European intelligence
LOG.Middle East talks to Kalle Grönqvist, Senior Vice President, Global Intelligence Alliance (GIA) Europe and Kirsi Yliluoma, Consultant, Intelligence Services at GIA about current economic conditions and how they relate to global supply chains
LOG: How has the European logistics sector fared through the recession so far? How does this compare to other regions in the world?
Kirsi Yliluoma: Growth has picked up in Europe’s logistics market, but the recovery is expected to be slow compared to other regions. With concerns about the Southern European debt crisis and speculation that emerging markets are overheating, there is still lot of uncertainty in the market.
Over capacity is still keeping prices low - not only in air and sea freight, but other segments as well. This is despite the fact that thousands of small transport companies have already gone bankrupt or have exited the market in one way or another.
In 2009, European logistics markets contracted more than GDP on the whole. GDP in Western Europe decreased by about 4%, and some estimates for the drop in the logistics markets are as high as 10%. The market value of Eastern Europe’s logistics market fell by slightly less than 5%, which was the rate of decrease in its GDP in 2009.
Being the most expensive mode of transport, the Airfreight segment was affected the worst, as customers switched to more cost efficient modes. The International Air Transportation Association (IATA) recently reported that the industry is experiencing a very strong rebound in traffic, but that most of it is related to re-stocking.
Sea freight benefitted from modal switching, but was still badly hit. This segment is expected to suffer from over capacity and low prices for quite some time still due to vessels ordered before the recession.
Road freight experienced a drop of over 10% in Western Europe, while rail, express and contract logistics segments were less affected. The outlook is relatively good for the express segment, thanks to the continued growth of e-commerce.
Are any particular countries in Europe more vulnerable to the current economic situation?
Kalle Grönqvist: The logistics markets in Western Europe experienced bigger drops in revenues than Eastern Europe. Significant export and import hubs such as The Netherlands and Belgium, and major exporters such as Germany, in Western Europe will continue to be vulnerable to changes in world trade.
In Southern and Eastern Europe, there are a few countries whose logistics industries are also vulnerable, but these would be due to high public debts and reliance on foreign direct investment.
Which countries have remained strong in terms of logistics? Why is this?
Grönqvist: Eastern European logistics markets are still small compared to the Western European ones, but they have shown themselves to be more resilient. Some of the markets least affected by the economic crisis seem to be Russia, thanks to its large domestic markets, and Poland. Recovery in Eastern Europe is expected to be faster than in Western Europe, as the industry continues to develop and attract manufacturers from overseas.
How has the financial crisis affected the way European companies manage their supply chains?
Yliluoma: European companies are switching to less expensive transport modes and are on the look out for cost effective solutions.
Manufacturers have also realized the vulnerability of their supply chains to the global economy, in addition to changing fuel prices and strikes in some European countries. They can be expected to increase their focus on inventory as well as supply chain management overall and to slow down any manufacturing migration to Eastern Europe and other continents.
Due to the current economic uncertainly, companies seem to be delaying big restructuring and expansion decisions.
How will this change the industry in the future?
Grönqvist: It is uncertain whether the current trend of model switching by logistics customers will halt or be reversed. We know however, that “cost efficient” and “environmentally friendly” will be two hot topics for a while. Reliability and flexibility in logistics solutions will also be important.
Government investments in railway infrastructures have continued during the recession, so the popularity of rail freight can be expected to grow. The idea of a rail system that runs from Europe to China, into the rest of Asia, is an exciting one.
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