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The European Union, with its 450 million inhabitants and its prospects for greater population expansion and prosperity, is a market every multinational company must prize. But serving this expanding market has become an increasingly complex supply chain challenge. The cost and availability of land, labor, energy and transportation, as well as with growing problems with congestion and environmental regulations make facility site location a make-or-break decision for supply chain success.
"Five or 10 years ago, 80 percent of the European distribution centers (EDCs) were in the Netherlands," says Roy Lenders, a vice president with the Capgemini consulting firm in Utrecht. "Today Belgium is even with the Netherlands in attracting new EDCs and Germany is coming on strong. Even Ireland is gaining attention because of tax benefits, even though it is not a logistically convenient place to locate Europe distribution operations."
Thus, many European countries are aggressively seeking foreign investment in distribution facilities, so the Dutch government is again bringing the full force of its efforts on attracting logistics investment. These efforts are paying off. According to the Netherlands Foreign Investment Agency, about 45 percent of all new EDCs are locating in Holland.
"Holland intends to maintain its top place in Europe for foreign investment in logistics, which accounts for nearly 10 percent of our entire GDP," says Jochum Haakma, managing director for NFIA in The Hague. Corporate income taxes have been lowered from 35 percent to 25.5 percent. Customs duties and value-added taxes are handled administratively, meaning that companies can pay them periodically, not with every transaction as with many EU countries. The government also supports an agency called the Holland International Distribution Council (HIDC) made up of 500-third party logistics providers (3PLs), forwarders and carriers to help foreign companies find the right logistics service partners in Holland.
Part of Holland's success is simply due to its location near the center of the "economic banana," which is a crescent of Europe that stretches from southern England, over the Benelux countries and down the Rhine Valley through Switzerland to the Mediterranean coast. This region accounts for 12 percent of the EU's entire GDP and makes Holland an ideal distribution hub for serving this high-income consumer market, especially with Europe's largest port, Rotterdam, at its center.
|Why Holland Is Number One In European Distribution|
|"For 400 years, the Dutch have been the leaders in meeting the needs of European consumers with our transportation and distribution expertise," says Jochum Haakma, managing director of the Netherlands Foreign Investment Agency. "We must be doing something right." |
The facts back up Haakma's claims about Holland's dominance in European transportation and distribution. Holland has 51 percent of all European distribution centers (EDCs) compared with Belgium at 18 percent and Germany with 11 percent. In all, Holland has a total of 9,000 DCs, 2,000 of which are centralized EDCs. Logistics accounts for 4.4 percent of the country's GDP and 12.5 percent of its capital spending.
U.S. companies in particular have found Holland the place to be in Europe. More than 1,650 U.S. companies have distribution operations, headquarters offices or major service facilities in Holland, and 50 to 60 new U.S. facilities add to the list each year.
Transportation is also one of Holland's greatest strengths. The ports of Rotterdam and Amsterdam together have 44 percent of all the seaborne tonnage coming and going from the EU. Rotterdam alone has 36 percent. Amsterdam's Schiphol Airport is the third-largest cargo airport in the EU with 16 percent of all traffic. Holland has the largest portion of all inland waterway traffic in Europe and controls 85 percent of Rhine barge traffic. One third of all the truckers in the EU are Dutch.
Europe's labor laws are highly protective of workers, sometimes to the detriment of employers. Holland has among the fairest laws, which make for a stable workforce. Holland has the least number of days lost to strikes in Europe. Also, the majority of workers in the logistics sector, which make up 9 percent of the country's total workforce, speak English.
The Congestion Challenge
There is more to Holland's success than its favorable geographic location. All of the western EU shares one huge challenge: congestion. Highways across Europe are hopelessly clogged during much of the day. Even Europe's well-developed rail system has serious freight bottlenecks because passenger trains have priority over freight. Most airports have hit their daytime capacity and have severely limited night flights when freight must travel. While congestion is a common problem in the EU, Holland has taken the lead in dealing with many of the freight transportation and distribution issues.
The Port of Rotterdam plays a strategic role for nearly every company distributing through Holland. It is by far the largest port in Europe with 36 percent of all of Europe's seaborne freight flowing through it. To maintain its ability to handle the burgeoning container traffic from Asia, the port is expanding the Maasvlakte container terminal at the western-most tip of the port into the North Sea. The expansion not only doubles the current 1 million-TEU capacity at this ECT-run terminal, but it will also make it faster and easier for the next generation of 10,000-plus-TEU vessels to discharge their cargoes.
But receiving containers at the port is just the beginning. The challenge is to move the freight through the 40-kilometer-long port on to EDCs and throughout the entire EU without becoming bogged down in highway and rail congestion.
Holland has been the leader in using barges to move containers to distribution centers in the south and east of Holland as well as to points all along the Rhine and Danube Rivers. The operations have been so efficient that containers can move all the way to Basel, Switzerland in four days and as far as Eastern Europe within a week.
Shuttle service has been established between Rotterdam and growing distribution parks within Holland. For example, a daily container train links the port with Venlo, Holland's fastest-growing distribution location, along the German border in the southeast corner of the country. The greatest leap forward in combating congestion will come in early 2007 with the opening of a freight-only rail line called the Betuwe Route. This multibillion-euro project will allow containers to move directly from the Maasvlakte container terminals at the western end of the Port of Rotterdam to the German border and then further into Europe. The160-kilometer dedicated freight line can handle 10 trains an hour in each direction. Expected volume at the start-up will be about a 150 trains a day.
New Distribution Structures
The classic pan-European distribution network model that served thousands of companies through the 1990s was to centralize inventories of standard goods at a single EDC somewhere in the Benelux area and ship by truck to customers throughout the EU. But much has changed in the last few years to force companies to revise their distribution strategies.
The EU has expanded to 25 countries, which has increased its size and population by 50 percent. The combination of greater distance and less-developed infrastructure in Eastern Europe increases transportation time and cost. At the same time, increased highway and rail congestion have increased transit times and made them less reliable. The vast majority of consumer products now come from Asia through a supply chain that takes many weeks, requiring more inventory,
According to Joseph Vermunt, professor of distribution logistics at the University of Tilburg in Holland, there is a "tsunami of transportation costs" to move goods from Asia to every point in Europe. The cost to move a container from Asia to any major European port may be as low as 800 euros, but when all the inland transportation and handling is added, the cost of door-to-door shipping to any point in Europe rises to 2,200 euros.
While cost and time pressures have increased, so have the expectation of consumers all across the EU, which he points out is made up of 1,200 distinct geographic and demographic mini-regions.
"The EU has essentially become borderless for moving freight, but it is by no means homogeneous," he says.
Consumers expect more customization of products and they want them faster. To meet the varying needs of the EU's diverse population while keeping inventories under control, supply chains require more value-added content at the distribution center.
"The focus of distribution networks has turned to agility," says Vermunt. "Products not only must be customized, but they have very short life cycles. Companies must have the ability to respond rapidly based on quickly changing demand. For example, Spanish retailer Zara changes its entire product line in a matter of days. Such volatile demand requires hybrid networks, not the static ones many companies have."
ELCs, Not EDCs
While there is no longer a single European distribution model that works for every company, the need for adding value to products at the end of the supply chain is turning most European distribution centers into European logistics centers (ELCs). Product assembly, customization, packaging, labeling and other postponement activities are increasingly accomplished at an ELC, both to lower inventory requirements and to meet a broader range of consumer needs. The ELCs also serve as cross-dock facilities to increase the speed of imported goods from Asia through port areas into the European heartland.
"The need for speed and agility is why ELC site location must now be based on intermodal transportation," says Vermunt. "The location analysis must consider which port can serve the most hinterland, or the most points in Europe competitively."
According to Vermunt, Rotterdam is the most competitive port, reaching 19 percent of these mini-regions by truck. When barge movement of containers over the Rhine and Danube Rivers is included, Rotterdam's hinterland reaches all the way to Eastern Europe and it is competitive to 34 percent of the mini-regions. When the Betuwe Route container train service links Rotterdam with the continental rail system, the port's ability to competitively serve Europe's 1,200 mini-regions will be expanded even more.
|"The focus of distribution networks is agility. Companies must be able to respond rapidly to quickly changing demand."|
- Joseph Vermunt of the University of Tilburg
|Logistics Blossoms In Holland|
|Nothing is more Dutch than the 11million-square-foot Aalsmeer Flower Auction, which is the world's largest flower marketplace. Each morning starting at 5:30 a.m., 5,400 growers sell 20 million flowers to 1,050 buyers in a carefully orchestrated auction process. Millions of flowers and plants arrive from all over the world in the late afternoon and evening, and by late the next morning they are all gone and on their way by truck, air and even ocean container to customers in Europe, Asia and North America. |
Aalsmeer is near Schiphol, so 95 percent of the foreign flowers come through the airport and much of the product also leaves the same way. There is a shift to ocean. The auction is about 12 kilometers from Schiphol airport, but the congestion makes this short trip take 30 to 40 minutes. A direct underground connection was considered but was too expensive. Competition is Flora Holland.
"We are in the logistics business," says CEO Timo Huges, who spent most of his career with 3PL Frans Maas. "It just so happens that our product is flowers."
Huges, in fact, sees the future of the flower auction more as a 4PL helping buyers and sellers manage their logistics function than merely serving as a marketplace.
The buyers are essentially in logistics as well. Paul Holex buys flowers at the Aalsmeer auction and ships them to wholesalers in North America and Japan. One third of his business is to the U.S. Rather than use Schiphol, he ships via American Airlines out of the U.K. so he builds pallets of 210,000 stems that are containerized at Heathrow for shipment to customers in the U.S. The existing air capacity and price is limited and expensive, so he is beginning to ship via ocean container. Plants are put in stasis by lowering the temperature to just above freezing and placed in the container at his facility adjacent to the auction site. He will move 30 containers next year to see how this system works.
"There is far less handling of the stems and better temperature control with ocean containers," he says. "Airfreight may be faster, but too much handling and poor cooling facilities in the U.S. can damage the flowers."
With a net margin of about 1.4 percent shipping by air, lower shipping costs and reducing damage can make a big profit difference.
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