European Warehousing Markets Set for Solid Growth

Outsourcing of internal logistics functions by cost conscious end users to sustain overall expansion, Frost & Sullivan reports

Outsourcing of internal logistics functions by cost conscious end users to sustain overall expansion, Frost & Sullivan reports

London, UK — March 31, 2005 — Increased outsourcing of key internal logistics functions, the growth of important regional retail markets in France, Italy and Benelux, together with the expansion of warehouse space in France and Italy are poised to drive revenue growth in the European warehousing markets in the years ahead, according to a new report from consultancy Frost & Sullivan.

At the same time, the growth of retail and fast-moving consumer goods (FMCG) end-user sectors in Western Europe is also set to boost warehousing market revenues, Frost & Sullivan reports in its study, "Strategic Analysis of the European Warehousing Markets." Buoyed by these trends, the consultancy believes that revenues in the European warehousing markets will rise from $24.1 billion (18.5 billion euros) in 2003 to an estimated $33.0 billion (25.4 billion euros) in 2012.

Continued Challenges

Despite such positive forecasts, participants continue to face several challenges. With customers demanding contracts of shorter duration, third-party logistics (3PL) providers have been constrained to maintain low warehousing costs. A shortage of skilled labor in important warehouse markets across Europe has further intensified the challenges faced by 3PL providers, Frost & Sullivan reports.

"Increased cost pressure for both the warehousing clients as well as 3PLs has resulted in the rise in demand for multi-user warehouse facilities as against dedicated warehouses that are relatively more costly to operate," notes the consultancy. "Mounting cost pressures on warehousing clients are also expected to motivate the rise of centralized warehousing of stock in a regional warehouse by 2010."

Frost & Sullivan believes that issues related to the scarcity of skilled labor and the need to reduce the time to market are set to advance demand for automated warehouses. Warehouse automation and radio frequency identification (RFID) tagging are poised to transform the European warehouse market over the long term, Frost writes. While 3PLs are poised to introduce primary-level radio frequency (RF) tagging by 2007, the level of automation in warehouses is projected to increase by 28 per cent by 2010.

Head East

Other industry defining trends include the shift of manufacturing bases to the low-cost eastern European region, the rise in Internet-based retailer businesses and augmented levels of reverse logistics.

For instance, the move of manufacturing plants to Eastern Europe is expected to result in a large part of the inbound logistics functions moving eastwards as well. This is likely to prompt a significant decline in the Western European warehousing markets. However, rising imports from China are anticipated to offset this trend by creating augmented demand for warehousing in Southern Europe.

"At the same time, inbound logistics warehousing in the European warehouse market is likely to be [affected] by the implementation by leading customers of lean-manufacturing techniques such as just-in-time (JIT) and just-in-sequence (JIS) that are likely to effect a reduction in the stock inventory levels," says Frost & Sullivan.

M&A Predicted

Currently, the warehousing market is highly fragmented with a large number of small and medium 3PLs operating across key regional markets. However, as manufacturing firms begin outsourcing a significant part of their internal logistics activities across product lines with an emphasis on lower warehousing costs and higher efficiency levels, an increase in mergers and acquisitions (M&A) is likely to result, the consultancy suggests. This is expected to be accompanied by heightened demand for a consistent level of warehousing services across Europe.

Market consolidation among the 3PLs is also likely to be motivated by the falling warehousing profit margins caused by a shortage of skilled labor and rising technology costs. While small and medium 3PLs are likely to close down or be acquired by larger 3PLs, tier-one suppliers are expected to pursue merger and acquisition (M&A) strategies to advance market share and expand their product service portfolios.

Major Players

At present, over half of the total warehouse space — amounting to nearly 1.2 million square meters — across the European region is offered by the larger pan-European 3PLs. Exel plc has the largest market share among the pan-European 3PLs, followed by TNT Logistics and Geodis. The companies with the highest warehouse revenue potential include Exel and Geodis, together with Wincanton plc.

"Warehousing is likely to gradually cease to be offered as a standalone service as the 3PL providers move towards a paradigm shift where they offer a comprehensive set of logistics services within an integrated logistics framework," concludes Frost & Sullivan.

Frost & Sullivan is offering a summary of this research by providing an introduction to the report "Strategic Analysis of the European Warehousing Markets." Interested parties can send e-mail to Magdalena Oberland, Corporate Communications, at magdalena.oberland@frost.com with the following information: full name, company name, title, country, contact telephone number, e-mail address. The consultancy said that the summary will be e-mailed to those who provide the above information.

For more information on the latest trends in the fulfillment space, see the article "The Analyst Corner: Fulfillment & Logistics" in the October/November 2004 issue of Supply & Demand Chain Executive.

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