As confidence returns to international markets, the global logistics industry is positioning itself for growth. But there are increasing signs of change as the sector responds to technological, economic and environmental developments.
The rise of internet-based purchasing is having a big impact on logistics firms and forcing them to rethink how they operate. According to logistics internet platform WarehouseMatch.com, distribution of goods purchased through web-based companies requires a combination of a few hubs and many local cross-docking locations for fine distribution to end-users. The company also says there is a clear shift towards the use of smaller warehouses in Europe, a trend that is being driven by new distribution strategies, risk-averse managers and changing distribution channels.
Close to home
The cost pressures affecting the manufacturing sector are in turn driving change in the logistics industry. “Intelligent sourcing optimisation is key,” says Nari Viswanathan, vice-president and principal analyst for supply chain management at business research firm the Aberdeen Group. “Firms are positioning their supply as close to demand as possible. We’re seeing firms such as Apple announcing that they are building a plant in Latin America. We’ve also seen Chinese companies building plants in the US.”
Bernard Piette, manager of Logistics in Wallonia, agrees: “Some firms are bringing some manufacturing activities closer to Europe, especially eastern Europe. Certain countries are trying to position themselves as logistics hubs, but the bigger consumer markets remain in western Europe, so it makes sense to carry on establishing distribution activities there.”
A survey by global business advisory firm AlixPartners reinforces these views. It says the geographical proximity of Mexico and improvements in its transport services have encouraged 63% of US-based senior executives to choose the country as the most attractive location for resourcing manufacturing operations closer to their home market. “As companies think about near-shoring production that was previously off-shored – to respond to rising labour costs overseas and exchange-rate changes – Mexico is obviously high on their lists,” says Foster Finley, managing director of AlixPartners and head of its logistics and distribution practice.
Green supply chains
Logistics firms are also working to address stakeholder demands for green supply chains, something that is affecting every area of the business, from the location of distribution centres to type of distribution used.
Lynnette McIntire, head of the sustainability communications team at logistics company UPS, explains. “We use all modes of transportation – rail, ocean, road and air. Some customers are considering using less carbon-intensive transportation modes as a way to cut their environmental impact. More sophisticated customers also look at where they source their materials, how much inventory they have and where, and the reliability of their supply chains as a way to revamp their supply chains to reduce their carbon footprint,” she says.
“Because of public policy in western Europe and North America, port-centric activities are becoming more significant,” says Adam Wasserman, partner at Global Logistics Development Partners. “Logistics centres are becoming business centres as opposed to trans-shipment. Public policy is taking trucks off the road, and that’s causing the creation of logistics hubs across the US and Canada.”
The raft of announcements from the industry reflects its general bullishness. Between January 2010 and March 2011, greenfield investment monitor fDiMarkets recorded a total of 993 investment projects from 616 companies in the logistics sector. The top 10 companies – which included Deutsche Post, Deutsche Bahn and UPS – accounted for 12% of all schemes.
Its research reveals that the top three source markets for outward investment were the US, Germany and the Netherlands, which generated 40%, 13% and 5% of projects, respectively. The top three destination markets for inward investment were the US, China and the UK, attracting a respective 36%, 5% and 4% of projects.
There’s evidence of a surge in trade, with business intelligence firm Zepol reporting that US shipment volume for April 2011, measured in 20-foot equivalent units (TEUs), was up by 5.68% on April 2010’s figures, while total shipments rose by nearly 6%.
Recent investment projects in North America include the opening of a logistics, parts storage and repairs hub in Toronto, Canada, by US ICT industry logistics provider Essintial Enterprise Solutions. It has also opened a parts distribution hub and depot repair centre for US customers in Memphis, Tennessee.
In Europe, Luxembourg medical company Bone and Tissue Bank, which stores and sells bone and tissue material for use in hospitals, plans to open a facility in Greece in 2011 with a further unit scheduled to open in France in 2012.
Government department Industry Canada reports that there has been a dramatic increase in the funds being injected into distribution facilities in the country, with total annual investment growing from $674m to $1.39bn between 2005 and 2010. It says the main areas to benefit last year were Ontario (32% of total investment), Alberta (25%), Quebec (12%) and British Columbia (10%).
Airlines are also reporting increased demand. American Airlines Cargo has added new international and domestic services as well as increasing existing US flight frequencies in Los Angeles, Miami and New York. In Europe, Lufthansa Cargo now flies from Frankfurt in Germany to Dhaka in Bangladesh, because of the Asian country's growing importance as a production base for the international fashion industry.
According to the International Air Transport Association (IATA), by 2014 international aviation will be handling 38 million tonnes of air cargo annually, up from 2009’s 26 million tonnes. Giovanni Bisignani, director-general and CEO of IATA, says: “To realise the economic growth potential that this will bring, we will need even more efficient air traffic management, airport facilities and security programmes. Industry and governments will be challenged to work together even more closely.”
IATA says the top five fastest-growing international freight markets in the period 2009 to 2014 will be Hong Kong, China, Vietnam, Taiwan and Russia.
Global ocean container traffic is also growing, reaching an all-time high of 560 million TEUs in 2010, driven by surging volume at Chinese ports, according to shipping industry analyst Alphaliner. The firm says China now accounts for nine of the world’s top 20 container ports, with most of its ports recording faster growth than ports in other regions.
But it is not all plain sailing for the industry. Supplies have been disrupted by recent major world events such as Japan’s earthquake and tsunami and the ongoing unrest across the Middle East and north Africa.
“From an end-user side we’re seeing delays in terms of products being launched and initiatives being announced,” says Aberdeen Group's Mr Viswanathan. “Companies are trying to reinforce their superiority with their suppliers, and suppliers will want to allocate supplies to the brand that they feel delivers the most advantage to them.”