Economic Analysis of the Warehousing & Distribution Market in Northwest Europe

Economic Analysis of the Warehousing & Distribution Market in Northwest Europe Indra Vonck, M.sc. ITMMA University of Antwerp Prof. Dr. Theo Notteboom ITMMA University of Antwerp Press meeting, Brussels, 25/09/2012

General information Title: Economic Analysis of the Warehousing & Distribution Market in Northwest Europe Authors: Indra Vonck & Theo Notteboom (ITMMA, University of Antwerp, www.itmma.ua.ac.be) For further information on the services of ING Bank in transport and logistics, please visit www.ing.be Other recent ITMMA/ING studies:

Focus Warehousing sector within Northwest Europe with a specific focus on the Benelux Warehousing: The administrative and physical actions required for the storage of goods and materials. Both located at the beginning, middle and end of the supply chain or near production and industrial facilities.

Content 1 General perspectives on the warehousing market 2 Warehousing locations and determining factors 3 Warehousing developments 4 Strategic reflections and recommendations in light of market developments

Content 1 General perspectives on the warehousing market The functions of warehousing in the supply chain Economic impact of warehousing activities Strategic role of warehousing activities The economic dynamics of warehousing

The functions of warehousing in the supply chain

Economic impact of warehousing activities Impact on a European level Source: own compilation based on Fraunhofer (2011)

Economic impact of warehousing activities Impact on a European level (EU27) 2009 Warehousing and support activities for transportation Main indicators Number of enterprises (1000) 122 Number of persons employed (1000) 1378 Turnover (EUR million) 382701 Purchases of goods and services (EUR million) 254885 Personnel costs (EUR million) 81475 Value added (EUR million) 141297 Gross operating surplus (EUR million) 59822 Share in non financial business economy (%) Number of enterprises 0.6 Number of persons employed 1.8 Value added 2.5 Derived indicators Apparent labour productivity (1000/person) 59 Average personnel costs (1000) 35.8 Wage adjusted labour productivity (%) 165.9 Gross operating rate (%) 15.6 Source: own compilation based on Eurostat

Economic impact of warehousing activities Impact on a European level (EU27) index evolution 100 90 80 70 60 50 40 30 20 10 00 Personnel costs/# personnel 100 90 80 70 60 50 40 30 20 10 0 Turnover/#personnel High personnel cost not compensated by high turnover per employee Source: own compilation based on Eurostat

Economic impact of warehousing activities Belgium (year 2009) Warehousing and support activities for transportation Number of enterprises 2,882 Warehousing and storage 387 Support activities for transportation 2,495 Turnover or gross premiums written ( million) 17,891.8 Warehousing and storage 4,072.7 Support activities for transportation 16,031.5 Value added at factor cost ( million) 5,338.8 Warehousing and storage 747.5 Support activities for transportation 4,591.3 Number of persons employed 50,211 Warehousing and storage 8,040 Support activities for transportation 42,171 Turnover per person employed ( 1000) 356.3 Warehousing and storage 231.4 Support activities for transportation 380.2 Apparent labour productivity (Gross value added per person employed) 106.3 Warehousing and storage ( 1000/person) 93.0 Support activities for transportation ( 1000/person) 108.9 Growth rate of employment (%) 1.2 Warehousing and storage 7.1 Support activities for transportation 0.1 Avg umber of persons employed per enterprise 17.4 Warehousing and storage 20.8 Support activities for transportation 16.9 Geographical concentration of warehousing and storage activities Source: own compilation based on Eurostat

Economic impact of warehousing activities The Netherlands (year 2009) Warehousing and support activities for transportation Number of enterprises 4,481 Warehousing and storage 637 Support activities for transportation 3,844 Turnover or gross premiums written ( million) 21,404.4 Warehousing and storage 4,072.7 Support activities for transportation 17,331.8 Value added at factor cost ( million) 7,236.3 Warehousing and storage 1,446.7 Support activities for transportation 5,789.6 Number of persons employed 77,973 Warehousing and storage 13,237 Support activities for transportation 64,736 Turnover per person employed ( 1000) 274.5 Warehousing and storage 307.7 Support activities for transportation 267.7 Apparent labour productivity (Gross value added per person employed) 92.8 Warehousing and storage 109.3 Support activities for transportation 89.4 Growth rate of employment (%) 2.0 Warehousing and storage 7.7 Support activities for transportation 3.7 Avg umber of persons employed per enterprise 17.4 Warehousing and storage 20.8 Support activities for transportation 16.8 Geographical concentration of warehousing and storage activities Source: own compilation based on Eurostat

Economic impact of warehousing activities Logistics regions in the Netherlands Growth Share analysis for Netherlands, Total sq. m. / growth 2006 2010 Growth Share Dutch logistics regions 40% 35% 30% 25% 20% Mainports North Centre A15 zone 15% West Brabant 10% Central Brabant 5% East Brabant 0% 10% 01% Limburg Own elaboration, Understanding logistics in The Netherlands

Strategic role of warehousing activities Spill over Source: own compilation based on Van den Bosch et al (2011)

Strategic role of warehousing activities Warehousing plays an essential role in (1) facilitating trade, (2) increasing the competitiveness of a nation or region and (3) they are assets and sources of innovation in supply chains. Belgium and the Netherlands score high on economic performance indicators such as the Global Competitiveness Index and the Logistics Performance Index (LPI) 2012 LPI 2007 LPI LPI LPI % LPI LPI rank score of highest performer rank score Singapore 1 4.13 100.0 1 4.19 Hong Kong 2 4.12 99.9 8 4.00 Finland 3 4.05 97.6 15 3.82 Germany 4 4.03 97.0 3 4.10 Netherlands 5 4.02 96.7 2 4.18 Denmark 6 4.02 96.6 13 3.86 Belgium 7 3.98 95.3 12 3.89 Japan 8 3.93 93.8 6 4.02 United States 9 3.93 93.7 14 3.84 United Kingdom 10 3.90 92.7 9 3.99 Source: The World Bank

The economic dynamics of warehousing The warehousing sector is also a real estate sector and undergoes similar dynamics Yields per class in Belgium 2011 BTS: build to suit Class Description 2007 2008 2009 2010 2011 Offices CBD 5,40% 6,50% 6,25% 6,25% 6,75% Offices CBD 4,75% 5,75% 5,50% 5,20% 5,00% Offices Suburban 6,25% 7,50% 7,50% 7,50% 7,75% Logistics Modern on logistics corridor 6,00% 7,75% 7,50% 7,25% 7,25% Retail Highstreet 4,50% 5,00% 4,75% 4,50% 4,50% Retail Shopping center 5,00% 5,75% 6,00% 6,00% 6,00% Retail Retail warehouse 6,00% 6,75% 6,50% 6,50% 6,25% Residential >100 units 5,00% 5,00% 5,00% Source: DWZ

Content 2 Warehousing locations and determining factors The European warehousing landscape Logistics zones surrounding the RSD Port hinterland dynamics in warehousing Location factors Transport based Economic Other

The European warehousing landscape Center of gravity of distribution facilities still in Benelux, (northern) France and (western) Germany Distribution centers in Europe/country Other 30% The Netherlands 15% France 13% Poland 6% Belgium 6% Spain 7% Germany 10% UK 13%

Benelux still going strong The European warehousing landscape

The European warehousing landscape Belgium and the Netherlands at top positions in many warehousing and distribution segments # Distribution centres in Europe Rank Food and beverage High Tech Consumer goods Pharma 1 The Netherlands 36% The Netherlands 20% France 40% The Netherlands 15% 2 France 13% Germany 17% Belgium 17% Spain 9% 3 Belgium 11% France 13% Spain 9% Switerzland 9% 4 Germany 8% UK 9% The Netherlands 5% France 6% 5 UK 8% Spain 8% Switzerland 5% UK 6% 6 Spain 8% Sweden 6% Germany 5% Belgium 6% 7 Poland 5% Italy 6% Sweden 5% Italy 6% 8 Other 11% Other 21% Other 14% Other 43% Source: Cushman and Wakefield

The European warehousing landscape Top EDC locations in 2009 and 2020 2009 2020 Ranking Region Country Ranking Region Country 1 Liege BE 1 Hainaut BE 2 Limburg (B) BE 2 Limburg (B) BE 3 Hainaut BE 3 Liege BE 4 Nord Pas de Calais FR 4 Nord Pas de Calais FR 5 Namur BE 5 Düsseldorf GR 6 Luxembourg (B) BE 6 Köln GR 7 Alsace FR 7 Alsace FR 8 Oost Vlaanderen BE 8 Arnsberg GR 9 Antwerpen BE 9 Vlaams Brabant BE 10 Arnsberg GR 10 Saarland GR Source: Cushman and Wakefield

but new logistics hubs on the horizon? The European warehousing landscape

The European warehousing landscape Prime logistics yields are not expected to shift dramatically over the coming years

Logistics zones surrounding Belgium and the Netherlands France Germany

Port hinterland dynamics in warehousing Role of corridors and inland ports Emergence of logistics poles consisting of a set of gateway ports and logistics zones in the (immediate) hinterland (cf. Rhine Scheldt Delta) Importance of routing flexibility FROM TO Multimodal transshipment center Transport corridors Logistics site Secondary logistics zone Company-specific logistics network Primary logistics zone LAND SEA LAND SEA Source: Notteboom & Rodrigue (2004)

Port hinterland dynamics in warehousing The following logistics and warehousing activities typically find a good habitat in ports : Logistics activities resulting in a considerable reduction in the transported volume; Logistics activities involving big volumes of bulk cargoes, suitable for inland navigation and rail; Logistics activities directly related to companies which have a site in the port area; Logistics activities related to cargo that needs flexible storage to create a buffer (products subject to season dependent fluctuations or irregular supply); Logistics activities with a high dependency on short sea shipping.

Port hinterland dynamics in warehousing Advantages of locating EDC inside the port: Good integration and cooperation between terminal operations and distribution center activities; Possibility to re export from the port to other markets; Reduce traffic congestion and pollution for local inhabitants when operating EDC activities inside the port area. Disadvantages of a location in a seaport: Port land tends to be more expensive than land in immediately surrounding areas Port land tends to be priced in a different way + entry modalities (concessions) Manufacturers have less flexibility because of the constraint to call the port where the EDC is located and the often limited number of suppliers of warehousing services in ports The work regime in distribution centers in ports: dock workers (cf. Logistics Contingent in Belgium) In some cases, the port is located far away from the final destination of goods. The cost of land for logistics activities in euro per square meter for major European logistics areas (figures for 2008).

Location factors Focus on costs, quality and transit time + Cost Cost factors Quality factors + Time Time factors Labor Labor costs costs Transportation Transportation costs costs Occupancy Occupancy costs costs Incentives Incentives ( / ) ( / ) Labor Labor quality/flexib. quality/flexib. Labor Labor regulations regulations Customs Customs Transport Transport situation situation Facilities Facilities & utilities utilities Sites Sites Inbound Inbound transit transit time time Outbound Outbound transit transit time time

Corridors Transport based location factors

Transport based location factors Gateways & Clusters >20% of container traffic in Rhine Scheldt Delta is linked to EDC and re exporting activities. Source: Notteboom (2011)

Economic location factors Proximity and access to target markets Source: Cushman & Wakefield

Economic location factors Proximity and access to target markets Estimated shares of the Delta port region in containerized inland cargo (by road, rail and barge) compared to Hamburg, Bremerhaven and Le Havre (2007) Strong in Benelux, West Germany and northern and northeastern France.... but weak in East, Central and South Europe. Growing importance of 24h rule puts pressure on centralised distributuon systems

Economic location factors Proximity and access to target markets The increasing importance of the 24h rule and its impact on distribution systems Source: Response, Netwerkontwerp en -optimalisatie

Emerging trends General trends impact on warehousing sector Globalization of production and trade Mass customization and time to market Liner shipping network developments Increased logistics outsourcing and the rise of 3PL and 4PL Safety and ecology The rise of intermodality (?)

Emerging trends Specific trends in the warehousing sector Lean warehousing aimed at reducing waste or activities which do not generate added value for the customer. Green and sustainable warehouses (energy use, rolling stock, construction materials, exterior design, recycling, etc..) business case approach remains key! Collaborative warehousing IT and technology: Improved product flow visibility, event management, performance management WMS (Warehousing Management System) and TMS (Transport Management System) integration labour management software voice enabled technology

Automotive Electronics Food Health care Textile Present Direct (*) +++ + + + + EDC + + + + +++ NDC/RDC + ++ +++ ++ Tiered (**) + + + Future Direct (*) ++ + + + + EDC ++ + + ++ ++ NDC/RDC + +++ + Tiered (**) + ++ + ++ Emerging trends Changes in logistics networks Trends in distribution systems per segment Distribution based on RDCs Distribution based on one EDC Overall trends in European distribution systems Distribution based on tiered system (EDC+RDCs) Towards a new wave in logistics networks? Networked EDC Less VALS in EDC DC bypass Twin/triple EDC system

Strategic reflections and recommendations Warehousing is a key economic activity, an important component of distribution systems and supply chain solutions and an enabler of gateway and industrial activities Belgium and the Netherlands remain top locations but reconfigurations and adaptations to logistics networks are eminent (e.g. twin EDC concept, rise of eastern Europe, etc..) Key actions include: Sustained focus on cost base (land, labour, energy, taxes, etc..); Availability of land for further warehousing and distribution activities; Market access and operational modalities in seaports; Warehousing diversity (size, no. of players) in ports and inland locations; Intermodal connectivity of logistics sites and supply/use of intermodal services; Innovation in hardware/software and sustainability Principles of lean warehousing and flexibility Enhance culture of coordination and collective actions among market players and nodes