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European Union: Meeting new logistics challenges

Freight traffic in Europe is steadily growing, and most of its ports, air carriers, and third party logistics providers are making investments in infrastructure and networks to cope with today’s new challenges and increase their safety and environmental standards.

September 01, 2011

Port of Rotterdam: In the first half of 2011, 215 million tons of cargo was handled in the Port of Rotterdam, a light growth of 1 percent compared with the same period of 2010. Europe’s largest port showed an increase of 12.2 percent in general cargo throughput, which reached 74.7 million tons.

Container traffic went up by 9.7 percent to almost 6 million TEU, mainly driven by new services to and from the Far East and South America, increases in transshipment especially to and from Russia, and recovery in intra-European short-sea traffic. Trade with North America declined due to cuts in the number of services calling at Rotterdam.

“The significant unrest on the financial markets and its influence on the trust of consumers and producers can have a negative influence on world trade and thus on our throughput,” says Hans Smits, CEO of the Port of Rotterdam Authority. “There is a significant need for quicker and clearer political decision-making to sway negative sentiments. I expect that throughput in the third quarter will stay on target.” The port’s main expansion project, Maasvlakte 2, is proceeding according to schedule and the first containers are expected to be processed in 2013.

Duisport: Europe’s largest inland port, Duisport set a new record in the first half of the year. Container transport by ship, rail, and truck rose to 1.2 million TEU, up more than 10 percent compared with the previous year’s period.

“If the development in container handling continues into the second half of 2011, we are optimistic that last year’s record of 2.25 million TEU in total from can be increased again,” says Erich Staake, CEO of Duisburger Hafen AG. According to Staake, the basis for this success is the port’s business model as an integrated provider of logistical services.

The port attracted new investors this year, such as the international logistics company Samskip, with its subsidiary Van Dieren for its new intermodal transport terminal in Hohenbudberg. With a focus on the growing Brazilian market, Duisport and the Brazilian ports ministry also signed an agreement to support the government in drafting a logistics concept for the so-called Sao Paulo-Santos corridor for flows of goods between the Brazilian cost and hinterland.

EU 3PLs: Strong performance
Despite the debt crisis in Europe and a volatile world economy, Europe’s leading third-party logistic providers (3PLs) are recording a strong performance. According to Transport Intelligence’s (Ti) latest Global Freight Forwarding 2011 report, European forwarders dominated the market in 2010 by occupying six of the Top 10 positions with a 44 percent share of the total global market.

The world’s largest forwarder in terms of combined air and sea freight revenues was Kuehne+Nagel, followed by DHL, DB Schenker, and Panalpina. The U.S. forwarder Expeditors ranked fifth, followed by Sinotrans, CEVA Logistics, Agility, UPS Supply Chain Solutions, and DSV.

In giving an outlook for 2011, TI’s CEO John Manners-Bell points out the following: “Forwarders are enjoying somewhat of a golden period. Air and sea volumes are still growing, albeit not as rapidly as last year. In addition, extra capacity brought on by shipping and air carriers has meant that rates have softened, meaning that forwarders’ gross margins will expand. Our research suggests that this should be by around 2 percentage points.”

During the first half of 2011, the Kuehne + Nagel Group achieved growth above the market average in all business units. Despite considerable negative currency effects, net earnings improved by 11 percent to CHF 312 million. Seafreight volumes increased by 12 percent in the first half of the year, doubling the market growth rate of 6 percent, mainly achieved by exports from Europe to North America and Asia as well as from Asia to Latin America and the Middle East.

Despite a sharp decline in volumes in the global airfreight market during the second quarter, the group increased its tonnage by 18 percent in the first six months. Kuehne + Nagel’s expansion in perishable logistics following acquisitions in South America, as well as increased demand in the trade lanes from Europe to North America and Asia, contributed to the strong performance.

DB Schenker, the logistics arm of the German national railroad Deutsche Bahn and one of the leading transport and logistics providers in the U.S. and Europe, has restructured and expanded parts of its transportation network. In July, the company announced that it would eliminate its U.S. air fleet and close its Bax Global cargo hub in Toledo, Ohio. “As a result of the prolonged recession and spiking fuel prices, more customers are opting for expedited ground-based solutions instead of domestic air freight,” said Schenker CEO Heiner Murmann.

The company will continue its air cargo business through a more flexible cooperation with other carriers and with a new focus on smaller clients who need transportation management. In Europe, DB Schenker, which combines the units DB Schenker Rail and DB Schenker Logistics, has expanded its rail services to shift cargo from road to rail. In the summer, DB Schenker Rails ran the first European sized freight train via High Speed 1 in the U.K.

The curtain-sided swap bodies moved on this train, with an internal height of three meters (around 9 feet, 10 inches), provide significantly larger haulage capacity. In the U.K., they can only be utilized on the High Speed 1 route from the Channel Tunnel to London, as it’s the only European-sized rail route in the country.

Following the success of this initial operation, DB Schenker Rail plans to run the first full train of European sized swap bodies, and then initiate regular services to connect the U.K. to the rest of its pan-European rail freight network via the High Speed 1 route. This will open a new market for customers to export and import goods more efficiently using larger railcars.

New market for EU 3PLs
While looking for new markets, the wind energy sector offers new potential for EU logistics providers. According to analyses by the Prognos Institute, expansion in offshore wind energy production is strongly centered on Europe.

Europe now accounts for 86 percent of the wind power farms currently approved, in construction, or in operation worldwide. They add up to a total capacity of around 28 gigawatts. Around 600 new offshore wind power stations are planned to be built along the coasts of Great Britain, Denmark, Germany, Belgium, and the Netherlands through 2040. Depending on construction sites and water depth, transport and logistics are estimated to account for roughly 20 percent to 25 percent of the project costs—and 3PLs can expect to see lots of work coming their way in this area.

For example, the global freight management and logistics company Geodis Wilson is a major service provider for the wind energy sector and has experience in this area since 1997. Since wind energy has become a key market within its vertical strategy, the company established a specialist team for wind energy logistics within its industrial projects division.

Henrik Funk, global manager for wind energy projects at Geodis Wilson, sees a trend within the wind energy as manufacturers and suppliers are more and more interested in full-service providers that have their own equipment. “This is where we see our advantage. Being part of the SNCF Geodis group, we are able to deliver solutions and services along the entire supply chain using all modes of transportation within a worldwide network,” says Funk.

Informed sources also say Geodis Wilson plans to promote the European rail transport assets of its parent company SNCF to create new transport solutions for the wind energy sector.

One of the company’s major global accounts is LM Wind Energy, for which it organized the transport of new LM wind turbine blades from China to Europe. Geodis Wilson’s specialized Industrial Project division took over two 42 meter long blades from an LM production facility in China and shipped the blades to their final destination in Denmark—the longest, single cargo elements ever transported by air.

“The fact that we have an established network presence in both China and Denmark, along with a dedicated air charter division, on-site expertise, and technical support in this sector, certainly helped us to successfully manage this move,” adds Philippe Somers, senior VP of Geodis Wilson Industrial Projects.

Ocean Cargo: Regulations ahead
Europe’s ocean cargo industry faces turbulent seas, just like the rest of the global community. In addition to the burden of the overall economic development, they have to cope with new environmental regulations.

Based on the latest proposal from the European Commission (EC) in July, the ocean shipping industry has to reduce sulfur dioxide emissions by up to 90 percent, and fine particle emissions by up to 80 percent by 2015. The EC is expecting a benefit for public health between 15 billion and 34 billion euros, far exceeding the expected costs—which are in the range of 2.6 billion to 11 billion euros.

The proposed legislation revises the directive on the sulfur content of certain liquid fuels and incorporates new IMO standards into EU law to ensure their proper and harmonized enforcement by all EU Member States. Under the proposal, as of January 1, 2015, the maximum permissible sulfur content of maritime fuels used in sensitive areas such as the Baltic Sea, the North Sea, and the English Channel will fall from the previous level of 1.5 percent to 0.1 percent.

Ships will be allowed to use equivalent technologies such as exhaust gas cleaning systems as an alternative to using low sulfur fuels. Other changes proposed include more unified reporting and verification as well as sampling provisions aligned with international standards. The proposal is to be phased in from 2015 to 2020.

European ocean carriers, such as Hamburg Süd, have responded by investing in new technologies. Most of Hamburg Süd’s new vessels, for example, are ?tted with a novel common rail injection system or electronically regulated fuel valves. These new injection designs result in better combustion and subsequent fuel savings, especially in partial-load operation.

Exhaust emissions are therefore lower than with traditional propulsion engines. The most recently ordered ships of the “Santa” class, with a slot capacity of 7,000 TEU, will also be equipped with diesel generators for energy production using common rail injection.

In addition, the use of modern compressor technology in most of its fleet enables Hamburg Süd to operate extremely energy-saving reefer transport. And as one of the ?rst shipping companies worldwide, Hamburg Süd has championed efficient scroll compressors since 1997.

In July of this year, Hamburg Süd was honored for its commitment to sustainability and the environment in the U.S. The San Pedro Bay Ports Clean Air Action Group, which is backed by the ports of Los Angeles and Long Beach, awarded the company its Air Quality Award. In the same month, the company also won the Gulf Guardian Award of the U.S. Environmental Protection Agency (EPA).

Future developments?
Many EU carriers and service providers have become very careful about making any predictions about the outlook for coming economic developments. The debt crisis in several European countries and the U.S., as well as the ongoing turbulence on the finance market, is a major source of concern for the transportation and logistics sector.

Since many investments require long-term planning, the overall market is hoping for favorable developments and to see positive results for the year as a whole—stay tuned.

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