Marc Borremans, Head of Logistics industry, marc.borremans@finpro.fi

Development of Freight Transport and Logistics

after the Economic Crisis

The below insight is inspired by the inaugural lecture of Prof. Dr. Werner Rothengatter

i,

laureate of the Belgian Francqui Chair 2009-2010, on March 15

th, 2010, at the University of

Antwerp.

Summary

The economic crisis and its impact on globalization will lead to structural changes affecting logistics:

- short term impact: less capital employment and higher flexibility

- long-term impact: higher quality, more value add, collaborative logistics.

Impact of the 2008/2009 economic

crisis on Transport and Logistics

Collapsing of the globalization bubble, visible through the growing imbalance in trade balances since 2000 and driven by the opening of the Chinese market, still has a huge impact on transport and logistics related industries:

- hundreds of orders in shipbuilding (vessels, tankers, etc.) have been cancelled during 2009

- truck manufacturers are still producing on low capacity, e.g. Daimler currently produces at 40% of total capacity

- Rail freight dropped considerably (e.g. Deutsche Bahn freight volumes decreased with 19% over 2009, with peaks of 40%

- Truck traffic decreased (e.g. Deutsche Tollcollect income dropped with 18% over 2009.

Structural change

Only a crisis leads to a change of routines and changing routines means changing structures. Structural change in order to accelerate growth can come from creative destruction/disruption or can be driven by innovation (incremental or radical and driven by technology). Analysis of the scenarios for development after the crisis, results in the highest probability for the Schumpeter philosophy based scenario. This scenario can be summarized as “a medium term structural change without radical innovations”.

Drivers for long term structural change

in logistics

Current drivers are: - modularization and dematerialization, i.e.

less material in products versus more technology

- globalization, foreign investment and local content

- consumer demand Future drivers are:

- increase of continental trade (e.g. Asia) - lower speed of globalization - climate change fight (once this topic will

come down from political level) - increase of local content

2 © Finpro

Long term structural change of

logistics

The long term structural change of logistics will consist of:

- further integration of logistics with manufacturing. Pianos are tuned by musicians, copiers programmed by programmers, printers locally customized, etc. What is new is that already today, these are examples of activities performed by DHL in logistics centers. DHL also started the manufacture of different finished products in Leipzig (Germany) by assembling modules and components arriving at the Leipzig logistics village. This also offers postponement

ii

advantages - reverse logistics (remanufacturing,

recycling, etc.) - collaborative logistics (see below)

Collaborative logistics

Especially collaborative logistics and bundling of logistics flows is of interest as this is a solution to meet sustainability, efficiency and effectiveness and leading to 20% decrease of the total logistics cost. Logistics companies are still reluctant to co-operate. The reason for this being that co-operation requires sharing practices, often considered as a basis for competitive advantage. Because collaborative logistics is driven by large companies, e.g. VW, Procter&Gamble and others already started collaborative logistics, logistics companies will have to follow. Bundling of logistics requires clustering of activities. Over the years, the European Freight Village Network

iii (also known as EDC) as well as

gateways have been established and allow activity clustering. E.g. Schenker Railport system in Europe, consisting of junctions allows bundling, swapping, add value, add production activities, etc.) Collaborative logistics can be considered as the most important change in logistics industry since 4PL. This also offers opportunities for new service providers, orchestrators of collaborative logistics. The LinkedIn group “Supply Chain Horizontal Collaboration” gives you a community to discuss this further.

i Profile of Prof. Dr. Rothengatter: www.zei.de/download/merni/CVs/Academics/Rothengatter.pdf ii Postponement (also known as 'deferred completion')

involves creating large runs of standardized products and customizing them for local markets in the downstream supply chain - minimizing stockholdings and cutting inventory obsolescence, while maintaining high levels of flexibility and customer service iii Finpro’s 2007 study “European Freight Village Network”

described the business opportunities for Finnish companies in construction, material handling and logistics related industries