2011 Outlook for Europe’s Logistics Industry Favours Multimodal Transport
- 06.05.2015 –
Logistics & Transportation
May 9, 2011. Rising oil prices, slow economic recovery and demand for more sustainable modes of transport are driving logistics players to consider multimodal transportation. Schenker, for example, has started its 'Trans-Siberian' rail experiment connecting China and Germany by rail. The European Commission is also in favor of multimodal transport in its "Roadmap to a Single European Transport Area "“ Towards a competitive and resource efficient transport system" report. What else can industry executives do to out-survive their competitions?
Just as it has begun to recover, the European logistics industry has been hit by rising fuel prices, uncertainty from the Southern European debt crisis and lower GDP growth expectations. GDP growth estimates for the Euro area are currently 1.4% for 2011 and 1.5% for 2012, according to EIU. Continuing unrest in Libya and other North African and Middle East countries has led to the highest crude oil prices since 2008. The U.S. Energy Information Administration predicts that even as the loss in crude oil production from Libya will be made up by drawdown of inventories and increased production from other OPEC countries, prices are still expected to remain relatively high.
Europe’s air freight industry has been hit hard by increasing oil prices. The International Air Transport Association (IATA) estimates that fuel costs now represent around 29% of the airlines’ total operating costs (up from 26% in 2010). Because of this, the IATA has downgraded the net earnings for the airline industry to $8.6 billion in 2011 from the $9.1 billion estimated in December 2010, roughly half of the $16 billion earned in 2010.
Rail and sea freight favoured
As a result of these market dynamics, most logistics players have been switching to more energy-efficient road, rail and sea transport. Rail and sea, the two most energy-efficient modes, have a clear longer term advantage in this respect.
In addition to being less dependent on energy prices, rail transport is relatively safe and can be cheaper and faster than road transport for some market segments. Furthermore, it is becoming more attractive as the European Union (EU) pursues a series of initiatives to modernise the European rail sector. The EU helps to co-finance new and upgrades rail infrastructure, and has legislative measure aimed at opening up the European rail market and promoting interoperability. On the other hand, the rail network is small compared to road transport and presents some practical constraints in cross-border rail transport.
The rising demand for more sustainable transport is also driving the growth of multimodal transport. For example, the aviation industry is getting ready for its inclusion in the European Union Emissions Trading Scheme as of 2012. In preparation, the industry is calling for a global carbon reduction mechanism, claiming that including flights into, within, and out of Europe creates unfair market conditions.
Customers are also increasingly requesting for more environmentally clean transportation. Audi for instance, now transports finished vehicles between Ingolstadt and Emden CO2-free. As of August 2010, the German automobile manufacturer has used DB Schenker Rail’s Eco Plus product, which guarantees CO2-free transportation. Thanks to Eco Plus, one-fourth of the finished vehicles Audi transports by rail avoid CO2 emissions altogether. DHL and other logistics companies have also been actively investing in and marketing their carbon neutral solutions recently.
Other 2011-2016 trends
In addition to the increasing demand for more sustainable multimodal transportation, the logistics industry faces three other ongoing trends.
1. Technology development
Software solutions have been popular and the rate of adoption is expected to increase further. Technologies that enable supply chain partners to share information, such as EDI, GDS, RFID and next-generation information technologies, will become more common. According to Capgemini’s research (2010 Third-Party Logistics Study), some 73% of fast moving consumers goods companies say they have implemented logistics related IT tools or enablers. Capgemini states that new technology solutions as well as collaboration will continue to increase.
Ongoing challenges in the business environment will mean further bankruptcies, acquisitions and consolidation of the fragmented transportation industries. The number of bankruptcies was especially high in the very fragmented European road transport segment in 2009. A major acquisition target this year could be TNT Express, which will soon be demerged from the postal operations.
European e-commerce sales was up by 22% in 2009, according to Kelkoo. E-commerce and B2C parcel logistics are very likely to continue their strong growth in 2011 and beyond.
Tips on winning the game
In addition to switching to more optimal transport modes, logistics industry executives who want to stay ahead will need to:
1. Find other sources of efficiency gains
Executives will need to streamline internal processes and invest in automation and IT in order to keep rising costs under control. Cooperation, mergers and acquisitions will create the biggest opportunities for streamlining operations and realizing cost savings in the fragmented logistics industry.
2. Create reliable lean supply chains
In a world of fluctuating oil prices and increasingly extreme weather conditions, executives will need to improve reliability and flexibility in their supply chains. The situation in Japan and other disaster stricken areas have again highlighted the risks related to long and complex supply chains.
3. Invest in services further
Executives will need to invest in service improvements. Leading logistics companies in Europe have recently been actively developing their service offerings, such as CO2 free services and mobile shipment tracking solutions.
4. Invest in market monitoring
Last but not least, executives should be reminded to continuously monitor and analyze their markets for emerging trends and opportunities.