"The massive restrictions are behind us, but disrupted supply chains remain"

Interviewer: The collapse of international supply chains as a consequence of the initial COVID lockdowns was an unprecedented event. How did this play out in the automotive industry? What were the biggest challenges initially, and which problems materialized over time? Has the automotive industry managed to adjust yet?

Florian Danmayr: The upheaval caused by the first lockdown in 2020 was enormous, and the problems were complex. Borders were suddenly closed, and the usual movement of people and goods came to a standstill overnight. The impact on the globally networked automotive supply industry was particularly hard. These massive restrictions are behind us, but disrupted supply chains remain. Some blame can certainly also be laid on the fact that planning figures were corrected downward drastically in the course of the lockdown. When things picked up again with unexpected speed, the players along the value chain were unable to respond quickly enough.

The chip shortage spanning all industries has now become a serious issue, and the automotive supply industry is no exception. And in the meantime the situation with raw materials is also getting tense. For example, metalworking plants are complaining about delays in deliveries of magnesium and similar materials that are needed for the production of automotive parts. How serious is this situation, and what demands does it place on the transport industry?

The chip crisis is the most pronounced aspect of the spiraling impact of a massive reduction in forecasts followed by a rapid recovery of demand. This shortfall is being felt across all manner of product categories and raw materials to varying extents. It’s true that magnesium is another material that could become scarce in Europe due to reduced extraction rates in China. We can’t say yet exactly how this will affect the domestic steel and aluminum industry. The important thing is for shipments to take place with sufficient speed and reliability as well as for costs to become predictable again. In a situation characterized by high raw material prices and reduced sales volumes, any increase in costs along the value chain is problematic for the supply industry.

The region of Upper Austria is considered an automotive cluster in its own right: numerous companies of various sizes have specialized here in the production of countless automotive components. From innovative battery tech startups to family-run metalworking operations and even large production lines for major truck manufacturers – the automotive industry is an essential part of the Upper Austrian economy. How did this strong position come about, and what are the advantages of being located right in the heart of Europe?

Upper Austria has always been a high-tech region. In addition to the presence of strong industry leaders, the highly skilled workforce is a key success factor. We represent about 280 companies, generating 16 billion euros in revenue in the automotive sector and employing 55,000 employees. The proximity to the centers of the German automotive industry is another positive factor. From a purely logistical perspective, Austria in general plays a role similar to that of Upper Austria, only on a larger scale – both serve as central hubs for north-south and east-west traffic.

These companies are leaders in their respective fields and are known around the world. And cargo-partner is a mid-sized logistics enterprise with worldwide coverage. What expectations do the many automotive SMEs have of their transport partners, and what values make for good collaboration?

The international networking in the automotive industry is unparalleled. Even small and medium-sized enterprises are obliged to purchase and sell their products globally. In large corporate structures, it makes sense to build up in-house capabilities. Smaller companies lack the scale to do this, so they need to find reliable partners who know the global practices, laws, guidelines and processes. This makes logistics experts a key asset to automotive suppliers when it comes to playing on the international stage.

Transport and logistics in the automotive sector are facing unique challenges. Whether “just-in-time” or “just-in-sequence” – the supply chains are highly complex and tightly interwoven. How did these systems come about, and what risks do they bring with them? What might the future have in store here?

The concepts you mention have established themselves in the industry over many years – in part with the motivation of optimizing financial figures. However, the risk that supply chains could fail, bringing production to a stop – along with a loss of potential sales – has become more acute as well as more concrete. This will lead to changes based on a new risk assessment – maximally optimizing working capital will no longer be tenable as the highest priority.

The pandemic has impressively demonstrated that highly complex supply chains can also be risky. The trend toward near-shoring is often mentioned in this context. Many companies are considering becoming more independent and not producing exclusively in China or South Asia. The Balkan countries, Turkey and Ukraine are being named as potential new sites. The goal is to bring production closer to the parent operations in Europe. What do you think of these efforts?

I take a somewhat cautious view here. Cost issues are often not the only reason for producing in China. That is also where the market is, plus there are local content requirements (Editor’s note: statutory rules requiring that a certain portion of the goods be produced in-country). It therefore makes sense to produce near or in the largest world markets – to that extent, the situation is unlikely to change.
In places where cost is the only major factor, I see our climate goals as a motivation to move in the direction of near-shoring. Once there is a CO₂ price (including transport) and this must be included in the calculation, the cards will be reshuffled. That will be a big opportunity for production in Europe.

The automotive industry is facing a permanent transformation. It is moving away from combustion engines in favor of alternative drive types. With the production of Volta Trucks in Steyr as well as with dynamic start-ups like Kreisel Electric, it is clear that Upper Austria has the right structures to support this. But are all local automotive enterprises ready for the change?

This change won’t happen overnight. The companies in the industry have been shifting their strategies in this direction for years, but the transformation pressure varies considerably depending on the specific product and the required competences. This is why I think that everyone is on the right path, but not all have made the same amount of progress so far. As a cluster, we provide an ecosystem based on cooperation that supports this journey and strengthens innovation.

Thank you for the interview!