Volumes and turnover may be up, but with rates flat and costs rising relentlessly Europe's logistics services providers are under increasing financial pressure. This troubling snapshot of the outbound vehicle logistics sector emerges from ECG's latest Confidence and Cost Trend Quarterly Survey, the fourth in a series that allows the organisation to capture developing trends in the sector.
ECG is the name by which the European Vehicle Logistics Association goes. Its members provide transport, distribution, storage, preparation and post-production services to manufacturers, importers, car rental companies and vehicle leasing operators in Europe, Turkey and Russia.
According to ECG's members, one factor after another has seen price rises over the last year, from the cost of drivers to overheads, replacing equipment to fleet maintenance and repairs, insurance to financing costs.
Fuel costs have also risen sharply due to the political turbulence in North Africa and the Middle East, following steady increases through 2010, and the likelihood is that prices will increase further as geopolitical instability continues.
Not all the signs are gloomy. Fully 72 percent of respondents in the fourth quarter said business volumes were up. On turnover, 58 percent detected an increase and only an unlucky 14 percent said turnover was down. Meanwhile, the numbers for fleet utilisation are also up substantially on previous quarters. That might explain the sharp increase in optimism about the future, with close to 45 percent of respondents in the fourth quarter declaring themselves optimistic, up from a little more than 20 percent in the first quarter. And yet when it comes to more immediate measures of the sector's health, the survey captures the deep disquiet coursing through the membership, reflecting concern that, even as vehicle sales begin to rally, LSPs are not only failing to benefit from the upturn but are under increasing pressure to make ends meet.
Almost 30 percent said they would invest in storage compounds and 50 percent in compound operatives over the next six months, in both cases significantly higher than in the previous two quarters. But hopes of investing continue to dim in a host of other areas, from trucks and drivers to technical and administrative staff. Financing is not the issue. Only a small proportion of respondents - around 5 percent - indicated that they were unable to raise funds from the banks. Of the remainder, 40 percent said securing funds was easy and the remainder said that, while it might be difficult, it was certainly feasible.
Four other issues emerged as significant blocks to investment, and every one scored higher, in some cases significantly, than in previous quarters last year. Some 70 percent of respondents, more than double the percentage in the third quarter, cited "lack of confidence in their ability to obtain viable future rates." Similarly, more than 50 percent mentioned "lack of confidence in future volumes" and "negative returns on investment" as major factors, while "absence of long-term contracts" was significant for around 35 percent.
Commenting on the latest survey, ECG president Costantino Baldissara said: "All these figures lead to an inescapable conclusion, that while volumes and turnover are up for Europe's LSPs, rates are stagnant, costs are on the rise, and profits, where they exist at all, are cut to the bone.
"This in turn has serious implications for the automotive industry as a whole. The increase in volumes registered by our members, along with such measures as the jump in fleet utilisation, is evidence of rising demand for efficient logistics as vehicle sales increase. "Yet at this delicate moment in the recovery, and at a time when financing is increasingly available, LSPs are not in a position to invest. Indeed, mounting cost pressure might drive some to the wall, cutting much-needed capacity still further.
"ECG has called on its OEM customers to work with their logistics services providers to ease the pain of the recent fuel price increases. Cooperation in areas such as this is to the benefit of all."
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