumption of parts and the
minimum amount of stock to hold.
“Using predictive analytics based not
only on a dealership’s past consumption
but also discussions with dealers and
independent retailers, as well as seasonal
factors such as how tyre and battery use
differs at certain times of the year, we can
better anticipate requests and ensure we
have the right stock to fulfill them,” says
Delamare. “This communication with the
dealers also helps us understand when
we might need to increase our stock
levels, as we know when they are running
promotional campaigns that might increase
requests, as well as other factors that
influence parts demands.”
Gefco also works closely with the
dealerships to keep an eye on current
and anticipated future trends that could
influence demand. For example, the
‘dieselgate’ emissions scandal influenced
the volume of diesel cars being bought,
with a knock-on effect on demand for
certain spares. Another example is the
increase in demand for SUVs, which made
up 32.4% of total global car sales in 2017,
up 12.7% compared with 2016, according to
automotive business intelligence solutions
provider, Jato.
“We watch these kinds of global trends
and events closely, but the question we
also have to consider is when it will hit
consumption of new parts,” says Delamare.
“We can see that more and more SUVs are
being purchased, for example, but when will
that translate into higher demand for new
parts for these types of cars?”
This is also true in the case of recalls for
defective parts. Gefco relies on its analytics
capabilities to ensure it can work out what
the demand for new parts will be as fast as
possible.
“We need to have the most efficient
delivery methods possible in place for
when this happens,” says Delamare. “This
is where the Synchro Hub comes in, as we
can more quickly get these parts to dealers
or independent mechanics.”
Future developments
While logistics services such as Synchro
Hub will help with more efficient parts
deliveries and thus enable predictive
maintenance, there are still aspects of the
process that have to be worked out. This
requires close collaboration between OEMs,
dealerships and logistics providers.
“Our logistics platform needs to be able
to communicate with OEMs’ IT systems so
we can access crucial information to help
us ensure adequate stock levels in local
distribution systems and fulfil orders in a
timely manner,” says Delamare.
“Some OEMs want to use our systems,
some want to use their own – but whatever
the case, the information needs to flow
seamlessly.”
It is important, therefore, for OEMs and
dealerships to work out a strategy to let
them make the most of logistics services
such as Synchro Hub.
“Change is never easy, and the
automotive industry is no exception,” says
Delamare. “OEMs and dealerships need
to work out a strategy to help them take
advantage of the new delivery options and
make changes to the way they operate.
“We also need to help support our
customers’ networks by explaining how
Synchro Hub works, as well as taking
the fight to competitors and e-commerce
disruptors by providing track and trace APIs
[application programming interfaces] to feed
our customers’ websites, making them as
easy to use as Amazon’s.”
AL 49
 OEM FOCUS SKODA MLADÁ BOLESLAV

Part of The Skoda Parts Centre in

Mladá Boleslav has been

the plan
expanded for the third time
since opening in 1999. Victoria
Johns went to find out what it
has in store for the VW Group's
aftermarket parts distribution

xxxxxx

50 AL
 OEM FOCUS SKODA MLADÁ BOLESLAV

The expansion of
the parts centre
is an important
building block in
the growth plans
of the Group and
the brand
Roman Havlásek,
Skoda

B
earing the world’s biggest Skoda logo,
the OEM’s parts centre in Mladá Boleslav,
Czech Republic is hard to miss. Located
just off the Prague Liberec motorway, the
42-metre stacking warehouse is the tallest building in
the city, which is known locally as ‘Skodatown’.
The warehouse is the largest for genuine parts
in the Czech Republic and one of three European
central warehouses for the Volkswagen Group.
Storing more than 140,000 items from small screws
to large bodywork parts, the facility handles 13m
units, which are stored and distributed to service
partners and dealers around the world.
Skoda invested €22.5m ($30m) in the expansion
of the centre in December 2016, a project which has
created 40 warehouse operative jobs. Completed
in March this year, the total area of the central
warehouse has now increased by 31,000 sq.m to
a total of 180,000 sq.m and the storage area alone
stretches more than 105,000 sq.m, equivalent to 13
football pitches.
“The expansion of the parts centre is an important
building block in the growth plans of the Group and Left: Skoda's head of
aftersales, Roman Havlásek
the brand,” head of aftersales Roman Havlásek told
Automotive Logistics during its exclusive tour of the
facility in August. “In 2000, we started delivering method. In just one hour, more than 200 pallets can
parts for group vehicles to individual service partners be stored or removed, increasing the output of the
in the Czech Republic every day, now we deliver up picker-to-parts process by 50%.”
to twice a day.”
The centre is providing an everyday delivery Take your pick
service to nearly all of Europe, with daily orders of The cartons or pieces are placed into totes (smaller
around 28,000 items for more than 100 countries. goods) or into trays (larger goods) and stored in high-
“We account for a significant proportion of the global density automated storage and retrieval systems
supply of genuine parts and accessories both from (ASRS), carousels or robotic systems. As orders are
Skoda and other Volkswagen Group depots as well as required, pallets are automatically retrieved from
the supply of common parts for chosen markets for storage and brought to the picker, either at a pick
Skoda, VW, Audi, Seat and light commercial vehicles," station, where the operator picks from an order
said Havlásek. container, or an ergonomic palletising station, where

Alongside a new delivery and expedition area,
the centre is equipped for 8,000 pallets using block
storage, a palletised structure that does not require
any type of storage equipment. An automated
high-rack shelf system has also been introduced to
increase storage capacity.
“The retrieval process for genuine parts and
accessories can now take place fully automatically,”
explained Havlásek. “Each aisle has its own
automatic retrieval unit, known as the ‘parts-to-picker’
€22.5m
items are placed on a pallet. Since the picker does
not have to walk anywhere, the focus at the pick
stations and pack stations is on ergonomics and high
productivity and quality.
The parts-to-picker system presents operators Amount Skoda
with only the goods needed for orders and works spent on the latest
in conjunction with a pick-to-light method, whereby expansion of its parts
lights located directly on the storage slot indicate centre, the third
where the next item is to be picked and the number since 1999
of items to be retrieved. This system cuts down on

AL 51
 13 – 14 November 2018
Kempinski Hotel Corvinus
Budapest, Hungary
#ALCEESummit

A region re-energised:
Investment, Technology,
Talent and Infrastructure

Keynote
Speaker:

Péter Szijjártó
&+&01"/,# ,/"&$+Ȅ&/0
+!/!"
Hungarian Ministry
,# ,/"&$+Ȅ&/0
and Trade

REGISTER NOW: automotivelogisticscee.eu

,)!0-,+0,/0

),)0-,+0,/0 &)3"/0-,+0,/0

Complimentary places available for vehicle makers and parts suppliers


the possibility that workers will pick the wrong items,
therefore improving accuracy and productivity.
The method is also energy efficient, not only
consuming less power while maintaining excellent
weight-to-payload ratios, but also using energy
recuperation modules to generate and store
electricity from system shuttles while in operation.
By reading a barcode or pressing a button, the
trays are automatically conveyed to the central
extractor before being transported to the service
opening. Thanks to its design, the system at any
time can be changed to suit height requirements,
enabling great flexibility when working with different
room heights. The same also applies to the carousel
system, consisting of carriers and containers, which
are always conveyed to the user via the shortest
route.
“Our warehouse staff use SAP [Systems
Applications and Products] applications under which
goods are ‘uploaded’ to pallets using handheld
terminals. The digitisation of this process reduces
error rates and makes shipment clearance much
faster,” explained Havlásek.
The material flows controlled by SAP use a
combination of barcodes and mobile terminals to
ensure that each pallet reaches its destination in time
and with the correct product quantities. It monitors
every step, from stock-in to shelving, picking and
shipment to customers. Each of the 11 aisles in the
extension also features an automatic shelf loader
with a navigation system which is based on laser
rays.
Stock in trade
Although some form of automated goods-to-person
fulfilment options have been available for decades,
it has only been within the past several years that
an influx of extremely efficient goods-to-person
systems have been introduced. This has been largely
influenced by heightened processing capability and
fully-integrated controls, making these stock-keeping
units, high-speed systems possible and capable of
raising warehouse efficiency by up to 65%.
“The ability to store and retrieve orders
simultaneously, as opposed to sequentially,
accommodates high throughput,” stated Havlásek.
“We never know what’s coming in and pride
ourselves on the flexibility of our orders. We can
predict with seasonality, for example, an increase in
the order of tyres in the autumn to prepare for winter
– but each day the orders are completely different.”
Pallets holding the materials are stored on wooden
plates, providing better mechanical properties than
OEM FOCUS SKODA MLADÁ BOLESLAV
plastic. There are 14 types of pallets and each one
intended for the stacking warehouse goes through
an automatic 3D dimension and eight checks.
The tolerance is 16mm and any pallet that shows
In just one hour, a higher deviation as a consequence of damage,
such as warping, is discarded. “We have split the
more than 200 extension into retail and export areas,” said Havlásek.
pallets can be “The total capacity of the aisles is 40,000 pallets
stored or removed, and 12 operators work in a three-shift [pattern] with
an average of 3,800 orders being made for 500
increasing the employees per day.”
output of the Skoda’s active product range comprises more
picker-to-parts than 140,000 articles. The stock-in halls receive
daily deliveries from 944 suppliers based in the
process by 50% Czech Republic and a further 44 countries. The daily
Roman Havlásek, capacity of the stock-in sites is about 200 trucks
Skoda loaded with pallets full of material. Transport from the
stock-in sites to the individual warehouse and then to
the shipment site is carried out by 148 electric trucks.
On average, 130 trucks loaded with parts
and accessories leave the centre daily and are
transported by road, rail and air. The most distant
destination is 18,000km away: New Zealand. All
genuine parts and accessories ordered by dealers
in the Czech Republic and Slovakia by 6pm are now
distributed by the morning of the following day.
Shipments to large European countries are cleared
within 24 hours, other European countries within
eight days and overseas shipments within 15 days.
The OEM has also created the necessary storage
capacities for genuine parts and accessories,
including prepared batteries, which will be used in its
electric vehicles from 2020 onwards. Skoda is set to
launch ten electrified models by 2025.
“We don’t have to stock the item for customers
to know it’s available,” said Havlásek. “Our IT system
shows the customer the full range of our stock from
Top left: An average of 130 small to big parts, and every expedition pallet we
trucks per day leave Mladá send out is comprised of multiple parts.” Predictive
Boleslav software also helps to forecast and optimise back
orders, recommending what stock dealership service
Top right: The centre
departments are most likely to have and need and to
receives daily deliveries from
944 suppliers based in 45 provide it promptly.
countries With orders predicted to rise by 25% in the next
five years, Skoda has plans to further expand the
28,000
warehouse in 2022. “Our target is to strengthen
our network and ensure the quickest delivery of
parts, ultimately improving customer satisfaction,
but the work is never over,” explained Havlásek.
Orders of parts and “We continue to look for new ways to improve the
accessories received services we provide to our customers, because
per day they’re the reason we’re here. If we don’t deliver, our
business will be gone.”
AL 53
 COUNTRY FOCUS RUSSIA

Rewriting the
rules Russia’s Industry and Trade Ministry is looking to rip up
existing industrial assembly agreements in favour of a
new localisation strategy. Vladislav Vorotnikov looks at
the implications for automotive supply chains

R
ussia’s Industry and Trade Ministry wants
OEMs to make huge investments in
new production capacity in Russia over
the coming decade, in order to continue
qualifying for state aid. A bill laying down the basis
of a new national localisation strategy was published
in August that is designed to replace the current
industrial assembly agreements.
Not all carmakers are entirely happy about its
provisions, however.
Russia originally planned to cancel the tax breaks
on imported components outlined in its industrial
assembly agreements from July 1 this year, but
failed to do so as the move was not supported at the
time by the Eurasian Economic Union (EEU) Council,
explains Wilhelmina Shavshina, legal director and
head of foreign trade regulation at DLA Piper.
This blocking of the proposal by other member
states is not the first time this year that Russia
has faced resistance in the legal arena within the
EEU in terms of the automotive market. In July, for
instance, a trade conflict between Russia and Belarus
paralysed duty-free exports of finished vehicles from
one country to another within the economic block.
At a meeting of the Eurasian Intergovernmental
Council in July, member states agreed that import
duties on automotive components could only be
increased by Russia after being officially signed off
at the next EEU Council meeting on August 24, says
Shavshina.
Russia took on an obligation to abolish lower
import duties on components under its World Trade
Organization (WTO) membership and would therefore
be penalised under those rules if it did not. Belarus
and Kazakhstan, however, have no such obligations
and have negotiated the right to continue supporting
assembly plants in their countries with lower duties.
When import duties on components do rise, it
will increase production costs at assembly plants
in Russia, stresses Alexey Serezhenkin, deputy

54 AL

executive director for the Association of Russian
Automakers. The extent of the increase will vary
from plant to plant depending on the level of
localisation achieved by each one in terms of
components sourcing, as well as any steps taken by
the government to reimburse factories for growing
expenditure on customs charges, Serezhenkin says.
When the lower import duties are abolished, some
OEMs may well revise their localisation strategies
in Russia, shifting from manufacturing models with
low localisation levels to importing them as finished
vehicles, Serezhenkin suggests. However, he
believes that such changes are not likely to result in a
dramatic increase in imported volumes.
Made in Russia – with subsidies
The Russian government intends to subsidise up to
90% of the costs associated with the payment of
increased import duties by carmakers, according to a
decree published by the Industry and Trade Ministry.
That decree has already passed public hearings, and
as long as Russia manages to sort out the issue
with import duties in the EEU Council, the industry
expects it to come into force shortly after, according
to Shavshina.
However, state support is to be provided only to
those carmakers whose vehicles achieve made-in-
Russia status, the ministry said in a separate decree.
To qualify, OEMs will need to meet certain targets
under a new points-based assessment of localisation
levels, in which points can be accrued by localising
what are termed “critically important components”.
To be eligible for state support, carmakers must
score 100 points from 2019 under this system and
150 points from 2025, the ministry has stipulated.
Using localised engines or transmissions will score
40 points, for example, while electronic systems or
aluminium of Russian origin will score 20 points.
The entire list of components and points has not
yet been finalised, but it is clear that it will require
substantial investment by carmakers if they wish
to meet the new targets: simple calculations show
that carmakers will have to localise everything which
scores points in the coming years to meet them.
Complex impact on supply chains
The legislative changes being proposed will clearly
have a complex impact on supply chains in Russia,
with different consequences for different carmakers.
“For those OEMs that have no resources or find it
economically infeasible to invest in new localisation
projects, production costs will rise – so in order to
maintain profitability, they will have to increase their
prices,” says Victoria Sinichkina, senior manager of
advisory services to automotive companies at PwC.
It is also possible that certain carmakers will prefer
to import some models as finished vehicles, instead
of manufacturing them in Russia, Sinichkina adds.
Having said that, the current government policy
is focused on making localised production more
attractive than imports, she stresses.
Finished vehicle imports to Russia are on the rise.
During the first six months of 2018, the country
imported 138,300 vehicles worth $3.43 billion, up
by 22.6% in terms of numbers compared with the
same period the previous year. Remarkably, imports
have been growing faster than domestic production,
COUNTRY FOCUS RUSSIA
something which has not been seen for a decade.
In 2017, Russia imported a total of 267,700 finished
vehicles worth $6.7 billion. Although the number of
vehicles imported was only slightly higher than the
previous year, the increase in terms of their value
was more than $700m, according to data from the
Russian Federal Customs Service.
“Despite the growing trend in local production
of cars, some brands continue to import some or
all of their models into Russia. For ro-ro shipping
lines, the growth in passenger car imports in 2018
is a very positive factor. It also provides additional
volumes for the port terminals in the St Petersburg
area. Car-carriers also receive additional truckloads,
which has a positive effect on total volume of traffic
For ro-ro shipping and improves the backload factor,” comments general
director of WWL’s Russian division, Dmitry Vostrikov.
lines, the growth The inbound logistics segment is growing,
in passenger following recent recovery in the Russian logistics
car imports in market, and as a result, investment is now needed in
2018 is a very fleet modernisation, adds Vostrikov.
“However, it should be noted that the fleet of car-
positive factor. carriers does not necessarily increase in proportion
It also provides to volume growth,” he comments. “Many companies
additional have frozen investment in new trucks. Only some of
the major players in this market are updating their
volumes for the fleets; the rest are continuing to use their old car
port terminals… trailers.”
[and] car-carriers Anna Komarova, head of the finished vehicle
logistics commercial department at Gefco, believes
Dmitry Vostrikov, the prospects for inbound logistics, as well as the
WWL Russian logistics market in general, are rather vague,
however.
“We’ve witnessed some growth in the [Russian
automotive logistics] market in the first half of 2018,
as compared to the same period of the previous
year. On the other hand, forecasts for the second
half of the year remain uncertain, due to continuing
growth in prices for the finished vehicles of particular
carmakers, which can negatively affect demand,” she
says.
In any case, the strong increase in import flows
seen in the first few months of 2018 could in part
be associated with the efforts of companies to
import finished vehicles in advance of a hike in the
utilisation fee, which was raised in Russia from April
1, Komarova points out.
Given all this, it is difficult to predict just how
Russia’s new approach will affect the automotive
logistics market there. What is clear, however, is that
change is most definitely in the wind.
Localisation levels
67% Nissan-Renault-Avtovaz average
60% VW engine plant at Kaluga
Peugeot 408 and Citroën C4
35% at PSMA Rus
AL 55
 av b
ai as
Sp le f in
la ed
ec or Bra
b

ia de zi
l r le l
at ga
e te
28 November 2018
Hilton São Paulo Morumbi

s
#ALSA18

A new dawn,
a new supply chain

Complimentary places available for vehicle makers and parts suppliers

REGISTER NOW: automotivelogisticssouthamerica.com

Premier sponsor Gold sponsor

Global sponsors

Simultaneous translation - English/Portuguese


Carmakers have their say
Shortly after the government
published its new decree, a
number of carmakers confirmed
they had started looking at new
localisation projects in Russia.
Local newspaper Kommersant,
citing its own sources in the
automotive industry, said only
the Nissan-Renault-Avtovaz
consortium could meet the
requirements of the new
localisation strategy without
huge investment.
Roman Skolsky, spokesperson
for Nissan in Russia, says the
average localisation rate within
the consortium is 67%. The
consortium is participating
in discussions over the new
localisation strategy with the
government and plans to keep
increasing localisation in the
years to come, he adds.
“The upcoming changes in
automotive components imports
are linked to the general strategy
on automotive and components
industries development [in
Russia] and contribute to the
localisation of critically important
technologies,” he comments.
Nissan has also confirmed that
it is considering new projects
aimed at further localising
engines and transmissions in
Russia. It already uses engines
of Russian origin for the Almera,
Datsun on-Do and mi-Do models
assembled in the country,
according to Russian analyst
Autostat.
Hyundai to seek support?
Meanwhile, Hyundai is planning
to invest 27 billion roubles
($450m) to build an engine
plant in St Petersburg, Maxim
Meiksin, chairman of the
industrial policy committee of St
Petersburg, revealed at a press
conference on August 8.
He said the production capacity
of the plant was expected to
be around 150,000 units a year
– enough to put Russian-made
engines in all the vehicles it
assembles there.
To date, Hyundai has imported
engines into Russia from its
production sites in China,
Meiksin said. The carmaker
will start building the plant as
soon as the technical details are
agreed with the Russian Industry
and Trade Ministry, he added.
These negotiations suggest
that Hyundai will be seeking
state support for the new
project.
Elsewhere, Ford-Sollers is
considering localising the supply
of transmissions in Russia, Adil
Shirinov, the OEM’s executive
director, revealed during a press
conference earlier this year.
He described it as a demand
from the government to
companies “willing to keep
operating on the market”.
Shirinov provided no further
details on the plan, however,
and Lybov Karchevskaya, Ford’s
official press secretary in Russia,
has also declined to do so.
Deeper localisation
Volkswagen, meanwhile, says
it is planning to localise more
deeply, rather than more broadly.
“Volkswagen has already
hit the ceiling in terms of the
breadth of its localisation; all
the components that can be
localised in Russia already have
been,” says Carolina Demenko,
spokeswoman for VW Group
Rus.
VW has invested €250m in its
engine plant in Kaluga, where
200,000 engines have already
been manufactured. Under the
industrial assembly agreement in
force, the company has achieved
a 60% localisation level, covering
such things as glass, wire and
cables, stamped parts, seats,
suspension, interior detailing,
batteries and other components,
she adds.
VW believes it could sensibly
increase the depth of such
localisation, however, by
engaging with local second- and
third-tier suppliers – something
that state support could help
achieve, says Demenko.
“Instead of supporting large
companies that are first tier
suppliers, Volkswagen Group
Rus considers it is necessary
to create an infrastructure and
ecosystem of small and medium-
sized companies – the second
and third tier suppliers – that
could supply components not
only to the automotive industry,
COUNTRY FOCUS RUSSIA
but also for other industries, so
they could be more resistant
to fluctuations in demand in
the automotive industry,” she
explains.
Over at PSMA Rus, a
localisation level of 35% is
already in place on Peugeot
408 and Citroën C4 models
manufactured in Russia,
says Lilia Mokroussova,
spokeswoman for the company.
It is hard to find some
We’ve witnessed
components locally, however, some growth in
including electronics, which she the market in the
says are considered a ‘critically
‫ޖ‬/01%)#,#устщѷѷѷ
important component’ under the
new localisation system. [but] forecasts for
Mokroussova confirms that a the second half of
reduction in import duties on the year remain
components could, in theory,
have a positive impact on PSMA uncertain, due to
Rus, which could in turn provide continuing growth
finished vehicles at better prices in prices for the
to Russian customers. But she
gives no indication of whether
‫ޖ‬+&0%"!3"%& )"0
the company plans to become of particular
eligible for the new support carmakers
measures.
Anna Komarova,
Economically unfeasible? Gefco
Not everyone believes it will
be economically feasible to
meet the targets of the new
localisation system being
proposed.
One assembly plant source told
Automotive Logistics: “There
is only any point in establishing
engine or transmissions
plants if they are designed to
manufacture 100,000 units a
year with a utilisation factor of
over 80%.
"So, for some carmakers,
there is no sense in allocating
additional investments to their
Russian operations, as long as
demand on the Russian market
100
is still far from the 5m finished
vehicles a year promised by the Score that OEMs
government in 2012.” must achieve from
Although almost every 2019 to qualify for
carmaker was willing to sign state support under
up to the previous industrial the localisation
assembly agreements, things strategy, rising to 150
could well be different this points from 2025.
time around, the source adds, Locally made engines
suggesting that some may find it and transmissions
more attractive to simply ignore will score 40 points;
state support and import their electronic systems
components under new, higher and aluminium will
duties. score 20
AL 57
 COUNTRY FOCUS IRAN
Cracking under
sanctions
T
he re-imposition of sanctions by the US
on Iran has dealt a hammer blow to the
country’s emerging automotive industry. The
threat of retaliation by the US against those
whom it deems to have broken those sanctions has,
once again, prompted vehicle-makers and logistics
companies to pull out of the market.
Vehicle production in Iran had climbed to 1.5m
units in 2017, up 18% from the year before, according
to figures from global automotive association, OICA.
The rise came off the back of a healthy 2016 as
carmakers such as Renault and Groupe PSA returned
to the market following an international agreement
at the end of 2015 to relax sanctions. The appeal of
a largely untapped market with a population of more
than 80m made the risks seem worthwhile.
Now, however, the sanctions are back, after the
58 AL
Fresh US sanctions have broken
Iran's automotive market, forcing
vehicle-makers to pull out and
leaving a void that the Chinese
may fill. Nick Gibbs investigates
US pulled out of the so-called Joint Comprehensive
Plan of Action (JCPOA) and announced that it would
penalise companies doing business with Iran, starting
from August 7. Among the sectors targeted are
automotive, shipping and banking.
Sanctions are being imposed on foreign financial
institutions and people conducting transactions “for
the sale, supply or transfer to Iran of significant
goods or services used in connection with the
automotive sector of Iran”. Worse, while the 2013
sanctions imposed by Barack Obama’s administration
exempted imports of finished vehicles, President
Trump’s executive order makes no mention of this.
Since it was only the US that pulled out of the
JCPOA, companies with no involvement in the
US market could, theoretically, continue trading
with Iran. Neither Renault nor Groupe PSA, for

example, conducts any significant business with the
US, and indeed the EU put out a joint statement
at the beginning of August declaring that it was
“determined to protect” European companies doing
business in Iran. Europe still supports the JCPOA,
along with China and Russia.
However, the US administration could quite easily
target linked companies – for example Renault’s
alliance partner, Nissan – and no-one is willing to take
the chance.
Vehicle-makers pull out
PSA has said it is ceasing operations in Iran in what
CEO Carlos Tavares called a “clear-cut decision”
during an earnings call with analysts in July. “We
decided to wind down to be fully compliant and
protect the company. This is not a grey decision, this
is black and white,” he said. PSA says it has written
off €150m ($170m) invested in a new joint venture
with government-owned Saipa.
Daimler is also backing out. The truck arm of the
German firm established a joint venture with Iran
Khodro in 2016 to make Mercedes-Benz trucks, but
told Reuters at the beginning of August that it had
ceased its Iranian business. Swedish truckmaker
Scania, meanwhile, has cancelled all orders. Yet the
company is looking at contingency plans to keep
supplying existing trucks in the country with spare
parts, it also told Reuters in August.
Renault was initially reluctant to leave Iran entirely.
"We don't want to abandon Iran," Renault-Nissan
Alliance CEO Carlos Ghosn said back in June. The
two French firms – the biggest foreign vehicle-
makers operating in Iran by far – had hoped to be
exempt from penalties as a result of France lobbying
President Trump. That failed, however, and by the
end of July, Renault had changed its tune. “As
we comply fully with US sanctions, it's likely that
our development [in Iran] would be put on hold,”
Renault’s chief operating officer, Thierry Bolloré, told
analysts at the end of July.
Both carmakers hoped to capitalise on the
country’s potential to become a key market in their
portfolio. “It's easy to underestimate the importance
of the Iranian light vehicle market, particularly for the
French firms,” comments Matthias Schimdt, analyst
with Sweden’s EagleAID automotive market research
company.
COUNTRY FOCUS IRAN
Iran was Renault’s eighth largest market in 2017
with sales of 162,079, up from eleventh in 2016. It
sold more cars there than it did in the UK, Argentina
and India, seizing a market share of 11%. Renault
had targeted a 15% share with sales of 250,000 by
2022, indicating the growth potential it saw. It's easy to
In 2017, it signed a joint venture agreement with underestimate
state-owned investment firm Idro and Negin Khodro,
the importance of
the company that currently imports Renaults, to build
a new factory with a capacity of 150,000 units as the Iranian light
well an engine plant. Renault currently has a capacity vehicle market,
of 200,000 vehicles in Iran. However, the new
particularly for the
company had yet to be established by the end of last
year, Renault said in its 2017 financial report. /"+ %‫ޖ‬/*0
Matthias
Schimdt,
EagleAID
Left: The Brilliance H330
This will be the second time Renault has halted was the tenth bestselling car
its business in Iran, after writing off its assets in the in Iran in the first quarter of
country in 2013, when tougher banking sanctions this year
were imposed. Renault’s operation in the country,
1.5m
Renault Pars, has remained separate from the
Renault Group ever since.
Impact on logistics providers
Automotive imports are expected to dwindle to Vehicles produced in
very little, at least from Europe. The two biggest Iran in 2017, up 18%
shipping companies, Denmark’s Maersk and Geneva- from the year before.
registered MSC, have both decided to stop providing A predicted rise to
services to Iran in response to the US executive 1.6m is unlikely to be
order. “With the sanctions the Americans are to achieved now that
impose, you can’t do business in Iran if you also have new sanctions have
business in the US – and we have that on a large been imposed
scale,” Maersk’s CEO, Soren Skou, said in May, as
AL 59
 COUNTRY FOCUS IRAN
90%
reported by Reuters.
Both shipping firms had opened Iranian order
books after the signing of the JCPO and Maersk had
started a weekly service between Bandar Abbas port
Proportion of and nearby Jebel Ali in the United Arab Emirates.
cars in Iran built Other foreign logistics providers are seeing
in the country, business tail off. Ekol Logistics, based in Turkey,
including those established a subsidiary in Iran last year to provide an
built from complete air freight service to Germany, but the company has
knockdown kits to seen business slow down. “Spare parts producers
3,&!01&Ȅ&*-,/1 have been using our international transportation
duties service with less frequency and since May 2018,
we haven’t had any transactions and are not
expecting any volume increases in the near future,”
a spokesperson for the company told Automotive
Logistics.
The company says the biggest problem is money.
“Due to banking sanctions, we are not able transfer
any capital into the country,” the spokesperson
confirms. Ekol expects that without foreign capital
the Iranian government will probably freeze
investment in the ‘logistics cities’ outlined in its
development growth plan. On the upside, Ekol’s
continuing presence in the country could see it
win business from others that leave, the company
believes.
In terms of automotive imports, there will not
be much business left to chase. The government
has already banned imports of finished vehicles in
a series of clampdowns to stop currency leaving
the country. It first banned all vehicles costing over
$40,000, producing lists of ‘allowed’ cars and hiking
already high import duties.
The Financial Tribune reported in January that
the increased duties had pushed the price of the
Hyundai Santa Fe SUV from $54,000 to over $72,000
in Tehran. Hyundai was the most popular imported
brand in the first quarter of this year, sales data
aggregator Bestsellingcarsblog.com reported. VW
Right: Despite sales of
kits to its Iranian partner
Renault Pars of 743m in
2017, Renault expects these
shipments to be cut to
“almost zero” in the second
half of the year
60 AL
Who's in the driving seat?
• Iran Khodro and Saipa have around 80-90% of
Iran’s vehicle market
• Over 90% of vehicles are locally made as a
result of high import duties
• Renault had an 11% market share in 2017
before new sanctions were imposed, with
sales of 162,079
• The bestselling car is the Saipa Tiba/Saina,
followed by the Saipa Pride, the Peugeot 206,
405 and Pars
• In the 12 months to March this year, Chinese
companies were responsible for 50% of parts
imports to Iran. These imports were worth
$779m in the first quarter
• Chinese brands have an 8-10% share of
the Iranian vehicle market, a figure which is
expected to rise
had moved to fourth among imported brands behind
Renault and Mitsubishi after announcing last year
that it would restart imports into Iran.
In June, however, the Iranian government went
on to announce a total ban. Only those who apply
to the government can now import a car, although
commentators believe these controls will be lifted
when demand becomes too great.
Imported finished vehicles form a small part
of Iran’s sales. The majority of cars – over 90% –
are built in the country as a result of high import
duties. Included in those locally produced numbers,
however, are cars built from complete knockdown
(CKD) kits imported by Renault, PSA and others to

avoid paying the duties.
Renault says its sales of kits to build cars like
the Tondar 90 (Dacia Logan in other markets) to its
Iranian partner Renault Pars amounted to €743m in
2017, up from €513m in 2016. In the second half of
the year, Renault expects shipments of these kits to
be cut to “almost zero”, chief financial officer Clotilde
Delbos told analysts in the firm’s earnings call in
August.
That will make a big dent in sales in Iran, as the
Renault Tondar 90 and Sandero were the country’s
seventh and ninth bestselling cars respectively in the
first quarter of this year.
PSA was planning a similar assault on the Iranian
market. In 2016, it signed agreements with the two
big state-owned vehicle manufacturers – Peugeot
with Khodro and Citroën with Saipa – to build cars in
the country. Production of the Peugeot 2008 small
SUV had already started, with more models planned.
All would have been either kits or have a large
percentage of imported parts content.
Such is the size of Iran’s vehicle industry that
automotive parts topped the list of imports in the
first quarter of this year at a value of $779m, a
massive 73% rise on the same period the year
before, the Financial Tribune reported, quoting
statistics released by the Islamic Republic of Iran
Customs Administration. This volume accounted for
6.9% of all imports.
Self-contained production
There is no suggestion, however, that Iran’s
automotive industry will collapse completely. The
country is well used to operating independently of
the rest of the world, and while Renault and PSA’s
return to the country made headlines, the bulk of
vehicles sold in Iran are made by local firms with
Iranian content. The bestselling car, for example, is
the Saipa Tiba/Saina, followed by the Saipa Pride, the
latter based on the long discontinued Kia Pride.
The next three bestselling cars, according to the
Q1 figures, bear a Peugeot badge: the 206, 405 and
Pars. And even Peugeot’s exit from the market will
not mean that these cars are discontinued, as they
are made under licence by Iran Khodro, the Iranian
automotive firm which along with Saipa controls
around 90% of the country’s vehicle market. These
vehicles are constructed from nearly 100% local
Top: Thierry Bolloré, Renault
chief competitive officer,
signs a JV in 2017 with
Mansour Moazzami, deputy
minister and head of Idro,
and Kourosh Morshed
Solouk, MD of NH Group
With the sanctions
the Americans are
to impose, you
can’t do business
in Iran if you also
have business in
the US – and we
have that on a
large scale
Soren Skou,
Maersk
COUNTRY FOCUS IRAN
content and Peugeot’s involvement is simply to claim
a licence fee. Peugeot will presumably stop doing so,
but the cars will continue to be made. These models
were due to be replaced as PSA’s investment brought
in new ones, but now they are likely to continue for
as long as the US sanctions hold.
Chinese OEMs move in
When Iran Khodro realised that the sanctions meant
it would probably would have to terminate its
agreement with Renault’s Iranian arm, Renault Pars,
to make the Tondar 90, it urged its dealers around
the country to push the Dongfeng H30 Cross instead
– and the Chinese could be the largest beneficiaries
of the US sanctions in Iran, Mohsen Shariatinia,
assistant professor of regional studies at Shahid
Beheshti University in Tehran, wrote in Al-Monitor
magazine in August.
“Withdrawals by western automakers could herald
the beginning of engagement between Iranian
automakers and their Chinese counterparts in a bid
to reduce the impact of the ongoing crisis,” he said.
“It has the potential of turning Chinese automakers
into a key player in the Iranian market.”
The Chinese are already making strong inroads
into the country, helped by partnerships with Khodro
and Saipa to build cars locally from kits. In the
first quarter of the year, Chery was the country’s
fifth bestselling locally produced brand, followed
by Brilliance and Dongfeng. JAC was tenth. The
Brilliance H330 was the tenth bestselling car,
according to the Q1 data from Bestsellingcarsblog.
com, and Saipa launched two assembly lines to
build Brilliance cars in May 2015. It also makes cars
for Changan, and trucks for Foton and Dongfeng,
according to its website.
In the 12 months to March this year, the Chinese
were responsible for 50% of parts imports into Iran
by value, Shariatinia reports. He estimates that the
Chinese have an 8-10% share of the market and
expects it to grow.
Two roadblocks remain for the Chinese. The first
is public acceptance. “In Iran, Chinese models have
quite a bad image. Given a choice, Iranians would
prefer European, Japanese or South Korean brands,”
Michel Jacinto, European and Middle East analyst
for IHS Markit, said last year. The lack of imported or
CKD brands could, of course, overcome that hurdle.
The second is the question of whether newly
globally ambitious Chinese brands are prepared to
risk incurring the wrath of the US. The Dongfeng H30
Cross that Iran Khodro is persuading its dealers to
push in place of the Renault Tondar is based on the
Peugeot 308 platform, Dongfeng said on its website.
Dongfeng holds a stake in PSA and builds cars
with the French firm in a Chinese joint venture. The
Chinese are also constrained by the US sanctions
on banking. “China’s banking system cannot engage
in transactions with Iran independent of the global
financial system,” Shariatinia says.
Whatever the Chinese plans, there is no escaping
the damage that US sanctions have done. As
Shariatinia points out, predictions of 1.6m vehicles
being produced in the country in the Iranian year of
1397 (March 2018-March 2019) are now unlikely to be
met. “With the re-imposition of sanctions, that would
be difficult,” he confirms.
AL 61
 COUNTRY FOCUS IRAN
CKD sector battles infrastructure issues
Automotive production
Potential demand was central to the Joint
from the Iranian Comprehensive Plan of Action
(JCPOA) from which the US
economy may be has recently withdrawn, since
very substantial... an important aspect of the
but Dubai has the deal was that if Iran ceased its
nuclear weapons programme,
economies of scale global vehicle manufacturers
that a global port would resume their activity in
can deliver and it the country (Thomas Cullen
writes).
is therefore cost- This was as attractive to the
"Ȅ" 1&3"#,/)/$" Iranians as it was to the likes of
container shipping Peugeot-Citroën and Renault,
lines to call there the leading western vehicle
manufacturers in Iran, because
hunger for cars and trucks in
Iran is enormous. The problem
is that the Iranian economy
is struggling badly and what
appears to be growth in the car
market is often just volatility.
The market for both cars
and trucks in Iran is almost
exclusively built around
joint ventures with Iranian
companies. Various agreements
to supply complete knockdown
(CKD) kits have been in place
since the 1950s, with Peugeot-
Citroën long being the leading
provider before sanctions
damaged trade relations from
about 2006. It is these locally
assembled vehicles that account
for nine out of ten cars sold,
given the high tariff that applies
to imported finished vehicles.
It is important to emphasise
the role of the Iranian
companies in this. Rather
than simply being marketing
organisations, Iranian
manufacturers are responsible
for the assembly of the
vehicles, some of the design
specification, the inbound
logistics, in-plant logistics,
outbound logistics and
aftermarket sales. This is a quite
different structure from most
CKD operations. The operational
role of foreign vehicle
85%
manufacturers supplying the kits
appears to be quite marginal.
Industry structure
Percentage of Iran's As with so much in Iran, vehicle
non-hydrocarbon manufacturing is dominated
exports and imports by the state through a series
handled by the port of holding companies. The
of Bandar Abbas Industrial Development &
62 AL
Renovation Organization (Idro)
controls the two largest vehicle
manufacturers: Persia Khodro,
also known as Iran Khodro, and
Saipa. Each accounts for around
40% of sales in Iran.
The supply chains of both
Saipa and Persia Khodro are
complex and reasonably well-
developed – certainly more
than would be expected in a
conventional CKD operation.
Both have their own engine
plants, with Persia Khodro,
in particular, having its own
drivetrain design subsidiary
whilst Saipa collaborates with
Daimler in the production of
heavy and light diesel engines.
Other components are produced
by various subsidiaries of Idro.
The exception to this Iranian
dominance is Renault. It already
has a joint venture, Renault
Pars, which is 51% owned
by Renault and 49% by Idro.
However, in August 2017,
Renault signed an agreement
with Idro to establish a new
company of which Renault
would own 60%, with an
assembly plant and new engine
plant at Saveh, 100km south-
west of Tehran.
There are also privately owned
manufacturers, such as Bahman
Group, which assembles Mazda-
based models at Tehran, whilst
Kerman Khodro produces
models from Hyundai and
Group FAW models at Kerman,
in central Iran. These two
companies account for around
10% of the market. Their supply
chain is more dependent on
imported components than
those of the Idro organisation.
Port problems
For all of the local content in
Iranian car production, the
import of CKDs is fundamental
to production and that means
the effectiveness of container
freight is a key determinant of
its economics. This, however, is
a problem.
Iran’s leading port is Bandar
Abbas. Positioned just west
of the Straits of Hormuz,
it now handles 85% of the
non-hydrocarbon exports and
imports into Iran. The modern
container terminal is that of the
Shahid Rajaie Port Complex.
It is not capable of taking any
vessel larger than 10,000-11,000
TEU, however, with water
depth being no more than 14
metres and often less, while
the gantry cranes are of modest
size. Effectively, Shahid Rajaie
is dependent on taking feeder
vessels from the giant terminals
at Dubai. This is quick and easy
but highlights the state of
Iranian infrastructure.
Sources in the shipping sector
admit that for the foreseeable
future, there is going to be no
other solution. Potential demand
from the Iranian economy may
be very substantial, not just in
terms of consumer goods such
as cars but also capital goods
for a nascent chemical sector
built on huge gas reserves,
but Dubai has the economies
of scale that a global port can
deliver and it is therefore cost-
effective for large container
shipping lines to call there.
Even if Shahid Rajaie Terminal
were to invest in new cranes
and handling equipment,
it would struggle to attract
volumes from its huge
neighbour. Shipping executives
observe that the Dubai
terminals will always be cheaper
because it is in the business
interest to call there; they have
the volumes going in but also
the volumes going out. Even if
things were to change in Iran
economically, it is hard to see
this being the case at Shahid
Rajaie.
Even for the Iranian port to
improve its existing business
model will be difficult. Users
report that the operational
profile of the Iranian port can
be problematic, with terminal
hardware such as cranes and
container handling equipment
increasingly struggling with
volumes. It is also behind with
some ‘port community’ issues,
including certain customs
processes.
Many in the container port
sector would suggest that the
solution is straightforward:
get a global container terminal
company to build a new

Iran's rail infrastructure
Baku
Orumiyeh
Rasht
Mahabad
Tehran
Sanandaj
Hamadan
Kermanshah
Malayer
Bushehr
Ports
Cities
Proposed rail links
Completed rail links
terminal. This is not as unlikely
as it might seem. Western
companies such as Maersk may
not be in a position to invest and
nor is Dubai-based DP World,
but the Chinese are very much
on the hunt for container port
opportunities.
The Chabahar model
Iranians are quick to point to
India’s investment proposal in the
port of Chabahar on the Indian
Ocean coast as an example of
the development of Iran’s logistics
infrastructure. Delhi is keen to
develop its relationship with one
of its most important suppliers
of energy and the Indians are
nervous about China’s port
developments in Pakistan. They
would also like better access to
Afghanistan.
Certainly, the plans to build
two new container terminals
there are highly desirable, though
these will be of limited use
unless connected to the main
population centres around Tehran
and western Iran, many hundreds
of miles away. There are plans for
Firuzan
Kerman
Shiraz
Bandar Abbas
Dubai Chabahar
a new railway to be built, with
the Indians supposedly investing
$500m in the project, but since
its announcement in 2010, little
progress appears to have been
made.
Landside issues
The issue of the unbuilt railway
out of Chabahar points to the
problems around transport more
generally within Iran. Although
there are numerous plans to build
new lines, their realisation is slow.
The first steps have been taken
to develop an axis from the city of
Kermanshah on the border with
Iraq to Malayer in central Iran,
with the line to Firuzan completed.
There are further plans for new
lines connecting Hamadan to
Sanandaj, Mahabad to Orumiyeh
and Shiraz to Bushehr. All these
lines serve the population centres
in the west of Iran, and although
Bushehr is on the coast, it is over
300 miles (483km) from Bandar
Abbas. There is a plan to build a
new line from Kerman to Bandar
Abbas, but construction has not
started.
COUNTRY FOCUS IRAN
The poor state of rail freight
in the country means that CKD
container movements from
Bandar Abbas to the various
assembly plants are reliant on
road, resulting in long, slow
journeys to the major production
centres. As Erika Welch, partner
and director Europe, Middle
East, Africa at Tehran-based
management consultancy
Solidiance, comments: “The road
is over 1,500km and takes over
19 hours to travel from Bandar
Abbas to Tehran.”
On the plus side, the Chinese
have constructed a rail link into
north-eastern Iran, giving rail and
possibly road access through
central Asia to China. However,
the most promising project in
the short term is the link to
Azerbaijan, via the terminal at
Rasht, north-west of Tehran.
Turkey, Azerbaijan and Georgia
have collaborated to create a road
and rail corridor from the good
quality Black Sea ports to the
edge of the Caspian.
An agreement between
Azerbaijan and Iran saw an
extension of this railway being
built between Baku and Rasht.
More or less completed by mid-
2018, this offers the possibility of
a new and efficient link to Tehran
and the cities of western Iran not
just from Europe, but also from
China via central Asia.
Such a link would result in
Iran’s economic geography being
transformed, with the ability to
directly move CKDs into Iran Iran’s automotive
from Renault’s Dacia facilities in
Romania or even FAW’s plants in
sector has
Changchun. potential but
To summarise, Iran’s its realisation
automotive sector has potential
but its realisation is severely
is severely
handicapped by the country’s handicapped
current inability to improve its by the country’s
freight transport infrastructure.
current inability
Being so dependent on imported
material, this is vital for the future to improve its
of the sector. freight transport
The main barrier to infrastructure.
improvement appears to be
institutional and political inertia. Being so
Until this question is resolved, dependent on
Iran’s automotive sector will imported material,
remain weak – but Chinese
construction companies might
this is vital for the
continue to benefit. future of the sector
AL 63
 START-UPS & INNOVATIONS ZENCARGO
Freight
expectations
A
sk a range of logistics managers what
their main pain points are, and you will
soon hear a common theme – wasting
time waiting for freight agents to get back
to them. Delays occur, paperwork piles up and costs
are often not clear.
Moving cargo intermodally is a complex, billion-
pound industry, yet many of the processes that could
be simplified with technology have traditionally been
done over the phone, by fax and email or even jotted
down on scraps of paper.
Set up 18 months ago, digital freight forwarder
Zencargo has offices in the UK, Europe, India and the
Middle East, and ships component parts worldwide
for a broad range of customers. Whether it is SMEs
shipping a few times a month or large companies
spending significant amounts on freight each day, the
company offers real-time tracking as well as customs
clearance and pre-shipment inspection. Clients can
move full containers, boxes, pallets or crates, get an
instant quote, book online in seconds and manage all
their paperwork from a cloud-based dashboard.
64 AL
British start-up Zencargo tells Victoria
Johns how its technology can offer
freight forwarders more peace of mind
“Let’s say you’re shipping tyres from China to
Doncaster,” says co-founder and chief commercial
officer at Zencargo, Richard Fattal. “The whole
process happens on one stream on the platform.
Customers have a specific shipment and purchase
order, and we talk to the warehouse to prevent the
mess of multiple emails with multiple people. [We]
end up with one line of communication with one set
of documents, which stays live until the shipment
reaches the warehouse at the other end. We
constantly send information back to our customers,
so they can update their business management
software, closing the loop from ERP system to ERP
system, giving them complete visibility.”
Fattal and fellow co-founder Alex Hersham are
old friends who both previously had ‘nightmares’
communicating with freight forwarders. “I was
exporting chocolate from West and Central Africa
to Europe, and Alex was buying container ships for
hedge funds,” says Fattal.
“I needed a company to provide real-time
information about the status of my order, but often

couldn’t speak to someone until something went
wrong.”
Joined by technology start-up founder and artificial
intelligence (AI) expert Jan Riethmayer, the team
spoke to dozens of logistics experts from a range of
sectors, all of whom said that information regarding
the status of their shipment was too siloed. “They
told us that companies were taking too long to
aggregate their data, which was delaying orders,”
says Fattal. “Businesses want to be kept informed
from the moment the PO is raised right the way
through to when the shipment is delivered to the
warehouse.
“There was a real need for more visibility across
the supply chain and we knew that by digitising the
process, we could make a big impact quickly.”
Providing better visibility
Zencargo has three types of customers: digital
e-commerce companies who sell car parts and
want up-to-date delivery times and to be able to
keep track of their shipments on the dashboard;
global commodity buyers who need visibility over
the movement of parts all over the world; and large
companies, who are not digital in their sales strategy
or business, but who are embracing digitisation as a
process internally.
The company’s team of analysts provides real-
time information about whether shipments are on
schedule. “If a shipment is delayed, we’ll give the
reason and duration,” says Fattal.
The cloud-based technology also lets customers
know if there are any outstanding items on the order
and uses an interactive workspace where documents
can be uploaded, such as a bill of lading or letter of
credit. “If they need to approve something, they can
simply click ‘yes’ and the outstanding item will be
actioned,” says Fattal. “Businesses know what they
need to unblock us, so we’re never causing delays.”
The dashboard also includes a PO section
where customers can see their production status
and whether there have been any delays in
manufacturing. “If the PO is ready and has been
booked, the dashboard will display what’s going on
in the water, air and on land, but also includes what
may lie ahead. It’s a full suite of services,” says Fattal.
Zencargo liaises with the customer’s country of
origin directly, which helps to optimise their choices.
“Whether it’s choosing the mode of transport or
optimising the capacity of a container, we have
different team members all over the world working
in procurement, supply chain and logistics, who are
able to turn purchase orders into shipments at the
right time,” he says.
“We try and structure all of the data across our
clients’ supply chain to provide accurate information
on the platform as early as possible. We can plug
directly into their ERP or internal software, which
enables us to manage orders from the moment
they’re raised, preventing the need for maintaining
separate spreadsheets and databases, which would
have to be merged to compile reports.”
The analysts also provide comparative metrics on
suppliers, including route performance, cargo-ready
dates and port-to-port times, using node-to-node
data transfer (the network node being the connection
point that can receive, create, store or send data
START-UPS & INNOVATIONS ZENCARGO
along distributed network routes). “Customers
can compare things like ocean carriers and sailing
schedules based on criteria such as transit time, price
or departure date,” says Fattal. “Traditional logistics
management companies typically don’t supply all this
information in one place in real time.”
Counting the cost
There are numerous elements involved in freight
shipping costs, such as container capacity, fuel price
fluctuation, currency rates, service charges and
seasonality, all of which means that calculating the
rate of service is not straightforward. Some agents
will include certain costs in their upfront quote,
while others offer them as an optional add-on. It is
Things do go therefore advisable to get a full breakdown of what is
wrong in logistics, included in a quote before engaging the services of
but by digitising any freight forwarder, stresses Fattal.
the freight industry “We provide data on fully landed costs, from
the factory to the door, and also explain the cost of
to distribute data each part of the movement, including taxes and the
in real time, we contribution these will make to the overall margin
hope to tear down and profitability of each part of a customer’s supply
chain,” he explains.
barriers to trade in Working capital is also a big unknown for
the future companies, Fattal points out, which is why Zencargo
Richard Fattal, gives costing in terms of its customers’ inventories.
“Using AI, we can optimise inventories and supply
Zencargo chains by predicting future demand, and let our
customers know how much stock they actually
need to hold, which helps them to become more
predictive. They are then able to conserve cash and
turn over stock more quickly to increase their margins
and relieve pressure from competitors.
“If you don’t have access to the data, you can’t
make informed decisions,” Fattal states. “You’re just
renewing contracts with suppliers without thinking
where you can save money."
He explains that, whereas companies would
traditionally differentiate their business by the quality
of their suppliers, now they often buy from the same
suppliers and parts are increasingly commoditised, so
the quality of their supply chain and customer service
become ways to stand out. “These other services,
such as delivery time and having items available,
become key points of competition,” Fattal says.
“More and more managers have a certain level of
user experience in their day-to-day personal life that
they don’t benefit from in their business life. They
are more demanding and expect superb software
to be able to do their job. Younger professionals are
entering the supply chain world and they are forming
a new guard of decision-makers who are embracing
digitisation.”
Fattal says many Zencargo customers use the
company as part of their digital transformation
process. “They want to streamline systems and
see the technology we’re offering as an enhanced
customer service. It’s not interesting for its own
sake. It gets companies answers and goes a long
way to simplify logistical complexity.
“If we let our customers know what’s going on
from start to finish and don’t spring anything on them
at the last minute, we can offer them peace of mind.
Things do go wrong in logistics, but by digitising the
freight industry to distribute data in real time, we
hope to tear down barriers to trade in the future.”
AL 65
 NEXT ISSUE

NEXT ISSUE January–March 2019

Nafta
The announcement in October of a United
States-Mexico-Canada agreement (USMCA)
to replace the North American Free Trade
Agreement (Nafta), may have provided some
relief to OEMs, tier suppliers and logistics
providers after months of uncertainty. But
what are the deeper implications?
Conference
coverage
News, interviews and reports from our
UK, Central and Eastern Europe and South
America summits.
Brexit
With the UK’s departure from the EU
looming, Automotive Logistics looks at what
automotive manufacturers and their logistics
partners can do to prepare.
Central and
Eastern Europe
The region is home to global OEMs and their
suppliers, and is continuing to gain new
plants launched by the likes of Mercedes-
Benz and JLR. So what are the logistical and
supply chain challenges (and opportunities) in
Central and Eastern Europe?

COMPANIES IN THIS ISSUE

Amazon 20, 48 Gaz Group 10 Mazda 6, 12, 24, 58 Sollers 6
Aston Martin 8 GE Ventures 28 Mazda Sollers Steel & Alloy 44
Audi 6, 24 Gefco 48, 54 Manufacturing Rus 6 Surgere 12
AutoSphere 12 General Motors 24 Mercedes-Benz 12, 24, 58 Syncreon 14
Avtovaz 40 Gestamp 14, 44 Mercedes-Benz Cars 8 Tesla 28
Bahman Group 58 Gifu Auto 12 Mini 10 Thyssenkrupp
BMW 6, 10, 24, 44 Group FAW 58 Mitsubishi 8, 12, 40, 58 Materials Services 10
Bridgestone 8, 10 Groupe PSA 6, 58 Mitsubishi Fuso Truck and Bus Thyssenkrupp Schulte 10
Brilliance 58 Hino Motors 12 Corporation 8 Toyota 8, 12, 24, 44
Britannia Tyres 10 Höegh 8 MSC 58
Toyota Auto Body 12
Ceva Logistics 8 Honda 12, 24, 44 Negin Khodro 58
Toyota Europe 10
Changan 58 Honda North America 6, 12 Nissan 10, 12, 24, 40, 54, 58
Toyota Industries 12
Chery 58 Hyperbat 8 Nissan-Renault-Avtovaz 54
Toyota Motor East Japan 12
Citroën 54 Hyundai 54, 58 North American Stamping 6
Toyota Motor Kyushu 12
CldN 6 Hyundai Mobis 8 P3 12
Toyota Motor North America 14
Cranfield University 28 Hyundai Motor Group 8 Persia Khodro 58
Unipart Logistics 8
Dacia 40, 58 Idro 58 Peugeot 54
Unipart Manufacturing Group 8
Daihatsu Motor 12 Iran Khodro 58 Port of Buenos Aires 8
University of Hull 28
Daimler 40, 58 JAC 58 PSMA Rus 54
Virgin Group 28
Datsun 40, 54 Jaguar Land Rover 10, 44 Renault 40, 58
Virgin Hyperloop One 28
Dongfeng 58 JDA Software 3, 14, 20 Renault Pars 58
Renault-Nissan-Mitsubishi 40, 44 Visteon 14
DP World 28 JLT Specialty 12
Resilinc 12 Volkswagen 24, 36, 40, 54, 58
DP World Cargospeed 28 Kia Motors Mexico 8
Dresden Technical University 36 Rio 8 Volkswagen de México 8
Köln University of
Ekol Logistics 58 Applied Sciences 28 Ryder Supply Chain Systems 14 Volkswagen Group 8, 50
ETB 10 Kuehne + Nagel 10 Saipa 58 Volkswagen Group of America 14
EY 14 Kuka 36 Scania 58 Volkswagen Group Rus 54
Faist ChemTec 12 Lyft 14 Shahid Beheshti University 58 Volkswagen Truck & Bus 8
Fiat Chrysler Automobiles 14, 24 Macomb Community College 14 Shahid Rajaie Terminal 58 Volvo 12, 44
Ford 14, 24, 44 Maersk 58 Sherpa Capital 28 Wayne State University 14
Ford-Sollers 54 Magna International Europe 6 Sika 12 Williams Advanced Engineering 8
Foton 58 Magna Powertrain 14 Skoda 50 WWL 54
Gates Auto Family 6 Magna Steyr 6 SNCF 28 Zencargo 64

66 AL
 BUYERS’
GUIDE
Discover the world’s leading
logistics operators

Your essential guide to automotive logistics service, equipment

and technology providers globally, in print and online

automotivelogisticsbuyersguide.com

To have your company featured, contact: clients@automotivelogistics.media or call +44(0)20 8987 0900
 WE CARRY YOUR
CARGO QUICKLY AND SECURELY
ALL OVER THE WORLD.
As Turkish Cargo, We Safely Transport E-commerce Shipments To
122 Countries And More Than 305 Destinations Around The World.

turkishcargo.com