Near-shoring puts focus on transport networks

The past couple of years have seen companies rebalancing their manufacturing strategies and putting a renewed emphasis on near-shoring to give optimum access to markets. And, says Lisa Townshend, development of efficient transport networks is a critical element in the strategy.

Some 35 per cent of high tech logistics decision makers were planning on near-shoring their activities, according to a recent UPS report.

The report states that it is expected that high tech companies will be adding to their existing near-shore infrastructure over the next two years.

Even though the report looks at a small section of the market, the story is the same on a wider basis. According to CBRE, the European industrial and logistics market saw record investment levels in the second quarter of 2015, reaching €6.1 billion. Much of the investment being seen in north-western Europe is reported to be 3PLs or retailers, seemingly being driven by the high levels of private consumption and export in the Eurozone. In Central and Eastern Europe much of the investment is being seen in the automotive sector.

Amaury Gariel, CBRE’s EMEA managing director for industrial and logistics, says: “Growing occupier demand and strong investor activity has meant that a rising development pipeline will now progress across Europe. Specifically, a number of Czech, Polish and Dutch hubs saw the creation of a strong pipeline in H1.”

With automotive getting a large share of the investment in Eastern Europe, there are many issues concerning the supply chain for the market.

Bill Bacon, managing director automotive UK&I at DHL Supply Chain says: “The global automotive supply chain is one of the most complex in the world and has seen great change in recent years. Following the recession of 2007- 2008, OEMs were forced to re-evaluate their operations and maximise efficiency.

“New approaches to automotive manufacturing came into play; for example, the growing use of the mega platform to produce several different vehicles off a common set of components.

“Even so, vehicle production requires thousands of parts, and inputs from a large number of suppliers. Historically, the bargaining power of suppliers was very low, with the OEMs setting the rules, stipulating component designs and generally controlling the game.”

Looking to 2015, Bacon sees the shift to mega-suppliers in automotive: “Auto suppliers’ contribution to vehicle make-up has increased from 56 per cent in 1985 to about 82 per cent today according to Statista. Auto makers are becoming more like assemblers and less like manufacturers. Apart from some of the engines that still distinguish the brand, most of the parts are now produced by suppliers. This has led to the formation of ‘mega suppliers’ – that is, large suppliers that control an ever-growing portion of the supply stream.

“The growth of the mega supplier is a direct result of the OEM expansion into the new and developing markets. To have a reliable supplier base, OEMs encouraged suppliers to set up their own factories in these markets – the suppliers grew and became global. However this hasn’t resulted in an increase of parts being collected from fewer suppliers.”

For Bacon, one of the key themes for automotive manufacturers is focusing on core business activity. This gives companies such as DHL an opportunity to manage some of the processes on behalf of customers. “UK OEMs often consider local parts suppliers in the UK or Europe over suppliers based further afield. Parts manufacturers are therefore likely to work out of Europe, closer to demand thus increasing activity in this region.

“If we look at manufacturing or assembly, one key theme emerges – focus on your core business activity. For OEMs we are increasingly seeing the focus on assembly and for tier suppliers it is about manufacturing, not supply chain or logistics processes. Practices such as collections, inbound freight, kitting, sequencing, sub-assembly, and line feed operations have become the norm for automotive manufacturers and tier suppliers to form partnerships with 3PLs and 4PLs to manage these on their behalf.

“One of the growing trends, linked into tier suppliers focusing on their core business, is the practice of sub-assembly. At DHL, we are able to offer sub-assembly at one of our facilities across the European region before integrating it into the sequencing process or direct to the plant. By integrating the process into the supply chain, operations become more efficient, logistics costs are reduced and space is created in the production area. This ensures a safer working environment for employees and enables a smooth running production line.”

 

Control Towers

Bacon believes that coordination and collaboration is vital to the management of such a complex supply chain and control towers can offer enormous benefits to this process. “What we know is that the task of coordinating that complex supply chain is becoming more difficult to manage. While there is a renewed interested in locating operations closer to demand, there will always be parts, which must be sourced further afield. Many OEMs have opted to outsource the orchestration of this inbound flow to a third party logistics provider under a lead logistic provider arrangement. The LLP has visibility into the supply pipeline, and as a result, can ensure that production lines operate at maximum efficiency, and that suppliers adhere to their commitments for timely and accurate delivery of parts. This coordinating capability is supported through the use of an information “control tower”, which monitors inbound flows across time zones and synchronises deliveries from multiple suppliers, regardless of where they are located. There are tremendous benefits to be gained by being able to look at the total supply chain to identify cost reduction opportunities.”

One good barometer for the look towards Eastern Europe is the pallet distribution network. Companies such as Palletways are strengthening their presence in countries such as Romania, Bulgaria, Poland and the Baltic states.

Rachael Alpha, managing director of Palletways Europe, is optimistic about how the new lines into Eastern Europe will encourage more development and opening of markets. She says: “There are a couple of core reasons for our move into Eastern Europe – one is the expansion of the geographical coverage of our network. We are now as a pallet network really picking up some impressive scale. We are now actually able to tender to large multi-national blue chip companies. One of the challenges is that these types of companies like a ‘one-stop-shop’ – they don’t necessarily want to split their freight. So it is in our interest to start expanding into the core countries that we don’t yet have coverage in. We are already very strong in Western Europe so it is a natural progression for us to be moving more into Eastern Europe.”

Looking within the Eastern European region itself, Alpha considers the growth of domestic manufacturing and its improvement to a competitive level internationally. “We are seeing that there is some good growth now coming out of eastern Europe – we are getting approached a lot from companies there who want cost effective access to the Western European market. That’s where we are seeing most of our growth.

“I think that often these companies are often market leaders in their own countries are now at a stage where they actually feel ready to move into Western Europe. There are freight organisations in the region of course but what we have an ability to do quite well is enable these companies to expand into Western Europe at a limited cost.

“One example is we have a customer in Poland who wants to ship to Germany or bring goods from Germany back to Poland. They have their own trucks – so they have their line haul running which they need to fill but they can just drop their smaller consignments of pallets into one of our hubs and disperse the goods via our network. This is a very cost effective option for them. This kind of access to market is driving a lot of enquiries for us.”

It does seem that there is a move for Poland to become the trunking powerhouse of Eastern Europe. Not only has Palletways established a firm base in the country, but companies such as DSV are broadening their service provision in the country, citing a belief that UK trade with Poland will continue to grow and by providing a fast and reliable groupage and part load service from these areas, it can offer both new and existing customers a service between Poland and the UK that is ‘second to none’.

Speaking about the development in July, Michael Morberg Madsen, the divisional general manager for the Eastern Europe region at DSV Road in the UK, says: “Over the past few years, DSV has experienced growth in our trade lines from Poland, especially with products like windows, doors, furniture, machinery, car parts, packaging materials and food products. When speaking to both UK and Polish based customers, including small and medium sized manufacturers, as well as large retailers and blue chip companies, we’ve established that there is demand for direct departures to and from Poland to speed up delivery time.”

The acquisition of Norbert Dentressangle by US-based XPO Logistics meant that almost overnight XPO gained access to most of the major markets in Europe. For Luis Angel Gomez, managing director for transport at XPO Logistics Europe, this is a tremendous opportunity.

“There are significant differences across markets. While the UK and Spain are experiencing sustained and dynamic growth, France and Italy are lagging behind with a flat growth trend. 2015 will pretty much look like 2014 in that way.

“We see growing demand in segments where we have leading positions as XPO Logistics – more specifically in less-than-truckload (LTL) and 4PL/control tower.”

Gomez agrees that there is a shift towards Eastern Europe in terms of manufacturing, but for him it is not a new trend – “This is nothing new; we have experienced this for close to 10 years now.”

However, this trend still holds great prospects for XPO: “Although we are the market leader in transport, we only represent two per cent of the market. There is huge potential for growth in Europe in transport. We will be expanding our global footprint and range of transport services with continued investment in both organic and external growth.”

 

Challenges

Despite a mood of positivity regarding the opportunities within the European market, it is not without its challenges. Gomez explains: “One of the biggest hurdles we all face is the diverging transport legislations in Europe, which are creating barriers and limiting the free movement of goods. We need harmony at EU level. There is a need to carry out some coordinated thinking at European level to avoid a multiplication of national initiatives. This is a source of great complexity and is in contradiction with the spirit of the internal market.

“In the future, the risk is obstructing the fluidity of goods transport in Europe (for example transit times, complex organisation of vehicle flows, etc), while the weakening of certain supply chains impacts on the proper development of market economies.

“In addition, the general state of the economy in Europe is still stagnating.”

Rachael Alpha agrees. “It’s clear that manufacturing in Western Europe is starting to trend in the right direction but that said I haven’t seen it impact on our market growth. Germany certainly shows a 16-month high in terms of manufacturing and is a very strong market for us.

“The rest of Europe is not really growing at the speed at which you would like – France in particular not at all and France is a very big market.“

Alpha sees two main opportunities for companies such as Palletways to maintain its expansion into Europe – the growth in the economy of some parts of the region and investment in IT infrastructure and technology. “From a trunking perspective when the economy improves, you see a natural uptick in the movement of freight. What we found in the recession was that people weren’t sending out as much in full container loads, they had to do smaller consignments at the time because sending smaller consignments was more beneficial.

“What we have seen this time is that as the economy has started to recover not all of it has gone back to full loads. It seems that people are starting to see the benefits of more cost effective small loads. We are seeing smaller consignments, more often and when needed.”

The drive to invest more in technology is coming from the higher expectation of customers for more visibility with their freight and the kind of service that is already expected in the express parcel sector.

“There is a need to recognise that the market demands it – customers are demanding best in class times in transit and we are also seeing is the expectation from customers in terms of transparency and visibility of their goods much in the same way that express parcel customers have been used to.

“Customers are getting more sophisticated so we are having to invest heavily in technology to ensure we stay at the forefront.”

Deciding factor

Alpha believes that in the end the use of technology to provide exceptional service to customers will be the deciding factor for many.

“There will be continued investment in technology across the sector – anybody can get a shipment from A-B. However actually doing well – differentiating yourself from the competition and exceeding customer expectations – that primarily comes down to technology and ease of use for your customers.

“There comes a point when you can’t get something somewhere any faster. So, you have the fastest transit times and lowest damage rates but your customer doesn’t get PODs within the hour or notification in real time of delays or issues -this is where you can exceed expectations.”