Category: Logistics

At the 3PL & Supply Chain Summit in Brussels, Sander Breugelmans, vice president at logistics real estate major Prologis, spoke on the need for businesses to nurture a fresh perspective towards retaining their warehousing workforce when faced with a market grappling with labor shortage. 

Breugelmans started by highlighting the conversations Prologis has with its customers to understand the fundamental reasons why they choose specific locations for their warehousing space and the various pain points they face in their business. “One of the topics that has come back again and again is the issue of retaining high-quality labor,” he said. 

Figuring out a way to retain a skilled workforce is critical to the functioning of a warehouse because those workers makes up a considerable portion of its operating costs. This requires businesses to be wary of their labor turnover rates, as a constant hunt for new talent will strain their already strained budgets. 

Recently, Prologis joined Eye for Transport to conduct a survey with 206 warehouse businesses, which revealed that labor scarcity and the perennial need for retaining workers to be the primary drivers for decision-making. 

“What we found is that 85% of all the people that work in distribution centers live within a 30-kilometer radius of the warehouse. That’s important as it explains why relocation in a very tight labor market like today is not an option for many companies,” said Breugelmans. “If you relocate, you run a very high risk of losing your employees, and trying to get new employees in the labor market can be very difficult.” 

As a corollary to this observation, businesses are increasingly looking to move their warehousing operations closer to densely populated areas because that will give them an edge in recruiting and retaining skilled employees. 

“Prologis is very focused on developing properties that are very well located and easily accessible, both by car and by public transportation. If public transportation is not there, we try to work with local municipalities and transit authorities to get public transport close to our buildings,” said Breugelmans. 

The space within the warehouse is also being improved. Prologis is developing spaces that can maintain good lighting and air quality within the premises, while also ensuring the environment is aesthetically pleasing to the workers. 

“Lights make a huge difference in the perception that people have of space and whether or not they feel pleasant working in that space. We also found that incorporating plants really creates a feeling that people have when they are at home,” said Breugelmans. “We also work on making our warehouses sustainable by using solar panels and by trying to minimize our carbon footprint.”

Prologis has also been experimenting with ridesharing across Central and Eastern Europe and has set up websites and apps where people can sign up and share cars together. “We found that when people share rides, it is sustainable and saves money. It also creates a sense of community, which is key when it comes to labor retention,” said Breugelmans. To foster a sense of belonging, Prologis builds restaurants, parks and even football fields in the warehousing vicinity, to help the workforce gel well after work. 

To increase the pool of skilled labor, Prologis works with municipalities and education centers to effectively train people and get them initiated into a career within the logistics space. “Once municipalities identify people in labor markets, we invest in education centers to get them the right training. This gives our customers access to a bigger workforce and also helps the communities in which these people work and live,” said Breugelmans.

Shippers are rapidly relocating distribution and storage capacity to continental Europe ahead of the U.K.’s expected exit from the European Union (EU).

Britain is scheduled to ‘Brexit’ the EU with no deal on 31 October although multiple outcomes are still possible. However, as reported in FreightWaves, even if a no-deal Brexit is somehow avoided this month, the U.K.’s anticipated eventual departure is already reshaping the European logistics landscape.

Anecdotal evidence that this trend is in full flight was readily available on a fact-finding logistics tour of the Netherlands by FreightWaves last week.

Cuno Vat, CEO of Neele-Vat Logistics, a Netherlands-based logistics provider, said that while the uncertainty around Brexit had been confusing for business, new opportunities have emerged.

“We’ve seen a five-fold increase in requests from overseas companies currently with setups in the U.K. that want to redesign their supply chain. They are considering the Netherlands as a location and want us to be their business partners,” he said.

Vat explained that during the 1980s and 1990s many companies from North America and Asia established European bases in Britain to benefit from the advantages of English as a first language, openness to immigrants, a reliable legal system and relatively low taxes. Yet with Brexit threatening labor shortages, customs checks and other transactional costs, many have changed tack and are now looking to continental Europe for safe haven.

For some manufacturers, in the food industry for example, this is a short-term risk management play – they are building up temporary inventory on both sides of the English Channel to guard against short-term Brexit logistics chaos. However, others are making substantial, long-term commitments to shifting large parts of their businesses out of the U.K.

“Some companies only need temporary storage around the Brexit deadline in October, as they did in late March, the previous Brexit deadline,” said Vat. “We make money on this business, but we know it won’t last.

“Others are relocating from the U.K. to continental Europe; here [The Netherlands] and to other places. An enormous amount of new warehousing has been built and that demand has been picked up.”

He was not alone in noting that many shippers are already transferring storage and distribution networks out of the U.K. in anticipation of increased transactional costs at the U.K. border.

Stan de Caluwe, senior supply chain solutions manager of the Holland International Distribution Council (HIDC), told FreightWaves his organization was in talks “with various logistics companies at the moment” about moving from the U.K. to the Netherlands, transfers HIDC helps to facilitate.

“Many are starting with additional solutions such as a second hub here and one in the U.K., then longer term are looking to move their European distribution center here and will then service the U.K. from here.”

De Caluwe said that as the center of gravity in Europe shifts eastwards post-Brexit, this will drive demand for storage and distribution capacity not only in the Netherlands, but also in western Germany and Belgium.

He takes the view that “the main entry points will still be in the west of Europe,” especially via the port of Rotterdam and Amsterdam Airport Schiphol, which will ensure the Netherlands maintains its prized “gateway” status.

He said interest in transferring operations was particularly enthusiastic among the financial technology, health, life science and health sectors. “Many have licensing issues if they aren’t located in the European Union when Brexit happens,” he added. “So those companies are in a hurry.”

Jorn Douwstra, business manager for international trade and investment at Rotterdam Partners, also confirmed the trend, noting that financial and insurance companies had already moved to the Rotterdam area to avoid licensing issues.

“We think that a lot of multinationals already have a plan to move,” he said. “A lot of small businesses in the U.K. don’t know what to do and are waiting until there’s a final decision on Brexit. And we see a lot of mid-size companies trying to make up their minds.”

Douwstra continued, “If they have a large market share in mainland Europe instead of the U.K., then for a lot of companies it’s beneficial to try to open a warehouse here to serve those clients, especially if they ship goods from outside the EU because you don’t want to have dual tariffs.”

Michiel Bakhuizen, strategic adviser for the Netherlands Foreign Investment Agency (organizers of the fact-finding tour), believes many companies are keeping their options open but if a no-deal Brexit proceeds, they will be ready to move after a relatively short interim period.

“They really want to be sure that a no-deal Brexit is definite before investing the amounts of money needed to move over to the Netherlands,” he added.

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With container line stakeholders facing an additional $11 billion fuel bill next year due to the switch to low-sulfur fuel oil, shipping consultant Drewry has joined with the European Shippers’ Council (ESC) to launch a new bunker adjustment factor (BAF) indexing mechanism.

The two parties believe their simplified BAF indexing mechanism and bunker charge guide will help shippers monitor and control bunker costs as shipping lines switch to the more expensive bunkers required under the IMO 2020 low-sulfur regulation that becomes mandatory Jan. 1.

As reported in FreightWaves, “bewildered” shippers and forwarders have expressed confusion over the timing and transparency of new charges now being introduced by container lines as they phase in low-sulfur IMO 2020 compliant fuels and pass on higher costs to customers.

Shippers are also wary that container lines might hike the fuel component of freight to compensate for bearish spot rates.

For their part, carriers have insisted they will only charge for the “extra cost of compliance” as they phase in the new fuels.

ESC and Drewry drew on shipper input in establishing their new indexing mechanism. The process of adjusting BAFs is streamlined by identifying common standards and definitions for bunker price measurement periods, BAF adjustment periods, fuel reference prices and transparent indexing formulae.

“By giving to shippers the possibility to better analyze present and future types of fuel costs, this toolkit is representing a significant step towards a more transparent framework for the best interests of all parties,” said Jordi Espín, maritime policy manager at ESC.

Step one of the process sees the shipper and the provider agree on the “baseline” initial bunker charges and the link to the baseline external fuel price at the start of the contract. For the period of the contract, revised bunker charges are calculated based on the previous quarter’s average price. They are then applied contractually to the following quarter with no need for negotiation.

“BAF charges are updated once a quarter with a lag time of one month to allow parties to update their respective invoicing and purchasing systems,” said a statement.

“Consideration is given to an additional ‘interim’ BAF adjustment to address the risk of huge volatility in the early prices of the new fuel.”

The indexing mechanism tracks and applies the change seen in any relevant bunker price index — global, basket of regional or regional — as compiled and published by any neutral third party, including Drewry.

Philip Damas, head of Drewry Supply Chain Advisors, claimed the ESC-Drewry IMO 2020 toolkit and its indexing mechanism would help improve transparency and fairness in how extra fuel costs incurred by shipping lines and forwarders due to the new regulation were passed on to exporters and importers.

More FreightWaves articles by Mike

Maritime carriers are leaving up to US$110 on the table every time they carry a box, according to research from startup MizzenIT. And that means ocean carriers could be missing out on hundreds of millions of dollars a year by not charging the right price. 

Glenn Butcher is a venture capitalist and the chairman of MizzenIT. He told FreightWaves that if the number of TEUs shipped on the spot market was multiplied by US$110, then “it’s a very large number. It’s indicative of the opportunity,” he said. 

Butcher added he was “surprised at the bottom-line impact. No fundamental change is required. New ships aren’t required. It all flows through to the bottom line.”

Ocean container shipping companies miss out on generating hundreds of millions of revenue dollars each year

No one appears to know exactly how big the world container trade is by box volume, which is expressed in twenty-foot equivalent units (TEUs). But, to put the scale of the discovery into context, we do know from recent reporting that China alone reported 127 million TEUs in port throughput in the first half of 2019. Meanwhile, the top 25 ports in the U.S. handled 51.1 million TEUs in 2017.

We can get a better idea of the context by looking at the accounts of a large ocean container shipping company such as Hapag Lloyd. The liner company carried just under 11.9 million TEU in 2018. Digging into the 2018 accounts reveals that Hapag Lloyd directly earned EUR 10.5 billion (US$11.6 billion) from the transport of ocean shipping containers.

Assuming 30% of its boxes are carried on the spot rather than the contract market means that just under 3.6 million of the total boxes carried had variable rates. Assume further that Hapag Lloyd missed out on US$110 on each of those spot market boxes. 

That’s roughly an extra US$391.8 million that the company (theoretically) has left on the table. 

A pretty good boost to profit

There’s a lot of assumptions there, but it does give an indication of the potential size of the opportunity. And, while the extra monies raised would be written into the account books as revenue, as there are no extra costs associated or incurred in generating that revenue it would immediately boost profits.

Hapag generated US$1.35 billion in earnings before interest taxation and depreciation in 2018. The money left on the table would boost EBITDA to just over US$1.74 billion. 

That’s a 29% increase. 

It’s a pretty good boost to profit for simply charging a more market-calibrated price. 

Frustrated with stagnant prices

MizzenIT founder and managing director Jon Charles, a former ocean container line trade manager, explained the origin of his search for liner shipping’s lost opportunities.

“Anecdotally, and because of my background, I knew there was a disconnect. … Back in my time as a trade lane manager, we had all this cargo backlog on the wharf. But prices didn’t rise! I was frustrated,” Charles told FreightWaves in an interview.

This massive opportunity cost of US$110 per TEU shipped is being incurred because of outdated practices used by the international ocean shipping industry. Charles elaborated on why ocean shipping companies have not exploited this revenue opportunity.

Supply, demand and price disconnect

In a written statement, he explained that ocean shipping prices are set by date and not by ship’s voyage. As any slot on any vessel can be booked by date, regardless of whether the ship is empty or full, there “is a disconnect between price, supply and demand.”

Secondly, there is little in the way of “market-wide” data on cargo demand, shipping capacity and price, which means that prices are set based on a shipping company’s internal data. While he acknowledged that various consultants and other parties have tried to create freight rate transparency, these tend to be focused on one trade lane. 

Charles queries, for instance, how one trade lane on the Shanghai Containerized Freight Index, which gives freight rate information for the Shanghai-Melbourne port pair for a 20-foot box, can be representative of the whole of Oceania.

Current pricing is just a “best estimate”

Charles pointed out that the SCFI doesn’t give details for other port pairs or container types, such as, say, for a 40-foot high cube from Wenzhou, China, to Sydney.

“Pricing is a best estimate only and [is] not driven by broader, real-time data, which, until now, has only been available weeks after the given trading period,” Charles noted.

Finally, Charles argues, shipping lines offer limited product choices. He pointed out that customers can take the spot price but then forgo booking certainty in the peak season. Or, alternatively, they can contract but then forgo the price flexibility of the spot.

“These factors all combine to lower efficiency, and ultimately, profitability,” Charles wrote.

Methodology… how to find all the missing money

MizzenIT set out to discover just the size of the opportunity cost. After receiving a federal government grant from the APRIntern programme, Charles got in touch with the Centre for Artificial Intelligence at the University of Technology Sydney (UTS) in Australia. Associate Professor Farookh Khadeer Hussain and PhD candidate Ayesha Ubaid worked to model the interactions between the Australia-Asia container trade lane, shipping capacity and TEU volumes. They used artificial intelligence to develop a price-prediction system.

MizzenIT modeled weekly shipping capacity using actual vessel-in-trade data. Cargo demand was also modeled. Data sources included port authority data, the SeaIntel TCO report, the Shanghai Containerized Freight Index (Australia/New Zealand route) and MizzenIT’s own price database.

Next step: just how much revenue are ocean carriers not catching?

The next step was to figure out the opportunity cost.

“The opportunity cost is deemed as the variance between the SCFI price and calculated optimal price multiplied by the percentage of cargo carried on the spot market and therefore open to the levied optimal price.

The assumption taken was 30% of cargo carried on the Asia/Australia trade could be charged at the optimal price each week,” Charles wrote.

That allowed MizzenIT to discover the hidden price gap in ocean container shipping, which, in 2018, was US$110 per TEU.

“I knew it was going to be significant,” Charles told FreightWaves. He added, “It reinforced what we are going to do as MizzenIT.”

Digitalization will transform ocean shipping

MizzenIT was set up to help bring transparency to the shipping market by providing dynamic pricing and rates information. Both Charles and Butcher see MizzenIT as being at the forefront of a transformative digitalization of the shipping industry.

They gave examples of how digitalization can help improve the ocean shipping industry. For instance, Butcher and Charles said that five of the top 12 ocean carriers won’t let a potential customer instigate a rate inquiry or quote from their homepages. 

They also pointed out that ocean carriers in Australia operate out of Melbourne and Sydney on the east coast but that a lot of customers operate out of Perth on the west coast. There’s a time zone difference of about four hours. It’s a bit like, say, the time and distance difference between Los Angeles, California, and Jacksonville, Florida.

Potential liner shipping customers “make a pricing request but no one answers the phone as carriers have gone home,” Charles said.

Shipping is focused on efficiency and not revenue growth

When FreightWaves asked why, in today’s world, not all of the main shipping companies offer live quotes and do not run 24-7 booking operations, Butcher said that the shipping industry has been focused on efficiencies and not on growing revenues.

“Cost is controllable,” Butcher said.

Charles also argued that shipping companies have tended to look at digitalization as an information technology project.

“IT is about cost saving. Digitalization is about revenue streams. Too many look at digitalization as an IT project. There’s a shift in mentality though. People are bringing in outside expertise. We met our first chief digital officer in Singapore a few years ago. There are a few leaders — Maersk, CMA CGM and so on,” Charles said.

About MizzenIT

MizzenIT helps shippers, forwarders and carriers tackle these problems through its digital platform. Interested shippers and forwarders can hop onto the MizzenIT platform and search ocean schedules, get live shipping line quotes and book. Carriers provide pricing and rules around pricing; meanwhile, MizzenIT automates quotes on behalf of the carrier.

For instance, interested parties can get more than 100 instant southbound port-pair rates from ocean shipping carrier ANL. The company works with a variety of ocean carriers including APL, CMA CGM, Evergreen, Hapag-Lloyd, Hamburg Süd, HMM, Maersk, MSC and OOCL.

MizzenIT was set up in late 2016. Neither revenues nor profits of the company are disclosed, although FreightWaves was told that the company has 120 freight forwarders as customers in Australia along with some mid-tier multinationals and small to midsize enterprises.

“We want to change the world”

It’s still very much early days for MizzenIT. So far the founding groups and high net worth individuals have chipped into the seed funding of MizzenIT. There are no concrete plans for an investment roadshow and there is no institutional money in MizzenIT — “not yet. But we are open to it,” Butcher said.

FreightWaves quizzed Butcher and Charles on the end game for MizzenIT, such as a trade sale or an IPO. 

“There’s lots of goals and options. Nothing is ruled out. We’re driven by a desire to change the industry. We want to change the world,” Butcher told FreightWaves. 

Spot rate losses by carriers are self-inflicted and will undermine annual Asia-Europe contract negotiations with shippers later this quarter, believes one leading analyst.

Entering the fourth quarter, it was clear that the introduction of new IMO 2020 low-sulfur fuels, a rise in oil prices following drone attacks on Saudi oil fields and the ongoing U.S.-China trade war would prove disruptive, with carriers expected to continue their strategy of heavy blanked sailings to prop up rates during the traditional slack season.

However, analysis by Drewry claims some lines, certainly on Asia-North Europe trades, have misjudged the market this year, undermining their own efforts to generate profits. It points to ample evidence that carrier rate cutting has resulted in them missing out on the benefits of stronger than expected demand growth.

“The disconnect between supply and demand fundamentals and freight rates is indicative of a return to predatory pricing on the part of some carriers within the trade, undermining the positive demand story,” said the analyst in a note.

“Unless lines match pricing discipline to that shown for capacity it will be for nothing.”

Drewry’s case is persuasive. Westbound demand on the Asia-North Europe container trade has exceeded expectations this year, a trend that should have helped to counteract the influx of big new ships and maintained load factors at roughly the same levels as last year, in the mid-80% range.

Headhaul demand on Asia-North Europe trade was up by 5.9% in the first eight months of the year, according to data from CTS. This compares to the 2.9% annual growth registered last year.

“The trade appears to be benefiting from trade diversion related to the U.S.-China trade war, with Chinese exporters looking to Europe to fill the shortfall of U.S. traffic,” noted Drewry.

Even though growth has slowed in the second half of the year, westbound volumes still expanded by 3.4% and 3.8% in July and August, respectively, and Drewry believes lines enjoyed 12-month rolling growth rates of nearly 6% through August.

However, despite the positives, spot market freight rates have not recovered from a first-quarter slump and are currently tracking at their lowest levels this year. The Freightos Baltic China/East Asia to North Europe 40-foot container index dropped 1.15% in the week to Oct. 13, for example, while the Freightos Baltic Daily Index tracking the cost to ship a box on the China-to-North Europe route (SONAR: FBXD.CNER)  is down 17% year-on-year, and the Freightos index covering the China-to-Mediterranean lane (SONAR: FBXD.CMED) is down 6% year-on-year.

More concerning for lines, a number of analysts, including Maritime Strategies International and Alphaliner, have predicted rates will slip in the coming weeks as demand tapers.

For its part, Drewry believes the demand up cycle enjoyed on the trade for much of the last 12 months is now drawing to an end. “The third-quarter peak season did not witness any rolling of containers and given the amount of capacity that is being withdrawn it would appear that the lines themselves are not expecting any cargo surge,” it said.

Drewry noted that while liner capacity retrenchment has helped westbound utilization gradually rise since February, spot market freight rates have not responded positively. “There was clearly an element of rate cutting going on and if that hasn’t been eradicated, lines are unlikely to realize the full benefit of the planned capacity reductions,” Drewry added.

With both demand and spot rates expected to be tepid in the coming weeks, lines will be at a disadvantage in Asia-Europe annual contract negotiations with shippers.

“The concern now among carriers must be that with the annual beneficial cargo owner service contract negotiations looming on the horizon, whatever gains are made in terms of higher bunker surcharges will be negated by lower ocean rates for 2020 contracts,” concluded Drewry.

The only positive? “An earlier Chinese New Year, beginning Jan. 25, might offer some assistance to contract negotiations by boosting activity in December,” said the analyst.

FreightWaves articles by Mike

The average size of container ships deployed on the Asia-Europe and trans-Pacific trades is continuing to rise as carriers take delivery of ultra-large vessels.

According to the latest analysis by Alphaliner, container lines are removing smaller vessels on the world’s two highest volume box shipping routes and replacing them with larger vessels best able to generate economies of scale, a strategy that is helping offset bearish freight rates.

“This year saw the departure of the last 4,200- to 5,500-TEU ships from the Asia-Europe routes, following ZIM’s decision to withdraw the Asia-Mediterranean ZMP service in March and HMM suspending its Asia-North Europe AEX service in August,” said Alphaliner in its latest weekly report.

“Widely used on the Asia-Europe trades 15 years ago, tonnage of this size class was now been completely displaced by ships that are — most recently — up to four times larger than their predecessors in the mid-2000s.”

In July, MSC deployed the first 23,700-TEU “megamax-24” vessel on the Asia–Europe trade and an additional five units have been delivered in the last three months.

“Twenty-four such ships from various carriers will join the world fleet before the end of 2020,” reported Alphaliner. “All these ships are earmarked for the Asia-North Europe trade, where average vessel size is expected to reach 17,000 TEU by September next year.”

MSC deployed the first 19,000-TEU megamax units on the Asia-Mediterranean route in March, pushing the average vessel size on that trade lane to 12,600 TEUs.

“The Asia-North America routes also saw average vessel sizes increase, but this year the pace has been slower, compared to the Asia-Europe trades, as carriers took a more cautious approach in the face of slower demand growth in the U.S.,” said Alphaliner.

The analyst also reported that the number of inactive container ships is on the rise as lines push ahead with scrubber retrofit programs to avoid exposure to higher fuels costs when IMO 2020 low-sulfur fuels become mandatory on vessels not fitted with abatement technology at the start of next year.

“The inactive containership fleet has risen sharply over the last two weeks to reach 180 units for 753,819 TEU as of 30 September, or 3.3% of the total fleet,” said Alphaliner.

A further increase in the inactive fleet this month is forecast due to the impact of void sailings and the  continuing stream of ships entering docks for scrubber retrofits. “Carriers have announced further void sailings in November in response to weak cargo demand, which could see the inactive fleet remaining above 800,000 TEU for most of the fourth quarter,” said the analyst.

FreightWaves articles byMike

Medical marijuana firm AMP German Cannabis Group announced that it will begin auditing its supply chain in accordance with the European Union (EU) Good Manufacturing Procedure (EU-GMP) to “ensure the quality and integrity of pharmaceutical goods” as they move through the supply chain from the supplier to the German patient.

Legalization of medical marijuana in Germany happened fairly recently (in 2017), while recreational cannabis continues to remain illegal. Nonetheless, even with medical marijuana being legal, patients still face significant difficulties in procuring it as Germany contends with supply shortages and unnaturally high shelf prices.

This ultimately boils down to the confusing reality of laws that govern marijuana in Germany. Since marijuana is still classified under narcotics and carries a state prohibition on its growth, sale and distribution, domestic cannabis fields cannot exist in Germany – making patients rely entirely on pharmaceutical imports for their needs. 

Recognizing a huge opportunity, several foreign pharmaceutical companies have taken an interest in importing medical marijuana in Germany. A growing number of doctors jump onto the cannabis bandwagon every year, endorsing cannabis therapies for a variety of ailments, and thus creating a perfect recipe for the medical marijuana supply chain to flourish. 

For AMP, the EU-GMP certification will help push products earmarked to meet the highest consumer health and safety standards. Meeting these standards will also ensure a more effortless entry into the German market. 

“In addition to ensuring the suppliers’ production and operating processes meet EU-GMP certification standards, AMP’s German pharmaceutical consulting partner will audit AMP’s supply chain service providers during the fourth quarter of 2019 to ensure the quality and integrity of the pharmaceutical goods is maintained during transportation, warehousing, handling, testing and distribution,” said the company in a statement. 

The idea of EU-GMP certification apart, global cannabis supply chains can also look to leverage the technology of blockchain to bring transparency and visibility into the movement of marijuana from the field to the pharmacy counter. Blockchain can also ensure accountability from every stakeholder across the value chain, as the decentralized ledger technology demands equal participation and responsibility from every party involved. 

Pushing all the stakeholders onto a single decentralized blockchain network will also eliminate possibilities of counterfeit cannabis products making their way into the supply chain. Marijuana cultivation produces a lot of waste and some plants die along the way, which makes it vital to keep an accurate measure on the volume of harvested cannabis to ensure safety. 

AMP expects its first imports into Germany to begin by the first half of 2020. AMP will be procuring its medical cannabis from two licensed producers based in the state of Alberta, Canada. The supply agreements will be made more concrete once these producers clear the audit for EU-GMP certification and receive their sales license from Health Canada. 

AMP will check the medical cannabis products before they are transported from Canada to Frankfurt, Germany, via air freight. Upon landing in Frankfurt, the products will be stored at a narcotics storage facility. The products will be inspected one last time before they are cleared to be sold to German pharmaceutical wholesalers. These wholesalers will only be allowed to sell the stocks to pharmacists who are contractually bound to AMP for their medical cannabis supply – thus ensuring strict accountability over the cannabis inventory.

The logistics landscape of northern Europe is about to be reshaped, changing the continent-wide flow of goods by all modes, according to Wolfgang Lehmacher, leading logistics consultant and the former head of Supply Chain and Transport Industries at the World Economic Forum in Geneva and New York.

The catalyst for this change will be Britain’s scheduled exit from the European Union (EU) on October 31. However, even if a no-deal Brexit is somehow avoided this month, Lehmacher believes the eventual departure of the U.K. from the EU will have a major impact on the logistics landscape of the continent and the supply chain strategies of shippers.

“Supply chains perform best in fluid and stable environments,” he said. “Both factors are negatively impacted by Brexit.”

As previously reported in FreightWaves, a no-deal or disruptive U.K. exit from the EU will have catastrophic implications for Europe’s trucking companies and supply chains. Holger Bingmann, head of the foreign trade industry group BGA, said recently that German businesses were already suffering from the potential exit of the U.K., detailing losses to German exporters of €3.5 billion ($3.843 billion) this year.

Lehmacher takes a long-term view. He argues that supply chain design is a function of market size; a point equally valid for upstream procurement activities and downstream distribution and after-sales. “Larger markets have their own consolidation points or hubs benefitting from larger volumes and scale, while smaller markets are served directly from outside or smaller in-country warehouses, at higher cost,” he added.

“When the U.K. separates itself from the world’s second largest trade bloc, regardless of the efficiencies the U.K. may achieve at its borders, the barrier becomes an additional stop and incremental cost in the supply chain of a not so large market,” Lehmacher explained.

He continued, “So, of course, Brexit changes where goods are manufactured, stored and how they are routed during the distribution process.”

As a result, Brexit of any form will erode the U.K.’s role as a gateway to the continent, with many manufacturers expected to migrate production and distribution of EU goods out of the U.K. to continental Europe. U.K. ports will also lose volumes.

“Post-Brexit, the U.K. cannot function any more as a key entry and exit gateway of the EU,” Lehmacher said. “Too many factors may hinder the fluidity of the supply, ranging from administrative burden, to potential delays.”

He added, “Flows of goods that can, will avoid the U.K. and U.K. warehousing and distribution facilities will be closed and reopened in markets in the EU, mostly in the Benelux countries where most of the EU distribution centers are located.”

As the European supply chain and logistics map shifts towards a more continent-centered model, U.K.-based European hubs will become the exception. “The shift within manufacturing networks and transfers of European distribution centers from the U.K. to the European continent will strengthen the Benelux nations, Germany and France as logistical platforms in the world of global commerce,” said Lehmacher.

“Ports there have the necessary capacity and the warehouses space will be created to absorb the additional volumes.”

Lehmacher expects the port of Calais in France and the U.K.’s port of Dover located on either side of the Channel to become major infrastructure bottlenecks if customs checks are required post-Brexit. Irish companies will increase their efforts to circumvent the U.K. land bridge by using direct routes between Dublin and the continental European ports.

Essentially, Brexit impacts three freight flows, he explains. The first is outbound products of U.K. origin destined for other EU markets and countries that have an agreement with the EU. The second is merchandise entering the U.K. from EU nations and countries that have trade agreements with the EU. Third are transit flows originating in markets outside the EU that currently transit the U.K. that are destined to other EU markets and vice versa.

Taking those flows into account, Lehmacher expects the chief supply chain officers (CSCO) of Beneficial Cargo Owners (BCO) to be most concerned with ensuring the fluid flow of goods across their manufacturing network or footprint.

 “The EU is the U.K.’s largest trading partner, accounting for approximately half of both imports and exports of goods and the smooth flow of goods is the objective of CSCOs,” said Lehmacher. “As they plot new strategies, they will forecast likely changes in demand, sourcing partners and countries for materials, parts and products, and the kind of products they have to ship today and tomorrow,” he said. “Then they will scrutinize potential areas of risk, delays and disruptions along the chain, and tools which can help them rationalize a new strategy.”

U.K.-based firms in the food and drink, chemicals and automotive sectors will be most seriously impacted by Brexit. For example, automotive manufacturers, with their low margin business models and vulnerable, just-in-time supply chains will be heavily impacted by tariffs and border friction.

“They are left with little choice,” he said. “BMW is considering transferring production of its Mini brand from the U.K. to the Netherlands and Honda will be shutting down its plant in Swindon by 2021. Ford has confirmed that it will close its Bridgend engine plant in September 2020 with the loss of 1,700 jobs. This will burden an industry in decline and reduce further the automotive transport flows between the U.K. and other EU markets.”

Chemical supply chains will also experience disruption. “GSK estimates that its costs caused by Brexit could be up to £70 million ($88 million) over two to three years alone,” said Lehmacher. “The U.K. government estimates that the chemicals industry must factor in £400 million ($439 million) to reregister chemical products.”

And he believes the U.K.’s pharmaceutical business is in jeopardy too as access to the EU’s 446 million potential patients and customers risks being diminished. “U.K. patients might also suffer as 73% of pharmaceuticals are imported from other EU countries,” he added.

“The pharmaceutical industry, as with other sectors, has been stockpiling products in the U.K. for months leading to a shortage in warehousing space. Increasing stocks of medicines has been just one Brexit contingency measure, next to changing and adding new supply routes and duplicating manufacturing processes.”

As for food, in a post-Brexit world the U.K. is forecast to struggle. “The U.K. food supply chain will experience decreased competitiveness in exports and increased prices of agricultural imports,” he said. “Forty percent of the food consumed in the U.K. is imported. Several non-EU countries are preparing to take a part of that share. Import and export volumes are expected to decline, whether to EU markets or beyond, requiring an adjustment of transport and logistics capacity. Demand is expected to decline due to increasing food prices.”

The good news for the U.K.? Lehmacher believes its leading position in services will help the economy. “Services is a market that already exceeds that in goods when measured in value-added terms and it is growing more than 60% faster than the goods trade globally,” he said. “Telecom, IT and business services are growing two to three times faster. This presents an important opportunity for the U.K., considering that the services sector is less dependent on proximity to markets.

“Finally, the pressure resulting from Brexit might motivate U.K. enterprises to increase the adoption of digital solutions in supply chain management from currently 12% to the 30% achieved in Germany.”

Rhenus Logistics will roll out more of its iconic, eco-friendly distribution centers (DCs) as it expands its global network.

Enlargement of the third-party logistics (3PL) provider’s forwarding and logistics footprint in North America is top of the agenda.

Alphons van Erven, senior vice president of Germany-headquartered Rhenus Logistics, told FreightWaves “the money is there to invest” with Rhenus looking to build out its global network through organic growth and acquisitions.

“We have been making six to 10 acquisitions a year and we are building our global footprint. That strategy will continue, including building up our network in the U.S. where we currently don’t yet have a big presence,” he said.

Rhenus Logistics now employs over 31,000 people worldwide and declared revenues of 5.1 billion euros ($5.6 billion) in 2018.

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At the end of last year Rhenus Logistics opened ‘Rhenus A58’ – locally known as The Tube. The DC is widely lauded as one of the world’s most innovative and sustainable, achieving a record 99.48% Building Research Establishment Environmental Assessment Method (BREEAM) score for an industrial building.

The DC, located on the A58 highway in Tilburg, The Netherlands, is fully bonded and features storage space of 60,400 square meters (650,000 square feet), 16,000 square meters of temperature-controlled mezzanine space and an Autostore storage system.

Rainwater is used to flush toilets and storage areas are open to daylight to improve working conditions. Most impressively, the center’s roof is fitted with 13,640 solar panels that generate 4.2 megawatts of electricity each year, more than 75% of which is sold and used to power local homes.

Speaking during a logistics tour organized by The Netherlands Foreign Investment Agency, Erven told FreightWaves the design approach would next be deployed in Eindhoven, The Netherlands, “in the next three years” when an existing 110,000-square meter facility will be extended by 35,000 square meters. The expansion will be fitted with its own solar panels.

Similar constructions could soon come to the U.S. “In North America, we don’t have a big presence, but are looking at this type of design in France and Germany at the moment,” he said. “In the long run we will also do it in the U.S. That’s where we want to expand in the next five to 10 years.”

Rhenus offers a range of global and European logistics and forwarding services and has been expanding rapidly from its traditional strength in Europe, most notably in Asia but also through acquisitions in North America and Brazil. Earlier this year the 3PL acquired U.K.-based PSL Group. In April it purchased Miami-based freight forwarder and logistics solutions provider Freight Logistics, which at the time was its sixth acquisition of the year. And in March it acquired Canadian logistics company Rodair.

Erven said the life span of Rhenus A58 was expected to be at least 35 years but was unable to disclose the investment cost.

As in the U.S., attracting talent to the logistics industry is problematic in the Netherlands. Aside from its value as a DC, Erven said the design appeals to sustainability-conscious clients and helps the company attract workers in a tight labor market, “We are growing at 10% a year so we are constantly looking for ways to improve recruitment,” he said. “Offering workers a modern, light and clean space to work helps. We often have open job approaches from people who have seen the building and want to work here.”

He added, “We also have changed the company’s official language from German to English as we now employ people from all over the world.”

Deutsche Post-owned electric vehicle (EV) manufacturer StreetScooter has announced that the company will be expanding into the U.S., citing a huge market opportunity across the horizon. To help invigorate the North American expansion, the company has brought on two C-level executives with extensive experience within the automotive industry, who StreetScooter hopes will bolster its sales and technology segments. 

Ex-Tesla director Peter Bardenfleth-Hansen will assume the position of Chief Growth Officer at StreetScooter and will be responsible for ramping up international sales. Ulrich Stuhec, a former Ford manager, will take up the role of Chief Technical Officer while current CTO Fabian Schmitt will move into a new role within the company. 

StreetScooter will now begin pilot tests with DHL Express in the U.S. and will continue to expand from there. Joerg Sommer, the CEO of StreetScooter, explained that the company is increasingly looking to internationalize its business, and finds the U.S. market exciting as it witnesses substantial investment in the EV space. 

“We are currently evaluating potential production partners for the U.S. We will make an announcement once partnerships have been finalized,” said Sommer. “Like we did in Japan, we plan to enter the U.S. market once we have customer contracts signed. We will launch pilot programs in the U.S. next year with DHL Express, and will continue to expand from there.”

Geographic expansion apart, StreetScooter is aligning itself towards becoming a global energy and logistics platform for the last-mile rather than stay shuttered within the EV manufacturing niche. True to this, StreetScooter has electrified more than 700 depots and has installed more than 11,000 charging points for small and large fleet operators. 

On-demand ‘anything’ has been a trend that has proven disruptive in the logistics space, ever since the advent of Uber with its on-demand cab-hailing and the now-pervasive ‘gig economy.’ StreetScooter is attempting something similar by providing energy-as-a-service, wherein clients can configure platform subscriptions per vehicle for their last-mile energy and logistics needs.

The company also plans to provide clients with EV fleets, which will act as decentralized networks of ‘batteries on wheels’ helping facilitate the trade of goods and energy within neighborhoods. The fleets are equipped with fleet intelligence software to significantly reduce the total cost of ownership and have their software and infrastructure constantly updated – for instance, with bi-directional charging and decentralized grid software. 

Following its announcement about entering the U.S. market, StreetScooter has unveiled its next generation of vehicles that come with a redesigned box body that promises a payload that is over a ton larger and can accommodate up to four more euro pallets. 

“The new versions of the WORK and WORK L vehicle models can reach a top speed of 120kmph (~75 mph). They also offer additional features that make the new models safer, more comfortable and convenient for everyday work on the job,” said Sommer. “The features include in-vehicle automatic emergency call system, acoustic vehicle alerting system, keyless entry and start, automatic climate control system, and in general, more optimum use of space inside the vehicle.”

Currently, StreetScooter is one of the market leaders in Europe in the EV space, with more than 12,000 vehicles in daily use clocking over 100 million kilometers (~62 million miles) and eliminating 36,000 tons of CO₂ in the process.