The restructuring of supply chains has transformed an activity which is now crucial to our future.
To politicians, planners and the public at large, the transport and distribution business still carries the image of a poor relation, or at best an unfortunately necessary adjunct, to the operations of 'real job-creating industry'. They see it in terms of juggernaut lorries pouring out diesel fumes along the motorways, delivery trucks making life hideous in already overcrowded city centres, and acres of boring warehouses taking up valuable space in an otherwise productive countryside. But they are seriously out of date in holding such views. The mundane-seeming task of 'moving stuff around' is increasingly central to the health of a modern economy and the success or failure of individual companies within it. Moreover, pushed forward by the emergence of the European single market at the start of this year, it is now undergoing a full-scale revolution.
It is also a form of activity in which Britain, without many outsiders and non-professionals noticing, has succeeded in becoming a world leader. Thanks largely to the far-sighted and continuous pressure for improvement exerted by a handful of dedicated retailers and manufacturers, such as Safeway, Tesco, Sainsbury and Unilever, we are now international champions in the art of getting widgets and fishfingers from A to B. As a percentage of sales - the kind of figure that impresses accountants and stock-exchange analysts - total distribution costs in the UK today represent a bare 5% of the total, whereas in normally-efficient Germany that share is more than double.
Statistically it is quite hard to get a handle on the sheer scale of what all this means. Official tables only cover those organisations whose main business is transportation or wholesaling, not those where these activities form part (though often a very important part) of a larger operation. But even on that limited basis, the sector provides jobs for 1.4 million workers - nearly 7% of total UK employment. And, contrary to popular mythology, this is not over-concentrated on low-skill, routine tasks.
The changing and increasingly specialised nature of the business demands high-grade direction. Indeed, it nowadays employs a higher proportion of professional, managerial and skilled white-collar staff than manufacturing itself. Additionally, demand for new facilities and locations, even in a time of general recession, is providing the beleaguered property market with virtually its only area of significant growth. The name of the game is no longer just freight-handling but 'supply chain management', says Larry Long, who is vice-president in Europe for the giant American group, UPS (which, before initials took over everywhere, stood for United Parcels Service). He sees big opportunities for his own company, and lots of others, as the Continental countries race to get themselves up to British and North American speed.
He reckons that 'about 80% of the large multinationals in the EC are expecting to restructure their distribution practices in the next few years'. What this will entail is a complete rethink of Long's 'supply chain' - in many cases from end to end - in order to incorporate the state-of-the-art advances which are taking place everywhere. These can embrace almost anything, from component pick-up, through the minutiae of just-in-time stockholding, to final unit delivery at the corner shop door or the supermarket loading bay. But collectively they can easily add up to multi-million-pound savings.
At the static, fixed-assets end of the business, which mainly concentrates on warehousing and general storage, the best place to see the future working is probably between Rugby and the sleepy little Leicestershire market town of Lutterworth. There, on a 518 acre-site, close to the M1 and A1(M) motorways and the new link roads which are gradually supplying the final strands of Britain's main transportation network, you will find Magna Park, Europe's first and biggest centre dedicated solely to the needs of the distribution trade.
It was originally planned back in the mid-1980s to meet the combined requirements of the Asda grocery chain and the MFI furniture group, with which it had merged. When MFI split away again in a famous management buyout, it became necessary to rethink the project from scratch. Gazeley, Asda's property-development offshoot, was given the job. It decided that the optimum solution, having taken care of its parent's own demanding needs, would be to offer the site's many-faceted appeal (location, green-field flexibility, communal services, relative freedom from the planning obstacles) to anyone who cared to take advantage of it - though companies with a blue-chip reputation were preferred.
The result is a spectacular line-up of prominent names - including Nissan, Toyota, Merck (the US pharmaceutical giant), Avon Cosmetics, Argos, Sara Lee, Nippon Express and Panasonic - who are all now using Magna Park to handle a large part, and in some cases the whole, of their UK distribution. Since Toyota concentrated its spare-parts operation there it has cut its turnover time for stock orders from three to one day. Merck is in the process of eliminating the seven regional centres where it previously used to handle its laboratory-equipment business, and will shortly be supplying the whole world from a single, custom-designed, super-high-tech building here in the East Midlands. Even Asda's direct trade rivals are made welcome at Magna: its current tenants include Aldi, the German cut-price grocers, whose 160,000 sq ft of space makes it the seventh largest occupant on the landscaped site, which looks more like a top-of-the-range university science park than a place given over to pallets and fork-lift trucks. But that impression is not really surprising, given the concentration of computer-controlled electronics which cope with most of the muscle-and-sweat side of stock-handling in this modern warehousing complex.
Nevertheless, although the whole place exudes a sense of untouched-by-human-hand serenity, it is already a very substantial local employer, with more than 2,000 commuters driving in each day. And that will grow substantially now that the £196-million, 4.2 million sq ft Phase 1 is virtually complete, and work is starting on an almost equally substantial Phase 2 (£185 million and a further 3.5 million sq ft).
The man mainly responsible for Magna is Nigel Godfrey, who heads Gazeley and is also a member of Asda's senior management team. He emphasises that there has been nothing incremental or ad hoc about the Park's development. It was always planned as a complete working environment, with all essential services - internal roads, water, centrally-supplied power - ready from day one. The objective was always to exploit every available advantage, whether it arose through geographical position, technical advance or regulatory change. All of these, in the event, turned out to be important.
The relentless push for just-in-time delivery, the quantum-leap improvements taking place in mechanical handling and its controlling software, the pressure to cut down on vehicle speeds and the time drivers spend at the wheel have combined to reinforce the attractions of a place from which 98% of Britain's population can still be reached within a single day. Asda itself has been able to cut its re-stocking schedule from an average of 20 vehicle deliveries per shop per day to five, and most of its fellow tenants report similar gains.
Increasingly, too, the tenants are seen to be spreading into export markets. Magna is particularly well placed to serve the east coast ports which now account for an 11% slice of the UK's overseas trade - this figure is likely to increase as Eurotunnel's (and especially British Rail's) various problems defer even further into the future the day when the Channel Tunnel becomes a significant economic factor.
Godfrey is pretty sceptical about rail's potential contribution in the short term. But he recognises that, as environmental worries (and just plain road-congestion) mount, it is almost bound to start playing a larger part. 'Some of the retail trade's advanced thinkers - Ikea, Safeway, Toys 'R' Us - are already refusing to consider a site unless there is some guarantee of a future rail link,' he says. Gazeley has helped set up a Central Railway Group, with some other interested partners, to explore the possibility of using various currently redundant and disused lines to connect Magna Park one day with the main BR system, and ultimately the Channel ports.
That sort of thinking is not very urgent in the small, tightly-packed UK, where rail is rarely competitive for non-bulk cargoes over distances of less than 200 miles. But it is likely to become a good deal more crucial as the idea of dedicated transport parks extends to the Continent. Gazeley, finding itself repeatedly blocked by what it sees as planners' myopia in duplicating Magna Park elsewhere in Britain, has joined up with several like-minded French, Dutch, Belgian and North American corporations to form IDI Group Europe. This aims to promote the concept of a network of such parks spanning the whole vast territory covered by the EC and its not-yet-member neighbours.
That would mesh in very neatly with developments taking place at the more 'dynamic' end of the transportation business, which is less concerned with real-estate and its contents than with the actual movement of goods and vehicles. But the two categories are no longer readily separable. They nowadays tend to mesh together under the umbrella label of 'logistics', which encompasses the whole complex topic of moving things around swiftly, economically and efficiently.
This is increasingly the cutting edge, as companies vie with each other to squeeze every last penny of wastage out of the production chain. Goods in stock and in transit are fearsome gobblers-up of scarce capital resources and wafer-thin profit margins, and a whole new consultancy profession has grown up to help them blot up this particular variety of drain.
Some of the practitioners operate independently, such as Germany's Joachim Miebach, whose Miebach Logistics, based in Frankfurt, is one of the longest established and most respected players. He has tackled an enormous variety of commissions, ranging from telling the Neckerman mail order business how to improve the packing and stacking of the 130,000 differently-shaped parcels it sends out every day, to calculating whether SKF, the Swedish ball-bearing manufacturer, would be best served supplying its customers from one single centre (like Merck) or a string of smaller national or regional alternatives.
That, in fact, is one of the most contentious distribution issues as Europe grapples with the realities of being a single market. Opinions on centralisation not only differ widely, even within the industry, but are often subject to drastic second thoughts. SKF was all set to centralise everything in Brussels (as has Duracell International with its batteries) but then backtracked. It has now decided to supply all its contract customers direct from its own factories and use the Belgian facility only for its middle-man dealers. As Miebach says: 'In logistics there are no economies of scale - rather the reverse. Big companies, being ponderous and slow, need more help than the small and fleetfooted.'
That fact is now providing massive new opportunities for the 'third party operators' in the transportation industry. While individual companies, major and minor, re-examine their distribution needs and assess how far they want to sink their own capital and management resources in to such things as warehouses, truck fleets and loading terminals, the UPSs, TNTs, DHLs and Christian Salvesens of this world are ready to take the whole responsibility, or any part of it, temporarily or permanently off their hands.
All are now equipped with their own in-house 'logistics consultancies' ready to analyse needs, advise on optimising costs and performance, and provide whatever is needed in the way of service, either custom-tailored or routinely, through their general networks. Typically, these are coming to embrace all the main types of transport - air, sea, rail and road - so that services can be structured to provide almost any combination of desired ingredients, from 'super-urgent, get-there-yesterday, money-no-object', to 'no panic, take as long as you like, just make sure it arrives in one piece at the cheapest cost'.
DHL, for example, has taken on board the fact that simple, door-to-door delivery is no longer enough, and set up its own Interface unit to provide exporters with a fully-integrated 'advice and execution service'. Interface, as its general manager, David Stewart, insists, is not a specific product but a bespoke affair, ready to advise on, and, if necessary, supply anything from VAT procedures, through packaging design (after all, no one wants to fall foul of those tough German recycling rules), to the setting up of a 'multimodal, 13-country, distribution module'. In the last 12 months, he says, the UK export business DHL handles has gone up by a 'phenomenal' 30%.
Its main competitors are equally bullish - and equally active. TNT has merged its three divisions, Skypak, Mailfast and Express Europe, into a single unit and claims - with its air services out of Luton, Liverpool, Prestwick and Birmingham, and its versatile, Europe-wide van and truck fleet - to have created the express-delivery world's first 'one-stop shopping' operation. Similarly, the Transport Development Group (TDG) has just finalised preparations for a 2,500-vehicle European Transport Division; and DFDS, which formerly specialised mainly in the Anglo-Scandinavian trade, has dramatically extended its reach by becoming an active member of the Continent-wide TEAM-Alliance grouping of European transport firms.
Some believe in keeping a tight focus. Thus Emery Worldwide has invested heavily in its Warehouse Inventory System Express (WISE) which, by ironing out all the initial launch-delivery problems, aims to help firms which are trying to establish a foothold in new overseas markets. But others are much more ambitious and wide-ranging. UPS, with logistics units now established in all the main global regions, is ready to take on virtually any configuration of customer requirements. 'They have different markets, deal in different commodities, have different sourcing of supplies and sub-assemblies,' says Tony Keating, the logistics director for Europe. 'We must look at each one as a unique set of problems.' In the past six months, he reports, eight different multi-nationals - including Saab, with the whole of its European part-supply operation - have been persuaded to sign on. What all agree - whether they are customers or providers of these logistics services - is that there are still lots more savings to be squeezed out of Europe's endlessly convoluted supply chains, and a mind-boggling range of future problems to solve.
The most immediate scope for further stream-lining lies in the area of 'cabotage' - EC jargon for the right of one member-country's lorries to ply for hire in another's territory. This was supposed to be one of the major benefits brought by the single market, but so far it has been totally blocked by the big intra-government argument going on over road charges. Germany is the big stumbling block here, claiming that it is already at the crossroads of Europe and that before it opens up further others must agree to make a much bigger contribution - a thumping annual licence fee of £3,800 per truck has been suggested towards the soaring cost of maintaining the Autobahn system. While the bickering goes on, it is reckoned that one in five of Europe's long-distance delivery vehicles is condemned to run empty, with their drivers forbidden to seek return loads. That is an awful lot of wastage, when you realise that the contents of today's average shopping basket are reckoned to have travelled over 4,000 kilometres before reaching the supermarket shelves, and that there are 10 billion tonnes of cargo a year travelling on Europe's highways. Cutting that down could do a lot to relieve the ever-growing congestion that is slowly strangling many towns and cities during daylight delivery hours. But much more radical measures will needed soon.
Cor Baan, the Netherlander who heads the new Dutch-Belgian truck manufacturer, DAF Trucks NV, raised from the old DAF organisation, probably offers the most far-reaching vision. He pinpoints a smallish town like Maastricht, with its 116,000 inhabitants, which already needs 5,200 consignments a day, most of them occupying less than one cubic metre, to keep its shops adequately stocked. He calculates that, following present trends, such volumes could easily double in the next two decades.
Pointing out that transporation happens in daylight - mainly because of people's universally passionate opposition to night-time noise - he foresees the need for a whole new distribution philosophy directed towards spreading the load. His own favoured solution would involve edge-of-town centres where each local shop or factory's orders, as they arrived from distant suppliers, would be repackaged into uniform 'goods modules' and then taken on the last, urban stage of their journey - mainly during the hours of darkness - by silent, electrically-powered vehicles making their computerised deliveries into standard, unmanned, electronically-controlled reception systems installed at the individual customers' premises.
Such futuristic developments are already technically feasible, he contends, and the inexorable growth of traffic and pollution will soon start forcing communities everywhere to embark on this kind of wholesale rethink about their investment, planning and regulatory priorities. Like it or not, the age of logistics has barely dawned.