Canadian Shipper

Feature

Ramping up


Forget milk and wood, the No. 1 priority for the U.S. in a renegotiated NAFTA deal is automobiles. Blamed by the Trump administration for thousands of lost manufacturing jobs, North America’s auto industry has gotten considerable attention from the President’s trade czar Robert Lighthizer, who made public America’s four priorities for the sector:

  • A higher North American content requirement to avoid a tariff. The current rule of origin calls for 62.5 per cent of a car’s parts to be made in North America.
  • Substantial U.S. content in cars. It was unclear whether he was advocating a new, specific requirement for U.S. content—a move that would surely be controversial—or whether he was simply stating that the desired changes should positively affect the region, with more cars being made in the U.S.
  • Stricter monitoring to make sure companies comply with the rules of origin. Lighthizer said country of origin “should be verified, not deemed.” Labour provisions should be included in the agreement and be as strong as possible.
  • Tougher labour standards. Some insiders in Canada and the U.S. suggest better worker conditions in Mexico, and more pay, would not only be good for Mexicans but also for making non-Mexican production more cost-effective and preserving vehicle production in Canada and the U.S.

Canada has pushed back, with Canada’s Foreign Affairs Minister Chrystia Freeland saying that the specific national content rules are extremely complex and that any changes would have to be made with great care to ensure they don’t disrupt supply chains.

The Latin Experience

Behind the headlines, the industry continues to move forward as well as remind us there is business to be done outside of NAFTA.

A recent report from UPS revealed there are opportunities for Canadian automotive suppliers in Latin America and highlighted the importance importers place on logistics and shipping solutions, in addition to considerations on price and quality.

The 2017 UPS Business Monitor Export Index Latin America (BMEI) report found that Columbia, Costa Rica and Peru are the three markets with the highest proportion of importers seeking new suppliers. The report also stated that Canadian automotive suppliers targeting importers can differentiate themselves by adopting a closer relationship with their buyers, supplying logistics services to reduce delivery delays and damaged products.

According to Samir Deotale, Strategic Development Director of Automotive at UPS Canada, there are two elements Canadian suppliers should keep in mind when dealing with the Latin American market: speed and the customer experience.

“If you look at an average car, it has almost 10,000 parts—small and big—that’s why speed and cost play such important roles,” he says. Understanding the customer’s needs is paramount.

“Do they need a small package couriered that needs to be there in a couple of days or do they need a slower service that gets there in two weeks?

“Every option has a trade-off between cost and speed. The portfolio (air, ocean, courier) is what plays a bigger role here in terms of giving customers options and the ability to customize solutions.”

Local knowledge is also very important, says Deotale. “Your broker or carrier should have extensive knowledge of origin and destination rules and regulations. Having customers already in that market ensures their employees have that local knowledge so they can adapt as situations arise and customize the solutions.

“Having a local office plays a bigger role when dealing with foreign customers. If something goes wrong at the destination, local assistance is critical.”

It is also important for Canadian suppliers to keep in mind that in a lot of Latin American countries the supply chain is still evolving. And that calls for even more due diligence.

Connecting the dots

With production of autos shifting throughout North America, consistency and reliability at a competitive price are what customers are looking for from carriers and logistics providers alike.

“Each OEM has unique needs and by working together you create a sustainable supply chain with the end customer in mind, that being the buyer of the vehicle,” says Troy, Michigan-based Sarah Slazinski, Director of Sales-Automotive, for CN.

According to its 2017 Investor Fact Book, CN handles close to 70 per cent of the finished vehicles sold in Canada and serves 13 assembly plants in Ontario, Michigan and Mississippi. Over the past five years, the company has invested more than $16 million in its auto compounds in Halifax, Toronto, Edmonton, Chicago, Memphis and Jackson, Mississippi. CN also moves containerized imports of auto parts through both its West and East Coast ports directly to the production centers of Michigan and Ontario, as well as containerized exports of auto parts through Vancouver and Halifax.

“What’s interesting is the automotive customers are working to figure out future business models and how they will fit in on a go-forward basis,” says Slazinski. “Since the technology is rapidly changing internally at the OEMs, as a carrier, you want to keep up with it. CN is a transportation and logistics service provider and our role is to provide solutions to safely and efficiently move those vehicles across North America.”

With the aforementioned shifting of production, Slazinski says CN is seeing different points of pickup—rather than getting the vehicle at the plant, they’re getting it at a different interchange.

“The shift in sales matters in terms of what car type is in demand—do you have the right car in the right place at the right time,” she says. “We move SUVs and pickups on bi-levels where we can get eight to 10 on a railcar. Tri-levels are used to ship 14-15 vehicles per railcar.

There are massive changes going on in the automotive industry with the concept of mobility in the next 10 years, says Slazinski.

“Some are predicting that as early as 2021 they will be mass producing fully driverless vehicles, which will target ride sharing. The technology for the vehicles is there. It will be interesting to see the timing of the legislation and rules that will govern the new evolution in transportation and how those two will align. For us it’s about staying in lock-step with those developments and being prepared to support what is needed in the industry and lead where we can.”

Proactive partners

For Mike Galinski, Transportation and Customs Manager at Milton, Ontario’s Karmax Heavy Stamping, a Tier 1 supplier to OEMs, the relationship with carriers is critical.

“We’re a very busy plant,” he says. “We stamp parts 24-hours a day, five-and-half days a week and we’re always in launch mode. Right now I’m working on 2019 and 2020 model years.”

Because Karmax runs three shifts, each shift has its own planning team, which is constantly working with the OEM, who has their own demands, such as loading times, says Galinski.

“When I got here I found the carriers that were in place were dictating what to do,” says Galinski, who joined Karmax, a division of Cosma International, a subsididiary of Auroa, Ontario-based Magna International, in 2012. “It’s important for [us] that we have good business partners. I changed some of our partners because the rates weren’t being justified, the service wasn’t there and we needed proactive partners to keep changing with us as we changed with the OEMs.”

According to Galinski, rates drove decision-making before he arrived, but there were a lot of extra charges because of missed deliveries and lost and damaged freight.

“I had to do a bit of a culture change in helping all of the departments understand and they got it.

“Our rates can’t change, because I can’t change our piece price with the OEM. We need to do some strategic planning with the carrier and say ‘I need pricing that you can hold, including fuel, for the next five to seven years.’ And then we start working from there.

“My motto is ‘service will justify rates.’”

Being part of an international conglomerate like Magna means there is some overlap, says Galinski.

“Quite often Karmax is buying from same the vendor as three or four other Cosma facilities, which dictate and manage their own freight.” This can lead to synergies and can come from anywhere, including the cab of a truck. Galinski, says he encourages feedback from drivers, including those at MacTrans Logistics, which works with Karmax.

“I like getting feedback from the drivers behind the wheel. They’re the best salespeople out there.”

For example, Galinski explains, “A driver will say, ‘I’m at vendor A on Tuesday mornings and you’ve got four other truck carriers coming and picking up freight to haul to the GTA for Cosma plants.’

“A total of five LTLs on a Tuesday morning at vendor A coming into the GTA. Why don’t we combine it all into one load and distribute accordingly,” says Galinski.

“And that’s why I like companies like MacTrans. They come to the table with proactive planning, so I don’t have look for those ideas all the time and that’s what I need from our service partners moving forward. The most important thing at the end of the day is clear, consistent communication, irrespective of what’s going on, such as when a truck breaks down. It sucks, but we have the flexibility to make some changes—provided we know.”

Being a differentiator

When there is no one there to receive a delivery, it poses a unique problem for both shipper and customer. But delivering freight during off hours is how Mississauga, Ontario-based Cardinal Couriers found its business model.

“Our ideology is to reduce downtime,” says Aaron Gerber, VP of Sales at Cardinal Couriers, which has been involved in the automotive aftermarket since the early eighties and started working with automotive OEMs in the early nineties.

“We’ve got a different operation. Our trucks are operational predominantly at night—as we operate the night network. So when you look at the way we manage supply chain and distribution compared to other transport companies, it’s different because for every truck we have on the road between nine a.m. and five p.m., we have eight trucks on the road between five p.m. and eight in the morning.

“We pick up from about 5 p.m. until about 10 p.m. and we’re delivering from 1 a.m. to eight a.m. We deliver to over 6,000 businesses throughout Ontario and Quebec and we do it through an unattended access method.”

What makes Cardinal distinctive however, is that they run on a shared network. “We make deliveries at those premium service times, but we do it at a price point of a shared network, similar to a regular LTL or courier network pricing model. What’s more is it’s variable: if you use it, you’re charged for it and if you don’t use it, you’re not charged,” says Gerber.

Gerber describes the OEMs as a group that is really well-versed in buying dedicated logistics, but, he says, they pay through the nose for it, especially in outlying areas.

“Our increasing business with the OEMs has everything to do with the fact that we are matching the service that they’re getting in the outlying areas on a dedicated basis, but we’re doing it with a shared network and charging them a fraction of the price.”

Often in the major city centres the overall service is a bit of a blended model, explains Gerber. “But in the extended areas, which are often the most challenging to service, we put a focus there because it’s an opportunity for us to handle a pain point and be a differentiator for those companies.”

Cardinal currently manages aftermarket distribution for Toyota, Hyundai, Kia, Volkswagen, Mercedes-Benz and recently launched a program with BMW.

Consolidation is a trend in many industries and transport companies are not immune, says Gerber, who is seeing a desire for carriers to either be either fully-national or bi-national.

“Transportation spends are getting consolidated and the OEMs, more so than the aftermarket, want to reduce the number of service providers that they’re dealing with. At Cardinal, that means making sure we have a robust service offering that goes across the country and that we’re no longer presenting ourselves as a regional player. In some cases we’re partnering and in several other cases we’re adding trucks to the road and offering national solutions because that’s what our customers are asking us to do.”

Technology is another industry trend and takes on great meaning for a company that makes deliveries during non-business hours.

“There are trickier aspects to delivering freight at night so we leverage technology to help us with that,” says Gerber. “For example, we take a lot of photographs. Our drivers have the ability to see what we’ve catalogued for a specific delivery along with the instructions for that delivery while they’re on their route from a tablet.

“We’ve come to the conclusion that there is so much value to managing the supply chain at night that those challenges are worth taking on. The idea that you want freight to be in transit during the evening hours because that’s when it’s not causing delays or disruptions, is a concept much more widely accepted today than it was in the eighties, when we started.”