This raises the prospect of a shift in volume from roads onto train, short sea and intermodal transport. While this may seem like a simple and logical solution, these transport models vary vastly from country to country. It is often said that the only thing the rail infrastructure across European countries has as a common factor is the distance between the rails. Added to this, the pertinent question asked about these alternatives to road haulage is one of capacity. If there is a sudden shift away from the roads, will short sea, train and intermodal networks be ready to cope with demand? At present, there is no definitive answer, but the consensus is that it's a situation that could benefit from rapid and urgent improvement
Today in Europe the majority of the hauliers are small and midsize companies, of which a substantial number are family owned. For these companies there is a growing problem: succession. With no one available (or willing) to carry on the family business, a general shakeout is expected in the next two to five years, with large and financially stable hauliers acquiring some smaller family companies. This in turn will lead to a more dominant position for a small number of big European players. Compounding this position is the question of fleet finance: in such a small-margin industry, there is little capital available (and fewer willing lenders), which reduces the capacity of the smaller hauliers, further increasing the influence of the largest players.
What this means of course, is that the negotiating power of these players will become bigger, making it increasingly challenging for shippers to secure beneficial rates.
Another concern is a shortage of drivers, with a substantial portion of currently available drivers coming from the post-WWII Baby Boom generation and soon to reach retirement. When they started as a driver, the requirements were relatively low, with no minimum educational requirements in place for entry. Today, as in most jobs, drivers have to meet a range of standards before they are certified as suitable. For many young people, the prospect of becoming an international driver simply isn't attractive enough, leading to declining numbers of people entering the trade, which will cause a capacity shortage within the next couple of years.
Labor Costs and Tightening Regulations
Labor laws in Europe are famously complicated, with differing legislation from country to country, but labor cost has been a major influence in recent years on company profitability. Until as recently as 2005, there was a goldmine of cheap labor in Europe, with East European countries offering workers at a fraction of the cost of their Western counterparts. This disparity is almost gone, as Eastern countries raise their minimum wage to encourage a flourishing economy, minimize emigration and bring their residents' quality of life more in line with neighboring countries. Those companies employing or subcontracting East European drivers are already noticing a rise in costs, and in a few years the days of low cost labor will be gone completely.
So What Does All This Mean for the U.S.?
Every U.S. company with operations in Europe will see an increase in transport costs, as the transportation market here increasingly moves to a sellers' market, with a smaller number of hauliers gaining increasing influence as they expand. Even under normal conditions, with no global economic crisis to consider, shippers would face a hike in transportation spend.
Many of the clients I work with at LHC — leading blue-chip and Fortune 500 companies — are already preparing themselves for the imminent rise. They are securing transport capacity as far into the future as they can, while changing their procurement strategy towards cost avoidance. Above all, they are studying distribution changes. With smarter distribution (optimizing routes and consolidating shipments to locations in close proximity, increasing shipment volume, improving forecasting), annual logistics expenditure can be improved or maintained, actually offsetting the rise in transport rates.
U.S. companies are already questioning European transport rates, which rose by 7.9 percent in 2010. For many, the Continent is seen as a single unknown quantity in transport cost calculations, and that will only continue when even minor changes in one territory can have an impact on overall transport network cost. For companies with existing dealings in Europe, or those expecting to launch on the Continent, it has never been more important to find out the real market trend, and to face the reality that those costs are about to rise for the unprepared.