Automakers to new markets

The automobile industry is the picture and paradox of globalisation. Its complex supply chains cry for centralisation, but the industry is local by necessity. Establishing plants in growth markets, automakers face new challenges and Maersk Line is poised to help automakers set up in new markets while continuing to cater for existing plants and markets.

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Hyundai is the world's fourth largest automotive producer and a very important key client for Maersk Line.

Lars Kastrup heads Maersk Line’s automobile vertical. The team focuses on consistent delivery, so the automotive plants can retain their lean inventories without increasing the risk.

Today’s automotive assembly plants produce a vehicle every minute. With roughly 2,000 parts to one vehicle and lean inventories a permanent fixture, the steady and consistent flow of parts through the supply chain is essential. This is a perfect match for Maersk Line’s new automobile vertical market.

“The key thing for automotive plants is to find the necessary parts in time, so you don't have a USD 20,000 vehicle not being built because a USD 1 part is missing,” says David Gonsalvez.

Gonsalvez, a supply chain management professor at MIT-Zaragoza, knows this challenge better than most. As director of the global supply chain strategy at General Motors, he was responsible for planning the steady flow of parts to plants for years. And the challenge is easy to put in words.

“You come to work every day not looking for what goes right, but expecting that something is going to go wrong. And you have to be ready to handle that. That's the core of the business,” Gonsalvez explains.

Managing expectations

“In our business, the customers do not want to hear that things have gone well. They want transparency, and if a container is delayed, we are on the phone to find a solution so they get the parts,” Kastrup says.

Another key service is the ability to manage potential variations in volumes, for example 200 containers one week and 300 the next. Equally important, the vertical has decades of experience from the industry.

“Industry knowledge is extremely important to these customers, and they appreciate being able to speak with someone who knows the business. Exceptions are unavoidable, but we can proactively manage them and find ways around when that is needed,” Lars Kastrup says.

Therefore the first goal for the vertical is to target major industry players, many of which are Maersk Line customers already, and win a larger share of profitable business, drive up customer satisfaction and outperform competition.

David-Gonsalvez-MIT-Zaragoza
”The key thing for automotive plants is to find the necessary parts in time, so you don’t have a USD 20,000 vehicle not being built because a USD 1 part is missing,” says David Gonsalvez, chain management professor at MIT-Zaragoza.

When you reach a critical mass, you start building vehicles locally. Since the product is so large, that always makes sense. Currently, we are seeing a lot of production moving to Asia, Easten Europe and South America.

DAVID GONSALVEZ, SUPPLY CHAIN MANAGEMENT PROFESSOR AT MIT-ZARAGOZA

With globalisation set to increase, David Gonsalvez sees new production facilities opening in emerging markets.

“When you reach a critical mass, you start building vehicles locally. Since the product is so large, that always makes sense. Currently, we are seeing a lot of production moving to Asia, Eastern Europe and South America,” he says, adding:

“This is challenging if you don't have people who are familiar with the language, the culture and how to get things done in a particular economy. You have to build that skill up within your organisation. Similarly, you have to build supply chain capabilities locally. In many cases, you’re starting from scratch.”

“If automakers can overcome the challenges, the efficiencies that they gain from producing locally, or from taking advantage of local conditions to produce for a global market, are very large,” Gonsalvez says.

While small and medium-sized automotive companies in particular cannot be in every country, they could sell their product if somebody were to enable it.

“The key thing for a shipping or logistics company is to transform from being purely a transport provider to becoming a partner that adds value to the product. And if you understand their business, you can propose solutions,” Gonsalvez says.

Opening new markets
Currently, Lars Kastrup and his team are targeting a number of up-and-coming Chinese automakers, with the specific purpose of helping to drive their global growth. These companies may not exactly be household names today, but that is exactly the point according to Kastrup.

“Hyundai has been a customer since the early 1990s, shipping to Europe. The brand was establishing itself in the market, and we have been able to assist their global growth. Today, Hyundai is the world’s fourth largest automotive producer and a very important key client for Maersk Line,” he says.

“Specifically, we have jointly grown with Hyundai into Russia and Latin America, and this is something we would like to replicate with newcomers from China. In this sense our global network is also a key selling point.”

The Chinese automotive industry is booming and double-digit growth rates are nothing out of the ordinary. Exports are also rising. By next year, Lars Kastrup aims to have five partnership contracts with such companies, with the specific purpose of developing them abroad, for instance with joint growth aspirations in African countries.

Beyond pricing
So far, the automotive industry has located manufacturing at certain locations for reasons primarily linked to cost. Logistics have been an afterthought. Recently, Lars Kastrup sees a change to that mindset.

“Instead of seeing logistics as a cost issue that just needs to be negotiated as much as possible, we are now seeing an interest, very early in the process, to have the right logistics partner that can provide transparency and add value throughout the supply chain,” he says.

Therefore customers are not necessarily interested in negotiating contracts every month. If they build a plant worth USD 1 billion in an emerging market, they are more interested in Maersk Line’s long-term commitment to that market, as this is a key factor in their ability to utilise the capacity at the plant.

Longer contracts with sustainable freight rates are therefore not uncommon for Maersk Line’s automobile vertical, as the market is recognising the value proposition to the industry. In return, Maersk Line commits investments and resources.

Be prepared

David Gonsalvez sees these trends in emerging markets representing much opportunity.

“People don't do globalisation for globalisation's sake. The concept is this: how do you make your product more efficiently? How do you make it more cost effective? Right now we see different levels of maturity in different operations. Ideally, everybody would like to access to the same process and the same operation, throughout the world. Even in the next decades, we are not going to see that kind of consistency,” Gonsalvez says, adding:

“The key thing is being able to understand that the winners are those who have the ability to identify the trends that are happening in the world, understand how they are going to influence their business and then prepare accordingly before anybody else sees it.”

Zaragoza Logistics Centre (ZLC)

  • is a research institute established by the Government of Aragón in Spain, in partnership with the Massachusetts Institute of Technology and the University of Zaragoza.
  • started a research partnership with Maersk Line Technology Innovation, seeking to improve supply chain transparency and predictability within the automotive and other industries.

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Lars Kastrup heads Maersk Line's automobile business segment.