What is 'Logistics'?
Logistics, the term here used in its broadest sense, includes freight forwarding, overland (or ground based) networks as well as Contract Logistics operations. Contract Logistics, a sub-section of Logistics, includes revenues derived from integrated warehouse and transportation services, supply chain services and value added logistics including sub-assembly, intervention, postponed manufacturing, kitting, labelling etc within the context of a long term relationship between supplier and client, formalised on a contractual basis.
How do you define 'Express' and 'Parcels'?
There is no single definition which encompasses the parcels and express sector. A wide variety of companies operate in the market providing services to a number of different segments. There is also considerable crossover: for instance many of the international air express operators also offer domestic services and the European parcels networks also provide international services, often through partner companies.
However, it is possible to make some broad-brush definitions which relate to the following attributes of service and consignment.
The most obvious differentiation between 'parcel' and 'express" services is the level of time sensitivity involved. Express companies usually undertake to deliver consignments by a specified day and even by a specified time. In Europe and domestically, 'express' usually means next working day, or as it is sometimes referred to, ‘J+1". Some companies have a more stringent definition: to qualify as express it must be delivered in the morning of the following day. For users of parcel services the time attribute is not as important, usually with cost being the over-riding consideration. Delivery is usually on a non-specific 2-3 days basis or longer and the service is also referred to as ‘deferred' or ‘standard".
Size of consignment
Although arbitrary, the maximum weight of a parcel (whether express or not) is usually considered to be about 31.5kg (70lbs). This is an estimation of the maximum weight that can be handled by one man. This is important to ensure that the standardised procedures which are essential to the profitable running of a network are maintained. A large reliance is placed on the quick and efficient collection and delivery of parcels as well as the automated sortation at a sorting centre or hub. Parcels which are non-standard, too heavy, out of gauge, or with other attributes which require specialist handling (such as hazardous, perishable etc) diminish the overall efficiency of the network. Such consignments are often termed ‘non-compatible’ and either attract a heavy surcharge or are refused.
This has led to the growth of ‘express freight’ networks, such as the pallet networks which have developed in the UK, often with specialist sorting equipment which can treat a bar coded pallet in the same way as a parcel. Obviously time sensitivity is not the preserve of parcel sized consignments and many of the efficiencies which have been brought to this particular sector are being leveraged into heavier weight freight.
Business to consumer/business to business
This is one of the key differentiators between Post Offices and express or other parcels companies which specialise predominantly in business-to-business deliveries. An express or parcels company will typically operate on a door-to-door basis providing services to business clients.
Although in recent years many companies have started to offer business-to-consumer services (‘home delivery’), these have specialist requirements owing mainly to the fact that it is often impossible to affect a delivery as, unlike businesses, many people are not in during the day to receive goods. A non-delivery will impact on the efficiency of an operation as it will either require re-delivery or else follow up by a customer service agent. In many cases procedures have not been designed for this eventuality.
Post Offices on the other hand have established systems which can deal with non-delivery of consignments, usually by leaving a parcel at a local post office. Their dense networks of local drop off points provide them with a competitive advantage over other companies which can only take the undelivered consignment back to a regional depot.
The express and parcels industry is broadly defined by domestic, regional or international destination. Although in many cases the operations are similar, for instance with hub and spoke networks, there are some major differences. Domestic express services are normally road based whereas international express requires multi-modal transport. Domestic or regional operations are highly competitive due to the lower barriers to market entry. The international air express operators, often owning or leasing aircraft, use their scale and resources to offer higher levels of services over longer distances. Some companies, such as DHL, use a further segmentation, segregating the intra-European market from intercontinental volumes.
How do you define the European road haulage sector?
Segment by operation
· Ground freight forwarders/ Networks
Ground freight forwarders (also known as groupage operators) undertake the collation of consignments from a number of different sources to make up a full vehicle load. Services often depart on a set schedule, and therefore it is down to the operator to sell capacity on the vehicle in much the same way as a scheduled air cargo carrier sells space on its aircraft. Groupage services take place on a point-to-point basis, with distribution of the consignments taking place from the destination hub. The ground freight market is highly competitive due to extreme fragmentation. Consequently margins are low. Asset intensity is also generally low although some investment is required in facilities.
A more recent development has been that of national and European networks. These largely replicate the systems used to move parcels, except they are capable of moving much larger weights. They work on a hub and spoke system, with local hauliers delivering consignments into regional hubs. Shipments are then moved between hubs, usually overnight. The advantage of using a network rather than a groupage system is the increased frequency which they provide. However they require a critical mass of consignments to be viable and this has favoured the major players such as Schenker and DHL EuroCargo.
The development of European road freight networks has comes as a response to a number of macro-economic trends. The single European market has enabled the seamless movement of goods cross-border and this has allowed the network concept to develop. Prior to the removal of border controls, customs delays were endemic which resulted in unreliable transit times. Secondly, the SEM has enabled manufacturers to establish pan-European distribution models which has reinforced cross-border supply.
· Full load (charter)
Full load operators undertake the movement of truckloads on a chartered basis. This requires less sophistication of operation, as there is less administration and fewer clients moving larger loads. Many of the larger players offer both services to clients.
Segment by speciality
Further segments exist by categorizing by speciality equipment.
· Temperature controlled (eg refrigerated, frozen and thermo)
· Bulk (eg liquid, powder)
· Air cushioned (eg high tech sector)
· Finished vehicle transporters
Segment by geography
Road haulage can be further segmented on the basis of the geographic scope.
Local transport. Most road haulage takes place on this basis under 50km.
· Inter-regional or national
Fewer goods volumes are moved on a region-to-region or national basis. This therefore requires a (relatively) more sophisticated groupage or part load operation to make operations economically viable.
Only a small volume of consignments are shipped internationally. Prior to the Single European Market, international shipments required documentation which increased complexity and administration. Now barriers to market entry are very low in terms of technical capabilities, and this has encouraged hauliers from Central & Eastern Europe to take market share (especially when bidding for return loads).
Segment by consignment attribute
· Parcel (
This report does not specifically cover the European parcel sector, which is covered in much greater detail in European Express Leaders. However parcels (and express) companies tend to be some of the largest operators of goods vehicles. More information is contained in section 5.0.0
· Pallet (unitized shipment >35kg)
The pallet has revolutionized the movement of goods in the road freight sector in much the same way as the container did for the shipping sector. It is a convenient way of unitizing goods in a form which facilitates movement by materials handling equipment (eg front lift trucks).
In recent years ‘pallet networks’ have developed using advances in materials handling technology to treat pallets in much the same way as parcels. The UK has been at the forefront of this trend which is now spreading throughout Europe. The result has been the development of hub and spoke operations, with next day delivery the industry standard.
Segment by service attribute
A further method of defining the market is by the level of service which can be offered by road hauliers for either parcels or freight. Supply chain compression has consolidated trends towards same and next day delivery.
Express companies usually undertake to deliver consignments by a specified day and even by a specified time. In Europe and domestically, ‘express’ usually means next working day, or as it is sometimes referred to, ‘J+1’. Some companies have a more stringent definition: to qualify as express it must be delivered in the morning of the following day.
· Standard (non time-definite)
Where the time attribute is not as important delivery is usually on a non-specific 2-3 days basis or longer and the service is also referred to as ‘deferred’ or ‘standard’.
Glossary of other terms used
2PL: term used to describe a non-value adding freight carrier such as an airline, shipping line of road haulier.
3PL: a contract logistics provider, undertaking distribution activities on behalf of a manufacturer or retailer.
4PL: A company which re-designs a manufacturer’s or retailer’s supply chain; implements the solution and then manages the logistics companies required as part of the overall solution.
Carrier: A company engaged in the transportation of goods between two points.
Consolidation: The concentration of the fragmented European freight industry into fewer providers, supplying multiple products across a range of geogrpahies. This has involved a high level of mergers and acquisition activity as companies seek to achieve scale.
Contract Logistics: A formalized, usually fixed term relationship between logistics supplier and client which includes the provision of integrated warehouse and transportation services and value added logistics including sub-assembly, intervention, postponed manufacturing, kitting, labeling etc.
Distribution Centre: An interface between the manufacturer and end user, often managed by a 3PL, where product is held on a short term basis before final delivery. Value added services such as postponed manufacturing are often provided at a Distirbution Centre
Express company: A term used to describe a company which moves shipments (mostly parcels) on a time definite basis.
Freight Forwarder: a third party company working on behalf of a manufacturer which organises the collection and delivery of goods to the consignee by sea, air or road. Buys and re-sells space on board airlines and ships.
Integrator: The term used to describe a company which owns/leases all the transport assets used to carry express shipments on an international door-to-door basis. This includes vehicles, airplanes and warehouses.
Just-in-Time (JIT) The delivery of materials needed for production at the time they are required theoretically eliminating unnecessary stock within the supply chain.
Kitting: The act of adding several ancillary items (such as electric plugs, instruction manuals etc) into an order at a distribution centre to create a single product specific to a certain market.
Logistics: 1.The time-related positioning of resources to meet user requirements. 2. The process of ensuring that the right product is delivered at the right time in the right condition to the right customer in the right place at the right price 3. A general term used to describe the process or management of the physical movement of goods or the companies involved in this process.
Lead Logistics Provider: A logistics provider which manages a range of other 3PLs on behalf of a manufacturer or retailer as part of an overall supply chain solution.
Operating profit: unless otherwise indicated Operating Profit has been taken as earnings before interest, taxation, depreciation and goodwill amortization (EBITDA) as the best indicator of a company’s on-going profitability.
Primary distribution: The inbound flow of product into a distribution centre, warehouse or manufacturing plant where value is added to the product
Revenues: for comparative purposes a company’s total sales figures have been used throughout the report except for freight forwarding companies where net revenues (ie not including taxes disbursed on behalf of the client) have been used.
Secondary distribution: Distribution of goods from a warehouse or distribution centre to the end-user.
Spare/Service Parts Logistics (SPL): The management of the time critical delivery (and return) of spare parts to end users as part of an after sales service.
Supply Chain Management (SCM): A business strategy to improve shareholder and customer value by optimizing the flow of products, services and related information from source to customer. SCM encompasses the processes of creating and fulfilling the market's demand for goods and services. Also occasionally referred to as Demand Chain Management.