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Transmission: 40’ container rates do the Charleston

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This is Transmission, a twice-weekly newsletter built to chronicle the seismic shift in auto supplier networks as the industry goes cross-border and electric.

40’ container rates do the Charleston

(Chart: Freightwaves SONAR. Import shipments to Charleston in white and 40’ container spot rates from Europe to North America – East Coast in pink).

Because the auto industry was hit hard during COVID-19, we’re seeing a delayed peak season, which typically dies down mid-October. An increase in consumer demand is causing a container clog, with many ports and carriers running out of space. This surge has caused container prices to sharply increase, forcing automotive suppliers to pay a pretty penny for real estate on these large container ships. 

North America’s automotive supply chain is a complex network broadly situated on a north-south axis running from Ontario, Canada through Detroit and the Great Lakes into the Southeast, ending in the Bajío region of central Mexico. In the U.S., most auto parts and OEM production facilities are located east of the Mississippi River.

Charleston sits closer to the middle of the country—a strategic location because auto components can easily travel down to Mexico or up to Detroit. Volvo and Mercedes-Benz use the Port of Charleston extensively, while Hyundai moves containerized freight through Mobile, Alabama. Import shipments into Charleston—as measured by the number of Bills of Lading processed by customs officials—have mounted a strong recovery from their summer doldrums, even as trans-Atlantic container rates fell. But the latest General Rate Increase imposed at the beginning of October appears to be holding, a signal that capacity on the ocean may be tightening.

Goodbye JIT, hello JIC? It’s no secret that COVID-19 disrupted the flow of the automotive supply chain. As stated above, prices have had a serious effect on everybody, especially Tier 1 suppliers who are momentarily having component issues and struggling to find manpower. A lot of manufacturers have already begun planning for this new normal by switching to JIC models. They’re refashioning supply chains to be more like distributed networks rather than linear ‘chains’, questioning the dogma about lean inventory levels, and optimizing for resilience—all while furiously scaling production to make up for lost time.

In our view, the burden of making automotive supply chains more resilient will fall on 3PLs and transportation providers. Combining data integrations and human creativity will be key to engineering custom solutions in a dynamic environment.

Down, but not out

(Chart: Freightwaves SONAR. Outbound truckload volumes from Detroit) 

Up in Michigan, the automotive industry accounts for approximately $225 billion of the state’s economy. To no surprise, Detroit was battered by the ongoing pandemic, particularly in March and April. Automobile sales were down nearly 33% in Q2 compared to the same time last year. However, the months following saw the industry steadily recover as heavy COVID protocols loosened up and production resumed. 

Here’s what’s interesting. Throughout the recovery from this rock-bottom drop, Detroit, as well as Toledo, had to fight against a backdrop of increasingly tight trucking capacity. As suppliers and OEMs started ramping up production again in June and July, trucks were more expensive and harder to come by.

Round n’ round we go

Murray Gilder, CHEP Automotive Europe and North America Vice President, has called upon supply chain leaders to take a second look at the supply chain. COVID-19 has pointed out flaws in communication and dependence on suppliers who weren’t prepared for the effects of the shutdown.

“Combining a ‘just in time’, and a ‘just in case’ approach is possible, but it means redesigning a model built on waste, to one where waste is built out,” Gilder said. “In practice, this means moving away from the traditional “take, make, break” linear model towards a share and reuse system where waste is eliminated, and the greatest value is obtained from resources for as long as possible.“

With less waste production and more efficiency, Gilder believes that this circular model of the supply chain shouldn’t take the backseat, but rather replace the traditional model of moving down the supply chain.

CHEP is already leading the way in sustainable supply chain with its Zero Waste World initiative, launched in 2019. For CHEP, that means things like recovering and recycling its pallets, removing physical waste from its clients’ supply chains, and helping eliminate empty miles.

Industry News

  • Nikola is still prioritizing the new alliance with General Motors that sees GM supply the startup with batteries and fuel cells in exchange for $2 billion in stock and the ability to appoint one member onto Nikola’s board. However, they have just secured a backup plan, by partnering with Romeo Power and Bosch, in case this potential alliance falls through.
  • Nissan has cut their forecast for an operating loss by 28% through reconstructed efforts and better-then-expected sales. Last quarter Nissan reported an operating loss at $45.6 million compared to $285 million profit for the same period last year. 
  • BMW is making a reintroduction into the EV market with the iX, which boasts a 300-mile driving range. It’s powered by two electric motors and is set to launch in the US as early as 2022.

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