Increased visibility throughout the supply chain could help improve the length of haul from the OEM to the dealership, speakers said Tuesday at the JAXPORT conference.
A change in consumer vehicle buying preferences and a shift to production in Mexico has impacted finished vehicle logistics, but increased visibility could help the network improve, speakers said Tuesday during the JAXPORT 2019 Logistics & Intermodal Conference.
Consumers’ preference of SUVs and trucks over passenger vehicles has shifted dramatically over the last decade as vehicles become more fuel efficient. Cars accounted for 51 percent of sales in 2008, but dropped to 35 percent by 2017 with trucks and SUVs making up the remaining 65 percent market share, according to a 2018 CNBC report. Nationwide Auto Services senior automotive adviser Dennis Manns, who moderated the panel discussion at the conference, said the split is now about 70 percent to 30 percent in favor of trucks and SUVs.
The preference change has affected rail carriers as they try to adapt their equipment to meet the demands while also facing longer dwell times at destination rail ramps, said Maryclare Kenney, CSX’s vice president of intermodal and automotive.
Passenger vehicles are typically carried on tri-level rail cars, while SUVs and trucks are transported on bi-level cars. There has been a higher demand for a bi-level fleet as the preferences shift, but it is also causing issues on the haul-away side, she said.
“It dwells longer on the rail car. We’re seeing instances where we’re needing more bi-levels to maintain the fleet, but then our bi-levels are getting constrained at times because we’re backing up at destination because cars aren’t moving off the ramps,” Kenney said. “Then you end up with product that actually stays on the rail car longer than it should, which once again impacts your car supply back to the origin.
“I think this consumer preference change … not only has impacted rail from a car supply perspective, but I think you’ve also seen the impact of destination haul-away,” she continued. “You can’t fit as many trucks or SUVs on a destination haul-away carrier as you can passenger cars.”
The length of haul to market is much longer with the proliferation of production in Mexico, said Mark Boucher, the director of vehicle logistics for the Volkswagen Group of America. Cycle times for railroads have gone up about 15 percent to 20 percent, he said.
“I think the railroads have done a good job getting the right equipment into the market. I just think we’re going slower,” Boucher said. “Admittedly destination dwell is a piece of that.”
Improving visibility throughout the supply chain — from the OEM to the dealership — would help ensure the proper equipment is in place at the correct time, said Kenney, who added railroads have started focusing on keeping the right equipment supply for origin plants as they face challenges at destination. In an industry that sees seasonal surges, OEMs need to let the railroads know about possible changes as early as possible, she said.
“I think the situation is so fluid predictability is one of the harder things to combat,” said David Williams, the head of operations of Region Americas for Höegh Autoliners.
He later added, “One of the biggest challenges for the industry is the predictability aspect and making sure you have the right equipment at the right spot at the right time.”
Charles Franklin, manager of export logistics for American Honda Motor Co. Inc., said he would like to see more flexibility in the intermodal network.
“Sometime because of capacity or positioning or all those different things, it doesn’t work with what I’m trying to do,” Franklin said. “I need to move my car and I need to move it now.”
Boucher said he would like to see more rail and port capacity, along with more port flexibility. Ports, especially on Mexico’s eastern side, aren’t big enough to handle volumes, he said. Port infrastructure — both in Mexico and the U.S. — could be “expanded to meet current demand,” Williams said.
Still, there have been more opportunities to move cars out of Mexico into the U.S. by ocean, Williams said.
“I think there certainly has been increased interest in moving vehicles from Mexico to the U.S. by ocean,” Williams said. “The challenge today is the cost element. Right now ocean just can’t compete with the rail cost. Obviously, cost is critical for the OEM.”