January 2010 | News | Global Logistics

Global Logistics—January 2010

Tags: Global Logistics

Dutch Centrism: If the Clog Fits…

Given its accessible location and proximity to two of the world's great port cities—Amsterdam and Rotterdam—the Netherlands has historically been a center of commerce and trade.

A new study, High Quality, Competitive Costs: Benchmarking the Netherlands as a Gateway to Europe, suggests the country's reputation for cargo distribution—in terms of cost, quality, and supply chain sustainability—remains intact. The report, prepared by the Holland International Distribution Council and partners Buck Consultants International and Ernst & Young, explores different European logistics hot spots and compares their site selection appeal for distribution center operations.

Because of the Netherlands' position as a gateway to Europe, and the large volume of intercontinental sea and air freight into the country, transport tariffs are generally competitive, notes the report. The Netherlands is also a leader in Europe in terms of labor flexibility—crucial for scaling logistics operations—and its tax and customs authorities are among the most efficient in the world.

Mode accessibility and centrality to Europe's consumer populations make the country an ideal location for sustainable development, the report suggests.

But what the study doesn't overtly acknowledge is the looming specter of congestion in and around the Netherlands' biggest cities, one of Europe's most densely populated areas. Efforts to "green" industry and commerce are magnified, making sustainable development a necessary target for further growth.

Traffic has become such a problem that the Dutch cabinet recently passed legislation to tax drivers by the miles they drive, akin to plans discussed and debated in North Carolina, Oregon, Massachusetts, and Texas, among others. Nearby countries facing similar issues—notably Germany and Belgium—will likely keep a close watch on how these proceedings develop.

The government expects to implement the tax in 2012, with a goal of eventually cutting traffic jams in the country by 50 percent. All revenue would go toward improving road and rail infrastructure.

Critics of the tariff suggest authorities would be better served investing more time and capital into building better linkages between roadway systems to alleviate congestion.

Regardless of how the proposal pans out, global businesses will be exploring opportunities to leverage the country's transportation and logistics assets and location; and U.S. and European authorities will wait and see how the Dutch strategy for reducing congestion and carbon emissions comes to pass.

Hong Kong Builds for the Future

When it comes to committing resources to logistics infrastructure projects, Hong Kong's government is king. Speaking at the International Intermodal and Its Domestic Connections seminar in Chicago recently, Donald Tong, Hong Kong Commissioner for Economic and Trade Affairs, USA, documented how the region is working on 10 major infrastructure projects that will tap its economic development potential.

The logistics sector currently contributes to five percent of Hong Kong's GDP and provides about 210,000 jobs. "The various projects, many directly related to the transport industry, are expected to add $12.8 billion in value to our economy and create about 250,000 new jobs," he explains.

One notable project is the 18-mile Hong Kong-Zhuhai-Macao Bridge. The bridge is expected to open by 2016, at an estimated cost of $5 billion, and will trim the travel time from Zhuhai to the Hong Kong International Airport from four hours to 30 minutes, significantly reducing transportation costs.

The bridge would also open up the Western Pearl River Delta consumer markets for cargo, Tong points out, as a 50-million consumer base comes within a three-hour commuting radius of Hong Kong.

These developments augur even greater potential for U.S. and global businesses exploring new opportunities to penetrate the Asian market.

Werner Digs in Down Under

Omaha-based Werner Enterprises recently announced the startup of a subsidiary that will expand its presence all over Down Under. Werner Global Logistics Australia brings the company's portfolio of forwarding, logistics, and transportation services to the country's domestic market, notably populated areas such as Melbourne, Sydney, and Brisbane.

The trend of globe-trotting U.S. motor freight carriers exploring markets to grow into is firmly entrenched, and Werner is among the latest carriers to follow demand offshore.

"Our expansion into Australia was driven in part by customers' needs for our services—and more specifically to implement our global transportation management system and integrate their supply chains from U.S. manufacturing origins to customer locations throughout Australia," says Derek Leathers, chief operating officer of Werner Enterprises and president of Werner Global Logistics.

As consumerism and freight volumes in the United States dried up during the past year and a half, the opportunity to tap a more promising market, largely insulated from the global recession, is timely. Australia's economy has weathered the downturn better than most developed countries and its housing market is on solid ground, recording double-digit growth in 2009. The construction and building materials industry is one key sector that will feed demand in Werner's new network.

The motor freight carrier also has an established presence in Asia that dovetails with its Australia move. In 2007, Werner set up shop in Shanghai and became one of the first U.S. companies to operate as a wholly owned foreign entity in logistics, trading, warehousing, and NVOCC services under China's strict regulations. Now Werner can service shippers' door-to-door needs between the two continents.

For U.S. companies importing and exporting freight to and from Australia, the benefits are equally transparent.

"The subsidiary provides U.S. shippers with a single company and local operations at both ends of the supply chain—in the United States and in Australia. This allows them to improve shipment visibility and more effectively implement supply chain enhancements," adds Leathers.

United States, Japan Air it Out

There has been a lot of rumor and speculation about Japan Airlines International's (JAL) fate of late, including a bankruptcy filing and a possible alliance with a major U.S. air carrier.

Regardless, Japan and the United States are on the precipice of another major deal—a landmark agreement to relax limits on flights between the two countries. Such a compromise would open up more opportunities for widespread cross-border airline alliances and more options for airfreight shippers.

A recent pact, still to be finalized by both governments, would authorize airlines from the two countries to select routes and destinations based on consumer demand for both passenger and cargo services. This would preclude limitations on the number or frequency of flights U.S. and Japanese carriers can operate.

The agreement would also remove restrictions on capacity and pricing, and provide unlimited opportunities for cooperative marketing arrangements between U.S. and Japanese carriers.

Delta and United Airlines are already allowed to serve Japanese cities, and Delta's acquisition of Northwest Airlines increased its presence in Asia. But U.S. passenger airlines have been limited in the routes and number of flights they can operate to Japan.

The U.S.-Japan agreement would likely also prompt Japan Airlines to seek a joint venture with a U.S. carrier, and there is no shortage of willing suitors. This would allow airlines to share costs and revenues on certain flights regardless of which airline owns or flies the aircraft.

Heavy Heavy Fuel

When heavy manufacturing brings the hammer down on global policy makers, they mean business. Recently, a group of the world's leading heavy-duty vehicle and engine manufacturing companies urged government authorities in Europe, the United States, and Japan to standardize fuel-efficiency measurement metrics, methodologies, and regulations.

Meeting in Brussels, executives from Daimler, Isuzu, Mitsubishi Fuso, Navistar, Nissan Diesel, Scania, and Volvo, among others, shared and discussed concerns including climate change, global energy security, air quality-related emissions standards, improved fuel quality, and renewable fuels.

The manufacturers agreed to actively encourage global policy cooperation and offer their mutual expertise to ensure that regulatory developments enhance and expand the industry's technological progress—within realistic time and economic constraints.

"A coordinated global approach for our industry is the most effective way to contribute to achieving global fuel efficiency improvements from the road freight sector," explains Leif Östling, CEO of Sweden-based Scania, and a chairman of the European Automobile Manufacturers Association, which hosted the meeting. "We serve a global marketplace, and want to avoid conflicting regulations from different regions. That is simply too costly, and impedes technological progress."

The group of executives discussed how the global harmonization of technical standards affecting heavy-duty engines and vehicles might further improve environmental performance and motor freight movement efficiency. Among the key topics addressed at the meeting were:

  • Ongoing activities in Japan, the United States, and the European Union to enhance the fuel efficiency of heavy-duty vehicles.
  • Progress in developing a globally accepted method for the certification of heavy-duty hybrid electric vehicles.
  • The application of computer simulations to evaluate fuel efficiency among diverse commercial vehicle configurations.
  • The positive outcome of the United Nations Economic Commission for Europe's efforts in establishing a global technical regulation for gaseous emissions testing of heavy-duty engines.

An Italian Renaissance

DB Schenker Rail recently increased its stake of ownership in Italian rail freight operator NordCargo, bringing its total share in the company to 60 percent. Perhaps more telling is the context of the German railroad's investment.

Italy is one of DB Schenker Rail's most important foreign markets, with transportation to and from the country accounting for roughly one-quarter of the company's total international revenues in 2008. NordCargo is licensed to operate on the Italian rail network, and runs 7,000 trains and 900,000 train miles per year. It is also responsible for providing traction on international routes along the Adriatic and Tyrrhenian coasts between Milan and Naples.

Off track, the Italian port of Gioia Tauro continues to emerge as an important regional hub for cargo transiting the Suez Canal. Situated on Italy's instep, bordering the Tyrrhenian Sea, the port ranks fifth in Europe and 28th in the world in container traffic, ferrying 3.5 million TEUs a year.

Once a laggard in logistics development, the Italian government has now made it a cornerstone industry for turning around its economy. And more freight is expected to come through the country's pipeline. When Switzerland's AlpTransit Gotthard Tunnel is completed later this decade, a new stream of commerce will cross directly through Milan, creating an important trade corridor between Asia, the Middle East, and Europe.

This potential makes DB Schenker Rail's continued investment that much more significant.

Its current business unit, DB Schenker Rail Italia, which was purchased in 2004, will be transferred to NordCargo and the activities of both companies merged under its umbrella.

Speaking to this integration of business activities, DB Schenker Rail Chairman Alexander Hedderich explains that the company expects to improve its product portfolio in Italy and along the north-southbound corridors, thus laying the basis for attracting more transport onto rail in both the international and Italian domestic markets.

Red Sea Rolls

On the other side of the Suez divide, the completion of the first phase of Jeddah Islamic Port's newest container facility, the Red Sea Gateway Terminal, is parting the waves for more traffic between Asia and Europe.

Located at the northern end of the Jeddah Islamic Port, work at the $2—billion, 1.8 million-TEU container terminal commenced in January 2008 and is expected to be fully complete later in 2010.

It's a big play for Saudi Arabia and shippers moving cargo through the Suez lane—where traffic has spiked considerably during the Panama Canal's own expansion phase and as manufacturing activity in India and Western China continues to grow.

The Jeddah Islamic Port is considered a natural gateway and transshipment hub due to its strategic location in the center of the Asia-Middle East-Europe route. Nearly 73 percent of total container throughput in Saudi Arabia passes through its gates. The Red Sea Gateway Terminal will increase capacity by 45 percent.

"The port efficiency and canal capacity are clearly going to be a game-definer in the container terminal industry," states Lye Seng Tan, COO, Red Sea Gateway Terminal. "Terminals will have to allow for the newer super-size 13,000-TEU container vessels that require deeper drafts to transport the maximum amount of goods in the most efficient and safe manner."

Top 10 Freest Places for Business

The world's freest economies do a better job of protecting the environment and building wealth for their citizens, according to The 16th-Annual Index of Economic Freedom, released by The Heritage Foundation and the Wall Street Journal. This has a positive effect on economic development: freer economies create more trade, trade creates opportunity and wealth, in turn, driving a more favorable climate for businesses locating manufacturing, transportation, and logistics facilities.

The average economic freedom score for the 2010 Index slipped 0.1 percent versus the previous year to 59.4 (on a scale in which 100 represents the ideal).

Despite economic difficulties, many countries held true to principles of economic freedom, the report notes. Nearly half of the countries ranked improved overall economic scores this year. Countries whose scores have dropped responded to the economic crisis with policies that assault economic freedom, intended or not. The United States, for example, adopted more intrusive regulations, government takeovers, subsidies and bailouts of private firms, loose monetary policy tax increases, and protectionist trade measures. As a result, the U.S. ranking slipped 2.7 points from 80.7 in 2009 to 78 this year.

Top 10 Freest Economies

1. Hong Kong

2. Singapore

3. Australia

4. New Zealand

5. Ireland

6. Switzerland

7. Canada

8. United States

9. Denmark

10. Chile

On Top of the Developing World

When it comes to logistics movers and shakers in developing countries, China and India are at the top, according to a new World Bank Group survey. The annual report, Connecting to Compete 2010: Trade Logistics in the Global Economy, analyzes how economies compare in terms of their capacity to move goods and connect manufacturers and consumers with global markets.

China and India rank first in East Asia and South Asia, respectively, while South Africa (Africa), Poland (Central and Eastern Europe), Brazil (Latin America), and Lebanon (Middle East) command their regions.

The study indicates that logistics performance among developing economies transcends the level of per-capita income. For example, the 10 most significant over-performers include China, India, Uganda, Vietnam, Thailand, the Philippines, and South Africa.

Commenting on the improvement of trade logistics around the world, the survey suggests that countries need to spur faster economic growth and help companies benefit from trade recovery.

"Economic competitiveness is relentlessly driving countries to strengthen performance, and improving trade logistics is a smart way to deliver more efficiencies, lower costs, and economic growth," says World Bank Group President Robert B. Zoellick.

Although the study shows a substantial gap between wealthy and developing countries, it finds positive trends in some areas essential to logistics performance and trade, including customs modernization, use of information technology, and development of private logistics services.