Greetings from Europe: Bring Cash!
Security tops a list of issues that are making transportation in Europe more complex and expensive for U.S. shippers.
By David J. Craik -- Logistics Management, 6/1/2004
When considering the ins and outs of shipping within the European Union, U.S. companies face a host of issues similar to those at home: security, congestion, environmental regulation, and a driver shortage. Just as they are doing here, those factors are pushing up transportation rates and complicating distribution practices.
Start with security. The threat of terrorist attacks looms as much over London and Rome as it does over New York and Chicago. That threat makes security a hot issue in European logistics today, believes Jon Bumstead, a partner in Accenture's London-based supply chain practice. "A bill of lading at a European port, previously with 14 or 15 items of information on it, now has 250 items," he reports. "Paperwork used to be burdensome; now it is complex." Bumstead worries about the effects of such complexity on supply chains. "There are increased time delays at ports for consignments, which have cost implications," he says.
Likewise, Brian Bolam, chief executive of the United Kingdom's Columbus Logistics Corporation, believes security requirements have raised costs. He points to an increase in the number of consignment checks on vehicles at ports that have caused his company's local delivery expenses to quadruple.
Experts expect matters will worsen. As of July 1, ports must meet new security standards set down by the International Maritime Organization, including increased security staff and exclusion zones around sensitive areas. The resulting cost increases already are being passed on to shippers "by between 10- and 30-percent increase per consignment," says Tim Peet, managing director of U.K.-based consultants C2G World.
Not everyone shares Peet's dire view, however. Nicolette van der Jag, secretary general of the Brussels-based European Shippers Council, believes that not all shippers will suffer. "There is no harmonization in Europe on this. In some countries the government will absorb these costs, but in others they may not," she suggests.
Just as in the United States, roads and ports in Europe are becoming more crowded. Ports are tackling the problem by purchasing modern handling equipment. The development of new ports in Dunkirk and Le Havre in France and at London Gateway also offer more options for bypassing the most congested terminals. Notably, U.K.-based motor carriers that serve the Continent are beginning to move unaccompanied loads through North Sea ports rather than the traditional Channel ports. This avoids the congested roads of southeastern England and improves schedule reliability.
Traffic congestion is a major hindrance to highway transportation. The situation has reached such a point that in France, the Transport Ministry is said to be looking at imposing truck tolls on its routes nationals, the secondary roads that are similar to state routes in the United States. Those charges would be in addition to existing tolls on major highways.
France is not alone in considering taxes as a means of discouraging peak-period truck traffic. The U.K.'s Department for Transport may introduce tolls on some of the country's busiest motorways, and it remains committed to introducing a user-fee system for trucks as early as 2006. In Germany, meanwhile, a road-tolling scheme is scheduled to be introduced that same year.
And that's likely to be just the beginning. Says Don Armour of the U.K.'s Freight Transport Association: "There will be many more tolls appearing in Europe. The challenge for the European Union will be to harmonize them."
Governments continue to favor congestion charges to limit traffic in cities. They have achieved some success with that approach: Since the implementation of a usage fee in London last year, the number of truck movements into the city has fallen by about 10 percent. Retailers have protested against the scheme, asserting that it has led to losses in revenues. Despite their complaints, the cities of Bristol and Edinburgh are considering similar schemes, as are other European cities. Bristol also plans to create a freight-consolidation center to reduce the number of trucks entering the city center and clean up air quality.
The Green Factor
Concerns about pollution, in fact, are driving governments to impose tighter restrictions on carriers. Henrik von Sydow, chief executive officer of Amsterdam-based Wilson Logistics, says that trend will raise shippers' costs. "We represent the single most polluting industry on this planet," he says. "The authorities will rightfully continue to escalate requirements on us. This will mean that it will be necessary to pass on the higher costs to customers."
Similarly, controls on solid waste continue to impact logistics costs. E.U. legislation due next year will require shippers to recycle or dispose of any electronic items that they sell. This is leading to a boom in reverse logistics services.
Environmental concerns also are a factor in the growth of regional distribution centers in Europe. Shippers are using these centralized warehouses to lower the burdens imposed by environmental, health and safety, and security regulations. These centers have reduced such costs, but they have also increased transport distances for many companies.
At the same time, policy makers across Europe have tried to promote rail transportation as an environmentally sound alternative to road movements. But practice has not yet caught up with theory. The U.K. government is a case in point: It wants an 80-percent increase in rail freight volumes by 2010, yet its Strategic Rail Authority agency has postponed a funding system called Freight Facilities Grants for the past two fiscal years.
Environmental concerns alone, though, aren't enough to get shippers to switch modes. "I speak to shippers who say that if [satisfactory] rail solutions were available, they would use them the day after tomorrow," says Bumstead. "But there is a lack of customer focus in the rail industry." For her part, Van der Jagt believes that rail freight usage is advancing slowly. "There is more choice, but what is needed is a liberalization process in the rail industry to give shippers more options," she says.
Government policy is not entirely to blame for rising transportation costs. Like the United States, Western Europe is experiencing a labor shortage in some sectors, and finding drivers and warehouse staff is proving difficult.
The E.U. Road Transport Directive, which becomes law next year, could worsen the problem. It will limit a driver's working week to an average of 48 hours and has created a host of problems for trucking companies concerning drivers' wages and schedules.
3PLs Out of Steam?
Security measures, congestion, road taxes, labor shortages, and environmental regulations are all contributing to higher costs for shippers in Europe. To minimize their expenses, Bumstead suggests, shippers must "think more smartly about their financial supply chains." For years, the traditional response has been to outsource to a third-party logistics company (3PL), but he believes that strategy is no longer very effective. "This is a phenomenon that is running out of steam," he says. "3PLs have done their job."
Some cost-cutting practices that are popular in the United States, such as shipment consolidation and backhauling, are not well developed in Europe. In recent years, more European companies have begun using these strategies. One example is the European Logistics Providers and Enablers Group (ELUPEG), which helps large companies reduce freight costs through consolidating loads and filling empty backhauls. "It provides the tools and legal framework for shippers to collaborate," Bolam explains. "We will see this trend continue to grow."
Web marketplaces that match loads and carriers are still getting off the ground in Europe. Bolam anticipates that more shippers will take advantage of online marketplaces but notes that technological barriers remain. "This is big business in the States, worth almost $20 billion last year. In Europe it was worth $1 billion," he observes. "It is set to grow considerably here, but shippers must show a commitment to catch up with the technology needed."
Challenge and Opportunity
Because Europe is one of the United States' most important trading partners, logistics managers will have to meet the challenges presented by an increasingly complex—and costly—European transportation scene. Adding to that complexity is the fact that in May, 10 new members— Cyprus, Malta, Hungary, Poland, the Slovak Republic, Latvia, Estonia, Lithuania, the Czech Republic, and Slovenia—joined the European Union, and E.U. policies and regulations now apply in those countries.
Taken together, tighter security procedures, the increase in environmental regulations, the imposition of road taxes to alleviate congestion, and a labor shortage are enough to challenge even the most efficient shipper. Still, U.S. shippers must use knowledge and creativity to overcome those obstacles if they want to sell their products in an expanded European Union with its many millions of consumers.
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