The European transport and logistics sector, with an estimated market value of EUR 200 billion, is characterised by a limited number of larger players and an abundance of small companies.
The European transport and logistics sector can be roughly divided up into three main groups:
- The main cornerstone is road transport (courier services, bulk, cold chain transport, transport of exceptional loads, last mile, parcel services, full load, partial loads, etc.), which accounts for an annual turnover of EUR 140 billion. 88.7% of this is attributable to small and medium-sized enterprises. The largest market player is DB Schenker - European Land Transport, with a share of only 2.2%. Other big names include DHL Freight, TNT Express, Kuehne + Nagel - Road & Rail, DSV, Dachser, SNCF Geodis and GEFCO.
- The logistics segment (storage, contract logistics, reverse logistics, industrial logistics, temperature-controlled logistics, etc.) accounts for EUR 40 billion, with DHL Supply Chain holding a 7.7% share of the total market. This makes it the largest player by far, because the companies in places two to five of the ranking have market shares of between 1.2% and 2.1%. These are Kuehne + Nagel, CEVA, Hitachi Transport Systems and SNCF Geodis. In this group, the smaller companies hold a total share of 79.4%.
- The share held by small companies is substantially smaller when it comes to freight forwarding (transport commissioners, groupage, customs operations, overseas, etc.), standing at 59.3%. The main player in this field is DHL Global Forwarding, which has its hands on an 8.7% share of the market, only just pipping Kuehne + Nagel with 7.2%. Other big names in this group include DB Schenker, Sinotrans and Panalpina. This market segment alone is worth EUR 20 billion.
Different kinds of players...
The transport and logistics sector in Europe is made up of various different types of players. 'On the one hand, you've got generalists like DHL, DB Schenker, Kuehne + Nagel and TNT who do everything, but still usually have one area in which they specialise. On the other, you've got medium-sized players who have gained a strong position in one particular segment. This includes, for example, Nagel Group, STEF, FM Logistic and Logwin. A third key circle consists of groups with family equity that have reached a critical mass, such as Dachser, Norbert Dentressangle (before it became XPO) and Rhenus. On the other side of the playing field you've got nationally oriented companies with a strong regional presence, as well as a multitude of small, locally active companies,' explains Juléric Nestor, Industrial Expert on the transport sector at BNP Paribas.
...with a burdensome cost structure
Companies from all groups in the transport and logistics sector have one thing in common: they are all faced with a burdensome cost structure. In the road transport sector, sub-contracting accounts for 39.6% of costs, with other major expenses being staff at 29.4% and vehicles and fuel at 22.4%. Contract logistics appears to be a much more labour intensive sector, as staff expenses account for no less than 50.4% of total costs. In freight forwarding, the overriding expense is the cost of the sold goods, accounting for 82% of total costs.
Work to be done
According to Juléric Nestor, the transport sector is faced with a number of considerable challenges: 'Economic growth is predicted to hit 3%, but there is still a lot of uncertainty. European industry is ageing, and is starting to lag behind. In addition, cycles are coming in quicker succession as a result of the arrival of e-commerce, digitalisation, just-in-time logistics (JIT) and transport on demand.'
Carriers must also make sure that they do not venture into disputed territory. 'There's also internationalisation to bear in mind, with takeovers by companies from across the ocean on the one hand, and competitors whose lower wages bring about fierce competition on the other. Moreover, transporters are seeing their bargaining power being increasingly eroded as a result, which means that there is little scope for negotiating tariff increases.
As if that weren't bad enough, they are also having to deal with the consequences of an ageing population. This phenomenon is further exacerbated by the fact that young people no longer see becoming a lorry driver as an attractive career choice,' explains Juléric Nestor, adding that increasingly stringent environmental requirements should be seen by the transport industry not as a threat, but as a competitive advantage.
Aces up its sleeve
So there are plenty of challenges, but the European transport and logistics sector does have enough aces up its sleeve to face up to them. First and foremost, it is a strategically crucial sector that creates added value. The sector also has a very strong backbone made up of family businesses with local roots.
One of the main success factors is being the right size to be able to negotiate, absorb fixed costs, generate economies of scale and possess sufficient investment power. 'It's also important to be able to offer a wide range of services, but in combination with a strong specialisation in a particular sub-sector. In that way, you can also tailor your operations to customers' requirements, and hopefully build up a very diverse customer portfolio. An important thing to remember is that customer relations should have historical roots, and should be contractually specified,' explains Juléric Nestor.
Carriers and logistics providers must also have the capacity and the will to equip themselves with modern material. Investing in both a relatively new fleet and a modern and efficient computer system is of the utmost importance in safeguarding the future of a transport company.
The challenges facing the Belgian transport sector
In this article, we take a closer look at the transport and logistics sector in our country. How has it been doing over the past few years? What trends are likely to take shape? And what is the future of the Belgian transport industry?
Before we start our analysis, it is important to point out that the Belgian transport sector forms part of a broader European and global transport system. That is both a curse and a blessing. Today, past European decisions are still a major determining factor when it comes to the 'health' of the Belgian transport industry. The free movement of goods and persons, a European priority since the early 90s, not only brought with it opportunities, but also immediately became one of the greatest threats to Western European carriers. And that is just one of the challenges the sector faces.
'To give an example, there's the rise of the internet and mobile telephony, which have digitalised the economy. That had consequences for working methods in transport and logistics, but the advent of e-commerce has also had an impact on demand for transportation. On the other hand, a sort of 'global village' has been created. In a way, distance no longer matters, and the exponential growth of container transport is a direct result of that,' says Jean-Marie Becker.
As CEO of MMM Business Media, he has been following the transport and logistics sector in Belgium and abroad for over 30 years. He is also regarded by the Belgian transport industry as someone with a real understanding of the sector.
Consequences for logistics and transport
The aforementioned trends have certainly not been without consequences. National importers and warehouses have been replaced by EDCs and RDCs – European and regional distribution centres – which service several countries at once.
'Moreover, internationally active companies decided to concentrate their production units in Europe, and preferred to seek new opportunities where higher profits awaited them. Here I'm talking about the BRICS and PECO countries. That of course has resulted in a reorganisation of the logistics landscape,' says Jean-Marie Becker.
The reason behind Belgium's continuing key role in this new economic landscape is its geographical location. In addition, our ports still have a decisive part to play, as shipping companies only allow their ships to stop over in a small number of ports for profit-related reasons. Antwerp and Zeebrugge, but also Rotterdam, do particularly well, and as a result our country has been able to get its hands on a piece of the transport and logistics pie.
'A prime example of this is that Antwerp is actually the largest French port if you look at the amount of traffic heading for France,' Jean-Marie Becker stresses. ‘A country such as Belgium must continue to reap the benefits of its excellent geographical position, which acts as a weapon in the fight against the threats looming over the world of transport.’
Adaptability is crucial
In the changing landscape of the transport sector, hauliers must try and keep their heads above water. But how? By making their strengths a specialisation, or by keeping up with developments in the economy and transforming themselves from a haulier into a logistics provider, a 3PL or even a 4PL company.
The terms 3PL and 4PL have come increasingly into fashion in logistics over the past few years. 3PL stands for 'third party logistics', and 4PL of course stands for 'fourth party logistics'. But before we look at the difference between them, lets go back to basics: specialisation in 1PL, pure transportation. A specialisation that is becoming more and more difficult as time goes on. This is a result of, among other things, increasing competition from companies in the former Eastern Bloc countries (or branches of Belgian companies that are based there).
Focusing on particular niches may provide a solution, but many carriers have opted to expand their activities further, providing warehousing services to their customers on top of transportation services (2PL).
'It is a way of bringing added value to your role as a haulier that allows you to distinguish yourself from pure carriers. But if you are really looking for added value, then it's 3PL companies you want, as they also provide logistics alongside haulage and warehousing. By also offering logistics services, these companies gain more control over the supply chain of their customers, and strengthen their position at the negotiating table,' explains Jean-Marie Becker.
However, 3PL companies ultimately remain contractors, as the shipping company for which they work continues to call the shots when it comes to strategy. A 3PL company thus focuses on activities at operational and tactical level in order to squeeze as much profit as possible out of its own assets (trucks and warehouses).
A bridge too far?
The next step in this trend is the arrival of 4PL companies. These companies become real chain managers. That also means that they often do not use their own equipment, but still seek to provide the best solution for their customer's supply chain. A 4PL company will then call upon partners to implement the solutions it comes up with, and therefore often turns to 3PL companies, which take care of transportation, storage, value-added logistics, planning and even supply management. For most Belgian companies, however, this far-reaching development is a bridge too far: they mostly tend towards 3PL specialisation.
'I believe that the future lies with family-run 3PL firms, along the lines of Dachser, Kuehne + Nagel and Galliker,' admits Jean-Marie Becker.
According to him, the future is more likely to lie with them than with large groups in the hands of equity funds. That is because these funds buy and sell companies when this is of most financial benefit, and are therefore a much less reliable partner for shipping companies and production companies.
Niches: a starting point
Regardless of the changes that transport companies have undergone in recent years, the quest for market niches remains a must. No matter how big or small the company.
'There are plenty of examples of companies who have successfully focused their activities on a particular market. A fine example of this is the relatively small company Esser & Lennertz from Bilstain, near Liege, which specialises in wholesale trade in sand and gravel, and has also expanded to become an internationally active construction materials haulage company. However, medium-sized enterprises can also find success on niche markets, like in the case of Havart, which grew from a crane specialist to a logistics service provider for all heavy goods,' says Jean-Marie Becker.
Not just for the small fry
Today, though, even the big players recognise the importance of niche markets. Katoen Natie, for example, is developing no fewer than 17 different business lines, in which it positions itself as a specialist in particular niches.
'That means art, automotive, petrochemicals, port operations, process engineering...the list goes on. But they're not the only ones taking that approach: Jost Group is now looking to 'split' into the divisions Europe & Maghreb, Integrated & Customised Logistics and Air & Sea Freight,' continues Jean-Marie Becker.
Another big name in the Belgian transport sector that has understood very well that versatility and specific niche specialties can go hand in hand is TDL Group, which has simultaneously formed the divisions Fresh Logistics, Building Logistics, Dedicated Logistics, Pharma Logistics and Coldwayexpress, making it both a specialist and a generalist.
Is e-commerce resulting in an overhaul of the sector?
Trade conditions have changed dramatically since the advent of the internet. Small retailers were suddenly in direct competition with global traders. Consumers no longer just purchase goods from the shop on the corner, but also from other (and sometimes distant) countries. This trend is the driving force behind transport and logistics worldwide.
It goes without saying that developments as drastic as e-commerce, for that is the phenomenon described above, lead to the emergence of specialists focused on providing logistics solutions for that phenomenon.
'We are not only seeing logistics providers becoming e-commerce specialists for deliveries coming into Belgium, like in the case of PFS Web, but also companies working in the opposite direction,' notes Jean-Marie Becker.
He is referring in the latter case to Sedis, a company from the west of Wallonia that is a prime example of such a development. This company has effectively responded to the fact that the middle class in China has become more well off and is happy to splash some cash. People love the kinds of products available from Belgium, and Sedis makes sure that everything they order arrives safely at their front door in China. Euroterminal, for its part, saw its revenue almost double in the space of one year thanks to e-commerce.
'In actual fact, anyone can become a 3PL in specific e-commerce sectors, as this is a fledgling sector with an enormous potential for growth,' concludes Jean-Marie Becker.
Dare to believe in cooperation
For many years, cooperation between hauliers was taboo in the sector. All too often, carriers viewed their counterparts as a threat rather than an opportunity. Yet certain forms of cooperation have enormous potential. Especially now the Viapass mileage-based vehicle tax is looming large on the horizon...
Jean-Marie Becker is convinced that the impending introduction of the Belgian mileage-based vehicle tax will encourage more cooperation among Belgian hauliers. 'It's actually astonishing that people didn't start putting their heads together earlier and more often,' he continues.
No-one can go it alone
Becker sees opportunities for cooperation at various levels: between colleagues active in the same sector, but also between companies from the same region. And European networks are trailblazers when it comes to such collaboration. That includes Astre, Big Move, Pallet and others. These networks were born of the realisation that it is not possible for hauliers to master everything to perfection. If you are active at European level in particular, you cannot have an equally strong presence everywhere.
'Colleagues can plug that gap and increase the level of service provided by your company, whilst also improving their own quality level. Cooperation is the key to being able to provide for customers any time, anywhere,' says Jean-Marie Becker.
Sometimes, seeking opportunities for cooperation may go hand in hand with striving to improve quality. RoadSpirit is a prime example of this. This is a Belgian group made up of family firms in the transport and logistics sector who aim to achieve economies of scale in as many areas as possible by pooling their resources.
Mileage-based vehicle tax to affect transport and logistics
The Viapass vehicle tax will not be without consequences for the Belgian transport sector. However, it remains to be seen whether this new tax will have the effect intended by the government. For hauliers, the mileage-based vehicle tax will certainly result in increased costs, some or all of which will have to be passed on to customers.
This will result in rapid changes to the face of the sector.
'At the moment, everyone is busy doing their calculations. How much will the mileage-based vehicle tax cost hauliers? What share of those costs are a result of empty kilometres or kilometres racked up on the way to picking up goods? What share of those costs will it actually be possible to pass on? And they are certainly already thinking about how and when these extra costs will have to be negotiated with clients,' warns Jean-Marie Becker.
Whatever happens: the sector is trying its utmost to arm itself against what is to come, and is therefore on the lookout for solutions to reduce the number of empty kilometres to a minimum. This may be done through collaboration with other carriers, but also through strategic acquisitions.
Absorbing own transport
Another potential consequence of the mileage-based vehicle tax is that many companies who currently transport their own products may no longer regard this as a profitable exercise. And this brings with it an opportunity for professional goods transporters, who can grab the chance to gain extra custom. Extra custom that may help them to compensate for their own empty kilometres.
'And this is not an original idea, by the way. When the transport landscape changed in Switzerland – the first country to introduce a mileage-based vehicle tax – you saw a clear shift from own transport to third-party transport,' stresses Jean-Marie Becker.
How will the Belgian transport & logistics sector evolve?
Jean-Marie Becker, CEO of MMM Business Media, talks in more detail about five hot topics in the transport and logistics sector.
Diesel engines are currently in the firing line, not least due to the Volkswagen scandal. For trucks, diesel remains an essential fuel source, although a growing number of alternatives are now appearing. Do you think they are feasible alternatives for the short term?
Jean-Marie Becker: 'Today, LNG has a head start over other alternative fuels. But many transporters are still looking for the right solution, and no clear winner has been crowned yet. For their part, most vehicle manufacturers are placing their bets on LNG. However, the problem is that LNG-fuelled trucks still have a limited capacity. If that capacity were to be increased, there would be more potential applications, and more of these kinds of trucks would start appearing on our roads. Iveco is now talking about achieving engine power of 400 hp. That's going in the right direction, but the possible applications remain on the limited side. In addition, there are currently very few LNG filling stations, although it is true that transporters usually open their own station when they purchase a number of trucks that run on alternative fuels. These carriers are also contributing to expanding the supply network, as their stations are open to third parties, too.'
Is there a future for the hybrid and electric trucks of today?
Jean-Marie Becker: 'Hybrid trucks can already be used for inner-city distribution. However, for the time being the technology only works in smaller vehicles. In all other cases, today's technology doesn't stand a chance. The same applies to fully electric trucks. Due to the extra weight of their batteries, they lose so much loading capacity that they are no longer profitable.'
The appearance of Eastern European carriers has caused an upheaval in the Belgian transport industry. Re-flagging of fleets, increased and sometimes unfair competition... Belgian carriers have ultimately been given two options: prepare to compete or redirect their strategies towards national transport in certain niche sectors. How do you expect this situation to develop?
Jean-Marie Becker: 'Europe as a whole certainly faces a number of threats, but this has also given rise to opportunities for Belgian carriers. The economic reality has also changed compared to a good fifteen years ago. Today, Belgian carriers don't just set up a branch in Central or Eastern Europe to avoid paying high social security contributions in Belgium: having a branch in those regions also represents an additional asset in negotiations with customers.
Let's not forget that many shipping companies are now located in the former East Bloc countries. This means that there are opportunities there for carriers. Primarily because there is no longer an imbalance between traffic coming from and going to Eastern Europe. Consumption has also increased there, meaning that a lot of processed goods are now being transported to those countries, which was certainly not always the case. By setting up a branch there, too, you can ensure you get acceptable prices and balance out your outbound and inbound prices. Combined with a strong foothold in Belgium, that gives you a solid basis to grow further.'
By 1 September 2016, all truck drivers must have undergone 35 hours of training, otherwise their driving license will no longer be valid. Do you think this will be a problem for road transport in Belgium?
Jean-Marie Becker: 'On the whole, it is believed that 20% of drivers will not have an official attestation of competence, as they have either no training at all, or have not received enough mandatory continuous training. This means it is high time to turn the tide. I personally think that 'Code 095', which is the official name of the training course, is a good thing, as it will bring additional skills to the sector as a whole.'
And now one last question on the mileage-based vehicle tax. Do you think the sector will be able to absorb this extra cost?
Jean-Marie Becker: 'Well, if you bear in mind that the cost impact of the measure will be around 10%, and the average margin in the sector is 2.5%, you don't need an expert scientific study to realise that the sector simply cannot afford this additional tax.
Transport operators will have to do two things. Firstly, they must attempt to pass the cost of the tax on to their customers, but they will also have to increase their productivity at the same time. If they do not, their businesses may swiftly end up in financial difficulties. There will certainly be a good deal of concentration. In fact, this is already underway. One of the motivations behind acquiring other companies is the desire to expand domestically. With more branches, you can limit the number of empty kilometres to a minimum.
Collaboration is another solution, but it isn't all that simple since the computer systems used by the collaborating companies must be able to 'talk' to one another, and you also have to think about how to deal with differences in tariffs. If the opportunity arises, carriers may enter into collaboration with a few of their clients. But all the pieces of the puzzle will have to fall into place.
Because the mileage-based vehicle tax applies to all distances driven, companies who transport their own products will see their costs rise even further than professional goods carriers. Collaborating with a carrier or relinquishing their fleet to them is going to be the only way to limit the impact of the tax. The acquisition of fleets in this way presents an excellent opportunity for professional carriers. But beware: they will have to be quick off the blocks, because there will be more than one company seeking to fill up their empty kilometres in this way. However, the last thing they should do is acquire these companies for the sake of it, as their activities must still be in line with those of the carrier themselves. So a little bit of research beforehand is advisable.'
The future is bright for Belgian family transport firms
There are many latent threats to road transport and logistics in Belgium. Does the sector still have a future? Belgian family firms certainly do!
Family firms are often in a stronger position than they think. As they are run by people with a real personal stake in the company's equity, such businesses often pursue a long-term strategy. No sign of speculative strategies from equity funds that may cause instability. And no decisions from managers on the basis of the effect they may have on annual bonuses, but instead a long-term strategy aimed at the successful continuity of the company.
Big or small?
It is of little relevance whether the company is big or small. In fact, there is no such thing as a generic critical mass. The specific critical mass of a company depends on its activities and profitability. However, certain trends cannot be ignored. For example, shipping companies are trying to work together with fewer partners.
'But the real question is what the benefits are, and whether carriers really need to enter into such arrangements. A vehicle fleet of 100 trucks is not necessarily better than a fleet of 70. Transport operators must think very carefully about that. First and foremost, it is a question of what they want themselves. What future they see for their company,' says Jean-Marie Becker, CEO of MMM Business Media.
Factors that may play a decisive role are whether or not there are successors to take on the company, whether an operator is prepared to take risks in order to grow, and whether they think it is all worth dedicating their lives to, day and night.
Flexible family firms
One of the strong points of family firms is their flexibility, which allows the strengths of a small business to be combined with those of a larger company. Healthy family firms have all the necessary resources in-house to be able to respond to tenders. And these are of crucial importance in the modern transport and logistics sector.
However, family firms should not lose sight of the importance of management tasks. Family firms certainly like to push themselves to the limits of their capabilities. When a company gets too big for the family to handle, however, it may be advisable to hire in an external manager to ensure all management functions are performed professionally.
'Van Moer Logistics is a prime example. Manager Jo Van Moer realised a few years ago that his company had grown too large for him to continue managing it himself. That is why he hired Eric Noterman, CEO of a large firm, to set his company on the path to growth. In this way, Jo Van Moer lifted an obstacle that may have impeded the further growth of his company,' opines Jean-Marie Becker.
Family firms who have their affairs well in order are not only able to stand up to bigger competitors and grow to become a solid 3PL provider, but can also look optimistically to the future in spite of factors such as the mileage-based vehicle tax, re-flagging, 'Code 095' driver training, new rules of play on weights and dimensions and predicted technological trends, such as the arrival of increasingly networked and even self-driving trucks.
Wallonia and multimodality: centres for growth for Belgian transport sector
Logistics surface area is growing particularly rapidly in Belgium, and in that respect, Wallonia is doing even better than Flanders. Twenty years ago, there was hardly any logistics activity south of the language border in Belgium, but today, not only Liege and Hainaut, but also the area surrounding Tournai is thriving. For some time now, the logistics surface area in Wallonia has been increasing at an annual rate of 100,000 m².
This growth is also reflected in a study conducted by the real estate company Cushman & Wakefield, which indicates that Belgium currently occupies third place in the World Logistics Performance Index. When you remember that our country started down in 18th place, the rise of the Belgian logistics industry is just as spectacular as that of our national football team, which climbed from 54th place to 1st place in the FIFA ranking. This ranking from C&W is not to be sniffed at, because major producers consult these kinds of indices when choosing where to establish their EDCs and RDCs.
Focusing on multimodality
The possibility to transport goods in a range of different ways has become a fundamental requirement. For many customers, the cost price is no longer their only motivation when choosing a particular mode of transport. This undermines to an extent the strong position of road transport, although it remains a successful business. The reason behind this change in mindset is that many firms are being encouraged by their parent companies to seek more CO2-neutral solutions.
'That is why it is important, when choosing where to situate logistics areas, to also think about access to other modes of transport as well as road transport. That allows logistics companies greater freedom to provide customer-tailored solutions,' explains Jean-Marie Becker, CEO of MMM Business Match.
Of course, that does not mean that motorways are not still an important and attractive element of logistics areas. However, it takes more than just being located at an intersection between major motorways. A prime example of this is Trilogiport in Liege, which offers transport by water, railway and road.
'The more multimodal options you have, the better you will be able to respond to the ever-changing needs and requirements of customers,' says Jean-Marie Becker.
Multimodality creates demand for road transport
The development of the airport in Liege is resulting in additional cargo. The same will apply to the EuroCarex network. This freight version of the TGV will connect Schiphol to Paris, Lyon, Liege and London, and the network will later be further expanded, primarily to Germany.
'This is a development of enormous importance, because Germany is a particularly crucial country when it comes to transportation. But EuroCarex is already looking into connections to Leipzig, Bordeaux and Spain, and is thereby opening corridors to other regions. Yet it would be wrong to solely attribute this growth to railway transport. All modes of transport, road transport included, will be able to reap some of the benefits of this expected growth centre,' emphasises Jean-Marie Becker, before going on to explain why it takes so long to literally and figuratively get a project like this on the rails: 'These are expensive, high-risk projects, which require a lot of money from private enterprises. But they are cautious, and take a little longer to actually put the plans that are on the table into practice.'