Logistics networks push eastward as firms follow customers
logistics centres, while Eastern European companies are moving up
in rank as retailers expand in the region, according to a
consultancy report.
Other trends affecting logistical decisions are a shift in cost factors along the supply chain, the increasing globalisation of manufacturing, and the greater acceptance of outsourcing to third party suppliers.
Belgium's strengths as a logistical centre are its low rents and good accessibility, compared to other places, according to a report by Cushman & Wakefield Healey & Baker ( C&W/H&B), a business property consultant.
Despite its bureaucracy and high taxes, France comes in second place due to its lower building costs and land prices compared to Belgium.
"When considering a range of cost, access and property factors, Belgium retains its title since the last report," the firm stated in its annual update.
France scores well in terms of property and market size, followed by the Netherlands, where there has had a relative improvement in cost competitiveness, compared to other centres, the consultant stated.
Central European locations have all moved up the firm's ranking, boosted by membership in the European Union in 2004. The Czech Republic is in fourth place, followed by Poland and Hungary.
"The expansion of Central Europe's industrial and logistics sectors has put an eastern 'stretch' in Europe's distribution 'banana'," stated Nigel Rowe, C&W/H&B's head of European industrial and logistics.
The countries benefit from the continuing move of European production from Western Europe and the expansion of the region's logistics markets. Companies are also attracted by the region's low costs compared with Western Europe, the growth of the retail sector in new member countries and improving transport networks.
In terms of individual factors, Poland has the lowest property costs, Russia the lowest labour costs, Belgium the best access, the UK the largest freight market and Austria the best land to property supply ratio.
Logistics managers are increasingly finding that their 'cost' focus has shifted to transportation, including time and cost, labour (wages, availability and hidden social costs), communication (software and systems) and process management of the goods themselves, the report stated.
"The decision of where to locate production and logistics capabilities has moved up from just resting with the real estate team to become part of a company's core business strategy," stated Rowe.
The cost trend is occuring against a background of: globalisation affecting manufacturing, procurement and distribution decisions. Occupiers, and in particular retailers, are increasingly scrutinising every aspect of their supply chain to boost competitiveness.
Consolidation and rationalisation is occuring among logistics operators, affecting supply chain decisions.
"Access to labour now rivals transport infrastructure and shipment destination as a key factor for decisions about industrial and logistics locations," the firm stated.
The increasing acceptance of using third party logistics suppliers has spread among companies. Now the trend is a greater acceptance of what the firm calls "fourth party logistics", which deals with supply chain management but provide no underlying logistics services.
"New technology is opening the way for the centralisation of coordination rather then a physical centralisation in one European distribution centre," the firm state.
The industrial and logistics property market is being driven by investors, who are proving themselves willing to consider almost any market or location provided that units are let for a significant period to a good tenant, stated Rowe. This is pushing down yields across Europe, in particular in France, Poland and Denmark.
A shortage of prime space for occupiers is also affecting the market. The supply of prime space is very tight across both Western and Central Europe as occupiers look to upgrade or move to modern, cost effective space.
In Central Europe, this has increasingly turned occupiers to locate in secondary cities and transport hubs because of a lack of suitable space in the main cities.
Rents have now bottomed out, with levels in central Europe decreasing. In Western Europe the market is largely static with signs of growth in certain areas, such as Amsterdam, Milan and Moscow.
The trend has continued towards 'hub-and-spoke style' regional distribution centres, particularly in Central Europe, stated Rowe.
"Rising fuel costs, worsening traffic congestion and new technology allowing for centralised coordination could well reverse this, leading to smaller, more national or local distribution centres," he stated.
The trends are creating new "logistics corridors" down from central Europe to reach Romania and Bulgaria, both expected to join the EU in 2007. The pathway will stretch to Istanbul, with Turkey having started negotiations to join the EU in 2005.
"Europe's distribution market will continue to expand with the increasing sophistication of supply chain management and the outward push of the eastern frontiers of the European Union," stated Rowe.
The overall logistics spend in the European retail market is set to increase by 10 billion by 2010, Datamonitor forecasts in a report.
