Logistics brings commerce to the entire world and is at the core of economic development because it touches every business from sourcing raw materials to consumer consumption. Logistics embraces all aspects of human needs as well as touching all cultures and crossing all borders.

Goods and the companies handling them are constantly in motion. Even the industry is in motion, with a plethora of mergers of multibillion dollar multinational companies destined to transform logistics services for shippers. For example, an unusual event took place in the logistics industry last year: nearly $1bn in merger activity occurred in one week. This was the result of Exel and TNT Post Group spending a combined $905m to acquire Tibbett & Britten and Wilson Logistics, respectively. Taken together, the purchases may be the largest and most significant acquisitions since the merger of Ocean Group and NFC created Exel in 2000 and Deutsche Post World Net’s combination of Danzas and AEI.

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The size and scope of the acquisitions are a clear signal that the logistics industry has crossed the threshold in its process of restructuring through mergers big and small, and is headed for a resurgence in activity as world economies bounce back from a long, slow recovery. The acquisitions also underscore the potential for a whole new wave of deals and more rapid consolidation in the global logistics industry and even greater convergence of the logistics, forwarding, transportation and technology industries.

Beyond that, slick logistics operations and new technologies like radio frequency identification (RFID) are resulting in a continued reduction in inventory levels for manufacturers, suppliers and retailers like Wal-Mart and Target, which have adopted just-in-time restocking schemes – a saving that goes straight to the bottom line.

Ripple effect

The explosive growth of the Chinese manufacturing market continues to have major implications for the global logistics arena. With construction in Shanghai up 40% in the past year, the ripple effect from that single location is being felt worldwide.

Kuehne and Nagel (KN), a leading freight forwarding company, operates two logistics centres in Shanghai: one in Baoshan and the other in the Waigaoqiao Free Trade Zone – Shanghai’s most modern logistics districts. The facilities offer a combined warehousing capacity of 8800m2 and feature KN’s globally-standardised warehouse management technology and advanced security systems. A further expansion is planned this year when phase II of the Baoshan Logistics Park is scheduled to be completed.

KN is present in 18 locations in 15 Chinese cities: Beijing, Dalian, Fuzhou, Guangzhou, Hong Kong, Macau, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Tianjin and Xiamen.

“We plan to open nine more branch offices in the next 18 months,” says Dirk Reich, KN executive vice-president. Viable locations are Wuxi, Wuhan, Chengdu, Chongqing, Xian, Zhongzhan and Dongguan.

“With deregulation, we will move into China’s hinterland and do nationwide distribution,” says Mr Reich. One of the reasons for this approach, he says, is that each Chinese canton still controls traffic rights.

Hellmann Worldwide Logistics opened its airfreight terminal at New Pudong Airport Shanghai in September. “We will be able to achieve higher quality standards for our customers with this unique terminal facility,” says managing director Josh Hellmann.

The 8000m2 facility offers temperature and humidity control as well as room for hanging garments to manage demands in the booming textiles logistics business.

The European scene

Last year’s expansion of the EU with 10 new member states is having implications for cross-border traffic, especially for countries like Germany and Austria.

Germany is well-positioned as a logistics hub for northern and eastern Europe, where transport and logistics are regarded as the country’s strongest sector. The port of Hamburg is considered by experts such as Jones Lang LaSalle to be the best placed and most important international port for central and eastern Europe. Demand for warehousing is high there and in short supply.

KN recently opened a new logistics centre in Hamburg and is investing €14m in the construction of a new logistics centre close to Luxembourg airport.

Frankfurt Airport offers its Frankfurt Airport Distribution Centre, which is directly integrated into the airport, giving it the advantages of continental Europe’s leading transportation hub. The airport also feeds into Frankfurt and the Rhine-Main region’s biotechnology industry. Close connections between the Hochst Industrial Park and CargoCity Frankfurt complement each other. Goods that are produced “just-in-time” in the industrial park are flown quickly from Frankfurt to destinations around the world.

Logistics banana

The highest concentration of logistics activity, however, remains around what is known as Europe’s “logistics banana”: an area stretching from the ports of Rotterdam and Antwerp through the Netherlands, Belgium, and the western part of Germany.

Amsterdam’s Schiphol Airport area has attracted scores of well-known companies, such as Intel, which recently signed a 10-year lease for space at a logistics facility at Schiphol-Rijk. Likewise, Burger King International has rented 665m2 of office space in Zuidtoren at Business Park Beukenhorst for its proximity to Schiphol.

APM Terminals, part of the world’s largest container shipping company Maersk, has decided to move its global headquarters from Copenhagen to the Dutch capital city, The Hague. Peder Sondergaard, APM Terminals vice-president, says that the move was precipitated by the need to be closer to customers and the shipping industry. The move also enables APM Terminals to offer its services to third parties.

Some cities attract businesses by joining forces with neighbouring cities. In a region dubbed the Meuse Rhine Triangle, four major cities – Aachen, Hasselt, Leige and Maastricht in Germany, Belgium, and the Netherlands – share a dynamic economic climate. Originally, the Meuse Rhine Triangle was an industrial area. Today companies such as Medtronic, Ford and Ericsson have set up European research centres there, and Boston Scientific, Sony, Mercedes Benz, DHL and TNT have established contract centres and logistics operations there.

QVC operates its European distribution centre in Huckelhoven, a city in the German section of the Meuse Rhine Triangle. From there, it services the whole European market with the exception of Switzerland. The centre handles 40,000 orders a day, 97% of which are for German consumers.

Jorg Schlichting, senior manager of industrials engineering at QVC, says the choice of the Meuse Rhine Triangle rested on the region’s central location and good access to major transportation routes.

European centres

Liege in Belgium’s region of Wallonia is home to TNT and various logistics operators that take advantage of training agency Forem Logistics .

Switzerland is a powerhouse for logistics. Among the many companies there, the 9400m2 Bioggio Logistics Centre, operated by Luxury Goods International in Cadempino, handles Gucci products among other high-end brands. Luxury Goods International chose to locate the centre in Ticino to be close to manufacturers in Milan.

Barcelona is well positioned among Mediterranean cities for logistics. Its Barcelona Centre Logístics co-ordinates synergies between the local logistics community. The city offers more than 4000 acres of space situated strategically for this function.

In England, the finishing touches are being made to the former Finningley Royal Air Force base in Doncaster to provide the county of South Yorkshire with its first commercial airport. Dubbed Robin Hood Airport, the facility is scheduled to open in March 2005. It is expected to have major economic consequences on South Yorkshire and to handle 1.3 million passengers during its first year of operation.

“It offers the third longest runway in the UK,” says Steven Adaman, airport marketing and promotions manager. “The runway can handle any size aircraft up to the Antonov.”

US strengths

The convergence of North American Free Trade Agreement (Nafta) markets has created significant opportunities in the US, Canada and Mexico. Memphis, Tennessee feeds into Nafta, domestic and other international channels, with all modes of transportation (air, rail, road and sea) converging there. Five class 1 railroads service Memphis.

“Our strength is our core competency in multi-modal transportation,” says Larry Hensen, vice-president of research and information technology at the Memphis Regional Chamber. “Our obvious biggest strength lies in air, given the fact that Federal Express operates its world’s largest hub here.”

Memphis is the third biggest trucking corridor in the US. Only the Pennsylvania and Ohio Turnpikes have more truck traffic than the 1-40 from Memphis to Little Rock, Arkansas.

“Trucking will become even more important when Interstate 69 opens in seven years,” says Mr Hensen. “This highway will connect Memphis to Shreveport, Louisiana, and important cities in Texas such as McAllen, Laredo, Corpus Christi, Brownsville and Houston.”

Memphis is attracting major logistics and distribution operations. Williams Sonoma, for example, recently added 4.5 million square feet to its distribution operations and Brother undertook a 500,000 square foot expansion.

Yet vast amounts of cargo coming in, particularly from Asia, are influencing the logistics landscape. On the west coast of the US, Los Angeles is a major point of entry for goods coming from Asia. But both its seaport and airport are hampered by congestion. The problem will only escalate. Southern California is projected to be the entry point for 78% of all US imports by 2020.

About 82 million passengers went through Los Angeles International Airport (LAX) in 2001. The projected figure for 2025 is 167 million passengers. Regional air cargo volumes are expected to triple, reaching 9.5 million tons each year. Making things worse, LAX is running out of space.

Unblocking congestion

Efforts are under way to relieve the congestion. Southern California Logistics Airport (SCLA) is being developed as a 5000-acre multi-modal business complex that integrates manufacturing, industrial and office facilities with a dedicated international airport.

“This justifies looking inland and developing large warehouses where they can consolidate the freight arriving at the ports,” says Dougall Agan, principal of Stirling Enterprises, SCLA’s developer.

DHL Danzas Air & Ocean and The Pasha Group selected SCLA for their new North American distribution hub for Go-Video, which imports large quantities of consumer electronics each year from Asia through the ports of Los Angeles and Long Beach. “We are investing in SCLA as the solution to the severely congested supply chain,” says Don McKnight, president of The Pasha Distribution Group.

On the east coast of the US, Denmark-based AP Moller-Maersk Group is constructing its $450m Maersk Terminals in Hampton Roads, Virginia, next to terminals owned and operated by the Virginia Port Authority. This will add one million to the number of containers moving through the seaport region sometime after 2007. Maersk Terminal is the single biggest private investment in Hampton Roads’ history and one of the largest in Virginia.

There has been enormous growth in the distribution and warehousing sector in the region. Dollar Tree, QVC Network, Ace Hardware, Cost Plus, Dai Ei Papers, Target, Sysco Food Systems, Lillian Vernon Corp, Nash Finch, Food Line, Wal-Mart, Diversified Distribution, Dollar General, Jones Apparel Group, DSC Logistics, Hewlett Packard and Richfood all operate centres there. The Maersk Terminal and other developments at the Port of Virginia are expected to spur further development and create thousands of direct and spin-off jobs.

Growing player

The Middle East region, where cash and fuel are abundant, is fast becoming an important player in moving goods via air, with air carrier Emirates being a major force.

Various member states of the United Arab Emirates serve as important hubs for air cargo activity. Fujairah International Airport is rapidly building its cargo business. According to Anthony D’Souza, marketing manager, the airport is experiencing a boom in charter flights, many of which go to the Commonwealth of Independent States, Africa, Iraq and Afghanistan.

In Jordan, the government intends to create a state-of-the-art railway network, with the aim of the country becoming a strategic transit and transportation centre in the region. Officials say they intend construction to begin between 2005 and 2007.

To be a player in the global business game, logistics is paramount. But the logistics industry is in constant flux and all players in the economic development arena must be flexible to benefit.