1. business and industrial
2. logistics
3. air freight

Freight Forwarding
SUSTAINABILITY OF BUSINESS MODELS
ETH Presentation, Zurich April 24th, 2012
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Contents
I.
THE SPEAKER: Matthias Hanke and Roland Berger Strategy Consultants
at a glance
II.
THE INDUSTRY: Key characteristics of freight forwarding
III.
THE MARKET: Drivers determining the supply and demand landscape
IV. THE STRATEGIC KEY QUESTIONS: How might the forwarder's role
change within the overall value chain?
V.
THE THREAT: Interesting examples of a similar industry (fiction for
forwarding ... so far)
VI. THE TRENDS: What is impacting the industry with short- and mid-term
relevance
VII. THE OPPORTUNITIES: Moves to sustain business medium term
© Roland Berger Strategy Consultants
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I. THE SPEAKER: Matthias Hanke and Roland Berger Strategy
Consultants at a glance
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Let me introduce myself
MATTHIAS HANKE, PARTNER
• Weathered (1965)
• Married
• Two kids (15/17)
•
•
•
•
•
•
•
•
Born in Hamburg, living in Basel
Apprenticeship in steel trading (2 years)
German Navy (2 years)
Combined Master studies of Mechanical Engineering and
Business Administration at TU Darmstadt (6 years)
Junior Consultant to Senior Project Manager at RBSC (5 years)
Executive Vice President "Network & Strategy" at Swissair,
Crossair, Swiss (4 years)
DHL Express (3 years)
Partner with RBSC in Zurich (6 years)
• Key areas: Logistics, Aviation, Tour Operating
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Roland Berger Strategy Consultants is a truly global firm –
We provide strategic advice to the world's top decision makers
Our offices
Founded in 1967 in Germany by Roland Berger
47 offices in 35 countries, with 2,500 employees
About 220 RB Partners currently serving
~1,000 international clients
Source: Roland Berger
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Active in the world's most important markets, we are proud to be a
top 5 player in the global strategy market
Global market position amongst strategy consultants
75% repeat clients
30% of the top-1,000 global
companies
40% of Europe's leading
companies
MARKET POSITION1)
Germany
#2
Core markets in
Western Europe
#3
Growth regions China
and Russia/CEE
#2
World
#5
1) In the strategy segment
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II. THE INDUSTRY: Key characteristics of freight forwarding
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Summary: four things to understand upfront
•
Global Forwarding is one out of four basic FWD types
•
Global FWD is a trading business with thin margins
•
Global FWD has a brokerage function between "Shippers" and "Carriers" – thus,
Global FWD takes a coordinating role in the value chain
•
Value added services (VAS) reach growing importance as USP for Global Forwarders
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Global Forwarding is one out of four basic FWD types
FOCUS
KEY CHARACTERISTICS
Overland
Transportation
•
•
•
•
Mainly trucking; growing share of rail
Forwarders often exercise "Selbsteintrittsrecht" and "operate"
Operation consists of carriage plus terminal operation for LTL business (groupage)
"Mama and Papa business" – low USPs ... low entry hurdles
Global
Forwarding
•
•
•
•
Core business is sea and air intercont transportation
Asset-light/ trading business (capacity brokerage) plus value added services
Low margins (RoS; don't mix up with RoC)
Interfaces with Overland Transportation and Contract Logistics
Contract
Logistics
•
•
•
•
Coordination of parts of the supply chain on behalf of the customer
Warehousing and Distribution are elements of core business
Contract duration over a longer period (~5 years) with dedicated investements
IT integration/interfacing with customer is key
Integrators;
Express Logistics
•
•
•
•
Door-to-door service, self operated (P&D, domestic linehaul, intl. linehaul, terminals)
Standing network – given fix-cost (flight gets operated ... full or empty)
Day-definite and Time-definite delivery plus even courier-services
High-cost proposition
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Global FWD is a trading business with thin RoS-margins – potentially
desastrous impact of sub-seasonal yield decline or overcapacity
Typical freight forwarder P&L structure (illustrative) [% of revenue]
> Costs of 3rd
party carriers –
mainly outside
forwarders'
direct control
100%
(1)
85%
> Economies of
scale lead to
lower cost per
shipment
Direct Operating Expenses
("DOE")
15%
8%
Net Revenue
Source: Roland Berger
Cost of Sales
Gross Profit
Direct Costs
5%
2% – 4%
Indirect Costs
EBITDA
COMMENTS
> Forwarding business model is
relatively low margin and highly
sensitive to declines in revenue
> There are three key potential
levers to improve profitability
– increase of net revenue (1)
– improve of cost of sales (2)
– reduction of DOE (3)
> Increase of net revenue requires
continuous revision of product/
service portfolio and presence in
the rapidly growing emerging
logistics markets
> Reduction of DOE finds a small
overall basis only and requires
continuous action on overhead
costs
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Global FWD has a brokerage function between "Shippers" & "Carriers"
– thus, Global FWD takes a coordinating role in the value chain
EXAMPLE: AIR CARGO VALUE CHAIN
Handling
& Warehouse
Shipper
Cargo Handler
Trucking Company
Linehaul
Handling
& Warehousing
Airline
Airline
(Carrier)
Forwarder
regular/usual contract
relationship
alternative contract
relationship
RFS,
Breakdown,
Delivery
Cargo Handler
Trucking Company
Consignee
Pickup,
Build-up,
RFS
VALUE ADD OF FORWARDERS
> Bundling of customer (shippers)
demands
> Procuring transport capacities with
volume rebates
> Coordinating many/ all transport
related players (depending on the
agreed INCO terms between
Shipper and Consignee)
> Enhancing transport management
with value added services
alternative contract
relationship
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Value added services (VAS) reach growing importance as USP for
Global Forwarders
The International Federation of Freight
Forwarders Associations defines freight
forwarding as
"services of any kind relating to the carriage,
consolidation, storage, handling, packing or
distribution of the goods as well as ancillary
and advisory services in connection
therewith, including but not limited to customs
and fiscal matters, declaring the goods for
official purposes, procuring insurance of the
goods and collecting or procuring payment or
documents relating to the goods".
Source: Roland Berger
Core Business: procurement of
international transport capacities
Value added services can even
reach towards significant IT
interfaces between the shipper
and/ or the consignee
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III. THE MARKET: Drivers determining the supply and demand
landscape
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Summary: five things to remember
•
Within the forwarder controlled market segments DHL, K+N and DB Schenker are clear
market leaders – overall high fragmentation
•
The European overland transportation market is even more fragmented with less
than 10% total volume controlled by the top five players
•
The overall forecast for global transportation needs is very prosperous - given
stability of current paradimgs (global warming?, free trade?, ...)
•
Individual country performance concerning GDP development and trade balance is
significantly impacting the relevant "Trade Lanes" for hauliers and forwarders
•
Freight rates are becoming increasingly volatile and demand on the forwarders side
for more sophistication of steering purchased capacities
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Within the forwarder controlled market segments DHL, K+N and DB
Schenker are clear market leaders – overall high fragmentation
Top 10 freight forwarding players [% of total freight forwarding market, 2011]
AIRFREIGHT – MARKET SHARE
OCEAN FREIGHT – MARKET SHARE
Sinotrans
Sinotrans
Expeditors
1.4%
1.5%
Agility
1.5%
SDV
DHL
K+N
0.5%
DAMCO
6.8%
0.5%
2.0%
0.4%
Nippon
Express 0.5%
CEVA 1.7%
Agility 0.5%
Nippon 1.7%
Express
1.8%
UPS
3.5%
DB Schenker
2.9%
3.0%
Panalpina
K+N
> DHL is the market leader with a significant lead towards the
nearest competitors
> DB Schenker, K+N and Panalpina are relatively equal sized
and competing to become the 2nd largest
Source:
Merril Lynch, West LB, Roland Berger analysis
Expeditors
1.5%
0.7%
0.9%
Panalpina
1.0%
DHL
DB Schenker
> K+N leads the ocean freight market and has a sound lead to
competitors
> DHL is the second largest with DB Schenker, Panalpina and
Expeditors competing for 3rd place
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The European overland transportation market is even more fragmented with less than 10% total volume controlled by the top five players
Overland transportation – European supply structures
MARKET SHARES (EUROPE)
CHARACTERISTICS
90.7%
3.3%
> European overland transportation is highly fragmented, driven by
very low entry barriers in the industry
> Basic transportation service is mainly delivered by local haulers,
with few large international players
> Market competition is characterized by low product differentiation
– price is the main competitive lever
2.3%
1.7%
> Process efficiency and network cost are key levers for providers
to reduce price (terminal operation, driver costs, asset costs)
1.5%
0.5%
DB
DHL
Schenker
DSV Dachser Geodis Other
Source: West LB, Roland Berger
> Value added services are offered mainly for MNCs as a
differentiator, by large logistics service providers
> A 40-tons truck from MUC to HAM bears total cost of some EUR 650
and leads to a maximum profit of ~EUR 30 – depending on overall
asset utilization and truck load-factor
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The overall forecast for global transportation needs is very prosperous given stability of current paradimgs (global warming?, free trade?, ...)
World GDP and Export growth [Euro, trillion]
Gross Domestic Product (GDP), Nominal
Exports of Goods and Services, Nominal
25
27
29
31
33
35
38
40
43
46
22 24
125 132
21
118
20
112
17 19
100 105
94
15 16
89
13
79 84
74
70
66
56 60 63
46 48 53
48
51
55
50
45
40
35
139 147
30
> World GDP and trade is expected to
continue growing at high single digit
growth rates (6-7% year over year)
25
20
15
10
5
0
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
Source: IHS, Roland Berger
> Growth of GDP and world exports are
the main external factors influencing
the size of the global transportation
industry
> By 2030 the value of exported
goods/services might have increased
almost 300% compared with 2010
> World exports are forecasted to grow
with a multiple >1 compared to GDP
– indicating a significant growth for
the global transportation industry until
2030
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Individual country performance concerning GDP development & trade
balance is impacting the relevant "Trade Lanes" for hauliers and FWDs
Individual country performance concerning import and export
> Relevant trade lanes derive from individual
country performance concering imports and
exports
> Huge imbalances between exports and
imports are a problem for the transportation
industry (China in the recent years)
> Imports and exports from China, EU, Japan
and the US do by far have the largest impact,
due to the size compared to other trading
regions
> Even micro-economic events can impact the
global transportation industry: An example is
Apple Computers' launch of "The new iPad"
which saw Transpacific airfreight rates soar
with over 20% in less than a week
Source: Drewry, Roland Berger
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Freight rates are becoming increasingly volatile and demand on the
forwarders side for more sophistication of steering purchased capacities
International freight rate development
OCEAN FREIGHT
3,500
High forecast
USD per 40 foot container
> In the current uncertain economic climate,
it is difficult to provide reliable
forecasts for the KPIs driving world trade
3,000
Low forecast
2,500
2,000
1,500
Jan 11
May 11
Aug 11
Oct 11
Dec 11
Dec 12
AIRFREIGHT
5.5
USD per kg
Fuel price based
5.0
4.5
4.0
3.5
Feb 11
Apr 11
Source: Drewry, Roland Berger
Jun 11
Aug 11
Dec 11
> As a result, freight rates are becoming
increasingly volatile, with carriers
adjusting rates based on short-term
capacity and demand development
Dec 12
> Freight rates are expected to rise in 2012
– ocean freight carriers have suffered
large losses and are pushing rate
increases, while rising fuel costs will
force air cargo carriers to increase rates
> Freight forwarders must adapt capacity
management, in order to reduce their
exposure to market volatility
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IV. THE STRATEGIC KEY QUESTIONS: How might the
forwarder's role change within the overall value chain?
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The global forwarder: "... between the chairs" or "... always on the
winner's side"
TRANSPORT MODE
Air
Sea
Land
KEY STRATEGIC QUESTIONS
1
How will the global forwarders' role change
within the value chain?
> Need for forward integration
> Need for backward integration
> Need for innovation and VAS?
2
Which and how many assets does a
forwarder need to leverage market
opportunities and offset threats?
3
What are the underlying market trends?
> By major trade lanes
> By major industry
4
What are the underlying trends on the
capacity supply side (by air, sea, land)?
5
What risk management processes will be
needed?
VALUE CHAIN
Shipper
Global
forwarder
Carrier
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An international forwarder's growth strategy needs to be robust
against different scenario characteristics
Illustrative scenarios
> Strong demand on shipper side –
Forwarder improves towards preferred
supplier position
> Overcapacity on carrier side facilitates
access to cheap capacity – Forwarder is
able to exploit/improve its forwarder
power
> New globally introduced valueadded services strengthen
forwarder's USP's – shippers
steer additional capacity
on forwarder
NETWORK & QUALITY
FORTRESS
> Strong consolidation of asset owners
leads to bottlenecks and significant
margin deterioration of forwarders
2
possible
scenarios
> Increased direct business between
shippers and carriers with significant
volume decline/stagnation for
forwarders
> Volume growth is tendered by
large shipper conglomerates –
sourcing processes put
pressure on forwarders
FORWARDER
UNDER SIEGE
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Two fundamental dimensions determine an international forwarder's
potential move to further secure sustainable growth
Securing price competitive access to cargo
capacity with alternative risk exposure
lower
medium
higher
(only broker)
(fix allotments)
(own assets)
EXISTING MARKETS
Strengthening
commercial
attractiveness
by adding
USP's for
shippers
Excellence
on selected
value chain
items
International
Forwarder
Excellence
on all value
chain items
?
?
?
Which innovations
and value added
services2) does a
forwarder need to
offer in order to
maintain/improve its
role in the transport
value chain?
How much risk1) does a forwarder need
to take in the future to sustain/grow its
market position?
1) To be differentiated by trade lanes
2) To be differentiated by products
NEW MARKETS
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V. THE THREAT: Interesting examples of a similar industry
(fiction for forwarding ... so far)
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Summary: Interesting examples of a similar industry – TOUR
OPERATING
•
•
•
•
•
Tour Operating is a very similar industry:
− trading with capacities (hotel & air),
− brokerage function between customers and hotels/ airlines (bundling of demand and
purchasing big volumes with rebate)
− value added services (packaging, on-site transportation, insurance, ...)
− thin margins, decreasing RoS
Along the value chain, tour operators are intermediaries – so are travel agents, online
portals and destination management agents
New internet based techniques and fueled by a high degree of data standardization have
been resulting into new distribution channels for airlines and hotels
− directly (B2C)
− into travel agencies (stores and online) (B2B)
In essence, the legacy tour operating for package tours in the volume segment will be dead in
the forthcoming 5 years
Some learnings to be transfered into the global forwarding industry?
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Tour operating is a very similar industry
TYPICAL BOTTOM-LINE STRUCTURE
100%
83-90%
10-17%
8-12%
2-5%
Staff cost
Marketing & Adv.
Other Exp.
Deprec. & Rental
Sales
Direct cost
- Airline
- Hotel
- Transfer
GOP
Indirect
cost
EBIT
PROFIT LEVERS
1. Measures "above Gross Operating Profit"
a. Improve revenue by sales and pricing measures
b. Lower direct cost by better sourcing contracts
2. Measures "below Gross Operating Profit"
a. Improve production, sales, service and
administrational processes
b. Reduce staff, material and financial cost
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detailled on further pages
% of
Sales
CHARACTERISTICS
• trading with capacities (hotel & air),
• brokerage function between customers and
hotels/ airlines (bundling of demand and
purchasing big volumes with rebate)
• value added services (packaging, on-site
transportation, insurance, ...)
• thin margins
Along the value chain, tour operators are intermediaries – so are
travel agents, online portals and destination management agents
VALUE CHAIN: ALTERNATIVE LAYOUTS
Description
Value-chain steps
Kunde
RB/
OTA
T/O ZGB-A
Share of
revenue
currently
Expected
development
(5 years)
New internet based techniques and data
standardization have been resulting into new
distribution channels for airlines and hotels
LT
Classical
Value Chain
T/O with
direct sales
Content
marketing via
data bases/
bedbanks
B2C
marketing of
content
providers
~43%
~19%
• Airline aleady publish flights via computer
reservation systems and via own web pages
• A new software provider enables virtual
packaging of independent flight and hotel offers
~7%
~32%
LT: Leistungsträger (Airline, Hotel, Mietwagen), Content Providers
ZGB-A: Zielgebietsagentur, Destination Management Companies
RB: Reisebüro ("Offline Travel Agent")
Quelle: Euromonitor, Roland Berger Strategy Consultants
• Hotels publish fares via selected bed-banks and
via on web-pages
• Legacy Travel Agents use the new techniques
and also build packages
• T/O value-add for specific segments has
vanished completely
OTA: Online Travel Agent
T/O: Tour Operator
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In essence, the legacy tour operating for package tours in the
volume market will be dead in the forthcoming 5 years
PORTFOLIO OF LARGE T/OS
Package tours short-haul
mass market
− high yield market
Package tours long-haul
Individual tours short-haul and long-haul
Specialist tours (sailing, climbing, safari,
diving, ...)
Cruise ship journeys
Retail shops
Destination Management agents
Hotel ownership
COMMENTARY
• For TUI, Thomas Cook, Hotelplan, Kuoni, ... the
package tour business in the mass market have
been the profit machine for the company in
history
• The former value-add of tour operators
(destination know-how, exclusive access to
charter flights, ...) has almost been vanished
• Hotels and airlines have been pursuing a vertical
integration along the value chain
• Tour operators have to refocus their portfolio and
to put more emphasis on value added services,
exclusive hotel access (assets?), destination
based services/ activities and control of customer
experience
• Big question: more invest into assets to ensure
access to exclusive product offeres???
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Some learnings to be transfered into the global forwarding
industry?
•
Replacement tendencies amongst the various players along the value chain?
•
Fight for the ownership of the customer interface?
•
Shift of value-add from providing freight capacities towards value-added services?
•
Online portals for freight capacities and transportation services ... provided some
significant progress concerning data standards is being achieved?
•
Consolidation tendencies within the freight forwarding industry?
•
Stagnation of Western European Markets and shift of activities to BRIC plus Asean-5?
•
Necessary move into assets to ensure unique selling positions and more sophistication
required to steer the increased risk position?
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VI. THE TRENDS: What is impacting the industry with short- and
mid-term relevance
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Key trends in the logistics service provider industry that might
endanger sustainability of current business models
1•
YIELD DECLINE: Shippers and Carriers
negotiate for profit pools
2•
VERTICAL INTEGRATION: Carriers and
shippers increase profit pools by "conquering"
additional parts of the value chain
3•
4•
5•
SHIFT OF KEY TRADELANES: legacy tradelanes dissappear – new tradelanes partially
require adaptations to the FWD's business model
CHANGE OF INCO TERMS (CN): Chinese
shippers tend to move from CIF to FOB for import
business and v.v. for exports
HINTERLAND CONNECTIONS: efficiency of
increasing importance – even an entry condition
for business with Chinese shippers
•6 MODAL SPLIT: Demand shift from air transport to
sea and (increasingly) rail – FWDs need to adapt
business relationships
•7 SPECIALIZATION AND VALUE ADDED
SERVICES: increasingly complex supply chains in
shipper industries will call for increasingly
specialized logistic service providers
8•
•9 GLOBALIZATION VS. REGIONALIZATION? will
the demand for "global total solutions" remain
growing or might the trend reverse back to
regionalization?
•
10
Source: Roland Berger
INDUSTRY SPECIFIC IT: the increasing call for
specialized global FWDs wil also require tailormade
IT solutions
CONTRACT LOGISTICS - CHALLENGES: tendency towards shorter contract life-cycles will
increase hurdles for an appropriate ROI
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YIELD DECLINE: Shippers and Carriers negotiate for profit pools
Yields for global freight forwarders [EBIT RoS-margin, %]3)
Price developments in air- and ocean freight [Index]
120
5.0
Index 2006= 100
100
4.5
80
4.0
60
3.5
40
3.0
Ocean freight1)
20
0
2006
>
>
>
>
Airfreight
2007
2008
2009
2010
2011
2.5
2)
2.0
2006
FORWARDERS IN A SANDWICH POSITION
• Overcapacities in sea/air foster
carrier efficiency initiatives and
thus impact FWD's margins
• Shippers also see themselves exposed to economic
volatility and submit parts of the
pressure to their vendors – FWDs
margin once more impacted
2007
2008
2009
2010
Ocean freight rates declined since 2005
Airfreight rates overall stable – however include significant fuel price increases
For global forwarders, falling rates after procurement are critical, increasing rates after procurement are beneficial
Forwarders' profitability is overall under pressure – new sources of margins to be elaborated (new USPs)
Note: Yield is defined as profit per unit
1) HARPEX container price index
Source: HARPEX, IATA, Linehaul, Annual reports, Roland Berger
2) IATA global air cargo revenue compared to volume
3) Consolidated figure for leading forwarders
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VERTICAL INTEGRATION: Carriers and shippers increase profit
pools by "conquering" additional parts of the value chain
Vertical integration (along the value chain)
Shippers
Global
FWDs
Sea/ Air
transport
Terminal
handling
"Hinterland
transport"/ RFS
Consolidation within the
player's industries
(Horizontal integration)
Shippers
Global
Forwarders
Air/ Sea Carrier
?
e.g. Hapag Lloyd
e.g. Maersk
Terminal operators
e.g. HHLA
Intermodal operators
e.g. Eurokombi
Railway operators
e.g. DB Schenker
> Dilution of traditional division
> Will this become a general trend?
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SHIFT OF KEY TRADELANES: legacy trade-lanes dissappear – new
tradelanes partially require adaptations to the FWD's business model
COMMENTS
2
1
3
Traditional key tradelanes
2020 key tradelanes
1 South America – Asia
> Tradelane is forecasted to cover 5%
of world trade by 2020
> Mainly driven by an increased
consumer spending in South
America
Source: Roland Berger
2 Middle-East, Africa – Asia
> Tradelane is forecasted to cover
18% of world trade by 2020
> Mainly driven by an increased
consumer spending in Africa and
Chinese investment in African
natural resources
> Economic developments have created a
structural change of logistics flows
especially to/from/in Asia
> Production streams are increasingly
being redesigned as manufacturing
costs rise in current low-cost countries
> Basic manufacturing is moving towards
new low-cost locations
> Freight forwarders have not previously
had a strong presence in these
countries and reorganize to support future
growth from these markets
3 Intra–Asia
> Tradelane is forecasted to cover
25% of world trade by 2020
> Growth mainly driven by an
increased trading between emerging
economies in Asia
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34
SHIFT OF KEY TRADELANES
World trade flows are shifting – In ~20 years China will take over
USA's role as the dominant trading nation
TOP 20 TRADELANES 2009
Origin
1 China
2 China
3 Japan
4 China
5 Germany
6 Germany
7 China
8 UK
9 Japan
10 UK
11 Korea
12 UK
13 Hong Kong
14 China
15 France
16 China
17 Netherlands
18 Japan
19 China
20 UK
1) 2009 USD million
TOP 20 TRADELANES 2030
Destination
Value1)
USA
Japan
USA
Korea
USA
UK
Germany
USA
Korea
Netherlands
USA
France
USA
Singapore
USA
Australia
USA
Hong Kong
Netherlands
Belgium
290,960
207,677
146,523
140,342
118,773
113,209
102,171
97,624
69,008
68,062
66,443
62,388
58,016
56,446
54,414
54,163
51,989
45,941
43,319
43,177
Status
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
NEW
NEW
NEW
NEW
NEW
NEW
NEW
NEW
NEW
COMMENTS
Origin
Destination Value1)
China
China
China
China
China
Japan
China
China
Germany
China
China
Germany
UK
China
China
China
USA
China
China
China
USA
Japan
Korea
India
Germany
USA
Singapore
Indonesia
USA
Malaysia
Nigeria
UK
USA
Thailand
Saudi Arabia
Brazil
India
UK
UAE
Australia
594,741
336,183
281,140
263,063
201,382
189,785
178,291
169,356
167,467
162,376
151,570
144,131
143,725
141,201
140,320
136,295
125,826
121,603
120,318
117,340
> New tradelanes grow in
importance for the logistics
industry
> China is expected to be the
dominant trading nation –
15 of top 20 tradelanes will
have origin or destination
in China
> Tradelanes from
developing economies
will be bilateral, instead of
mainly focusing on export to
developed countries
> Shifts focus of the
logistics industry and
creates challenges to build
up a presence in the
emerging markets
Note: Excluded tradelanes that can be serviced without Ocean freight and/or Airfreight
Source: PWC Future of World Trade, Roland Berger
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SHIFT OF KEY TRADELANES
Overland transportation markets in developing economies, lead by
China and India, are outgrowing markets in developed economies
Overland freight (road, rail and inland waterways) markets [billion tkm]
Top regional freight markets 2011
China
6,653
USA
4,886
EU27
2,308
Russia
India
Brazil
2,251
1,793
949
Source: Progtrans World Transport Report 2010/2011; Roland Berger
Top regional freight markets 2020
China
10,619
USA
India
Russia
EU27
Brazil
5,472
3,231
3,160
2,736
1,407
COMMENTS
> BRIC overland transportation
markets will grow at twice the
rate of developed markets
> China and India are forecasted
to see the highest percentage
growth until 2020, growing
annually with over 5%
> Growth markets present key
opportunities for logistics
service providers
> Entering these markets is
challenging, as they are often
less mature and difficult to offer
an attractive USP
Sustainability of Freight Forwarding_fin.pptx
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SHIFT OF KEY TRADELANES
There are three things FWDs need to retain about growing logistics
in China
FWDs need to CONSIDER THE WEST
Growth dynamics across China's provinces
Stronger growth of manufacturing and
trading in Central and Western China
provinces will shift logistics focus away
from the port cities to the hinterland
Heilongjiang
Inner Mongolia
aut. region
Jilin
Liaoning
FWDs need to UNDERSTAND
Chinese AUTHORITIES
Without governmental interaction and
support, larger growth initiatives in China
are doomed to fail (economically)
Gansu
Ningxia Hui aut. regionShanxi
Shandong
Shaanxi
Qinghai
Henan
Jiangsu
Hubei
Sichuan
FWDs to BECOME (more) CHINESE
In order to capture genuine China
business, a certain, yet real domestic
footprint in asset-based logistic activities is
required, which can realistically only be
built up by M&A – with all the potential
pitfalls thereof
Beijing
Tianjin
Hebei
Anhui
Shanghai
Chongqing .
Zhejiang
Hunan
Jiangxi
Guizhou
Fujian
Yunnan
Guangxi
Hainan
Guangdong
Export and Import
above average
Import above
average
Export and Import
average
Export above
average
Sustainability of Freight Forwarding_fin.pptx
37
CHANGE OF INCO TERMS (CN): Chinese shippers tend to move
from CIF to FOB for import business and v.v. for exports
Competitive analysis of bill of lading practices
Market share of international trade in FOB/CIF
Trends in import
Volume
split by
im/export1)
> CIF term is currently more commonly used by
Chinese buyers, but FOB term is on the rise,
which favors forwarders with strong local
logistics capability
54%
CIF
46%
30%
60%
FOB
70%
40%
Exports
– As Chinese importers get more sophisticated in
supply chain mgmt, they are tending to shift to
FOB term in import due to the need to have
more control over supply chain and lead time
– They will likely prefer integrated solution that
encompass forwarding and local logistics (ie
warehousing, transportation) with some value
added offerings
Imports
1) Based on breakdown of air cargo exported/imported in 2009, by tons
Source: Traffic Yearbooks; Expert Interview; Roland Berger Analysis
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38
HINTERLAND CONNECTIONS: efficiency of increasing importance
– even an entry condition for business with Chinese shippers
Land transport – Port hinterland connections
Example Europe – Expected increase in
number of trains over the next 10 years
> USA: "Connectivity issues are a major focus of seaports
Denmark
Northern Ports
Western Ports
W
Lower
Saxony
N
Berlin/
Brandenburg
> INDIA: "Congestion seems to persist at several port
Poland
Saxony
Hesse
Rhineland
-Palatinate
France
nationwide, as essential road and rail networks
experience near-critical congestion." (Florida Seaport
Transportation and Economic Development Council)
Saxony-Anhalt
North-RhineWestphalia
BadenWuerttemberg
Switzerland
Italy
Examples from other continents
> CHINA: Currently few bottlenecks due to:
Czech Republic
Slovakia
Bavaria
locations on account of delayed evacuation of cargo due
to inadequate road and rail capacity" (Secretariat for the
Committee of Infrastructure)
Austria
Hungary
– Heavy infrastructure investments over the last years
– Extensive network of harbors, also in the hinterland at
large rivers
– Special economic zones and industry areas near ports
Future risk of bottlenecks once industry starts to localize
away from ports as salary levels increase
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39
MODAL SPLIT: Demand shift from air transport to sea and
(increasingly) rail – FWDs need to adapt business relationships
Modal split of international trade with China [by value]
After the demand crisis, strong modal share gain of sea
1.422 1.760 2.174 2.563 2.208
100%
80%
60%
Global ocean container and air freight
growth [% change YoY]
Ocean
container
Market share
gain SEA
40%
Air freight
20%
By Sea
61%
61%
0%
63%
66%
65%
Market share
gain AIR
-20%
-40%
-60%
2007
2008
2009
2010
Europe-Asia rail bridge to strenghten rail
By Road
By Air
18%
18%
17%
16%
17%
By Rail
19%
and Others
1%
19%
18%
2%
2%
16%
2%
17%
2%
2005 2006 2007 2008 2009
RAIL
Current share: <1% of total volume
Distance: Approx. 10.000 km1)
Delivery time: 22-28 days1)
Prices: Up to 50% higher than sea freight
SEA
Current share: 99% of total volume
Distance: Aprox. 20.000 km1)
Delivery time: 30-45 day1)
Prices: Price leader
40
Source: CEIC; Roland Berger analysis
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MODAL SPLIT
Growing competition of cheaper transport modes along with growing
capacity will influence the air cargo market
Outside-in view on air cargo trends
DEMAND restricted to value goods
CAPACITY increase expected further
Air share of containerized international trade in terms of weight
and value
Twin aisle aircraft deliveries by region
[Number of aircraft]
3.0%
50%
2.5%
40%
2.0%
30%
1.5%
20%
1.0%
10%
0.5%
0.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
0%
2009
> Lower unit value goods will be diverted from air cargo to other
cheaper, though slower, modes of transport (sea freight,
trucking)
Source: Seabury; IATA; Roland Berger
> New deliveries ordered in "boom" times might be postponed
or only partly cancelled – Still high number to arrive on the
market in coming years
> Due to low fuel price, older, less efficient aircraft stay longer
in operations
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MODAL SPLIT
Regular rail operation between Asia and Europe will have only longterm impact on sea/air freight
Rough estimate of Rail operation impact on container traffic (short to medium term)
VOLUME FAR EAST – EUROPE ['000 EUR]
Assumptions train
> 80 TEU/train
> 10 trains/day
– bottlenecks
– weather conditions
> 360 days
13,513
288
110
Potential
Rail
Trans-Mongolian Railway
Trans-Siberian Railway
Baikal Amur Mainline
Ocean route Hamburg - Dalian
Connection Trans-Siberian Railway - Western Europe
Sea
2009
Air
20091)
> Rail potential only single digit percentages of total volume
> Possibly slightly higher potential in the long term when
bottlenecks can be reduced
1) Assumptions: all freight containerized; 12 tons/TEU
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SPECIALIZATION AND VALUE ADDED SERVICES: increasingly
complex supply chains in shipper industries will call for increasingly
specialized logistic service providers
Extract from RB study "Switch points in logistics"
INTEGRATION
COMMENTS
Tasks will increasingly be integrated and
performed by large businesses offering
complete solutions
EXPECTATIONS
LSP
LSP
LSP
54 %
SPECIALIZATION
LSP
LSP
Specialization and division of tasks between
business will intensify - complexity of supply
chains will require logistics service providers with
specialized knowledge
> Increasingly complex supply chains and intense
product specialization in shipper industries will call for
increasingly specialized logistics service providers
> Value added services: Industry knowledge and
industry-specific logistics solutions have already
become a key requirement to gain customers in
specialized industries such as pharmaceuticals, aviation,
consumer goods.
> Shippers have an incentive to chose several logistics
service providers for their supply chains, both for
reasons of contingency/security and to ensure that the
supply chain is not dependent on one single provider
> Trend contradicts last decade's integration of contract
logistics with other logistics segments, particular freight
forwarding has been integrated with contract logistics
Note: Study conducted with 150 industry experts, University of St. Gallen, and Roland Berger
Source: Roland Berger "Switch points for the Future of Logistics"
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INDUSTRY SPECIFIC IT: the increasing call for specialized global
FWDs wil also require tailormade IT solutions
Extract from RB study "Switch points in logistics"
One global IT standard will emerge in
logistics, to facilitate smooth cooperation
between different logistics service providers
EXPECTATIONS
GLOBAL
STANDARD
COMMENTS
PROPRIETARY
SYSTEMS
59 %
Several proprietary IT standards will be
developed by competing logistics service
providers. Small businesses will have to ensure
compatibility with one or more standards
Note: Study conducted with 150 industry experts, University of St. Gallen, and Roland Berger
Source: Roland Berger "Switch points for the Future of Logistics"
> Proprietary IT systems are expected to emerge after
2015 – critical to achieve process efficiency, service
innovation and product- differentiation & customization
> Recent service innovation/differentiation examples
include capacity platforms1) and dedicated shipper
interaction platforms
> Proprietary IT systems will be a challenge for smaller
logistics service providers, due to the resources
required to develop the systems
> IT service providers will compete to provide platform
solutions for the logistics industry e.g. Oracle and SAP
> Opportunities exist for logistics service providers to
differentiate service offering via current IT interfaces – in
parallel join/drive an emerging global standard early in
its development
1) IT platform to automatically calculate prices, similar to online booking of flight tickets
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GLOBALIZATION VS. REGIONALIZATION? Will the demand for "global
total solutions" remain growing or reverse back to regionalization?
Globalization vs. regionalization – Factors for potential regionalization
Cost efficiency
Environment
Supply Chain requirements
Rise of energy prices
> Increases benefits of
geographically short
material flows
Ecological awareness
> Local products preferred
by customers
Just-in-time delivery
> Flexibility and fast
response times required
Governmental regulations
> Increased governmental
regulations or involvement
in businesses enforces
local / national sourcing
Fast innovation cycles
> Short and quick SC
required
> Low inventories require
Just-in-time deliveries
> Roll-out of new production
techniques more difficult
in decentralized
production
Rising wages in emerging
countries
> Reduces benefits of
remote production
Local unavailability of
resources
> Materials
> Skilled labor
> Water & Energy
Impact of factors on regionalization:
detrimental
neutral
favorable
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45
CONTRACT LOGISTICS - CHALLENGES: ten-dency towards shorter
contract life-cycles will increase hurdles for an appropriate ROI
Extract from RB study "Switch points in logistics"
STABILIZATION
COMMENTS
Product life cycles will stabilize or lengthen
due to the development of robust "base
items" that permit design changes or
functionality updates
EXPECTATIONS
Sales
68 %
EVER
SHORTER
Time
Product life cycles will decrease further as
technological innovations and changing consumer
taste require complete product replacements at
increasing frequencies
> Product life cycles are expected to shorten further,
which creates challenges for contract logistics providers
– shorter lifecycles lead shippers to push for shorter
contract periods
> Current volatile logistics environment (freight rates, oil
prices, economic crises) means that shippers are
conservative and try to reduce their risks by avoiding
long contract periods
> Setting up contract logistics operations are related to
financial investments, which was previously recouped
through longer (5+ years) contract periods
> Shorter contract periods means that the time to
generate return on investments is reduced – this
transfers risks of the investment from the shipper to the
logistics service provider
Note: Study conducted with 150 industry experts, University of St. Gallen, and Roland Berger
Source: Roland Berger "Switch points for the Future of Logistics"
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VII. THE OPPORTUNITIES: Moves to sustain business medium
term
Sustainability of Freight Forwarding_fin.pptx
47
The opportunities: Moves to sustain business medium term
•
Critically review overall portfolio of logistics
activities
− question exposure to contract logistics
− question exposure to overland transportation
− focus on core competencies
− think about partnerships with carriers
•
Capture Chinese tradelanes
− understand needs of Chinese customers;
broaden customer scope away from only EU
based MNCs
− invest into local warehousing and distribution
capabilities
− build-up regional management representation
•
Develop industry-specific forwarding solutions
− professionalize industry specific sales
approaches
− develop industry specific VAS
− develop industry specific IT solutions,
supporting the VAS
•
Re-think purchasing strategies of transport capacities
− develop different models of purchasing – trade-lane
specific (fixed, ad-hoc, mixed forms, ...)
− develop more sophistication of capacity steering
mechanisms
•
Continue with cost-slimming concerning the indirect
cost
− business off-shoring of parts of IT, payroll, accounts
payable/ receivable
− overall review of make-or-buy
− standardizing IT and related processes to the
maximum
− e-transformation of all paper-work processes
(shipment docs etc.)
− continuous process improvement and organizational
shaping
− find the right balance between central functions and
duplication of regional functions
•
...
−
...
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thanks for your attendance
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