Globalisation
The world is changing. Last year, more than 50% of the growth of the global economy came from 'developing' countries. We are all well aware that the powerhouse that is China has been growing from strength to strength, and with India poised to eclipse China in the next few decades the manufacturing base is well and truly settled in the East.
The graph above demonstrates the incredible growth in GDP in India and China in comparison to the G7 countries combined growth.
This change in the global economy over the last 30 years has had a profound effect, and will continue to do so. When we look closer to home, we can see the decline of the UK manufacturing Industry. The second graph shows the extent of this decline over recent years:
There have been, and will continue to be debates about the effect of globalisation overall, but whatever your view - Globalisation is here to stay.
Jack Walsh, the CEO of General Electric once said: "An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage" and that sums up the current situation in the UK.
For those companies that are willing to look at the future and to embrace the changes, the rewards are substantial.
The Logistics Industry
The seismic shift from being the world's greatest exporter to one of the largest importers has had an effect on all industries, especially the Logistics sector. Even 10-15 years ago companies dealing in international Logistics and Transportation could easily afford to become niche players as either an 'import specialist' or an 'export specialist.' This is not so easy in the current climate, as companies are required to be more flexible in dealing with the customers' requirements, and specialist companies have given way to a 'one stop shop' approach that can be seen with the major third-party logistics companies (3PLs) and even amongst smaller operators.
This one stop shop approach has led to a number of high profile mergers and acquisitions involving major logistics names such as DHL, Exel, Kuehne and Nagel, ACR (formerly Hays) Wincanton and P & O. Deutsche Post, the German post office, has acquired companies across the logistics spectrum, including Danzas (Freight Forwarding) Air Express International (air freight), DHL (Express deliveries), Exel and Nedlloyd Districenters (Contract logistics) to enable them to provide a comprehensive portfolio of logistics services including purchasing stock on behalf of their clients.
The requirement for warehousing is also likely to be on the increase as lead times for stock become longer and companies strive to meet customer demands. This is a paradigm shift from the utopian position of Just in Time concepts of the 1980s and 1990s.
Pressure on margins as a result of overseas manufacturers entering the market has meant that any UK manufacturers have had no alternative but to drive costs down, and transportation is often the first area that companies look at to reduce costs.
The trade imbalance has also had an effect on the viability of specialising in export logistics. A combination of the huge volumes coming inbound, and the advent of the new 'super-vessels' has meant that shipping lines are desperate to get containers re-positioned. The same is true of European transport. The influx of European hauliers carrying goods into the UK has meant that a great number of these trailers go back empty. The result is that you can pay as little as £250 for a full trailer of goods to some areas of Belgium, France and the Netherlands and as much as £1300 to bring goods in from the same area. These figures illustrate the imbalance.
The combination of the downward pressure of the manufacturing sector and the imbalance of trade has had the effect that many logistics companies are now working on unsustainable margins, as costs are pushed ever lower. Combined with the rise in fuel prices this has lead to companies operating large fleets of vehicles re-assessing their position, or getting into difficulty. It is estimated that the cost of operating a vehicle has risen between 15-20% over the last 12 months, while rates have actually decreased. Average margins for 3PLs in the UK are currently in the region of 2.5%
Technology
We cannot think of Global Logistics without looking at the leaps and bounds taken in recent years on the technology front. Track and trace systems, RFID technology, real-time web interfaces and many other tools have revolutionised the way we work. The 3PLs have put a great deal of their resources into developing tools to assist in the flow of information, and now some of the companies lower down the supply chain are experimenting as well.
In a recent presentation on technology in logistics it was stated that, in the not-too-distant-future it will be possible, via telematics, to trace any piece of cargo in real time, anywhere on the planet, across any mode of transport or warehouse. This is still relatively new technology, but it is coming to market, and will change the way logistics companies operate once again.
The idea of a unified, cross-platform, track and trace system is truly mind-blowing - but it is a real possibility.
Moment of Truth
In these uncertain times, Logistics companies have to look at a strategy that can sustain them financially for the medium to long term, and for many this has meant some major changes.
Many companies are now looking at allied areas such as inventory management, purchasing, factoring, sourcing and complete supply chain solutions. These 'integrators' are leading the way for other Logistics companies. The DHL/NHS Logistics contract is a typical example of this.
Diversification in this global market is the key. Those organisations that can listen to their customers, see their changing needs and adapt to cater for their supply chain requirements are the ones who will succeed in the long term.
Napoleon Hill said "Opportunity often comes disguised in the form of misfortune, or temporary defeat." And for many in the Logistics sector, especially the smaller companies there are some major opportunities that have been opened up through Globalisation. It is an exciting time, but a risky one as well.
About the Author: John Cave is the General Manager of Westhaven Worldwide Logistics, and founding partner of Novatus Global Solutions. He comes from a background in the Manufacturing Industry as a Logistics Manager and has always been fascinated by International Trade.
All content copyright John Cave 2006.
All graphs are copyrighted by HSBC Trade Services and used with permission.
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