Switzerland Banks on Logistics

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With a dense transportation infrastructure, financial stability, and a favorable corporate tax structure, Switzerland is quickly becoming a stepping-stone for global businesses targeting new markets.

Given Switzerland's pedigree for timekeeping, the fact that timeliness and predictability are hallmarks of its transportation industry is not surprising. Less apparent, perhaps, is Europe's growing dependence on Switzerland to keep pace with the ever-shifting pendulum of global trade.

Because of its dense transportation infrastructure, financial stability, favorable corporate tax structures, and diverse culture, Switzerland has become a stepping-stone for global businesses seeking to target new markets and outsource manufacturing to Eastern Europe.

For its relatively small size—roughly that of New Hampshire and Vermont combined—Switzerland is home to a prominent group of businesses in the pharmaceutical, financial, and consumer goods sectors as well as the logistics and transportation industry.

Increasing chatter about potential instabilities in the European Union (EU) has brought Switzerland under welcome scrutiny. Its location in the center of Europe and its position as the primary north/south artery for exporting and importing goods to the continent has strengthened Switzerland's global influence.

In spite of Swiss voters' decision not to join the EU, the country has engineered bilateral agreements with EU member countries to ensure free movement of goods and people across borders while similarly leveraging its political and economic autonomy to drive enterprise both at home and within Europe.

Within this context, Switzerland serves as an appropriate microcosm of ongoing logistics trends and developments in trade and transportation on the continent. Continued manufacturing growth in Eastern Europe will ultimately bring Switzerland's position as a primary transshipment location to the forefront.

Here are four trends specific to Switzerland that, when taken as a whole, shed greater light on how European logistics service providers and practitioners are embracing globalization.

1. A Model Railroad

The liberalization of Europe's railroad industry has greatly enhanced operational efficiency and reduced the cost of shipping product via rail. The proportion of cargo moving on railroads, however, still pales in comparison to over-the-road and water-bound modes—except in Switzerland.

Rail freight market share in Switzerland is 35 percent, compared to 14 percent in the rest of the EU. The numbers are even more telling for trans-Alpine traffic: 64 percent of freight moving across the Alps in Switzerland goes by rail; product originating in Germany and France, by contrast, is shipped via rail 27 percent and 25 percent of the time respectively.

Why the discrepancies? For one, the Swiss Confederation has lobbied heavily for better utilization of its rail infrastructure, primarily because of its topography, but also because of its fully integrated railway system and competition among Italian, German, Austrian, and Swiss rail carriers. Because carriers have access to competitors' tracks and infrastructure under government stipulations, rail shippers can choose between service providers, forcing carriers to offer competitive prices and services.

Open competition isn't the only reason the railroad has achieved so much traction. Because nearly 60 percent of its total landmass is in the mountains, the time and operational costs of moving freight in Switzerland greatly favor rail. By law, trucks are not allowed to operate at night, forcing over-the-road shippers to plan moves during daylight hours.

In addition, rail freight rates are 4 percent lower than road. And by transferring more freight to the railroad, shippers can reduce truck traffic by as many as 25,000 runs per day, alleviating environmental and congestion concerns.

Aside from cost considerations, Switzerland's rail network has become a competitive and reliable means of transport because it is so dense and fully integrated with other modal connects. SBB Cargo, Switzerland's largest rail freight carrier, delivers to more than 675 stops, 600 staging points, and 2,450 customer sidings. The carrier operates more than 2,300 trains a day, transporting both national and cross-border shipments.

The strength of SBB Cargo's intermodal operation has been greatly enhanced by its Cargo Domino short-distance delivery solution. The service facilitates loading and unloading of interchangeable containers between rail cars and trucks. SBB Cargo provides the equipment, arranges pre-carriage, organizes transshipment, and transports rail freight directly to the consignee.

"It's essentially moving containers as if they were bricks," says Hans-Peter Hadorn, head of strategic planning for SBB Cargo, Basel. While the railroad has yet to offer guaranteed shipments, it will become a reality in the not-too-distant future, says Hadorn. For the time being, the railroad is looking to target new growth markets and "keep the rails well maintained and moving quickly to accommodate increasing volume," he says.

2. The Cold Chain

One hallmark of Swiss industry is its reputation as a secure place to conduct business—a status legitimized by its position as a global leader in the financial services sector. Switzerland's capacity to move time-definite perishable cargo via the railroad, for example, reflects its commitment to driving and maximizing efficiencies in all modes of its supply chain.

As a result, Switzerland has developed a reliable intermodal pipeline for moving time- and temperature-sensitive goods, ultimately creating a safe and secure supply chain that complements a maturing pharmaceutical and biotechnology industry.

A major factor in that supply chain is the city of Basel, located on the banks of the Rhine in the northwest section of the country. Basel, which many consider the logistics capital of Switzerland, offers shippers access to 90 major European cities in less than two hours via rail, water, road, or air. Home to the only port in Switzerland, 15 percent of all foreign trade goes through Basel.

Basel is also the center of a tri-national Bio Valley network—a biotechnology cluster similar to California's Silicon Valley—comprising more than 300 pharmaceutical and biotechnology companies and research facilities in the Upper Rhine region.

Though much of the pharmaceutical and chemical production in Basel has recently shifted elsewhere, the transportation infrastructure remains vital in expediting cross-border traffic. Basel has evolved into a vibrant and fertile research cluster and headquarters for companies such as Novartis, Clariant, Roche, and Syngenta, as well as major U.S. subsidiaries including DuPont and Dow.

The continued growth of pharmaceutical enterprises in Switzerland has given rise to further innovation in transporting specialized cargo. Zurich-based air carrier Swiss WorldCargo, for example, has made significant investments in infrastructure and services to accommodate the needs of shippers moving high-value and temperature-sensitive cargo.

Swiss WorldCargo offers several niche solutions to facilitate the shipment of special cargo, including its Swiss Perishables service that provides an uninterrupted cold chain from shipper to consignee. Its partnership with Envirotainer, a global developer of cold storage solutions, allows it to offer shippers a selection of LD-3, LD-9 and CLD Cooltainers to ensure product remains viable during shipment.

SBB Cargo has similarly made strides in reaching out to shippers moving perishable freight.

Migros Cooperatives, a Zurich-based food and consumer goods retailer, transports raw milk in modern tank containers to a production facility using SBB Cargo's Cargo Domino system. It then transships processed products in temperature-controlled rail cars to distribution facilities where they can be loaded onto trucks for delivery to individual stores.

"Thanks to the use of the latest technology and sophisticated logistics processes, different systems and transport modes are optimally combined," notes Giacomo Lurati, head of transport logistics, Migros Cooperatives.

Perhaps the most unique aspect of Switzerland's pharmaceutical-driven, service-oriented transportation paradigm is that other verticals with less stringent demands are modeling their supply chains after it not only to enhance their supply chain processes, but to differentiate themselves from competitors as well.

Clothing company Hugo Boss, for example, operates a manufacturing facility in the canton of Ticino. "We benchmark ourselves by the pharmaceutical industry rather than other apparel manufacturers," says Hans Ziegler, the company's president.

3. Health Care Logistics

As political and social pundits in the United States continue to debate strategies for mitigating escalating health care costs, one Swiss third-party logistics provider is taking a more proactive approach. Swisslog, based in Buchs, is applying its warehouse management solutions to a new vertical: hospitals.

Swisslog has already earned its stripes as a global partner by helping retail juggernaut Wal-Mart design and build seven perishables distribution facilities in the United States. Reaching out to the health care market, however, presents a new challenge.

"The health care industry is behind the curve in logistics," says Francis Meier, managing director, Swisslog. "Hospitals don't have logistics people in house. We end up talking to doctors about logistics and sourcing needs, which are difficult discussions."

Swisslog is trying to improve the quality of health care by introducing logistics practices to hospitals. Part of its approach is simply transferring best practices it has developed in building warehouses and distribution centers to hospitals. The goal is to offer health care providers solutions that enhance operational efficiency and cut costs.

Swisslog's acquisition in 1999 of Denver, Colo.-based TransLogic, a provider of pneumatic tube systems, has given the 3PL better leverage in selling its value proposition to the health care industry. Folding TransLogic's technologies into its own portfolio of health care solutions has enabled Swisslog to help hospitals enhance the service and care of patients by expediting the transport of supplies, medicines, and test samples while similarly eliminating human error and making sure patients get the correct dosages.

The cross-over application of warehouse technologies such as pneumatic tube systems, automated guided vehicles, and vertical conveyors has already proven its value. Continued integration of these automated technologies will yield even greater efficiencies as health care practitioners realize the importance of logistics applications and associated cost reductions.

4. Expanding Knowledge

As more businesses look at potential expansion opportunities in both Asia and Eastern Europe, the need to nurture and export middle management expertise to these regions will become a major priority.

Schindellegi-based third-party logistics provider Kuehne + Nagle, for example, currently has 22 locations, more than two billion square feet of warehousing, and 760 employees in Eastern Europe, with additional growth likely in the next few years.

The cost advantage of moving manufacturing to these regions and closer to consumer markets will have a tremendous ripple effect on how businesses approach expansion, notes Dirk Reich, executive vice president of contract logistics for the 3PL.

To facilitate expansion, Kuehne + Nagle sends dedicated teams into new locations to help integrate facilities. While other businesses may look to regionally based 3PLs or 4PLs to tap into new markets, Kuehne + Nagle has chosen a progressive, grass roots approach. "3PLs can be faster by allying with partners, but going alone has served its purpose for us. Ultimately we want one company per country, rather than relying on several," says Reich.

The upside to Kuehne + Nagle's strategy is that when markets such as Asia and Eastern Europe open up, the company has significant leverage in selling its services to potential customers. The investment in facilities, and particularly employee expertise, however, requires a coordinated and collaborative plan as well as an interactive environment to grow these skill sets.

Given its central European location, diverse culture, and well-developed IT and transportation infrastructure, Switzerland is already gaining wide acceptance as a "real-world logistics lab." The Kuehne-Institute for Logistics at the University of St. Gallen is helping global businesses leverage Switzerland's resources by growing the knowledge base of middle-management professionals.

The Kuehne-Institute's Executive MBA Logistics program, for example, is tailored to meet these demands, requiring prospective students to have at least five years of professional experience, and two years of management experience. Its curriculum has similarly evolved to accommodate the changing dynamics of globalization, focusing on a consultative approach to learning—essentially working on real-world projects for the corporate sector.

"We are shifting our focus to the positioning and management of logistics service providers, especially in relation to growing markets," says Dr. Erik Hofmann, professor at the Kuehne-Institute. The emergence of new markets also highlights the importance of executive logistics programs and their role in helping logisticians assimilate corporate and cultural differences.

The difficulties of cultural assimilation, specifically linguistic differences, pose a unique challenge for global businesses. But English is quickly becoming the language of logistics, reports Mark Ellis, vice president contract logistics for Kuehne + Nagle.

Indeed, nearly a quarter of the executive-level logistics courses at the Kuehne Institute are taught in English. Three years ago there were none. As global interest in Eastern Europe grows, schools such as the University of St. Gallen expect to attract a more diverse student base, with the percentage of courses taught in English likely to expand.

A New Craft

Presently, the United States is the largest foreign investor in Switzerland, having pumped a total of nearly $86 billion into its economy, representing 8.5 percent of American investment in Europe as a whole. More than 680 U.S. businesses operate facilities in Switzerland—a veritable "who's who" of American multinationals including Philip Morris, DuPont, eBay, Caterpillar, General Motors, Procter & Gamble, Dow Chemical, Oracle, and Cisco.

But American companies aren't the only ones seeing promise in Switzerland. In 1996, Italian apparel manufacturer Gucci positioned a major distribution facility in Ticino—located in the far southeastern region of the country—to more effectively manage inbound and outbound flow of goods. Less than one hour from Milan, Ticino offers an ideal transshipment location to consolidate and distribute product to retail outlets throughout Europe and the world.

Other apparel manufacturers such as Hugo Boss have also set up shop in the region because of its proximity to Italy. Other industries, most notably the pharmaceutical sector, have seen similar growth.

The demand for access to European markets, a diverse and skilled workforce, and solid transportation infrastructure will likely lure more enterprising businesses to Switzerland.

With a sense of optimism and entrepreneurship, Switzerland is fashioning a new path for global expansion through transportation and logistics—one that will ultimately lead directly to Eastern Europe and beyond.

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