Moscow 1

New Russia sanctions threaten automotive supply chains

Feb 10, 2022 | ,

Tensions have soared in recent months in Eastern Europe as Russia massed soldiers and heavy weapons at its border with Ukraine, raising fears of an invasion and the potential to cause even more global supply chain disruption.

High-stake talks between Russia and the West have so far failed to de-escalate the tense standoff and there are fears that a conflict in the region could be particularly devastating for the automotive industry.

Political conflicts in the past decade have already taken a toll on the cost of automotive logistics in Eastern Europe. Historically, a substantial share of finished vehicles and automotive components were supplied to Russia from Europe via Ukraine. But since 2014, transit supplies through Ukrainian territory have been shut down, due to problems with migrants on the Belarus-Poland border.

Adjustments to the Russian automotive supply chain in the past few years have caused an increase in distance, delivery time and logistics costs and with the US authorities on the verge of approving further sanctions, which are expected to target US automotive components exports to Russia, carmakers are urgently looking into their list of suppliers, to analyse the possible risks.

Nissan is reviewing components obtained from the US and the possibility of replacing them with local components, but given that their models are deeply localised in Russia, they do not anticipate a significant impact on car production in Russia.

Automotive Russian imports from the US is primarily fuel tanks, exhaust pipes, steering wheels and similar products, many of which car-makers expect could be sourced elsewhere.

However, things are promised to get really ugly for the Russian automotive industry if the European Union joins the US sanctions, and even more so if the country gets disconnected from Swift, the global standard for payment and securities trade transactions.

Russian cutoff from Swift would terminate all international transactions, trigger currency volatility and cause massive capital outflows. Trade between Russian companies would continue, but paying foreign companies for automotive components and logistics services would become virtually impossible.

Despite a few optimists, most analysts believe that major international restrictions on automotive components imported to Russia would virtually put an end to finished vehicle production in the country. The Russian vehicle maker, Gaz Group, has remained under the threat of the US sanctions for several years and has indicated that it will cease production if the restrictions are actually introduced.

Russia’s Industry and Trade Minister estimated that the average localisation rate in the Russian automotive industry was 67%, reaching 75% on some particular models, but experts point out that it doesn’t matter whether you have 10%, 50% or 90% localisation, you cannot produce a finished vehicle using only 90% of components.

Problems withdrawing revenue from Russia would also push localised western companies to leave the country, which would be like a domino effect, ruining the Russian automotive industry from top to bottom.

Opponents of sanctions point out that finished vehicles assembled in Russia are successfully exported back to Europe, and with the current shortage of finished vehicles, no one will refuse them.

During the first nine months of 2021, the country exported 73,200 finished vehicles, 43% up compared to the same period the previous year. Most exported finished vehicles are assembled in the Russian north-west and exported to Europe through the St Petersburg’s sea ports.

The Russia-Ukraine conflict promises nothing good to Ukraine either. The tension currently lingering in the region was impacting business and investment flows into Ukraine, including its automotive industry.

During the past few years, several major global automotive components suppliers launched production facilities in Ukraine, including Fujikura, Kromberg & Schubert, and Leoni, to take advantage of the cheap but experienced labour force and a free trade zone agreement with the EU.

Hard-hitting sanctions could have unintended automotive side-effects, as Russia accounts for 45% of the world’s palladium production, a critical component in catalytic converters and restricting palladium imports from Russia could cause a global shock in the automotive industry.

Coupled with the recovery in global demand for vehicles, export restrictions on Russian palladium could cause an acute shortage of some crucial components and drive palladium price to an all-time high.

High pent-up demand for new vehicles has formed in the market over the past year and, with the normalisation of chip supplies, manufacturers are expecting record demand for vehicles in 2022, but the possible cessation of palladium supplies from Russia is a risk the market could do without.

Metro has been working with automotive manufacturers and their primary suppliers for decades, optimising complex inbound and outbound supply chain operations, on multiple continents, by all modes of transport.

For further information on our logistics, supply chain and freight management solutions in automotive and related sectors, please talk with Tom Fernihough, who will cover all current options available within our global network and platform.

Sea Air 1

Protecting our customers supply chains – future proofing during a tough time

Feb 10, 2022 | , ,

We are taking all necessary steps to secure capacity, to protect our customers’ air and sea freight needs through expanded carrier relationships and selected charter deals.

Even against the background of low capacity and record-breaking spot rates, airlines and shipping lines, for a variety of reasons, have often failed to come through with the solutions we need and in continuing to meet our shippers’ needs, we need to be innovative.

While a few shipping lines are tinkering with developing their own airlines, in a bid to offer their biggest customers a single solution for their shipping needs, the reality is that the narrow airport-to-airport offer of most air carriers, is massively short of the integrated logistics solutions that we deliver and the biggest shippers will never put ‘all their eggs in one basket’. Agility between transport modes is now imperative to ensure product arrives in market or at the manufacturing facility on time.

Maersk has an estimated 70,000 shipper customers and while its airline subsidiary, Star Air, currently operates for UPS, it seems highly likely that, once it has the right infrastructure and equipment in place, Maersk will kick-out UPS and replace it with its own shippers, though this will represent a tiny percentage of the customer base.

Rather than looking for a one-stop shop, our experience of air freight customers, is a requirement for speed, transparency, quality and reliability, at market-competitive rates. This is what we do, day in and day out.

In many respects the flying part of an operation is the easy bit, it’s in the ground-handling and the logistics at either end, that makes air freight successful and can provide competitive advantage, if executed efficiently. Yet none of this is being integrated and offered by airlines and it is extremely unlikely that the shipping lines will be able to. Metro do this in a tailored way, down to consignment level, ensuring expectations are met and ideally exceeded.

The airlines have, in the past, allowed cargo to be no more than a contribution to the fixed costs of a passenger flight. They have shown little or no interest in the ultimate customers’ situation or needs, and appear to have learned little from the integrators, who took so much of their market share, through the end-to-end management of smaller cargo movements. This is where innovation and hard work have delivered results to our customers and will continue to in the future with a true door to door measurable service and deadline driven solution.

It would have been inconceivable before the pandemic that the cash haemorrhaging container shipping lines would logically consider moving into air freight, but with billions to spend, it seems anything is fair game. However, now when many of the delays are caused through the inefficiencies and dysfunctionality of ocean shipping schedules, it looks like an exceptional business model. Broken supply chains need repairing after all – and that’s where the time critical air freight product becomes essential delivered through experience, relationships and expertise.

Metro are constantly evolving and innovating, to add more value-added services, and customer-focused initiatives.

This total commitment to the customer, valuable technology and complete door-to-door solutions is a mind-set that air and sea carriers are simply incapable of providing. 

We are driven entirely by our customers’ needs and expectations. For further information contact Elliot Carlile, who would be delighted to talk to you about your requirements. 

Freighter

The air cargo capacity challenge

Feb 10, 2022 | ,

Air freight has been hit particularly hard by the spread of COVID and the more recent Omicron variant, with governments shutting down routes at short notice and schedules in disarray as flight crews and ground staff are unavailable because of infection, or quarantine.

The most significant and topical example of the impact of Omicron, is Cathay Pacific’s recent decision to suspend long-haul freighter flights altogether and while it has since resumed US cargo services it does not expect to be running freighters to Europe before March, this year.

It is developments like these, that make finding and booking air cargo space and getting time-critical consignments to their destination on schedule so very challenging.

Passenger aircraft grounded and country borders closed worldwide, was the initial reaction to Covid-19, halving global airfreight capacity as passenger belly-hold space disappeared in a few days.

Capacity went very rapidly in 2020 and our air freight team had to work quickly to try and find solutions for the desperately needed PPE (face-masks, virus test kits, gloves, goggles, and protective suits) that was sourced from China.

Demand was exploding, with converted ‘passenger freighters’ and charted freighters helping to meet demand from government, public-sector and industry customers.

The need to find flexible solutions over the last two years has widened our portfolio of airline partners and the use of multiple carriers across different routes and hubs, to give us many more options, which continues today.

By adding more airline partners, we can enhance our customer solutions by, for example extending cut-off times and adjusting transit times to meet specific requirements.

In the fourth quarter of 2021 we were heavily engaged in securing main deck freighter space for automotive clients, who’s stretched supply chains required premium solutions, even for larger shipments.

That search for main-deck, wide-body and effective charter options, continues, as all time-sensitive options are evaluated and recorded for future access.

SEE THIS BBC REPORT; The scramble for cargo aircraft as shipping costs soar

Even before the Omicron variant spread, some industry pundits were suggesting that it might be 2024 before passenger numbers, travel sentiment and long-haul belly-hold capacity returned to pre-pandemic levels.

Omicron has and will impact flight networks and therefore supply chains, and the passenger side is far from normal, which means tight capacity through 2022, with limited solutions for the cheaper end of air freight and while it is very challenging, we will find capacity for the most urgent shipments. This is without considering the Chinese market which is still very much ‘closed for travel’ on a global scale and looks unlikely to open up any time soon with the zero-COVID policy approach taken.

Looking at seasonal trends, it is likely that both the first quarter and second quarter of 2022 will remain challenging with rates elevated, though the third quarter may see an easing of the situation, before the peak season ramps up again mid-September.

Travel restrictions and uncertainty will continue to limit leisure travel in 2022 and business travellers will not be back to anywhere close to pre-Covid-times, which will limit the number of flights and served airport pairs.

Normalised intercontinental travel brings back the belly capacity that is not currently available in the market and, in the absence of another COVID variant, some expect belly capacity to begin increasing during the second half of 2022.

Despite the challenges, our air freight team continue to find solutions for urgent and time-sensitive shipments, to every destination and from every origin, using a blend of scheduled, dedicated and chartered air cargo services. 

We work closely with our global network, to continuously monitor market capacity and service opportunities that might benefit our customers.

Evaluating and blocking space on viable services early, including our sea/air platforms and hub services, is a critical factor in achieving the most demanding deadlines. 

Please call Elliot Carlie for insights and advice on how to move your express time sensitive products globally.

US winter storm

Winter storm disruption for US shippers

Feb 10, 2022 | ,

In yet another headache for shippers to and from the United States a widespread winter storm hit the central US and East Coast last week adding a new layer of disruption to supply chains beset by labour shortages, delays moving imports inland, and a general lack of warehousing and storage space.

The storm lashed states from New Mexico and Texas to Maine, hitting the Dallas-Fort Worth area and other midwestern cities along the Gulf Coast.

Many of the areas affected by the storm face freeze warnings, which are delaying recovery efforts and mean that many businesses are not able to receive freight, with some estimations that it will take two to three weeks for the freight market to recover.

The next two weeks will be critical, as the weather event will have passed, but networks will be out of sync, as shipments, drivers, and equipment recover from the dislocation caused by the storm.

Recovery will be made tougher by the existing hurdles posed by labour shortages and higher-than-usual freight volumes, while more freight will be pushed to the truckload spot market, where capacity constraints have been easing in recent weeks.

Freight delays in February will also put more pressure on US importers preparing for spring sales, because without capacity in the system, it is not possible to recover from incidents which interrupt the flow of that capacity.

Simply, the freight that isn’t moving in Chicago and elsewhere this week must eventually be moved, but how and when that will happen is up in the air for many shippers.

In an unfortunate, but predictable side-effect, US shippers can anticipate transport and related costs to soar in the next few weeks and possibly into the second quarter as they try to recover their supply chains.

Before the storm struck, many shippers sought safe havens at cargo terminals, but these are already overflowing with high volumes of containerised imports that arrived at US ports, but have still not made it to their distribution centres.

Separately, the strategically important Ambassador Bridge, that links Ontario with Detroit and carries 25% of US/Canada trade was blockaded by Canadian truck drivers in both directions late on Monday and remains at a standstill.

Truck drivers have caused havoc in Ottawa for almost two weeks protesting Canada’s new requirement that drivers entering the country, including Canadian truckers returning from the US, be vaccinated against COVID-19. The US has imposed a similar mandate.

The Ambassador bridge crossing is a crucial commercial link between the US and Canada and the impact on already strained supply chains is a problem that the Biden administration will be unable to ignore, because rerouting freight to the west in Washington state, or to the east will be expensive, adding hundreds of miles to routes and raising total per-mile costs.

The storm and Canadian disruptions is a further wakeup call to shippers that haven’t built visibility into their supply chains, that flexibility is necessary to overcome disruption, but improving their supply chain durability requires clarity.

We are working closely with our colleagues in Canada, the US and globally, to ease the impact of the weather and these protests on our transport operations and provide alternative solutions where necessary. 

We will continue to monitor and report on this developing situation, to keep you updated as conditions change. 

If you have any questions, concerns, or would like any further information regarding the situation in the United States, please don’t hesitate to contact Kevin Lake, who leads our North American operations. 

Category: Supply Chain

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