2014 European Report: Closing the trade barrier gaps

With $1 trillion in trade taking place between the U.S. and the 27 nations comprising the European Union (EU), the potential impact of a new transatlantic trade pact is truly significant. The combined population of 800 million generates almost half of the world’s gross domestic product and represents 40 percent of global trade.

But while negotiators for the Transatlantic Trade and Investment Partnership (TTIP) have yet to iron out a deal, savvy U.S. shippers have begun to vet logistics providers and EU supply chain networks to take advantage of expected changes in market access, regulatory aspects, and rules.

“The biggest transatlantic trade bonanza lies in reduction of non-tariff barriers,” says Ann Bruno, vice president of international operations of ICAT Logistics. “If TTIP negotiators succeed in eliminating only half of the non-tariff barriers, the GDPs of both the U.S. and the EU will increase by 3 percent.”

Fortunately, adds Bruno, railroads, shipping lines, air freight companies and ports will have plenty of time to prepare for the coming “TTIP-ing” point in transatlantic trade.

Poland: Investment playing off
Way ahead of the game in this regard, is Poland, which continues to serve as an example of how to capture and grow its logistical network.

“We see more countries in the EU attracting investment in infrastructure, following Poland’s example,” says Richard Thompson, global head of supply chain and logistics solutions at real estate services firm Jones Lang LaSalle (JLL). “Poland is currently the third largest market for U.S. multinationals behind China and India, with companies like Proctor & Gamble and Kimberly Clark leading the way.”

According to Thompson, U.S. shippers looking to optimize their presence in the EU are also looking for “sustainable” transport models linking seaports, airports, warehousing, and point-of-sale destinations.

“Just as it has been in the States, intermodalism is growing like crazy in Poland and neighboring countries,” says Thompson. “We’re seeing much less reliance on trucking, and more use of short rail. It goes without saying that e-commerce is going to trend up in the EU as well.”

Analysts with Colliers International, another leading commercial real estate service, contend that the industrial and logistics market in Europe is on track to grow exponentially over the next 10 years, with Poland set to benefit the most. Indeed, more than 350 U.S. firms now have offices, factories, subsidiaries, or joint ventures operating in Poland.

“Poland’s predicted presence in the top three, in terms of consumer spending and manufacturing increases within Europe, means that it’s set to play a huge role in the future of the European logistics markets,” says Karel Stransky, director of corporate solutions at Colliers.

Amazon.com Inc., the world’s largest e-commerce company, recently hired more than 6,000 permanent employees in three new logistics centers in Poland to build capacity for further expansion in Europe. “Poland’s central location in Europe, proximity to Amazon’s European clients, and access to a skilled workforce were among the reasons for Amazon’s investment decision,” says Tim Collins, director of the e-retailer’s European operations.

According to Collins, Amazon plans to open two centers near Wroclaw in southwestern Poland and one facility near the city of Poznan, 150 miles east of Berlin. The Poznan center and one of the Wroclaw centers will open in August 2014, while the second Wroclaw logistics hub will start operations in mid-2015. The announcement came as scant surprise to FedEx Express, which has been active in the region for the past several years.

“The strong position of the Polish economy and tremendous popularity of e-commerce have both contributed to increasing demand for shipping services,” says Michael Ducker, chief operating officer of FedEx Express. “We view Poland as a key market for investment and growth.”

Germany: Growing connections
Four years ago, FedEx relocated its Central and Eastern European hub from Frankfurt to Cologne to advance its agenda in the region. UPS, another dominant EU logistics player, has also targeted Germany’s Cologne/Bonn Airport for the future by announcing a $200 million expansion—its largest facility investments in the company’s history.

“With this upgrade, we now have the equivalent of 15 football fields of sorting space for a growing export economy on the move,” says Cindy Miller, president of UPS Europe. “All of this ensures that UPS’ Cologne/Bonn air hub remains the centerpiece of the company’s European express network, a key component of UPS’ global air operations.”

The operating area now at Cologne/Bonn measures more than 1,130,000 square feet. The addition of eight automated sorters increases the hub’s package sorting capacity by 70 percent to 190,000 packages per hour—or around 53 packages per second. The conveyor system now delivers a package just 15 minutes through the hub from unload to load point.

“This is part of a long-term strategy to help shippers successfully compete and do business on the important trading lanes within Europe and linking Europe to North America and Asia in an era when free trade agreements on the horizon promise growth for companies large and small,” adds Miller.

Frankfurt Airport (FRA), meanwhile, achieved a new annual record in cargo growth to 2.1 million metric tons last year. Just this past January, FRA’s cargo throughput (airfreight and airmail) advanced 7.2 percent to 160,970 metric tons. Infrastructure continues to expand, too.

“FRA is the only major airport in Europe to open a brand new runway [in 2011], followed by a large Pier A-Plus terminal expansion in 2012,” says Anke Giesen, Fraport AG’s executive board member and executive director of ground handling. “Furthermore, new on-airport development sites are available at our freight station, CargoCity.”

DB Schenker, a leading European integrated logistics service provider, opened its new European headquarters here in late 2013. And this year, the House of Logistics and Mobility, the world’s first airport university campus, will locate there as well, providing ongoing education for U.S. and EU logistics managers.

While Germany’s Hanseatic city of Hamburg is known chiefly for its seaport, U.S. air shippers are beginning to take note of it as well. Earlier this year, Hamburg Airport began construction on its new Hamburg Airport Cargo Center (HACC). Modern facilities here will replace the existing air cargo center. The new facility will be 645,834 square feet and will open in summer 2015.

“We’re investing around 45 million euro from our own funds in the modern airfreight facilities,” says Michael Eggenschwiler, the airport’s CEO. “The design of the Cargo Center was planned in cooperation with the freight forwarding companies already based there.”

The airport has a high tenanting ratio, with around 85 percent of the space either already under contract or fully negotiated and ready for contract. HACC, which includes offices, will have an annual capacity of up to 150,000 tons of cargo.

EU’s big three ports
According to JLL’s Thompson, U.S. shippers should concentrate on a trio of ocean cargo gateways when considering ocean freight penetration into the EU: Hamburg, Anwerp, and the “mega” port of Rotterdam.

Emile Hoogsteden, director of containers and logistics at the Port of Rotterdam Authority, says that the port is optimizing its supply chain network with the ongoing development of Maasvlakte 2—an extension of its existing industrial warehousing space along with expansion of Rotterdam Mainport Development Project (PMR).

“Nowhere else in Europe will the largest ships in the world be able to moor 24 hours a day,” says Hoogsteden.

With nearly 30 percent of Northern Europe’s annual container imports and exports passing through the Port of Rotterdam, the region is unsurprisingly a major focal point for manufacturers and retailers in European supply chain operations.

For example, Menlo Worldwide Logistics, the global logistics and supply chain management unit of Con-way Inc. is now looking to develop its business at the 93,000-square-foot facility in Rotterdam still further. According to Tony Gunn, Menlo’s managing director in Europe, 57 percent of all Asian- and U.S.-sourced products have a European distribution center located in the Netherlands. “And a significant proportion of these are in the Rotterdam region due in large part to the flexibility that the location allows dynamic supply chains.”

While Menlo’s current Rotterdam-based shippers reside predominantly within the high tech sector, the logistics capabilities of its personnel and suitability of the warehouse are also geared to handling life sciences, lifestyle, and e-commerce product, adds Gunn.

Indeed, with key nodes in that transport network such as Schiphol, Brussels, Aachen, and Dusseldorf all within a two hour drive (Frankfurt just four hours), the hubs of the major freight integrators are all less than an hour away from Rotterdam.

Last year was also a stellar year for the Port of Antwerp, Rotterdam’s neighbor to the southwest. The Belgium port set a new record, with a total freight volume of 190.8 million tons, representing growth of 3.6 percent over the previous year.

“While the container volume contracted slightly as a result of the economic recession, this was more than made up by the excellent figures for liquid bulk, up by 31.4 percent,” says Stefanie D’Herde, the port’s marketing coordinator. These growth figures demonstrate that the investments by private companies in combination with the targeted efforts by the Port Authority and the various trade associations are bearing fruit, D’Herde adds.

Last year was also characterized by the continued increase in the size of container carriers, with units of 18,000 TEU entering service. Another significant development was the setting up of the P3 network, whose choice of Antwerp as a port of call not only reinforces the gateway’s position in the worldwide supply chain, but also confirms Antwerp’s firm place among top-ranking world ports.

“The problem-free call by the Mary Maersk (18,000 TEU) once more confirms the ease of access for even the largest container ships and shows that the deepening of our channel has been a success,” says D’Herde. And given the frenzy of activity on the continent as of late, industry analysts say that more “problem free” events in the supply chain arena are most welcome.