Assessing the Impact of COVID-19 on Vehicle Logistics

It has been nearly four years since COVID-19 effectively shut down the automotive industry.  The massive disruptions caused by the initial outbreak in March 2020 and subsequent waves continue to ripple across the industry.  Today, the worst impacts are far behind us, and networks operate closer to normal. Still, the experience has resulted in lasting changes, both operationally and on the psyche of those who lived through the experience.  It has also resulted in the largest reevaluation of supply chain risk since the devastating tsunami that hit Japan in 2011.

During the “normal” period that preceded the onset of COVID-19, the North American vehicle logistics network faced several structural issues that bedeviled OEMs and logistics service providers alike.  Chief among these challenges, and in no particular order:

• A growing shortage of truck drivers with the training and desire to move automobiles, as drivers either retired or took jobs less demanding than car haul.  This, coupled with the decreasing load factors brought about as consumers switched to larger and heavier vehicles, often left shippers scrambling to find sufficient lift to move their product.

• The availability and reliable movement of the multi-level railcars required for vehicle transportation, a perennial topic of concern within the industry, was impacted by diverse factors.  The increase in volumes out of Mexico, structural changes in operations as some carriers adjusted to the “precision scheduled railroading” operating model, and the age-old issues associated with bad weather created operational inconsistencies that were difficult for shippers to predict or mitigate.

• Insufficient capacity at key ocean ports, particularly in Mexico and British Columbia, added to the woes of shippers moving vehicles by vessel.  Because many OEMs use short-sea moves from Mexico as an alternative to rail, shippers regularly had no good options to move products north.   

With these issues in mind, the network of 2019 was already under significant stress.  The COVID-19 pandemic would exacerbate these issues and introduce some unique twists.

In March 2020, the winding down of production and transportation operations globally could only be described as unprecedented and breathtaking in its scope. By early April, the number of units in the North American network dropped to levels not seen in the post-World War II era. Railcars were sent into storage, trucks were parked, and workers were sent home. Meanwhile, OEMs scrambled to find ways to restart production in a way that would comply with fast-changing health and safety directives.

Understandably, the impact of COVID-19 on sales was dramatic. According to the National Automobile Dealers Association (NADA), total new vehicle sales in the US plummeted 36.7% between February and April 2020. The widely watched Seasonally Adjusted Annual Rate (SAAR) told an even scarier story. The SAAR for new vehicle sales in the US dropped from 16.9 million in February 2020 to a mere 4.5 million in April 2020, representing a 73% decline. With such numbers, it was little wonder most economists predicted a severe and lingering recession.

Instead, by May 2020, sales activity was picking up rapidly, largely thanks to massive stimulus payments to individuals and companies. Except in hard-hit areas like travel and leisure, job losses were muted as companies began adapting to operating in a pandemic. As vehicle sales and service were deemed essential in most jurisdictions, dealers could continue selling. Flush consumers soon started drawing down inventory built up before the pandemic. Instead of a prolonged sales drought, OEMs were faced with a rapidly increasing order book. They soon learn that restarting the massively complex supply chains to satisfy this demand would be extraordinarily challenging.

Sourcing parts to feed production lines became a monumental challenge, mainly because many of the parts needed were sourced from hard-hit China and other Asian countries.  While the shortage of things like microchips, resins, and myriad other components and materials became part of the daily news stream, the vehicle logistics process grappled with a different problem:  labor.

A shortage of skilled auto transport drivers before the pandemic only grew worse.  Demand for truck drivers skyrocketed as e-commerce sales grew over 30% between Q1 and Q2 of 2020 (Palmer, 2020).  A challenging job in the best of circumstances, hauling cars can be physically demanding.  With companies like Amazon and Walmart offering comparable or better pay for less effort, competition for qualified drivers intensified.  To help mitigate the lack of capacity, GM acquired a fleet of dedicated transport trucks.  Other OEMs have been considering or have implemented similar measures.  Most shippers acknowledge that the lack of drivers is a long-term structural issue that will not be resolved quickly. 

Labor shortages have also impacted rail transport.  Following a wave of downsizing brought about by the move towards precision scheduled railroading, carriers scrambled to find enough crews and support personnel as demand surged in 2021 and 2022. Fewer trains running and increased dwell times lengthened delivery times, leaving frustrated dealers and customers without little or no available inventory.  While the situation has stabilized, the Class I railroads are looking towards technological solutions like Positive Train Control and the RailPulse initiative to drive performance and efficiency gains instead of pursuing significant headcount increases.    

In Q1 of 2024, with the pandemic a fading memory for most, has the experience resulted in any lasting changes to vehicle logistics?  While it is difficult to point to any fundamental changes (OEMs still operate siloed networks, reliant on the same shared pool of railcars, ports of entry, and specialized carriers), the pandemic helped introduce and accelerate some key developments that will shape the finished vehicle logistics process in the coming years:

• Increase in dedicated assets:  Outbound capacity has been slow to return since COVID-19, and OEMs are recognizing the risks to their networks.  In a recent interview with Automotive Logistics, Maxime Picat, the chief procurement and supply chain officer at Stellantis, discussed how the automaker was acquiring capacity to protect outbound flows.  Said Picat, “We need to have a minimum level of control…and do it wisely on a case-by-case basis.” Like the decision by GM to establish a dedicated fleet, OEMs recognize they need greater control of the distribution process.  Whether through outright acquisition of existing transport firms or building up their own resources internally, having access to dedicated capacity can increase optionality.

• Online ordering and sales tools:  To compensate for diminished dealer inventories, dealers and OEMs recognized the need for consumer-friendly tools to help identify and sell vehicles within the distribution pipeline.  With its direct-to-consumer sales model, Tesla largely perfected this process before the pandemic, but other OEMs have been playing catch-up.  Recognizing that even if they can’t deliver a process as seamless as ordering from Amazon, OEMs acknowledge that a growing number of consumers prefer and demand the availability of online tools to order and purchase vehicles.  With this comes greater visibility of the transportation process, as customers expect to be able to track their order's status on demand.  This will put more significant pressure on the logistics service providers to ensure vehicles are moving in a timely and efficient manner.

• Real-time visibility tools:  To support the level of visibility required for supporting the online ordering and sales tools discussed above, OEMs are demanding real-time information from carriers on the status of shipments throughout the pipeline.  While vehicle telematics could provide much of this information, most OEMs instead have placed the onus on their transportation partners to provide this data at the conveyance level, whether a ship, railcar, or truck.  As dealer inventories increase, the demand for real-time updates from customers and dealers will likely diminish. Still, the operational benefits derived from this data will continue to drive focus and investment in improving this capability.

• Stakeholder collaboration: Even as OEMs increase their use of dedicated assets, the North American vehicle distribution network will continue to rely heavily on the use of shared assets, particularly when it comes to rail.  OEMs also share capacity at ports and key distribution nodes, while competing for lift from a limited pool of specialized carriers. Despite the reliance on shared assets, OEMs operate their networks in individual silos.  While “collaboration” is an oft-repeated theme at conferences, examples of effective industry collaboration have been confined to areas like standardized damage claims reporting and handling standards for battery electric vehicles.

Recognizing the limitations of operating within their silos, OEMs are taking some initial steps to collaborate on improving overall network visibility in the hope it can help drive higher velocity and operational efficiency.  The Automotive Logistics Executive Committee (ALEC), which has representatives from all major OEMs, is piloting a project to provide participating OEMs with a comprehensive view of the multilevel rail network, which will help logistics teams make more informed decisions on routing and expediting.  As the amount of information shared between stakeholders increases and trust grows, the effort could expand to allow OEMs to use real-time data to improve the balance between demand and capacity.  Eventually, it could even lead to optimization across the entire network, which has never been done previously.

To summarize, the pandemic was unprecedented for the automotive logistics community, exacerbated by some key structural challenges around labor and capacity that preceded the onset of COVID-19.  Reacting to and recovering from the pandemic, the network has largely recovered.  However, some important seeds planted during that time are now taking root and will result in a network that is more resilient and responsive to a rapidly changing automotive marketplace.

Tom Swennes

President

Vanir Solutions, Inc.