Strategies for effective freight movements in Europe

Faced with rising fuel costs, security challenges and elevated insurance costs, Geoff Corpe, on behalf of Support & Supply Management Group Ltd, considers strategies to facilitate the effective movement of freight throughout Europe.

Over the last decade the air freight market has grown by more than six per cent a year. It has also witnessed a cultural change whereby focus has shifted from local to global services as multi-national shippers require single-source, end to end logistics to ensure flexibility and transparency across supply chains.

To this end, forwarders need global capacity arrangements to service customers effectively, purchasing capacity worldwide and leveraging global volumes. This in turn is transforming the air freight market as forwards select preferred global routes and a smaller number of preferred carriers.

Providers are presently launching European gateway strategies to increase buying power and critical mass, to achieve greater consolidation efficiencies, better margins and more competitive pricing. This involves developing partnerships and building carrier programmes.

Considerable documentation and financial control is required in managing a carrier effectively, particularly on a pan-European basis. Hidden costs can be eliminated from customer organisations by co-ordinating documentation requirements.

This includes issuing dispatch orders: proof of delivery; exception reporting; billing and debt management; and visibility of cost of attributable to different flows of material and parts. Significant savings should result.

Co-ordinating this activity can help improve the customers' decision-making process by providing more accurate bills of material and 'what if' scenarios. The logistics provider's experience as an operator places it in a strong position to manage the carriers, having unique insight into the challenges of operations and an ability to drill down into operational issues. Working with a wide range of industry partners, operators are also able to adapt to, and benefit from, continued industry consolidation.

Sea freight growing fast

The sea freight market is also experiencing exceptional growth. In July 2003 nearly 300 container vessels of all sizes with deliveries between the end of 2004 and 2006 were ordered by shipping lines around the globe: this is a world record.

One of the major factors contributing to this substantial growth in worldwide container trade is the emergence of China as a world leader in the manufacture of consumer goods. Consequently, trade into Europe is expected to grow significantly.

Logistics provides the need to enhance inbound services offerings in order to remain competitive. This means providing high quality consolidation, cost leadership and supply chain visibility. Similar to air freight carrier programmes, economies of scale can be derived through global partnerships with ocean liners.

Also significant is the development of a more effective European-wide road freight infrastructure. This is proving vital in linking Western European air and sea freight gateways with an increasing number of manufacturing locations in central and eastern regions - as well as enabling freight movements throughout the continent and facilitating outbound shipments.

Combining air, sea and road freight capabilities and delivering integrated networks and solutions gives a high visibility to goods movements. This is the crux of good supply chain management. It also ensures that today's supply-chains are more flexible, responsive, leaner and more finely tuned to respond to customer demands.

While this tends to integrate supply chains as opposed to operating a series of disparate silos continues to gather pace, companies are therefore turning to logistics providers who can offer a 'one-stop shop'.

As customer needs are changing, this has sparked consolidation in the logistics marketplace as contract logistics capabilities are matched with freight management to create global scope. This will continue over the next decade as supply chains become more complex and global in nature.

While the marketplace is evolving, players are faced with a range of challenges and opportunities - most are security and the expansion of the European Union (EU).

With the recent anniversary of September 11, everyone involved in security transport systems is acutely conscious of the importance of continuous vigilance. Due to the real and continuing threat from terrorism, the logistics industry remains at a stage of heightened alert and security through attempts to breach aviation security in particular, everyone should be actively encouraged to be alert and to investigate or report anything that seems out of the ordinary.

To achieve the most effective security regime, a multi-layered approach is required so that defense does not rest at one level only, no matter how robust. It must also be threat-based and flexible, so that it can move quickly to a higher level of security when the need arises. The aim is a security regime which is both robust and sustainable.

The industry is fully alert to the need not only to develop the security regime in the face of potential threats, but also to ensure that existing measures are delivered to a consistently high level. It fully supports the international fora working to drive up security standards worldwide: the International Civil Aviation Organisation (ICAO), the European Civil Aviation Conference (ECAC), and the EU.

Moving east

Customers are moving their production capacity eastwards or outsourcing to contract manufacturers already established in central and Eastern Europe to take advantage of low-cost labour, skilled personnel, positive governmental attitudes to foreign investments, and attractive subsidies - all enhanced by the expansion of the EU to the east.

In addition, companies have access to 330 million increasingly affluent consumers in this region and require supply-chain solutions that satisfy consumer needs in the new marketplace.

The enlargement of the EU in 2004 will support this development and will provide great potential for manufacturing with many companies migrating away from current locations in Western Europe and establishing facilities in countries such as Poland, Hungary and the Czech Republic. Many companies are managing this shift through joint-venture partnerships and by forming agency arrangements - balancing western skills with local knowledge.

The industry is already experiencing growth in air freight out of Eastern Europe due to the relocation of high-tech and automotive manufacturing, Hungary is particularly active in these markets. Accession to the EU will mean that central and Eastern European airports will become more accessible and outward trucking to Western European destinations more viable, particularly given the improvements in road infrastructure.

Supporting this, once central and Eastern European countries become full members of the EU, customs areas will be dismantled, eliminating freight movement delays that at present can last many hours. This will result in reduced road transit times and arguably may see an increase in road freight in and out of this region.

In the short term, western European destinations will continue to be more attractive for the bigger European, US and Asian freight operators. While the Eastern European economy is picking up high-tech manufacturing, there is still not enough traffic to create critical mass. However in the longer term, once established, we could see a big impact on air cargo flows in this region.

Air, sea and road freight throughout Europe continues to grow as increasing demands are placed on the supply chain, more cost-effective manufacturing locations are identified and a large consumer market is made available through the expansion of the EU.

Key to the effective movement of freight throughout Europe and indeed across the world is an integrated network that can provide state-of-the art solutions encompassing multi-modal transportation and distribution, as well as value-added logistics services.

SSM Group specialises in professional training, qualifications and advisory services in Logistics and Supply Chain Management. The group has joint branches in the UK, Malta and the UAE and also represents the Chartered Institute of Logistics and Transport (CILT - UK). For further information visit www.ssmgroup.org.