Time Critical Update September 2013


Automotive Supply Chain Issues

Welcome to Time Critical Update by Evolution Time Critical – the emergency delivery specialists. Providing you with the information you need to help you keep your supply chain running.

European air strikes to test supply chain contingencies

14,000 air traffic controllers across Europe are set to strike on October 10th. The action is planned due to the European Commission’s push to force member states to commit to a Single European Sky – a proposal that combines the EU’s 28 national air spaces into nine functional blocs.

If the planned strikes go ahead then major disruption to air freight can be expected: “It’s critical for OEMs to have carefully strategized contingency plans in place,” says Evolution Time Critical managing director Brad Brennan. “We are able to bridge broken supply chain links through help with pre-emptive planning of lead times and, in worst case scenarios, can facilitate alternative methods of transport to enable just in time deliveries. Companies have notice of intended strikes so can be proactive in their preventative measures to avoid costly delays – unscheduled delays pose a far greater test of emergency logistics.”  

Strikes have already impacted when, in June, 40 percent of flights in France were cancelled due to action on a much smaller scale. October’s strike will be the first time in 10 years that the Air Traffic Controllers European Unions Coordination (ATCEUC), an umbrella organisation of European unions, has called on all of its members to strike.

The ATCEUC’s main concern is that control of air space will be put into the hands of too few individuals and companies with compromised interests. However, air lines and associations have supported the proposal, citing a lack of progress that is costing the EU 14m Euros a day and resulting in unnecessary carbon emissions due to complicated routes mapped across air spaces.  

Late hurricane season spells trouble for Mexican supply chain

Although the recent Tropical Storm Ingrid and hurricane Humberto finally signalled the start of the hurricane season, its late start does not mean that Central and North America will be less disrupted than in past years. In fact, experts predict that extremely turbulent and unsettled weather going into October will make for a more intense season than in the past, which spells trouble for the increasing number of automotive OEMs and Tier 1 and 2 suppliers operating out of the region.

The shorter season is expected to end with six hurricanes, including two major examples, and 16 tropical storms, which is comparable with the seasonal average of six, three and 12 respectively. The shorter timescale in which the weather will hit will undoubtedly increase the short- to medium-term affects and maximise the potential impact of any unrest. 

“This will test the logistics of the increasing number of OEMs and Tier 1 and 2 companies working out of Mexico, in particular,” says Evolution Time Critical operations director Andrew Hampson. “During this time, contingency planning and increased lead times will be critical to avoid production line delays, unplanned costs and, ultimately, dissatisfied customers and lasting reputational damage. The upside is that hurricane season is anticipated annually and that most contingency plans should be tried and tested for companies operating within the affected area – the unknown element is the severity and timing of the disruptive weather.”

Cost of congestion at all time high

The adage ‘less haste, more speed’ has never been more true than in 2013. Since the 1980s, the financial implications of congestion have risen by 200 percent globally and have led to a radical rethink and gradual evolution of automotive logistics. The rise is mainly due to the levels of traffic, restricted accessibility, cost of warehouse space in urban environments in particular, and is typical of the problems faced by logistics managers worldwide.

“As the world’s freight network becomes increasingly congested, the need for careful planning of logistics has never been so critical, and robust contingencies play an increasingly crucial role within this,” says Evolution Time Critical Germany director Steve Risby.  Congestion is no longer just an irritant, but is a constant issue that requires factoring in to any ongoing logistics plans. Efficiency of all links in the supply chain is critical to profitability and end-user satisfaction, and so a robust supply chain with an element of flexibility through in-built contingency is crucial.”

This comes at a time when congestion figures have been mostly in decline in recent years although, as Forbes recently reported, congestion and financial growth usually go hand in hand. As countries moving out of financial uncertainty experience increasing congestion, the financial implications will also become more severe.  

Moving forward, the supply chain must adapt to these constantly evolving demands for it to keep apace, and consolidate through the agility and flexibility of logistics provided by emergency backup.   

Maritime capacity under increasing pressure

Buoyant automotive sales and an increasing trend to opt for sea freight have led to close monitoring of some shipping routes as they near capacity. The boom of Mexico as a production base helps make North America the most extreme example of this growing concern and, as forecasters predict a return to pre-downturn automotive sales levels by 2015, further pressure will be placed on the already swelling infrastructure. 

“Increasing congestion will lead to the need for expanding ports and infrastructure in Mexico before future growth is potentially stifled,” says Evolution Time Critical operations director Andrew Hampson. “There is already ongoing discussion of introducing a short sea service between Mexico and the US due to a shortage of railcars, which will add further strain on the network. If traffic increases and further investment is not made into the development of the existing infrastructure, shipping management techniques and ongoing maintenance, then emergency logistics experts such as Evolution Time Critical are ideally placed to provide supply chain contingency for the gradually waning links.”

Increasing the need for a future rethink, North American coasts will be seeing more strict sulphur emissions regulations from 2015, which will increase fuel costs by around 60% for ships running between the US and Europe. Emissions rulings have already been tightened in 2012 and future alterations will lead to the need for alternative freight methods or strategic investment in the likes of slow steaming, vessel and trade lane optimisation, cleaning systems and adjustment of lead times. 

Airfreight surcharge restructure tests resolve of automotive logistics

A growing list of airlines are restructuring their fuel and war surcharge methodology from actual weight to chargeable weight, which could have a serious impact on the cost of transport for high-tech automotive components. The existing formula for converting size into chargeable weight is an accepted industry standard freight calculation, but affected shippers are thought to be facing a 10-20 percent hike in total freight costs when the surcharges are also calculated at volumetric rate.

“Many airlines affirm that simplification of their charging systems is the reason for the change,” says Evolution Time Critical managing director Brad Brennan, “but for companies dealing in volumetric cargo this move will increase their costs considerably and this will have to be factored into future budgets.

The number of airlines using the new charging method is increasing on a weekly basis.  As airlines continue to adopt the new methodology many companies are resigned to paying increasing rates, and the opportunity to find airlines that are opting out of imposing the new system reduces. 

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