Today had an opportunity to speak with Enno Osinga, Senior Vice President of Cargo Operations at Amsterdam Schiphol Airport. For the uninitiated, the Netherlands has the largest number of European DC’s, with over 50% DC market share of company-owned distribution centers. We had an interesting discussion on some of the key trends going on in the European logistics markets.
Enno first noted that “The trend we see is that rather than managing their own DC’s, more and more companies are going to service providers and outsource that facility on contract for a number of years, which makes the market more flexible and volatile. In the past there was a single network hub in Europe from a manufacturing and distribution point of view. There is a move on the part of many companies to move from one main DC, to a single one supported by regional DC’s. This is due to proximity and transportation and logistics issues. Also, a larger number of smaller units creates less dependency on a financial and economic market, and greater flexibility in the face of economic uncertainty. If the company wants to upscale or downscale – it is easier to close a single DC vs pulling out of a big facility. The “Small is Beautiful” feeling seems to be coming back.”
The second big trend in Europe (and also in North America) is that the big outsourced manufacturing trend to Low Cost Countries (such as China and Vietnam) seems to be SLOWING. Companies seems to be turning away from LCC sourcing and near-shoring – and bringing manufacturing to Eastern European countries that are part of the EU. These countries are still relatively cheap and the drive is that the simplicity of doing business in Europe makes them very appealing. China is too big an unknown for many companies. Also, the rapidly rising cost in China is reducing the cost advantage to such an extent that the logistics costs may not justify the potential labor savings.
The third big trend is the major impact of corporate responsibility and sustoinbility Sustinability is a major driver in logistics decisions. For example, we are seeing that supermarkets such as TESCO in Europe are affixing labels to food showing the distance travelled every item – which supposedly is a proxy for the product’s carbon footprint. And companies are demanding proof of performance on sustainability before they deal with suppliers.
Enno then pointed out an example of why this “distance is bad for the environment” assumption doesn’t always work. He shared results of a study by Cranfield University, in comparing roses or tulips grown in Kenya, Aftrica and Ethiopia, with those grown in the Netherlands. The assumption is that if flow in they have a larger carbon footprint than those in the Netherlands. But those in Netherlands are grown in greenhouses, and the total carbon footprint of greenhouses EXCEEDS the carbon footprint of flying in roses. Why? In Africa the tulips grow in natural sun and natural light with no gs burning heat! Cranfield came to the conclusion that the carbon footprint of a rose from Kenya is less than one grown in Holland.
So be careful when you look at sustainability labels, and make sure you have a supply chain map in mind!