Logistics costs on the rise overseas, too

Jan. 5, 2005
Driver shortages are on the minds of European logistics managers. Fewer and fewer people are interested in working long hours for relatively low wages

Driver shortages are on the minds of European logistics managers. Fewer and fewer people are interested in working long hours for relatively low wages when there are plenty of other opportunities around. With shippers unwilling to countenance further hikes in supply chain costs, rising wages will have to be absorbed by the motor carriers.

With costs rising across the board, carriers are still working with clients unwilling to accept rate rises. Many shippers are still expecting year on year supply chain cost reductions, although the reality is that for the first time in over a decade costs will undoubtedly rise.

The result of low margins and rising costs will result in continued fallout from the industry right across Europe. With many good quality providers going out of business, the balance between supply and demand will eventually reach equilibrium. If governments act to precipitate this through extra tax or fuel duty rises, there could be widespread discontent, leading to blockades and strikes. With economies more reliant than ever on motor carriage, this could have serious consequences.

Congestion on roads and at sea ports will increase. European governments will try to control road congestion through the introduction of road pricing and tolling schemes, especially aimed at motor carriers. Many will attempt to price freight off the road and onto rail, although this will have little effect apart from increasing freight costs. Congestion at key European ports, clogged with shipments from China, will get worse until new capacity eventually comes on line. For the time being trucks and barges will continue to queue. The European Commission directive on waste and recycling will come into force, bringing with it a

bonanza for some logistics operators. No longer will European consumers be able to throw away electrical goods in the refuse and instead end-of-life goods will need to be transported to an appropriate disposal center. European logistics operators with operations in Central and Eastern Europe will continue to profit from the migration eastwards of manufacturing from high labor cost production areas such as Germany and France. Supply chains will get longer, leading to higher levels of exposure to disruption. Some manufacturers will think about increasing their inventory levels and safety stocks.

Gradually recovering economies will be good news for the express carriers. Not only will volumes rise, but shippers will be happy to migrate to high-margin express products favoring UPS, DHL, TNT and FedEx.

Freight forwarders will continue to enjoy a positive market environment, exploiting increased levels of traffic to and from the Far East. Although the extra capacity which will be brought on by airlines and shipping lines will lead to lower rates, they won't pass on all the savings to their clients, leading to lower revenues per shipment but higher margins.

John Manners-Bell is lead analyst with Transport Intelligence (www.transportintelligence.com), based in Cambridge, U.K.

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