By R. Bruce Striegler

In the second Journal of Commerce fall webcast examining drivers of U.S. trade, Richard Heintzelman, Executive Vice-President of Wallenius Wilhelmsen Logistics Americas placed auto trends within the context of worldwide growth and change. “The world economy is shifting gears and global GDP will rise significantly between 2010 and 2020. We’re looking at increased GDP of over 12 trillion dollars, which will contribute meaningfully to personal wealth enhancement. One could say the world is getting bigger and wealthier. For those in the business of selling cars or providing logistics, these are positive indicators.”

Founded in 1999, from a merger of two family-owned Scandinavian transportation companies, Wallenius Wilhelmsen Logistics now has eleven terminals worldwide, 50 processing centres to handle four million automotive and rolling equipment units, 3,500 employees and 60 automotive and RoRo (roll-on, roll off) vessels servicing thirteen trade routes to six continents. Richard Heintzelman is responsible for leading all commercial development and customer relations activities in North and South America, including commercial activity for Wallenius Wilhelmsen Logistics’ ocean transportation services as well as its land-based automotive logistics and technical services businesses.

Heintzelman says countries where absolute GDP and capital growth are set to expand include China, topping the list at 105 per cent, Russia at 41 per cent, 38 per cent for Brazil and Mexico at 32 per cent. “The top twelve countries will see an increase, which reflects a total population of 2.1 billion people,” he says.

Mexico’s impact on North American production

In 2007 U.S. auto sales registered 16 million units, 14.5 million year-to-date in 2012. “We do not expect to regain the 2007 level until 2015.  We’re seeing an increase in U.S.-made product and increased imports, specifically from Mexico, but also Canada, and growth in autos assembled in Mexico. Increasing U.S. production will combine with Mexican production to boost exports to other countries, so this growth is really a strengthening of the auto market overall.” Mr. Heintzelman adds the North American auto industry is in much better shape, both from a production and consumption side, than the European market.

One of the biggest impacts on the industry is Mexico, with several OEMs (original equipment manufacturers) either planning or building plants in the country. Today, Mexico is producing 2.5 million units with the expectation that by 2017, production will increase to 4.1 million. Mr. Heintzelman says the local Mexican market will remain relatively flat so the destination for those units will be the U.S. and Canada along with a handful of other countries, adding that Honda, Mazda, Audi, BMW and Volvo are companies making major production moves in the Mexican market.

“Mexico has free-trade agreements with 44 countries and for that reason, combined with lower labour costs, it is more attractive to build South of the border, opening a myriad of challenges as well as opportunities.” He adds that for Japanese OEMs, it is more attractive to produce outside of Japan due to the strength of the Japanese yen, but points out it is difficult to earn profits abroad and then repatriate them, hence the expansion of the trans-plants in the U.S. and Mexico. “Japanese manufacturing overall is seeing further capacity expansion throughout Europe, Oceania and Southeast Asia, but translates into a net reduction of exports from Japan.”

Growth offers opportunities and challenges

Exports from North America to the Middle East are forecast to rise from 160,000 units in 2012 to 308,000 units in 2017, representing a compound annual growth rate of 19 per cent. Trucks and SUV’s are the most popular Middle Eastern exports and Heintzelman says, “From a transport provider point of view, this is challenging, as it really represents a one-way trade. For ocean carriers, developing or assigning ships that can transport these vehicles and then also provide regular service, is a big issue for the future.”

He said that from a supply chain management perspective, the changing world, increasing populations, the wealth factor and the manufacturing shift will provide both opportunities and challenges. “How auto manufacturers will meet the challenges will be reflected in how they deal with their supply chain. This applies to both traditional source markets versus emerging markets.”

Concluding, Mr. Heintzelman touched on supplier innovation, saying that the factory to dealer value propositions will trigger more collaboration, and the ability to fill in some of the gray areas that OEMs can experience in these markets. He was referring to incentives being offered by factories to car dealers or buyers, which may include rebates or low-interest financing.

Remarking on heightened environmental concerns, he notes there are again challenges and opportunities which from a service provider’s perspective allows introduction or adaptation of greener measures whether terminal processing or vessels themselves.

U.S. auto parts imports in TEUs and dollar values

Picking up the next section of the webcast, Mario O. Moreno began by highlighting imports of U.S auto parts. “In 2010 we began to see a steady manufacturing rebound from the financial meltdown that began in 2008. Quarter after quarter, we are seeing growth in imports of containerized auto parts. Year-to-date 2012, we’re up 17 per cent.” Mario Moreno, a staff economist with PIERS and The Journal of Commerce, is the lead researcher and writer for the quarterly JOC Container Forecast, the quarterly JOC Port Forecast, and the monthly JOC Insights, a multimodal, data-driven analytical newsletter.

He commented on the timeliness of the subject following the recent U.S. Government request for dispute settlement discussions at the World Trade Organization with the Government of China. The challenge concerns China’s auto and auto parts “export base” subsidy program. Under the program, extensive subsidies are provided to auto and auto parts producers located in designated regions of China. The U.S. says that the subsidies provide unfair advantage, stating that during the years 2009 through 2011, at least US$1 billion worth of subsidies were made available to Chinese auto and parts manufacturers.

Mr. Moreno illustrated the top containerized auto parts suppliers by country, with China registering 139,521 TEUs, representing a 26-per-cent market share (of imported auto parts shipped by container), followed by Japan with 120,953 TEUs and a 22-per-cent share, and Korea at 75,672 TEUs and a 14-per-cent share. Mr. Moreno explained that the U.S. parts trade with Canada and Mexico is not by container and presented dollar-value statistics showing Mexico the top supplier with $9.4 billion or 28-per-cent share, Japan in second place with over $6 billion (18 per cent) and Canada third with over $5 billion, representing 16 per cent of U.S. auto parts imports. In this ranking, China comes in fourth with $3.7 billion or 11 per cent of the market. Moreno emphasized that auto parts imports are very globalized and are now coming from almost every part of the world.

China remains largest supplier of U.S. auto parts

Mexico’s share of the U.S. auto parts import market remains unchanged from 2011 although the dollar volume was lower in 2011. China’s share has dropped a percentage point from last year although the dollar volume has increased. “No matter which way one looks at this [TEUs or dollar value], China is losing sourcing share in 2012. We can’t really say, however, that auto part imports from China are falling, we interpret this as imports from the rest of the world growing at a much faster pace.”

China gained predominance as a U.S. auto parts supplier quickly, moving from the eighth largest supplier in 2000 to fourth in 2007, a position it retains currently. “The reason behind this growth is that many domestic auto parts manufacturers who produce low-value-added products such as wheels or brakes have outsourced this to foreign firms because it is almost impossible to compete against low-wage producers.”

Auto parts consumption is linked to demand for new vehicles, with a U.S. Department of Commerce report estimating that about 70 per cent of U.S. production is for Original Equipment (new vehicles) and the remaining 30 per cent used for repair or modifications. Moreno says a frequent question regarding parts import data revolves around the proportions being used for new vehicles or as after market parts, and he says it is impossible to tell. But, in an attempt to resolve that question, Moreno correlated and studied data from the Federal Reserve’s Industrial Production of Motor Vehicles and PIERS auto parts imports data in TEU volume to conclude that a “big chunk of parts that come in containers are used in the manufacture of new vehicles.”

Forecast data from show U.S. sales of autos and light trucks reaching 15 million units in 2013. Moreno says that his growth forecast for containerized auto part imports will reach 16 per cent for the full year of 2012 but will only rise by five per cent in 2013. In dollar terms, which includes imports from Canada and Mexico, 2012 will increase to 18 over last year’s 13 percent, with only a three percent increase for 2013, “Positive growth, but modest growth,” he says.