What is the key characteristic for supply chain hubs? Transport? Technology? Geography? Karen E Thuermer looks at what it takes to become a top notch logistics location.

In logistics, less is more. In an effort to keep tight profit margins, companies today are consolidating their shipping and supply chain operations to select logistics locations capable of moving their every type of freight quickly, efficiently and cost-effectively. For most companies this might mean locating distribution operations at a site with excellent importation or exportation access. Others might need good airport connections. Nearly all companies need low-cost real estate, affordable labour and superb highway networks.

So what is logistics? In the utmost simplistic terms, logistics is the movement of product from one place to another and all the steps in-between. With so much commerce hitting the seas, air, road and rail, the World Bank forecasts that world trade will grow 6% a year through 2007. The world gross national product (GNP) is forecast to increase from approximately $30,000bn in 1998 to $39,000bn by 2007, despite the economic downturn.

Corporate executives are scratching their heads trying to analyse supply chain management and asking themselves where is the best place to locate logistics operations. For some, the answer may be their own backyards. Others might need a more worldly approach. Steve P Laposa, director of real estate research at PricewaterhouseCoopers (PwC) in Denver, US, suggests examining world trade agreements to see from where future flows of cargo will come.

“We know that there is a global path of goods but international trade – regulations, exchange rates, exports and imports – is at the country level,” he says. “Companies should identify international cities, ports and inland regional warehouse markets to determine their best logistics location.”

Traffic patterns

A key issue here is traffic patterns, especially that of global maritime and airfreight. Whether by sea or air, road or rail, goods must also be packed, repacked, stored and shipped. Consequently, third-party operators, which were once considered adversaries, are becoming essential corporate collaborators. As logistics is now deemed a key profit centre, supply chain management must be carefully scrutinised.

“The industry is moving from one that was customer service oriented to one of indirect relationship management,” says Mr Laposa. This switch is having a profound impact on site selection considerations. Not only are logistics operators opening facilities around the world to accommodate their growing base of clients, but logistics centres are also being developed to attract these customers. Meanwhile, large manufacturers are opening and operating regional distribution sites in markets in which they serve.

In Europe, the creation of the borderless EU gave logistics a new meaning. Logistics and distribution operations had been set up on a country-by-country basis but the advent of the EU single market resulted in firms taking a more pan-European approach. Driving “the single facility concept” was a desire to create efficiencies of scale and value-added logistics postponement (where a product is changed or improved, then warehoused until needed or called up by client), both of which are possible thanks to the EU becoming a single market.

“In that period, the Benelux countries [Belgium, Luxembourg and the Netherlands] became the hot spots in which to locate logistics operations,” says Marcel Stuve, vice-president corporate strategies and logistics at Buck Consultants International in Nijmegen, the Netherlands. “Nearly 70% of all Europe’s distribution business ended up either in Belgium or the Netherlands.” About 50% are said to be in the Netherlands.

Historic traders

“Logistics is a natural for the Netherlands. The Dutch have always been traders due to their lack of natural resources and relationship with the sea,” says Paul Kleijne, marketing director at the Netherlands Foreign Investment Agency (NFIA).

Rotterdam is by far the biggest seaport in Europe and one of the largest in the world, and Amsterdam’s Schiphol Airport is the fourth largest cargo airport in Europe. Some 7000 foreign companies have facilities in the Netherlands. About 170 million people live within a 500km radius. Cities such as London, Paris, Brussels, Frankfurt and Hamburg can be accessed in a few hours’ drive. “We offer one of the most dense networks of roads, water and rail, which makes it excellent as a first point of entry,” Mr Kleijne says.

About 75% of companies operating in the Netherlands outsource logistics functions to third-party service providers. “Whereas third-party service providers did not take on inventory as part of their function, now they do,” says Edgar Kastell, vice-president, North American market, at Holland International Distribution Council (HIDC). The Dutch, in particular, are emphasising the concept of the virtual warehouse, where European logistics service centres now achieve shorter delivery times, including overnight or even same day performance.

“Every pan-European company puts the Netherlands on their short list for logistics locations,” says Mr Kleijne. “Now, with US companies restructuring their supply chains, we are capturing that business.” This is to cut costs, eliminate redundant operations, and re-engineer operations, he says. “Logistics warehouses are especially being used for spare parts. By having a centralised hub, companies can retrieve parts within four hours. The third-party service providers can operate as a virtual inventory. Stock moves quickly. Companies do not want to keep money tied up in inventory.”

Geographic attraction

Belgium, however, is right behind the Netherlands in attracting logistics operations for many of the same reasons: excellent geographic position, the ports of Antwerp and Zeebrugge and significant inland ports, such as Ghent. “Sixty percent of Europe’s buying power is within a 300-mile radius around Flanders [the northern region of Belgium],” says Professor Director Alex Van Breedam, CEO of the Flanders House of Logistics, a group recently set up as a clearing house for inquires regarding logistics. The organisation is the Flemish equivalent of HIDC.

“Flanders offers a well integrated transport centre with an emphasis still on road transport,” says Mr Van Breedam. “But there is a shift to inland transportation. For instance, barges are being developed with a new concept of palletisation whereby companies can realise advantages for regional movements of consumer goods.”

Europe’s regionalism

With road and air congestion in central Europe posing significant challenges for centralised distribution systems – especially for just-in-time deliveries and with more companies demanding value-added activities, such as customisation, picking and packing, and reverse logistics – many logistics operations are increasingly being carried out closer to customers.

“Many companies find that distance makes the process too complicated to be cost effective,” says Ylva Folin, manager of Hub Sweden, the logistics division of Invest In Sweden. “Therefore, many are turning to regional distribution centres.”

The Swedes have naturally gravitated toward this business due to an affinity to hauling goods long distances and across the seas. Besides a host of small operators, big logistics providers in Sweden include Khune & Nagel, Schenker, Cat Logistics, Dan Transport, Danzas, Deutsche Post, Katoen Natie and Maersk Logistics. Maersk Logistics operates a large, modern IKEA-owned warehouse in Torsvik, Jönköping between Norrköping on the east coast and Gothenburg on the west. Since 1999, it has handled the distribution of IKEA furniture and furnishing from Torsvik, serving Swedish and international destinations.

Entertainment Network Scandinavia (ENS) chose to locate its distribution operations in Borĺs, Sweden. “From here we can deliver to 95% of our Swedish, Norwegian and Danish customers within 24 hours of their order,” says Stig Ingelström, ENS managing director. ENS distributes more than 30 million CDs a year for EMI, Sony and Universal, serving wholesalers and about 1200 stores across Scandinavia.

“We chose Borĺs because of its central Scandinavian location,” says Mr Ingelström. “We also wanted easy access to highways and a large green-field site suitable for expansion.”

Economic shift

With Europe’s economy moving eastward, Ms Folin points to Sweden as a natural point of entry for northern Europe and the Baltic Sea region. About 50% of outbound goods to western Russia and the Baltic nations pass through the country. From there, all major Nordic cities and the coastal regions of Poland and Germany can be served in less than 12 hours, while western Russia and the Baltic nations are served within 24 hours. Add to that an excellent ferry service accentuated by the fixed bridge links to Europe’s mainland across the Öresund Strait and the Stora Bält. “Air service from Sweden can also link the region of the European continent with the Far East,” she says. “Sweden’s airports are less congested, less costly and more flexible than most European continental airports.”

In addition, Sweden offers more than 13,000 road haulage companies, more than 200 shipping companies (20 lines with rapid and reliable links to countries in the Baltic Sea region) and 25 independent rail transport companies.

Swedish logistics providers gravitate to internet technology. Use of IT and electronic data interchange is widespread for services, including cargo tracking and integrated supply chain solutions.

With more manufacturers seeking less expensive turf, eastern Europe and the regions beyond are developing quickly. And the EU is due to take on more members next year.

“Over time, EU enlargement will change the entire distribution landscape of Europe,” says Kirstyn Boyle, senior consultant at London-based Tenon Techlocate. “The competitiveness and primacy of existing logistics hubs will be challenged as the eastern markets grow. Major logistics firms are already evaluating locations in what will be the new geographic centre of Europe. There are potentially big rewards for those accession countries that have invested in their infrastructure, particularly in areas with intermodal capacity or capability.”

In Werndoft, Austria, for example, a new Cargo Center Graz recently opened to serve as an intermodal gateway to southern Austria, Slovenia, Croatia, Hungary and northern Italy. The public-private project has already spawned the attention of logistics operators Schenker Stinnes Logistics, Panalpina, ÖBB and Ökombi, which have leased space at the site.

To maintain competitiveness, technological systems are increasingly important across all levels of the distribution chain with more weight being placed on workforce skills. “Companies are now taking into consideration the knowledge capital or ‘soft infrastructure’ of potential locations,” says Ms Boyle. “IT skills and analytical ability are likely to be deciding factors in investments to come.”

North America

The big driving force for logistics in the US was the deregulation of the transport industry in the early 1980s. Since then, logistics as an industry has flourished. Operations abound across North America. Unlike Europe, logistics operators are less constrained by transportation systems. Also, population centres are more widely spread across the US. Consequently, seaports, cargo airports, interstate connections and, to a lesser extent, rail networks are primary considerations in site selection.

Locales such as Savannah, Hampton Roads, New York City and Los Angeles/Long Beach have been magnets for attracting logistics operations largely because of their seaports and highway and intermodal connections.

Today, the port of Savannah in the state of Georgia services 12 major distribution centres that handle more than 300,000 containers annually through more than nine million square feet of warehousing. Among them is Home Depot, which operates its 1.4 million sq ft Import Distribution Center in Savannah. “We supply product to 400 stores east of the Rocky Mountains,” says Greg Walker, Home Depot general manager. “We cover territory up to Virginia, over to the mid-west and down through Texas and New Mexico.”

The port of Virginia in Hampton Roads has had a similar affect. Target has opened a 1.5 million sq ft import distribution warehouse in Suffolk County in close proximity to the port. “The Virginia Port Authority has been an excellent partner in helping us to locate and set up this site,” says Randy Wilburn, facility operations manager at Target. “They coordinate with us and the steamship lines to review volumes for the peak seasons. Their technology information service department gives us projections.”

Air services

Airports and air services have a similar impact. Federal Express put Memphis on the map as a prime location for logistics operations. Consequently, Memphis International Airport is pegged as the world’s top volume airport. Its central location makes it possible to reach 76% of major US markets within a day.

Anchorage in Alaska, with its Ted Stevens Anchorage International Airport (ANC), ranks number two in the world for cargo volumes. “Long haul aircraft can reach 95% of the industrialised world in 9.5 hours,” says Michael Keane, Anchorage Economic Development Council transportation director.

While Alaskans know they cannot attract big box warehouses and logistics operators like more populated centres of the world, they point to Anchorage’s geographical advantages for trans-shipment, light assembly, repackaging and relabelling, and distribution.

“Sixty-five percent of international carriers calling here perform value-added services at ANC,” says Morton V Plumb, ANC director. UPS and FedEx operate large logistics facilities at the airport. James Hatley, managing director of FedEx’s Alaska Operation, says: “Eighty percent of everything for FedEx from Asia comes through Anchorage.”

Asia

Logistics services in Asia are more pinned to air and sea carriers. Singapore and Hong Kong have long been rivals in attracting steamship line service. Until recently, both operated largely as trans-shipment ports. However, now so much is imported from China, Hong Kong is finding an advantage in being close to Guangzhou Province and the Pearl River Delta.

The delta region has developed into the world’s manufacturing powerhouse. Statistics indicate that some 50,000 Hong Kong factories are being set up in there. “The Pearl River Delta hinterland offers an unlimited cargo source,” says Victor Fung, chairman of the Port Authority of Hong Kong.

Other ports in China are quickly developing to capture the container trade, however. A key factor in favour of their development is the high cost of trucking goods from mainland China to Hong Kong. While they offer an alternative to Hong Kong, both are plagued by tides and delta silt that requires excessive dredging.

Meanwhile, the Hong Kong government is working on improving its own infrastructure. CSX World Terminals, along with Asia Container Terminals Ltd, has recently broken ground on a new terminal, Container Terminal 9 (CT9), which will help the port of Hong Kong to handle more volume.

Mercedes-benz logistics

Freight transporter Panalpina is carrying just-in-time parts for the Mercedes-Benz M-class on its flights between Europe and the US via its Luxembourg cargo centre. Since the car, which is assembled in the US state of Alabama, is built to order, a sophisticated, fully controllable production logistics system is paramount.

Mercedes-Benz relies on close cooperation with its suppliers, some of which are near its plant in Stuttgart, others of which are miles away in Europe or other parts of the world. Panalpina handles all airfreight between Mercedes-Benz’s European Consolidation Centre in Bremerhaven and its production plant in Alabama, employing regular 747 full-freighter services between its airfreight hubs in Luxembourg and Huntsville, Alabama.

All suppliers send their parts direct to the Mercedes production line just-in-time, in the right sequence and to the right assembly area. In the case of the cockpit module, the supplier receives the final orders only 140 minutes before the deadline for installation, leaving just enough time to assemble the dashboard panels and deliver them to the Mercedes plant.

Seat upholstery is unloaded from the supplier’s trucks and fed directly into the production process, ready for fitting. Production components from overseas are also fully integrated into the just-in-time sequence. Engines, starter motors, transmissions and steering, for example, are supplied by various Mercedes-Benz production facilities in Germany.

Airfreight is always used when delivery delays occur, if individual parts or units have been redesigned or when new model versions are introduced. With 14,000 individual parts per vehicle, airfreight shipments for M-class production are virtually a daily event.

Reliable, speedy processing at the freight hubs in Luxembourg and Huntsville is a major advantage of this customised transport system. The freighters’ schedule can be geared entirely to Mercedes-Benz’s needs.

Panalpina’s electronic information systems enable the customer to keep accurate track of cargo progress. And, because the firm operates its own transatlantic flights several times a week, capacity is always available, even at peak times.

ProLogis facilities

ProLogis, which is headquartered in the US city of Denver, offers facilities for customers that seek modern, high-volume distribution centres in Europe, North America and Japan. As its entry into Europe, in 1998, it purchased Kingspark Group Holdings, the premier developer of distribution facilities in the UK, and Garonor SA, the most prominent provider of distribution facilities in France.

Today, ProLogis is the largest developer and owner of distribution facilities in France, the UK, the Netherlands and Poland. The European portfolio alone has nearly 19.4 million sq ft of properties operating or under development.

The company is now developing ProLogis Park Le Havre at the French port of Le Havre. Daher and XP Log, third-party logistics companies, are expanding in the park. XP Log shares a building with Gefco, the logistics branch of PSA Peugeot, Citroen Group.

“Logistics companies, such as Daher, XP Log and Gefco, need state-of-the-art facilities with immediate transportation access to maintain efficient logistics operations,” says Ranald Hahn, ProLogis senior vice-president. ProLogis Park Le Havre is situated along the highways connecting Paris with Le Havre and is four miles from the Le Havre port terminal. The park will continue to grow as a result of the demand for modern logistics operations, its access to the international shipping port and its domestic rail service. ProLogis plans to continue development in the park to meet customer demand.