The single market is concentrating the minds of the major distributors. By Jack Semple.
The Channel Tunnel will open for business next year, heavy with political symbolism as the first fixed link between Britain and Europe. It will also affect the method by which some freight movements are handled. But to the transport and distribution industry, it is likely to be a point of detail compared with the revolution in the industry's business and management profile.
The thinking of major distribution groups is now dominated by the emerging single European market, which has led them to a common conclusion: they need to create a network through which goods and produce can be moved around the Continent as effectively as they can at present within national borders - in the jargon, a pan-European logistics capability.
The map of Europe is being re-drawn, as transport customers break down their national boundaries in manufacturing and marketing to create business units in which the management structure is more sharply focused on products than geography. For example, Unilever's manufacturing plants will be streamlined, so that its soap factory on Merseyside, instead of producing many products for one country, will produce a few lines for all of Europe. Transport costs may rise but manufacturing unit costs will fall.
BMW is considering supplying most European dealers with parts from a single German warehouse, using a mix of road and air services. It will keep its UK parts warehouse site in Bracknell open, but only because it can make use of cheap air links to Japan. Transport costs will increase significantly but warehousing costs will fall. Less stock will need to be held, leaving capital free for other uses.
Those transport companies which are in a position to orchestrate changes in the way goods are stored and delivered, and to offer bottom-line savings to their customers, will gain most from the development of the single market. Logistics is becoming one of the key areas which manufacturers and retailers have to be good at, in order to drive down costs and improve service, says Ivy Penman, head of strategic planning at Exel Logistics, the distribution arm of NFC. Penman, formerly with BOC and the consultancy, AT Kearney, where she specialised in strategy and logistics, says Exel, like other major groups, wants to be able to offer logistics solutions on the basis of one-stop shopping.
But to meet that demand, distribution contractors must expand geographically and broaden their range of services. They will start with gaping holes in their coverage and breadth of expertise. For example, Exel and Transport Development Group, which started from a haulage background and moved into warehousing to offer computerised stock control and national distribution, tend to lack the forwarding expertise of many Continental groups. Similarly, forwarders, who specialise in organisation transport, especially international traffic, tend to have relatively little experience of wheels and warehousing. P and O European Transport Services runs an extensive network of trailer services for full-load and groupage movements but is only starting to add distribution operations to that network.
Companies are targeting their efforts at the market sectors they are best equipped to serve and at the same time trying to plug the gaps in their range of services. For TDG, and more especially Exel, that means exporting to the Continent the concept of dedicated distribution, which is highly developed in the UK, especially in the retail sector. TDG's company for industrial customers, Beck and Pollitzer, has forged strategic alliances with well-known European groups over the past year: Schenkers, a major German freight forwarder which also has extensive transport and warehousing interests within its home country, and Castelletti, a similar group in Italy which has invaluable experience of rail-based and inter-modal freight within Europe. Both Continental groups wanted partners with a strong UK network, while the partnerships allow Beck and Pollitzer to offer for the first time a door-to-door service throughout Germany and Italy. In the best of all possible worlds, companies would prefer to do all the work themselves but management and cash resources are far too limited.
The same constraints are visible throughout the industry. Ocean plc's warehousing specialist, McGregor Cory, is linking with large, independent road transport specialists, such as Felixstowe-based Russell Davies, to offer integrated transport and distribution services.
To help the development of international transport, UK based trailer rental giants TIP and Central Trailer Rentco, have built pan-European depot networks. CTR is part of Tiphook, the fast - growing container group run by entrepreneur Robert Montague. It has built up an unprecedented fleet strength of almost 28,000 trailers, while TIP reached 20,000. However, networking transport and distribution services is proving more difficult for many of their customers.
Realism has settled over the industry after a hectic period in the late '80s, when a combination of pride and fear of being left at the starting gate of the single market sent major groups on the acquisition trail across Europe. Company prices soared. "The general view was that everyone would go charging off and put in all the jigsaw pieces necessary to cover Europe. For example, Monday morning planes to Madrid used to comprise representatives of major transport groups," says Clive Anderson, transport analyst at Smith New Court.
The pace of European development has slowed considerably over the past couple of years. There is greater uncertainty as to how quickly customers will change - manufacturers in particular are less demanding than any had expected (in terms of integrated transport services). There are doubts about the form customers' new European organisations will take. Some companies will prefer to divide Europe into two, three or four regions for example, rather than have a pan-European approach. And integrating the differing cultures and distribution methods in Europe has proved more difficult than any groups bargained for. "It is not just a question of marching in and saying: 'No, no, you're doing it totally wrong we do this.' It needs more time and a more gentle approach," says Anderson.
Dr James Cooper, of Cranfield School of Management, says that two years ago, he would have predicted the rapid emergence of 10 "mega-carriers" in Europe, taking major logistics contracts and sub-contracting parts of the operation to smaller companies. But customers' resistance to change especially in sales and marketing departments, means that the demand for one-stop European logistics "simply isn't there".
If there is an exception to this rule, it is the highly specialised international parcels sector. Traditionally, this has been the light freight end of the forwarders' market, but TNT, with its air and international trade network, and increasingly, United Parcel Service (UPS), is carving out a niche for itself. UPS, which says it will shortly make a major UK purchase to plug the last gap in its European network, believes that its parcels coverage will provide a springboard into international contractor distribution.
The Japanese, meanwhile, has started to arrive in force, most prominently through NYK, the world's biggest shipping line, and Nippon Express, which is little-known in Britain but, with revenues in excess of $4 billion is larger than TNT and Federal Express. They will build rapidly from an initial base of in-bound traffic from Japan - NYK based on deep sea shipping and Nippon Express with a higher proportion of air freight - to create a pan-European logistics network by around 1995/6.
In Britain, NYK has already snapped up several well-established transport companies, it announced the purchase of a large slice of United Carriers International, including Robson's, a large warehousing and primary transport company, and Tompson Jewitt, a pioneer of cross-channel haulage. It also acquired less publicly, FB Atkins and Sons, a fiercely independent family-run haulier with substantial freehold property adjacent to the Toyota side south of Derby.
Nippon Express is deeply involved in planning Just-in-Time movements of components from European suppliers into the new and expanding UK car and factories of Nissan, Toyota and Honda - although it declines to give details. Its ambitions are not limited to bulk movements between manufacturing points, however. It recently opened a 120,000 sq ft warehouse in Leicestershire with an 80,000 sq ft option, the first of many across Europe which will be opened for secondary distribution, for the delivery of finished products to wholesalers and retailers.
The established transport groups see a serious medium-term threat posed by these Eastern giants. They have the "inside track" with major Japanese manufacturers and are starting in Europe with a clean slate. They also have shareholders who are less demanding. "Their long-term strategic approach means they are very, very prepared in the short term to accept margins which are unacceptable to other distribution companies," says Paul Carvell, formerly with TNT and now MD of Beck and Pollitzer.
Meanwhile, the senior management of UK companies has had to adjust to the European revolution. The greater scale and internationalisation of the market and the higher importance attached to logistics, demands "an absolutely different type of manager" at senior level, Anderson says. Some managers can adapt, but the big UK groups "have the responsibility to go out and get the right people".
"The pressures on management are enormous," Cole agrees. "You have to think on a European basis, rather than parochially. It's much harder to manage the culture than to manage the trucks and warehouses."