European Industrial & Logistics: Growing Global Linkages
In our previous paper, ‘European Industrial & Logistics: A long-term view’, we took a broad look at the key trends likely to effect Europe’s logistics markets over the next decade and beyond. In this report we analyse in more depth Europe’s existing external distribution networks, focusing on infrastructure developments in air, rail and sea transport and the future prospects for each. Notably, we present more detail on specific infrastructure developments across the continent which will prove key in serving the growth of existing trade routes and the development of new ones. It is very clear that Europe’s traditional ports (notably those in the Hamburg-Le Havre range) are key in the efficient transport of large goods between Europe and the other continents. We look at specific port infrastructure developments, whilst assessing the impacts of the development of larger container vessels and shifting trade routes. Rail routes currently play a limited role, but are hampered by a lack of investment and variable track infrastructure between countries. This report considers the key issues and the prospects for increased growth in rail transport. Finally, air routes are well established for the transport of high-value sensitive goods, but are coming under increasing pressure. The drive to improve the attribution of environmental costs to the sector is set to have a large impact. Whilst at the same time the continent’s largest airports are operating at full capacity and are having problems expanding against a fairly negative legislative environment.
SEA ROUTES FOCUSED ON THE NOTHERN PORT RANGE
Nearly 60% of European container tonnage passes through just four ports: Rotterdam, Antwerp, Bremerhaven and Hamburg. The lion’s share of Hamburg’s container traffic goes to and from East Asia, with China its biggest trading partner by far. The prominence of these ports is a result of centuries of historic trading between Europe, Asia and the Americas. ‘Atlantic European’ locations (the North Sea to be more precise) became the best entry and exit points for goods traffic. In turn this led to growth in manufacturing and production, with the highest concentrations of population and GDP in Europe centred around Belgium, France, Germany, The Netherlands and the UK. No surprise therefore that these locations dominate logistics activity. In contrast ports in Eastern Europe and the Mediterranean are considerably smaller and predominantly focus on localised trade. Excepting, for example, Gioia Tauro which functions as a transhipment base for Mediterranean shipping.
TRADE AND CONTAINER SHIPPING SET TO RISE ACROSS THE BOARD, WITH THE EASTERN MEDITERRANEAN EMERGING AS A KEY ROUTE TO EUROPE’S HEARTLAND
New sea routes into Europe from Asia mean infrastructure is expanding. On the Mediterranean and Adriatic Sea for example, large new port facilities allow container ships taking the Suez Canal route to deliver more directly to Central and Eastern Europe. Goods reach their destination quicker than if they went via the Rotterdam or Hamburg routes, with a time advantage of 5-7 days. Environmental factors also play a key role, with CO2 emissions on the Suez to Venezia route considerably less than the conventional route to Rotterdam, for example. Concurrently, the major ports are constantly upgrading their facilities. This is the result of capacity constraint in places such as Rotterdam, but also in response to the challenge posed by ever larger container ships. Container line Maersk has ordered ten huge new container ships that are longer than a modern aircraft carrier and bulkier than an oil tanker. Measuring 400 metres long, 59 metres wide and 73 metres high, they will be able to carry 18,000 20-foot containers – 2,500 more than the Maersk PS class, currently the largest container ship afloat.
TRANSCONTINENTAL RAIL ROUTES EMERGING, BUT INFRASTRUCTURE PLACES A LIMIT ON CAPACITY AND EFFICIENCY
Despite the dominance of sea routes they are being supplemented by long distance rail services. By sea, the journey from China takes around 35 days. By rail the journey takes 20-25 days. For example, new rail services have started between Antwerp, Europe’s second-largest port, and Chongqing, the industrial hub located in China’s southwest. Chongqing produces 25 million laptop computers a year. However, capacity for such services is hindered by current limitations in rail infrastructure. Notably the inherent inflexibility of rail, meaning that there will have to be a modal shift from rail to road at some point in any supply chain. The most significant issue for rail freight capacity in Europe is different track gauges across national boundaries (see figure 3). This hampers the efficiency of services through Russia, other CIS countries and some Baltic States. Because the track gauge is different in China and Western Europe, time is lost loading containers onto new carriers. For many years the approach to carrying unitised cargos by rail was to adapt the wagon rather than the infrastructure. Special low loader wagons were developed that enabled standard containers to meet loading gauge restrictions in most countries, but these came with speed restrictions. Gradually, height and width restrictions have been addressed across the main freight lines, facilitating new “high-cube” containers with greater capacity. This allows rail freight to compete with sea freight from a capacity perspective, resulting in transcontinental rail services that are increasing in frequency and popularity, despite variations in track gauge. Nevertheless, as long as the physical impediments are in place, long-distance rail from Asia to Europe is likely to remain only a small part of the logistics picture. It is, however, forming an increasingly important part of the logistics network for the internal movement of goods across Europe, especially for those from Turkey.
EUROPEAN AIR FREIGHT UNDER PRESSURE
Ports aside, the other main entry or exit route for goods is Europe’s airports. On a monetary value basis the continent’s airports handle around 30% of goods. However, the focus is on high value low volume, and on a tonnage basis air routes account for just 1% of extra-EU trade. Airports like Frankfurt and Heathrow operate at, or close to, capacity. High land prices and congested airspace are a feature of the largest airports, and many operators have found that they can function more efficiently using a regional hub. Leipzig/Halle airport, for example, has grown its freight volume from just over 15,000 tonnes in 2005 to over 660,000 tonnes in 2010. This growth was helped by investment in an additional runway, and by DHL’s choice of the airport as a regional hub. Leipzig is very well connected and the airport has direct motorway and rail links. As with Europe’s sea ports, its key freight airports are located within areas of both high manufacturing output and consumer demand. As Eastern Europe sees an expansion in the scale of its manufacturing and consumer markets we expect this to put some pressure on, and encourage the development of, air infrastructure in the region. The big issue for air freight is the EU commitment to reduce emissions from international aviation. After the verdict of the European Court of Justice in 2011, the European Commission decided to proceed with the implementation of the Emissions Trading System from the start of 2012, which includes aviation. However, the initiative is facing strong opposition from airlines and a large group of trade-partner countries such as China.
It is clear that sea freight will remain the dominant mode for Europe’s external trade for a very long time to come. Other transport modes simply cannot compete with its scale and efficiency. The key area where we are likely to see the most growth is within the new port developments in the Eastern Mediterranean and the Baltic Sea – which are vital in serving Eastern Europe as it starts to play a bigger part in the global supply chain. That said the major European ports such as Rotterdam have major expansion plans in place, and with the development of ever larger cargo ships the ports with the facilities to handle them will be well placed to increase market share, as trans-continental sea routes become increasingly concentrated around these select ports. Air freight is still a key player in external trade. However, the major western airports are running out of capacity and with opposition mounting against expansion at the major commercial hubs (e.g. Heathrow), and the environmental cost of such activity, it is not an area likely to see dramatic growth. Although given the lack of activity in Eastern Europe’s airports, we may see some expansion here as the demand for and production of high value goods starts to increase, as these countries move up the development path. One notable area for growth - or at least an area where the EU would like to encourage growth – is rail. From an environmental perspective it beats road freight hands down, and over long-distances it can prove extremely cost efficient. However, differing rail gauges in key links in the chain such as Russia pose a problem cost wise. And a lack of capacity and speed in much of Europe’s network also acts as a break, although this is set to steadily improve. In summary we expect this mode to very gradually gain market share as infrastructure developments come online.