Past and Future Development of Logistics: A European Perspective

Past and Future Development of Logistics:
A European Perspective

Professor Alan McKinnon,
Logistics Research Centre,
Heriot-Watt University,
EDINBURGH, UK

Malaysian Logistics Roadmap Workshop
Shah Alam Convention Centre
4th August 2010
MALAYSIA LOGISTICS ROADMAP – THE WAY FORWARD (4TH -5TH August 2010)

Degree of Public Understanding of the Role of Logistics in the Economy

Very good understanding

Some understanding

No understanding

Slight understanding

Source: UK Freight Transport Association, 2010

Love Logistics

www.lovelogistics.co.uk

Programme

• Update on the rating of Malaysian logistics in the World Bank survey

• Role of government in the development of logistics

• Recent logistics trends in Europe

• European Commission’s ‘Logistics Action Plan’ – any lessons for Malaysia?

• Reconciling economic and environmental objectives

• Mounting pressure to decarbonise logistics


World Bank Logistics Performance Indicators 2006 and 2010

Connecting to Compete: Trade Logistics in the Global Economy: 2010 Update

4.5
2006 2010
4
Logistics Performance Index

3.5

3

2.5

2

1.5

1

0.5

0

ia

an
UK

a
US

n

il
l
s

y

a

nd
e

en

ga

in

az
nd

ss
an

ai

si
or

st
ed

la
Sp

Ch
rtu
ay

Br
ap

Ru
la

m

ni
ai
Sw

al
er

er

Po

ga
ng

Th
M
th

G

Af
Si

Ne

http://info.worldbank.org/etools/tradesurvey/mode1b.asp

Malaysia’s International Rank in World Bank LPI Surveys 2006 and 2010
120

rank (out of 150-155) 100
2006 2010
80
60
40
22 29
20
0
x e s ts
de nc ng es os
in te ci in c
ce p e tr a el s
d im ic
an com an T g ist
rm cs
g lo
r fo sti kin tic
p e i ac es
cs L og Tr m
ti Do
is
L og

LPI = Logistics Perception Index (Prof. Banomyong)
1000 logistics professional worldwide
What was the size and
Web-based questionnaire
composition of the sample
Covered 150 individual countries (2006) assessing Malaysian logistics?
5000 evaluations (2006) (average 33 per country)

Relationship between LPI and Gross Income per Capita

Malaysia’s LPI broadly in line with level of economic development


Government Involvement in the Development of Logistics

• Explicit reference to logistics in public policy documents only over past decade
• Recognition that companies plan transport with a logistical framework
• Policy-makers still preoccupied with transport
• Main priorities: promoting economic development
minimising the external costs of transport
• Limited interest in promoting logistics as an economic sector
• Tendency to under-estimate its contribution to GDP
• Logistics sector has benefited indirectly from government actions: e.g.
– deregulation of freight transport markets
– development of transport infrastructure
– changes to tax system promoted logistics outsourcing in some countries
• Much promotion of logistical activity at the regional and local levels
• Reversal of earlier negative attitudes of land use planners to warehousing
• A few countries have national initiatives to promote logistics: e.g Germany


Germany as Europe’s Logistics Hub


Global Logistics Market
Germany – home of two of the world’s largest logistics companies


Logistical Cost Rebound in Europe
Relative to Sales Revenue

14 12.1%
costs as % of sales revenue

12

10 8.5% 7.7%
5.9 7.3%
Transport
8 6.4% 6.1%
Warehousing
3.9
3.8 Inventory
6 3.5
2.4 2.8 Adminstration
3.1
4 1.8
1.6 1.8 1.8
2.5 1.5
1.7
2 1 1.2 1.3
0.8
1.3 1.2 1 0.8 0.8 0.8
0
1987 1993 1998 2003 2008 2013
Source: A.T.Kearney / European Logistics Association, 2010


Predicted Changes in Logistics Costs and Value Adding Services
between 2008 and 2013

100%

90%

80%
% of respondents

70%

60%

50%

40%

30%

20%

10%

0%
Transport costs Warehousing Adminstration Inventory costs Logistics value-
costs costs added services



European Trend in Inventory Levels
days of net sales revenue
120
114 Raw materials
Semi-finished goods
101
100 Finished goods
34
89
29.4 84
79
days of net sales revenue

80
28.1
21 27.9
16.7
26 -24%
60
14.3 8.5
7 -66%
40

59
54.9
20
47 47.7 45.9 -19%

0
1993 1998 2003 2008 2013

Importance of Customer Requirements



European Commission: Transport Challenges

• To increase Europe’s competitiveness and prosperity

• Address the environmental and social impacts of transport

• Accommodate globalisation of production / supply chain

• Reduce reliance on imported fossil fuels

• Manage freight traffic growth (forecast to grow by up to 50% by 2020)


Forecast Growth in Freight Tonne-kms in the EU

Source: EU DG Tren

Relationship between Freight Traffic and GDP Trends?
160

Ratio of road and rail tonne-km to GDP
freight intensity index (2003 = 100)
Belgium
140
Czech Republic
Denmark
120 Germany
Ireland
100 Spain
France
Hungary
80
Netherlands
Finland
60
United Kingdom
Source: Eurostat
40
2003 2004 2005 2006 2007

Pre off-shoring Post off-shoring

Export of freight-generating
activities to lower cost countries

Embedded energy,
water, carbon and
other emissions in
imported products

Retail distribution centre assembly plant supplier warehouse

Focused Production Strategies
From National to Pan-European Manufacturing

Economies of scale in production
BUT
• higher delivery costs
• more freight movement

Product A
Focused
Nationally- Product B
Production
based Product C in pan-
Production European
Product D
plants
Distribution

Source: Cooper 1993 Harrison and van Hoek, 2003

Predicted that European companies will reduce number of distribution sites
by 18% between 2008 and 2013 (A.T.Kearney / ELA, 2010)

Logistics Action Plan 2007

Operational Objectives

1. Intelligent Transport Systems (ITS) and eFreight

2. Sustainable quality and efficiency

3. Simplification
Each with
a set of
4. Vehicle dimensions and loading standards Actions

5. Green corridors

6. Urban freight logistics
Integration and Harmonisation across EU Member States


1. ITS and eFreight: Actions

• design eFreight roadmap: ‘internet for cargo’

• ‘open and robust data architecture for freight data flows’

• Standardisation of freight data sets, coding and technology (RFID)

• Standardisation of truck on-board units (OBUs) for telematics

• Interoperability in electronic fee collection for truck road charging


Road-user Charging Schemes for Trucks

Germany (2003) 2005

Netherlands 2012 Slovakia 2007

Czech Republic, 2007
France 2012
Switzerland 2001

Austria 2004

Extending the scope of road tolls:
Recovering infrastructure costs
Congestion pricing
Internalising environmental costs

Average External Costs of Different Transport Modes in EU

Source: INFRAS/IWW3/2000 205
200
Aviation to enter
180 the European
160 emissions trading
Euro /1000 tkm

140 scheme in 2012
120
88
100
80
60
40 19 17
20
0
Lorries Rail Air Waterborne
Accidents Noise Air pollution Climate change Landscape Urban effects Upstream process
life-cycle emissions


2. Sustainable Quality and Efficiency: Actions

• Relieve freight transport bottlenecks: infrastructural and regulatory

• Increase the attractiveness of the ‘transport logistics professions’

• Establish core set of generic indicators for logistics efficiency & sustainability

• Develop set of generic benchmarks for freight terminals

• Expand and improve collection of ‘freight transport logistics’ data


3. Simplification: Actions

• Single-window for administrative procedures for all modes
• Single transport document for all goods and all modes

4. Vehicle Dimensions and Loading Standards: Actions
• Examine compatibility of loading units transferred between modes
• Study options for modifying limits on vehicle size and weight


Longer and Heavier Vehicles (LHVs) in Europe
Sweden / Finland
Denmark: 25.25 metre LHVs
trial from Jan 2008 55-60 tonne limit - in general use

Netherlands: trialled
25.25 metre LHVs
50 tonne limit – general use

Germany: limited trial
rejection of LHVs

UK: Desk-based study
TRL / Heriot-Watt for
Dept for Transport
At EU level: ‘paralysis by analysis’

European Rail Industry Perspective on LHVs

CER – European Rail Association

Australia:
land of the real ‘road trains’


5. Green Corridors: Actions

• Establish ‘efficient, green long-distance freight corridors’ across EU

• Align infrastructure investment and incentive schemes with Green Corridors

Trans-European
Networks
Roads Rail / combined
TENs transport

Marco Polo II programme: 740 million Euro 2007-2013
Objective to transfer the equivalent of the forecast growth of international road
freight onto ‘co-modal’ services

5. Green Corridors: Actions

• Extension of ‘Motorways of the Sea’ programme


Freight Modal Split in the EU25

% of total inland freight tonne-kms in EU 25
90

80
77%
72% road
70

Forecast annual % growth rates in tkm 2005-2030
% of tonne-kms

60

50
Road 1.8%
Rail 1.4%
40
Inland waterways 1.0% Source: DG Tren
30
21% rail 17.5%
20

10 7% inland waterway 5.5%
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Eurostat


6. Urban Freight: Actions

• Exchange best practice in urban freight transport: Bestufs programme
www.bestufs.net

• Improve the co-ordination of urban and inter-urban logistics

• More closely co-ordinate of freight and passenger movement


Re-structuring City Logistics: Interface between Passenger and Freight Flows
Takes 400 cars to distribute contents of 1 truck
unattended delivery systems

CO2 savings from home delivery
Dedicated shopping trip by CAR

24 items or more
Local
depot Home
= Dedicated shopping trip by BUS
CO2 = 181g per drop
7 items or more


EU Transport Policy: Reconciling Conflicting Goals

Environmental Sustainability

Reducing
environmental
impact

Improved vehicle utilisation Modal shift to rail and water

Increased energy efficiency Greener vehicles and fuels

Economic Prosperity Increasing freight
Social Cohesion transport intensity


Dramatic Reduction in Pollutant Emissions from New Truck Exhausts

Does not cover
emissions of
Greenhouse Gases


Most Important Reasons for Considering the Sustainability of your Supply Chain

not a major
issue at
present



Required Reductions in CO2e by 2050
to keep increase in average global temperature within 2oC by 2100

Sharp divergence from Business-as-Usual trend


Climate Change: First half of 2010 warmest since records began

Ice Melt in the Arctic
Extent of Arctic summer ice cover
million km2


Measuring and Managing CO2 Emissions from Logistics

Decarbonisation framework

Download from:
www.cefic.org

Adapting to Climate Change: Implications for Logistics
Edinburgh 2110 London 2110

Much climate change ‘in the pipeline’ – cannot be averted
Climatic and ecological change unlikely to be linear
Rising sea level, more flooding, increased frequency and severity of storms….
Increasing supply chain vulnerability
Realignment of transport infrastructure, increased coastal and flood protection, redistribution
of population and economic activity, transformation of energy supply, greater need for
humanitarian support….
Huge growth in demand for logistics services

Published March
2010


Contact details

Logistics Research Centre
Heriot-Watt University
EDINBURGH UK

A.C.McKinnon@hw.ac.uk

http://www.sml.hw.ac.uk/logistics

www.greenlogistics.org.uk
.


Past and Future Development of Logistics: A European Perspective

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