A STATIONARY ROLLING INDUSTRY
The auto industry has been severely impacted in Europe and the UK. AJ Keyes assesses how the whole supply chain, from origin to end-user, has been impacted.
Car sales can be an important indicator of economic health. With the large decline in demand for vehicles in almost every country since the start of the COVID-19 pandemic, it is no surprise that ports, auto carriers and consumers have all been negatively impacted.
According to the European Automobile Manufacturers Association (ACEA), as of June 1st, 2020 total EU and UK production losses due to factory shutdowns caused by COVID-19 had reach almost 2.45 million motor vehicles (covering passenger cars, trucks, vans, buses and coaches), with the average shutdown duration being 30 working days.
Table 1 shows that the leading seven countries collectively generated 81 per cent of the lost manufacturing, with Germany the largest single loser with a share of 25 per cent, followed by Spain with 18 per cent and France and the UK at 11 per cent each.
While this loss of production includes vehicles that would have been due for home markets and moving outside the EU and UK, it is indicative of the amount of activity lost for the car carrying business in Europe.
The impact of the time lost in manufacturing can be seen when looking at some of the car-carrying activity involving some of these largest vehicle manufacturing locations.
VesselsValue Ltd, a specialist provider of vessel and shipping fleet data that tracks S&P deals and vessel movements worldwide, confirms the impact of the current manufacturing and demand trends.
For example, in terms of fleet CEU (Car Equivalent Units) activity out of Germany is down by around 40 percent in the period to end of May 2020 compared to the January to May 2019 time period, while UK demand for the same 2020 versus 2019 five months was down by 15 per cent.
TROUBLING STATISTICS FOR END-USERS
These are troubling statistics that have a knock-on impact for both ports, but also the end-users, as Richard Cowan, General Manager for Quest Motors Ltd in Maldon, Essex (UK) confirmed. “We sell Citroen, Suzuki and Vauxhall cars and vans, sourced from the Czech Republic, France, Poland and Spain, all of which require shipping to ports in the UK, primarily Sheerness. Factories in Europe suspended production at the end of March and we are still seeing little new car activity, despite some facilities now re-opening.”
Indeed, Cowan is able to provide further insight into the problem the industry is currently facing. “On average, preCOVID-19 our normal lead times were around 6-8 weeks and once a car would arrive at Sheerness it is normally on-site in under nine days. However, at the moment we cannot give such exact timescales, we have to take each specific case on an individual basis.”
The car carrying industry endorses these comments. Emanuele Grimaldi, one of the co-owners of the Grimaldi Group SpA, of Italy, recently stated that his company was “waiting for the world to re-start".
This operator currently has a fleet of 50 vessels specifically built for the shipment of vehicles, including Fiat Chrysler Automobiles NV, Ford Motor Company, Volvo AB and General Motors Co. so is directly impacted by the lack of demand for its ships.
Grimaldi explains further: “We had literally zero car production, especially in Europe. The production and sales disruption in Europe was bigger than in China.”
FLEET IDLED LIKE NEVER BEFORE
Unsurprisingly, the car carriers have had to idle their fleet like never before. Grimaldi estimates that as much as 30 per cent of the industry’s 750 vessels has been idled at some point this year, with his company having up to half of its fleet out of service.
By comparison, Wallenius Wilhelmsen reported a net loss in Q1 2020 of US$285 million and had removed 14 of its ships. During the company’s Q1 earnings presentation in May the company reported that “things remain very difficult to predict going forward, with consumer demand the key unknown variable.”
It is also clear it is not just the larger auto shippers feeling the pressure. UECC operates a fleet of 17 pure car and truck carriers (PCTC) and is jointly-owned by Nippon Kabushiki Kaisha (NYK) and Wallenius Lines (both major car carrying companies).
UECC operates independently from its parent-owners and primarily in the European short sea market, with a more limited number of vessels, but has stated throughout April and May 2020 that it was “unable to provide the same sailing frequency and transit times” as was offered pre-COVID-19.
The company also offered a stark warning. “The financial damage so far this year is severe, and we believe that months to come, if not years, will be very challenging for our industry.”
However, it is not perhaps all bad news and the impact of COVID-19 could help car carriers, manufacturers and ports. Public aversion to public transport in the post-COVID-19 period could help boost sales of some vehicles. This position is summed up very succinctly by Jasienki in his Q1 results announcement. “What remains a huge question is, how much does that drive a push on demand as we move in the remaining quarters of this year?”
So, there have been fewer vehicles produced and auto carriers have had to lay-up tonnage, ultimately meaning less sales for the car dealers. The missing part of the supply chain here is the port industry, so how has it been impacted, especially in the UK and North Europe?
IMPACT ON PORTS
The Port of Zeebrugge is one of the leading volume ports in North Europe handling new vehicles, with this ro-ro activity generating 36 per cent of total port tonnage in 2019.
The port states that an estimated 8 million new cars are manufactured in its hinterland and this is clearly a major contributor to the 1.49 million cars it exported in 2019 – though it also imported 1.46 million units.
However, the impact of COVID-19 has been felt in Q1 2020. The port confirmed that a total of 660,134 new cars were handled, a drop of 15.6 per cent on the comparable Q1 period of 2019. “This decrease is partly due to the COVID-19 crises, as many car manufacturers ceased production in March 2020. Garages and dealers closed their doors, as a result of which the demand for new cars came to a standstill.”
This is a view endorsed in the UK at the consumer level, by Cowan at Quest Motors Ltd. “We were forced to shut our premises for the lockdown in the UK, but now we need to sell new vehicles to generate part-exchanges,” he confirmed, adding, “But leasing companies are not buying in new vehicles, so we have no used stock either. It means used prices are firming-up, but we need new stock to start flowing.”
Cowan makes an interesting point relating to the flow of new vehicles arriving in the UK. It will take some time for the production to ramp-up again in Europe for imports in the UK market.
There is already some pent-up supply, if the position at the Port of Sheerness is typical, where pictures have emerged where there are thousands of cars are parked (although these include, of course, exports too).
LACK OF PRODUCT SUPPLY
Moving forward, vehicles currently in storage in the UK will help, but overall supply will also be lacking, if projections from the Society of Motor Manufacturers and Traders are considered.
Figures released by SMMT showed only 4,321 new cars were registered in May, some 156,743 fewer than in April 2019 – and to put that figure into perspective, car sales are currently at their lowest level since the end of World War II when rationing was still in place in the UK.
Moreover, SMMT is forecasting that for the UK around 1.68 million new cars will be registered during the whole of 2020, which would represent a 27% decline on last year.
While some of these may be manufactured in the UK, a large share will come from abroad, but it nevertheless indicates a sizable drop overall – and this means a challenging time in the short-term for the whole supply chain, from manufacturers, through to auto shippers, ports of origin and destination and, ultimately, the end consumer.
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