David Resetar almost couldn’t believe his ears. Did the major automobile manufacturer really just tell him that its main key performance indicator (KPI) was percentage of uplift weekly? In other words, the Detroit-based manufacturer is narrowly focused on getting its containers of automotive components physically loaded onto ships. As long as that happens, the rest of the pieces are left to fall into place naturally.
“ Today manufacturers are less concerned about freight cost or how long the ships take to reach their destinations, and mostly worried about whether or not its containers make it onto a boat,” said Resetar, Head Vertical Market Automotive, Region Americas at DB Schenker. This is one example of how much auto logistics and transportation have changed over the last two years.
“Companies that are still ‘playing the market’ and trying to get the best rates are the ones with cargo left sitting on docks in Asia,” said Resetar, who has 30+ years of experience in auto logistics and never had a shipper enter into a contract based on a single KPI. “Our message to customers is to lock in your capacity as soon as possible because that’s the main bottleneck.”
DB Schenker is also entering into more contracts (versus spot freight purchases), including one that recently locked in a hard block of ocean freight space (the same company with the uplift weekly KPI). “In the past,” said Resetar, “that was basically unheard of.”
“Everything is on the Table”
The semiconductor shortage, labor constraints and persistent supply chain disruptions are all impacting the auto industry right now, where the production of just one car requires up to 1,000 chips—a number that doubles to 2,000 for electric vehicles (EVs). With President Biden laying out plans for half of new vehicles to be electric by 2030, and other countries making similar commitments, the need for chips continues to escalate at a time when these core components are scarcer than ever.
“The semiconductor shortage is severely restricting vehicle production schedules for automakers right now,” said Resetar, who has heard from multiple original equipment manufacturers (OEMs) and other manufacturers that their production schedules are suppressed by about 40% currently. Along with semiconductors, raw materials like resin, rubber and electronic components are also difficult for automakers to source right now.
These realities are trickling down to the nation’s auto dealerships, where both new and used car inventory is hard to come by. At the end of 2021, IHS Markit said inventory levels were at their lowest levels since the global financial crisis of the late-2000s. With manufacturers only able to produce at 60% of normal capacity, it could take some time for supply to catch up to demand.
With logistics playing a key role in the auto supply chain, Resetar said auto manufacturers have shifted away from the transactional freight procurement approach—where they would send out RFQs to cover their requirements for a 12-month period—and leaning on companies like DB Schenker to brainstorm, share ideas and find answers to their most pressing problems.
“Auto manufacturers are much more engaged in strategic discussions and are much more open to trying new approaches that they never would have considered,” he explained. “Everything is on the table right now.”
A Trusted Logistics Provider that Makes a Difference
To help keep auto supply chains running as smoothly as possible during the current uncertainty, DB Schenker stays in close contact with its customers and keeps them informed on the latest trends, challenges and opportunities. The global logistics provider also shares in-depth market surveys and updates and ensures that its managers and executives are involved at all levels of the customer relationship. For example, its product managers may join weekly customer meetings to provide market updates and brainstorm creative solutions.
DB Schenker also runs its own controlled air freight network—something the company put in place early in the pandemic and has become a popular choice for companies looking to avoid the delays, container shortages and port congestion that ocean shippers are grappling with.
“One major automotive company just booked a five-month contract with us for 30 tons a week coming in via airfreight, in order to mitigate the ocean challenges,” said Resetar, who is also continually coaching customers on how to focus more on securing capacity and less on getting the lowest possible freight rates.
The company also helps its customers avoid port backlogs by exploring alternate ports and transportation modes. “We’re putting together some creative plans to move rail through China and into our European rail network through the Netherlands or Germany,” Resetar explained. “Then we can move it out of Europe and into Philadelphia or Charleston to relieve some of that congestion.”
Creative Solutions to Pressing Issues
In North America, DB Schenker is bringing some shipments into Mexico through the Port of Manzanillo and then using either rail or truck to get those deliveries to destinations in Texas, the Midwest or the Southeast.
“We have four customers that are doing trial shipments using those routes right now,” said Resetar, who expects the auto industry to continue using these and other “creative” logistics approaches as it works through the current challenges and plans for the future. “Some of these strategies may cost a bit more, but the price still pales in comparison to the demurrage and detention they’d pay to have a ship at anchor for 30 days outside of the ports of Los Angeles or Oakland.”