SUSTAINABILITY OF BUSINESS MODELS Freight Forwarding 1 Sustainability of Freight Forwarding_fin.pptx SUSTAINABILITY OF BUSINESS MODELS ETH Presentation, Zurich April 24th, 2012
Oct 23, 2015
SUSTAINABILITY OF BUSINESS MODELS
Freight Forwarding
1Sustainability of Freight Forwarding_fin.pptx
SUSTAINABILITY OF BUSINESS MODELS
ETH Presentation, Zurich April 24th, 2012
Contents
I. THE SPEAKER: Matthias Hanke and Roland Berger Strategy Consultants 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 rolechange within the overall value chain?
V. THE THREAT: Interesting examples of a similar industry (fiction for
2Sustainability of Freight Forwarding_fin.pptx© Roland Berger Strategy Consultants
V. THE THREAT: Interesting examples of a similar industry (fiction forforwarding ... so far)
VI. THE TRENDS: What is impacting the industry with short- and mid-termrelevance
VII. THE OPPORTUNITIES: Moves to sustain business medium term
3Sustainability of Freight Forwarding_fin.pptx
I. THE SPEAKER: Matthias Hanke and Roland Berger StrategyConsultants at a glance
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 andBusiness Administration at TU Darmstadt (6 years)
4Sustainability of Freight Forwarding_fin.pptx
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
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
5Sustainability of Freight Forwarding_fin.pptx
About 220 RB Partners currently serving
~1,000 international clients
Source: Roland Berger
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
6Sustainability of Freight Forwarding_fin.pptx
# 2Germany
# 2Growth regions Chinaand Russia/CEE
# 3Core markets inWestern Europe
# 5World
1) In the strategy segment
companies
MARKET POSITION1)
7Sustainability of Freight Forwarding_fin.pptx
II. THE INDUSTRY: Key characteristics of freight forwarding
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
8Sustainability of Freight Forwarding_fin.pptx
• Value added services (VAS) reach growing importance as USP for Global Forwarders
Global Forwarding is one out of four basic FWD types
KEY CHARACTERISTICS
• Mainly trucking; growing share of railOverland Transportation
Global Forwarding
Contract
• 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
• 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
• Coordination of parts of the supply chain on behalf of the customer
FO
CU
S
9Sustainability of Freight Forwarding_fin.pptx
ContractLogistics
Integrators;
Express 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
• 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
Global FWD is a trading business with thin RoS-margins – potentiallydesastrous impact of sub-seasonal yield decline or overcapacity
Typical freight forwarder P&L structure (illustrative) [% of revenue]
85%
100%
Typical freight forwarder P&L structure (illustrative) [% of revenue]
> 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
(1)
COMMENTS> Costs of 3rd
party carriers –mainly outside forwarders' direct control
> Economies of scale lead to lower cost per shipment
10Sustainability of Freight Forwarding_fin.pptx
EBITDA
2% – 4%
Indirect Costs
5%
Direct Costs
8%
Gross Profit
15%
Cost of SalesNet Revenue
> Increase of net revenue requires continuous revision of product/ service portfolio and presence in the rapidly growing emerginglogistics markets
> Reduction of DOE finds a small overall basis only and requires continuous action on overhead costs
Direct Operating Expenses("DOE")
Source: Roland Berger
Global FWD has a brokerage function between "Shippers" & "Carriers" – thus, Global FWD takes a coordinating role in the value chain
VALUE ADD OF FORWARDERS
> Bundling of customer (shippers) demands
> Procuring transport capacities with volume rebates
> Coordinating many/ all transport related players (depending on the
EXAMPLE: AIR CARGO VALUE CHAIN
Trucking Company
Cargo HandlerCargo Handler
Trucking Company
Sh
ipp
er
Co
nsi
gn
ee
Handling
& Ware-
house
Line-
haul
Handling
& Ware-
housing
Airline
Airline
(Carrier)
Pickup,
Build-up,
RFS
RFS,
Break-
down,
Delivery
11Sustainability of Freight Forwarding_fin.pptx
related players (depending on the agreed INCO terms between Shipper and Consignee)
> Enhancing transport management with value added services
regular/usual contract relationship
alternative contract relationship
alternative contract relationship
Sh
ipp
er
Co
nsi
gn
ee
Forwarder
(Carrier)
Value added services (VAS) reach growing importance as USP forGlobal Forwarders
The International Federation of Freight 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
Core Business: procurement ofinternational transport capacities
Value added services can evenreach towards significant IT
12Sustainability of Freight Forwarding_fin.pptx
distribution of the goods as well as ancillary and advisory services in connection therewith, including but not limited to customsand 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
reach towards significant ITinterfaces between the shipperand/ or the consignee
13Sustainability of Freight Forwarding_fin.pptx
III. THE MARKET: Drivers determining the supply and demandlandscape
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 lessthan 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?, ...)
14Sustainability of Freight Forwarding_fin.pptx
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
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]
1.4%
1.5%
1.7%
3.5%
Sinotrans
Expeditors
6.8%
DHL1.5%
Agility
CEVA
Nippon
Express1.7%
0.5%
0.4%
0.5%
1.5%
SinotransSDV
DAMCO 0.5%
Nippon
Express
Agility 0.5%
0.7%
K+N
2.0%
AIRFREIGHT – MARKET SHARE OCEAN FREIGHT – MARKET SHARE
15Sustainability of Freight Forwarding_fin.pptx
2.9%
3.5%
K+N
DB Schenker
3.0%
Express
UPS
1.8%
Panalpina
0.9%
1.5%Expeditors
Panalpina
0.7%
DB Schenker
DHL1.0%
> 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
> 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
Source: Merril Lynch, West LB, Roland Berger analysis
The European overland transportation market is even more fragmen-ted with less than 10% total volume controlled by the top five players
Overland transportation – European supply structures
MARKET SHARES (EUROPE)
Overland transportation – European supply structures
3.3%
1.5%
2.3%
90.7%
1.7%
CHARACTERISTICS
> 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
> Process efficiency and network cost are key levers for providers
16Sustainability of Freight Forwarding_fin.pptxSource: West LB, Roland Berger
DSVDB
Schenker
DachserDHL Geodis Other
0.5%
1.5%> Process efficiency and network cost are key levers for providers
to reduce price (terminal operation, driver costs, asset costs)
> 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
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]World GDP and Export growth [Euro, trillion]
147139132125118112105100948984
5148
4643
4038
3533
3129
2725
242221201917161513
20
25
30
35
40
45
50
55Gross Domestic Product (GDP), Nominal
Exports of Goods and Services, Nominal
> Growth of GDP and world exports are the main external factors influencing the size of the global transportation industry
> World GDP and trade is expected to continue growing at high single digit growth rates (6-7% year over year)
> By 2030 the value of exported
17Sustainability of Freight Forwarding_fin.pptxSource: IHS, Roland Berger
10094898479747066636056534846
161513
0
5
10
15
2029
2028
2027
2026
2025
2024
2023
2022
2021
2030
2012
2011
2010
2020
2019
2018
2017
2016
2015
2014
2013
> By 2030 the value of exported goods/services might have increased almost 300% compared with 2010
> World exports are forecasted to growwith a multiple >1 compared to GDP – indicating a significant growth for the global transportation industry until 2030
Individual country performance concerning GDP development & trade balance is impacting the relevant "Trade Lanes" for hauliers and FWDs
Individual country performance concerning import and exportIndividual 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,
18Sustainability of Freight Forwarding_fin.pptx
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
Freight rates are becoming increasingly volatile and demand on the forwarders side for more sophistication of steering purchased capacities
International freight rate development
2,500
3,500
3,000
1,500
2,000
Dec 11Oct 11Aug 11May 11Jan 11 Dec 12
International freight rate development
USD per 40 foot container
OCEAN FREIGHT > In the current uncertain economic climate, it is difficult to provide reliable forecasts for the KPIs driving world trade
> As a result, freight rates are becoming increasingly volatile, with carriers adjusting rates based on short-term capacity and demand development
> Freight rates are expected to rise in 2012
High forecast
Low forecast
19Sustainability of Freight Forwarding_fin.pptx
3.5
4.0
4.5
5.0
5.5
Aug 11Jun 11Apr 11 Dec 11 Dec 12Feb 11
USD per kg
Source: Drewry, Roland Berger
AIRFREIGHT> 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
Fuel price based
20Sustainability of Freight Forwarding_fin.pptx
IV. THE STRATEGIC KEY QUESTIONS: How might theforwarder's role change within the overall value chain?
The global forwarder: "... between the chairs" or "... always on the winner's side"
KEY STRATEGIC QUESTIONSTRANSPORT MODE
How will the global forwarders' role change within the value chain?> Need for forward integration> Need for backward integration> Need for innovation and VAS?
Which and how many assets does a forwarder need to leverage market opportunities and offset threats?
What are the underlying market trends?
KEY STRATEGIC QUESTIONS
1
2
3
Shipper
Global for-
Air Sea Land
TRANSPORT MODE
VA
LU
E C
HA
IN
21Sustainability of Freight Forwarding_fin.pptx
What are the underlying market trends?> By major trade lanes> By major industry
What are the underlying trends on the capacity supply side (by air, sea, land)?
What risk management processes will be needed?
3
4
for-warder
Carrier
VA
LU
E C
HA
IN
5
An international forwarder's growth strategy needs to be robust against different scenario characteristics
Illustrative scenariosIllustrative scenarios
> Strong consolidation of asset owners leads to bottlenecks and significant margin deterioration of forwarders
> Increased direct business between shippers and carriers with significant volume decline/stagnation for forwarders
> Volume growth is tendered by
2 possible
> 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 value-added services strengthen
22Sustainability of Freight Forwarding_fin.pptx
NETWORK & QUALITY
FORTRESS
FORWARDER
UNDER SIEGE
> Volume growth is tendered by large shipper conglomerates –sourcing processes put pressure on forwarders
possible scenarios
added services strengthen forwarder's USP's – shippers steer additional capacity on forwarder
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
Strengthening commercial attractiveness by adding USP's for shippers
capacity with alternative risk exposure
lower(only broker)
medium(fix allotments)
higher(own assets)
Which innovations and value added services2) does a forwarder need to offer in order to maintain/improve its
Inter-national
Forwarder
?
?Excellence
Excellence on selected value chain items
EXISTING MARKETS
23Sustainability of Freight Forwarding_fin.pptx
1) To be differentiated by trade lanes 2) To be differentiated by products
shippers 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?
??Excellence on all value chain items
NEW MARKETS
24Sustainability of Freight Forwarding_fin.pptx
V. THE THREAT: Interesting examples of a similar industry(fiction for forwarding ... so far)
Summary: Interesting examples of a similar industry – TOUR OPERATING
• Tour Operating is a very similar industry:− trading with capacities (hotel & air), − 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 havebeen resulting into new distribution channels for airlines and hotels
25Sustainability of Freight Forwarding_fin.pptx
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?
Tour operating is a very similar industry
TYPICAL BOTTOM-LINE STRUCTURE
Staff cost
% of Sales
100% 83-90% 8-12%10-17% 2-5%
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
PROFIT LEVERS
26Sustainability of Freight Forwarding_fin.pptx
EBITIndirect
cost
GOPDirect cost
- Airline
- Hotel
- Transfer
Sales
Marketing & Adv.
Other Exp.
Deprec. & Rental
PROFIT LEVERS1. Measures "above Gross Operating Profit"
a. Improve revenue by sales and pricing measuresb. Lower direct cost by better sourcing contracts
2. Measures "below Gross Operating Profit"a. Improve production, sales, service and
administrational processesb. Reduce staff, material and financial cost
deta
illed
on fu
rthe
rpa
ges
Along the value chain, tour operators are intermediaries – so aretravel agents, online portals and destination management agents
New internet based techniques and data
VALUE CHAIN: ALTERNATIVE LAYOUTS
Description Share of ExpectedValue-chain steps New internet based techniques and data
standardization have been resulting into new
distribution channels for airlines and hotels
• Hotels publish fares via selected bed-banks and
via on web-pages
• 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
~43%
~19%
Description Share ofrevenuecurrently
Expecteddevelopment(5 years)
LTKundeRB/ OTA
T/O ZGB-A
Value-chain steps
ClassicalValue Chain
T/O withdirect sales
Content
27Sustainability of Freight Forwarding_fin.pptx
packaging of independent flight and hotel offers
• Legacy Travel Agents use the new techniques
and also build packages
• T/O value-add for specific segments has
vanished completely~32%
~7%
Content marketing via data bases/ bedbanks
B2Cmarketing ofcontentproviders
Quelle: Euromonitor, Roland Berger Strategy Consultants
LT: Leistungsträger (Airline, Hotel, Mietwagen), Content ProvidersZGB-A: Zielgebietsagentur, Destination Management CompaniesRB: Reisebüro ("Offline Travel Agent")
OTA: Online Travel AgentT/O: Tour Operator
In essence, the legacy tour operating for package tours in thevolume market will be dead in the forthcoming 5 years
PORTFOLIO OF LARGE T/OS COMMENTARY
• For TUI, Thomas Cook, Hotelplan, Kuoni, ... thepackage tour business in the mass market havebeen the profit machine for the company in history
• The former value-add of tour operators(destination know-how, exclusive access tocharter flights, ...) has almost been vanished
• Hotels and airlines have been pursuing a verticalintegration along the value chain
� 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, ...)
28Sustainability of Freight Forwarding_fin.pptx
integration along the value chain
• Tour operators have to refocus their portfolio andto put more emphasis on value added services, exclusive hotel access (assets?), destinationbased services/ activities and control of customerexperience
• Big question: more invest into assets to ensureaccess to exclusive product offeres???
diving, ...)
� Cruise ship journeys
� Retail shops
� Destination Management agents
� Hotel ownership
Some learnings to be transfered into the global forwardingindustry?
• Replacement tendencies amongst the various players along the value chain?• 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 somesignificant progress concerning data standards is being achieved?
29Sustainability of Freight Forwarding_fin.pptx
• 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 sophisticationrequired to steer the increased risk position?
30Sustainability of Freight Forwarding_fin.pptx
VI. THE TRENDS: What is impacting the industry with short- andmid-term relevance
Key trends in the logistics service provider industry that might endanger sustainability of current business models
• YIELD DECLINE: Shippers and Carriers negotiate for profit pools
1 • MODAL SPLIT: Demand shift from air transport to sea and (increasingly) rail – FWDs need to adapt
6
negotiate for profit pools
• VERTICAL INTEGRATION: Carriers and shippers increase profit pools by "conquering" additional parts of the value chain
• SHIFT OF KEY TRADELANES: legacy trade-lanes 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
2
3
4
sea and (increasingly) rail – FWDs need to adapt business relationships
• SPECIALIZATION AND VALUE ADDED SERVICES: increasingly complex supply chains in shipper industries will call for increasingly specialized logistic service providers
• INDUSTRY SPECIFIC IT: the increasing call for specialized global FWDs wil also require tailormadeIT solutions
7
8
31Sustainability of Freight Forwarding_fin.pptxSource: Roland Berger
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
5
IT solutions
• GLOBALIZATION VS. REGIONALIZATION? will the demand for "global total solutions" remain growing or might the trend reverse back to regionalization?
• CONTRACT LOGISTICS - CHALLENGES: ten-dency towards shorter contract life-cycles will increase hurdles for an appropriate ROI
9
10
YIELD DECLINE: Shippers and Carriers negotiate for profit pools
Price developments in air- and ocean freight [Index] Yields for global freight forwarders [EBIT RoS-margin, %]3)
2.0
2.5
3.0
3.5
4.0
4.5
5.0
FORWARDERS IN A SANDWICH POSITION
• Overcapacities in sea/air fostercarrier efficiency initiatives andthus impact FWD's margins
Index 2006= 100
Ocean freight
Airfreight0
20
40
60
80
100
120
1)
2)
Price developments in air- and ocean freight [Index] Yields for global freight forwarders [EBIT RoS-margin, %]
• Shippers also see them-selves exposed to economic volatility and submit parts of the pressure to their vendors – FWDsmargin once more impacted
32Sustainability of Freight Forwarding_fin.pptx
2.0
2006 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 2) IATA global air cargo revenue compared to volume 3) Consolidated figure for leading forwarders
Source: HARPEX, IATA, Linehaul, Annual reports, Roland Berger
Airfreight0
201120102009200820072006
margin once more impacted
"Hinterland
VERTICAL INTEGRATION: Carriers and shippers increase profit pools by "conquering" additional parts of the value chain
Vertical integration (along the value chain)
TerminalSea/ Air "Hinterland transport"/ RFS
Terminalhandling
Air/ Sea Carrier
Terminal operators
Sea/ Airtransport
Global Forwarders
e.g. HHLA
e.g. Maersk
Shippers
Shippers Global FWDs
?
Co
nso
lidat
ion
with
in th
e pl
ayer
's in
dust
ries
(Ho
rizo
nta
l in
teg
rati
on
)
e.g. Hapag Lloyd
33Sustainability of Freight Forwarding_fin.pptx
> Dilution of traditional division> Will this become a general trend?
Terminal operators
Intermodal operators
Railway operators
e.g. Eurokombi
e.g. HHLA
e.g. DB Schenker
Co
nso
lidat
ion
pl
ayer
's in
dust
ries
(Ho
rizo
nta
l in
teg
rati
on
)
SHIFT OF KEY TRADELANES: legacy trade-lanes dissappear – new tradelanes partially require adaptations to the FWD's business model
COMMENTS
> 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
Traditional key tradelanes
2020 key tradelanes
1
23
34Sustainability of Freight Forwarding_fin.pptxSource: Roland Berger
had a strong presence in these countries and reorganize to support future growth from these markets
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
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
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
World trade flows are shifting – In ~20 years China will take over USA's role as the dominant trading nation
COMMENTS
> New tradelanes grow in
TOP 20 TRADELANES 2009 TOP 20 TRADELANES 2030
SHIFT OF KEY TRADELANES
Origin Destination Value1)
1 China USA 290,960
2 China Japan 207,677
3 Japan USA 146,523
4 China Korea 140,342
5 Germany USA 118,773
6 Germany UK 113,209
7 China Germany 102,171
8 UK USA 97,624
9 Japan Korea 69,008
10 UK Netherlands 68,062
11 Korea USA 66,443
Status Origin Destination Value1)
1 China USA 594,741
2 China Japan 336,183
3 China Korea 281,140
4 China India 263,063
5 China Germany 201,382
6 Japan USA 189,785
7 China Singapore 178,291
8 NEW China Indonesia 169,356
9 Germany USA 167,467
10 NEW China Malaysia 162,376
11 NEW China Nigeria 151,570
> 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
35Sustainability of Freight Forwarding_fin.pptx
11 Korea USA 66,443
12 UK France 62,388
13 Hong Kong USA 58,016
14 China Singapore 56,446
15 France USA 54,414
16 China Australia 54,163
17 Netherlands USA 51,989
18 Japan Hong Kong 45,941
19 China Netherlands 43,319
20 UK Belgium 43,177
1) 2009 USD million Note: Excluded tradelanes that can be serviced without Ocean freight and/or Airfreight
11 NEW China Nigeria 151,570
12 Germany UK 144,131
13 UK USA 143,725
14 NEW China Thailand 141,201
15 NEW China Saudi Arabia 140,320
16 NEW China Brazil 136,295
17 NEW USA India 125,826
18 NEW China UK 121,603
19 NEW China UAE 120,318
20 China Australia 117,340
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
Source: PWC Future of World Trade, Roland Berger
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]
SHIFT OF KEY TRADELANES
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%
Top regional freight markets 2011 Top regional freight markets 2020
EU27 2,308
USA 4,886
China 6,653
India
USA
China 10,619
5,472
3,231
Overland freight (road, rail and inland waterways) markets [billion tkm]
36Sustainability of Freight Forwarding_fin.pptx
> 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 USP949Brazil
1,793India
Russia 2,251 3,160
2,736
Brazil
EU27
1,407
Russia
Source: Progtrans World Transport Report 2010/2011; Roland Berger
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
SHIFT OF KEY TRADELANES
FWDs need to CONSIDER THE WEST
Stronger growth of manufacturing and trading in Central and Western China provinces will shift logistics focus away from the port cities to the hinterland
FWDs need to UNDERSTAND Chinese AUTHORITIES
Without governmental interaction and support, larger growth initiatives in China are doomed to fail (economically)
BeijingTianjin
Hebei
Shanxi
Inner Mongoliaaut. region
Liaoning
Jilin
Heilongjiang
Jiangsu
Shandong
Henan
Shaanxi
Gansu
Qinghai
Ningxia Hui aut. region
Growth dynamics across China's provinces
37Sustainability of Freight Forwarding_fin.pptx
are doomed to fail (economically)
FWDs to BECOME (more) CHINESEIn 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
Shanghai
Zhejiang
Anhui
Fujian
Jiangxi
Hubei
Hunan
GuangdongGuangxi
Hainan
Sichuan
Guizhou
Yunnan
Chongqing .
Export and Import above average
Import above average
Export above average
Export and Import average
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
54% 46%Volume split by im/export1)
Trends in import
> 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
– 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
30%CIF
60%
38Sustainability of Freight Forwarding_fin.pptx
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 (iewarehousing, transportation) with some value added offerings
1) Based on breakdown of air cargo exported/imported in 2009, by tons
Source: Traffic Yearbooks; Expert Interview; Roland Berger Analysis
Exports
40%
Imports
FOB
60%
70%
HINTERLAND CONNECTIONS: efficiency of increasing importance – even an entry condition for business with Chinese shippers
Land transport – Port hinterland connections
> USA: "Connectivity issues are a major focus of seaportsnationwide, as essential road and rail networks experience near-critical congestion." (Florida Seaport Transportation and Economic Development Council)
> INDIA: "Congestion seems to persist at several port locations on account of delayed evacuation of cargo due to inadequate road and rail capacity" (Secretariat for the
Examples from other continentsExample Europe – Expected increase in number of trains over the next 10 years
N
WPoland
Denmark
Lower Saxony
Northern Ports
Western Ports
Berlin/Brandenburg
Saxony-Anhalt
SaxonyNorth-Rhine-
Land transport – Port hinterland connections
39Sustainability of Freight Forwarding_fin.pptx
to inadequate road and rail capacity" (Secretariat for the Committee of Infrastructure)
> CHINA: Currently few bottlenecks due to:– 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
Hungary
Slovakia
Austria
Bavaria
Czech Republic
France
Switzerland
Italy
Hesse
Baden-Wuerttemberg
SaxonyNorth-Rhine-Westphalia
Rhineland-Palatinate
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]
66%
2.174
63%
1.760
61%
1.422
61%
2.563
By Sea 65%
2.208
By Road
Global ocean container and air freight
growth [% change YoY]Ocean
container
Air freight
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%2007 2008 2009 2010
Market share
gain SEA
Market share
gain AIR
RAIL
After the demand crisis, strong modal share gain of sea
Europe-Asia rail bridge to strenghten rail
40Sustainability of Freight Forwarding_fin.pptx
40
16%
16%
2007
2%
18%
17%
2006
2%
19%
18%
2005
1%
19%
18%
2008
2% 2%
By Air17%
By Rail
and Others
2009
17%
By Road
99% of total volumeAprox. 20.000 km1)
30-45 day1)
Price leader
<1% of total volumeApprox. 10.000 km1)
22-28 days1)
Up to 50% higher than sea freight
SEACurrent share:
Distance:Delivery time:
Prices:
RAILCurrent share:
Distance:Delivery time:
Prices:
Source: CEIC; Roland Berger analysis
Growing competition of cheaper transport modes along with growing capacity will influence the air cargo market
MODAL SPLIT
Outside-in view on air cargo trends
DEMAND restricted to value goods CAPACITY increase expected further Twin aisle aircraft deliveries by region
[Number of aircraft]
Air share of containerized international trade in terms of weight
and value
1.0%
1.5%
2.0%
2.5%
3.0%
20%
30%
40%
50%
Outside-in view on air cargo trends
41Sustainability of Freight Forwarding_fin.pptx
> Lower unit value goods will be diverted from air cargo to other
cheaper, though slower, modes of transport (sea freight,
trucking)
> 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
0.0%
0.5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0%
10%
Source: Seabury; IATA; Roland Berger
Regular rail operation between Asia and Europe will have only long-term impact on sea/air freight
Rough estimate of Rail operation impact on container traffic (short to medium term)
MODAL SPLIT
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 288
13,513
110
42Sustainability of Freight Forwarding_fin.pptx
> Rail potential only single digit percentages of total volume> Possibly slightly higher potential in the long term when
bottlenecks can be reduced
Potential Rail
Sea2009
Air20091)
1) Assumptions: all freight containerized; 12 tons/TEU
Trans-Siberian Railway
Baikal Amur Mainline
Ocean route Hamburg - Dalian
Trans-Mongolian Railway
Connection Trans-Siberian Railway - Western Europe
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"
LSP
LSP
EX
PE
CTA
TIO
NS
INT
EG
RA
-T
ION
Tasks will increasingly be integrated and performed by large businesses offering complete solutions
> Increasingly complex supply chains and intenseproduct 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.
Extract from RB study "Switch points in logistics"
COMMENTS
LSP LSP
43Sustainability of Freight Forwarding_fin.pptx
LSP
LSP54 %
SP
EC
IAL
IZA
-T
ION
Specialization and division of tasks between business will intensify - complexity of supply chains will require logistics service providers with specialized knowledge
EX
PE
CTA
TIO
NS
> 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"
INDUSTRY SPECIFIC IT: the increasing call for specialized global FWDs wil also require tailormade IT solutions
Extract from RB study "Switch points in logistics"
EX
PE
CTA
TIO
NS
GL
OB
AL
S
TAN
DA
RD One global IT standard will emerge in
logistics, to facilitate smooth cooperation between different logistics service providers
> 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
Extract from RB study "Switch points in logistics"
COMMENTS
44Sustainability of Freight Forwarding_fin.pptx
59 %
PR
OP
RIE
TAR
Y
SY
ST
EM
S
Several proprietary IT standards will be developed by competing logistics service providers. Small businesses will have to ensure compatibility with one or more standards
EX
PE
CTA
TIO
NS
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
Note: Study conducted with 150 industry experts, University of St. Gallen, and Roland Berger 1) IT platform to automatically calculate prices, similar to online booking of flight tickets
Source: Roland Berger "Switch points for the Future of Logistics"
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
Rise of energy prices> Increases benefits of
geographically short material flows
Rising wages in emerging countries> Reduces benefits of
Environment
Ecological awareness> Local products preferred
by customers
Governmental regulations> Increased governmental
regulations or involvement in businesses enforces
Supply Chain requirements
Just-in-time delivery> Flexibility and fast
response times required
Fast innovation cycles> Short and quick SC
required> Low inventories require
Globalization vs. regionalization – Factors for potential regionalization
45Sustainability of Freight Forwarding_fin.pptx
> Reduces benefits of remote production
in businesses enforces local / national sourcing
Local unavailability of resources> Materials> Skilled labor> Water & Energy
> Low inventories require Just-in-time deliveries
> Roll-out of new production techniques more difficult in decentralized production
favorableneutraldetrimental
Impact of factors on regionalization:
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"
EX
PE
CTA
TIO
NS
STA
BIL
IZ-
AT
ION
Product life cycles will stabilize or lengthen due to the development of robust "base items" that permit design changes or functionality updates
> 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
Extract from RB study "Switch points in logistics"
COMMENTS
Sales
46Sustainability of Freight Forwarding_fin.pptx
68 %
EV
ER
S
HO
RT
ER
Product life cycles will decrease further as technological innovations and changing consumer taste require complete product replacements at increasing frequencies
EX
PE
CTA
TIO
NS
> 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
Source: Roland Berger "Switch points for the Future of Logistics"
Note: Study conducted with 150 industry experts, University of St. Gallen, and Roland Berger
Time
47Sustainability of Freight Forwarding_fin.pptx
VII. THE OPPORTUNITIES: Moves to sustain business medium term
The opportunities: Moves to sustain business medium term
• Critically review overall portfolio of logisticsactivities
−
• Re-think purchasing strategies of transport capacities
− develop different models of purchasing – trade-lane− 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
− develop different models of purchasing – trade-lanespecific (fixed, ad-hoc, mixed forms, ...)
− develop more sophistication of capacity steeringmechanisms
• Continue with cost-slimming concerning the indirectcost
− business off-shoring of parts of IT, payroll, accountspayable/ receivable
− overall review of make-or-buy
− standardizing IT and related processes to themaximum
48Sustainability of Freight Forwarding_fin.pptx
− invest into local warehousing and distributioncapabilities
− build-up regional management representation
• Develop industry-specific forwarding solutions
− professionalize industry specific salesapproaches
− develop industry specific VAS
− develop industry specific IT solutions, supporting the VAS
maximum
− e-transformation of all paper-work processes(shipment docs etc.)
− continuous process improvement and organizationalshaping
− find the right balance between central functions andduplication of regional functions
• ...
− ...
thanks for your attendance
49Sustainability of Freight Forwarding_fin.pptx