Emerging Stronger

Southern Europe had a deeper dive and a slower rise during the recession, but the region has some bright spots.

December 1, 2013

The hard road to economic recovery in southern Europe is forcing logistics firms and supply chain services providers to go the extra mile to innovate and provide meaningful cost reductions to their clients in the region.

While most of the world’s leading economies have now enjoyed an extended period of very small, but positive growth, the countries at the heart of the continent’s Mediterranean tier — Greece, Spain and Italy — continue to confront seemingly intractable problems.

One need only look at the unemployment rates in these countries to see why domestic consumption of shipped goods is down and trade-related companies are scrambling.

At the start of the third quarter of 2013, the last period for which statistics were available as of this writing, Greece’s unemployment rate was a staggering 27.6 percent, while Spain’s was 26 percent and Italy’s was 12.2 percent.

This is horrible news for those living and working in the midst of the situation, but it does not have to be so for supply chain and logistics professions, says Giuseppe Chiellino, managing director of CEVA Logistics Italy and an experienced hand in the region.

Sometimes it takes a crisis to get one’s ideas heard, he explains.

“People are typically much more willing to listen during these times,” Chiellino says. “A crisis usually helps innovation to be accepted.

“These are the times when your proposals are more likely to be accepted,” he adds.

Club Med

Southern Europe, as a region, encompasses Portugal and Spain — also known as Iberia — the south of France, Italy, Greece, Turkey and the Balkan nations.

Their proximity to the Mediterranean Sea on both the north/south and east/west trade routes leading in and out of Europe also provides them with significant opportunities when it comes to containers traversing the Suez Canal.

The region also has two distinct faces: the aforementioned countries still in the throes of economic hardship, is one. The other consists primarily of the Balkans, which were shielded from some of the worst aspects of the 2008 economic meltdown by not being as tightly integrated into the western banking system as their Mediterranean brethren.

As is almost always the case, it is those countries taking the biggest wallop that are the most interesting to talk about. In these, logistics and supply chain managers continue to grapple with a very tough scenario — a low volume environment in which there continues to be pressure on prices and margins.

“These factors are very difficult to manage because they run counter to each other,” Chiellino says. “Typically, when we think of logistics we think of rate-per-unit, and under normal conditions, reductions in rates can be achieved as a benefit of an increase in volume.

“Here, because of the pressure to continue to make a profit in a low volume environment, clients in every sector, almost without exception, are asking their logistics services providers to make hard decisions about how to move their shipments while still guaranteeing there’s a profit at the end of the day.

“As you can imagine, this makes it difficult for a logistics services provider to survive in these countries,” he says.

Short of finding a fix for all the ills of the larger economy, Chiellino believes 3PLs and others in the supply chain space need to place a stronger emphasis on cost control than ever before. He also feels companies in this sector need to stress new solution designs.

“Innovation is what it’s all about. It is the only way, really, to achieve the cost reductions for the customer while also guaranteeing a profit for the logistics company,” he says.

A Ground-Eye View

As if this was not enough, the region is challenging in yet another way — despite the ease with which one can envision it, it is actually fairly fragmented in terms of terrain.

“What this means is you don’t have the luxury of creating one huge hub from which to manage all of your clients’ supply chain needs,” Chiellino says. “You just can’t do that and guarantee a consistent level of service to your customers.”

To meet that challenge, CEVA has located large “central” facilities outside Madrid, to serve the Iberian Peninsula; central Italy, to serve that peninsula as well as the south of France and the Balkans; and in Turkey to encompass the remainder of the region.

“A large part of this is simply trying to contain logistics costs in an environment where almost all goods are distributed by road — and that’s not easy,” Chiellino says. “The geography of these countries is not so easy.”

Indeed, despite the wonderful reputation of European passenger train service, relatively little cargo moves by rail on the continent. According to Chiellino, in his native Italy, only about 8 percent of the nation’s cargo moves by rail, with the remaining 92 percent going by road,

The rest of Europe does not do much better, putting only about 12 percent of its cargo on rail, he says.

To cope with these conundrums, CEVA undertook two important projects during the depths of the financial crisis, a period encompassing, roughly, 2010 to 2011.

The first was to convince customers that there is nothing wrong about sharing a warehouse with their competitors.

“The idea was to create a multi-customer warehouse, each one specializing in a sector, and affording each of our customers an opportunity to take advantage of the synergies that derive from that,” Chiellino explains. “What this means is not only sharing warehouse space, but also transport.

“After all, in many cases, these distinct clients are all going to the same point of sale,” he says.

As an example, Chiellino points to clients he serves in the publishing industry. Unlike in the U.S. and some other countries, eBook readers have barely penetrated the Spanish and Italian markets. That means publishers serving potential customers in those countries still have to move a lot of pulp and paper.

“This is the perfect example of a situation where you have competing companies, but there’s no conflict in sharing space and achieving the savings that come from that,” he says. “Publishers don’t sell books based on their warehouses or their logistics networks; they sell books based on what they offer to the final customer.

“So what we were able to do is divide an 80,000 square meter warehouse between several very important publishing brands in Italy and everybody achieved savings,” he continues. “The same was true of our experience the pharmaceutical sector.

“Today, we have a 20,000 square meter warehouse used by 20 difference pharmaceutical company customers, and they share logistics and distribution networks,” Chiellino says. “They reap the benefits of shared processes and, at the end of the day, when we get to the pharma shop, we deliver different brands and they are differentiated there.”

Yet another example is the company’s experience with the coffee producer Lavazza, for whom CEVA manages the distribution of its products in Portugal and Spain.

Two years ago Lavazza agreed to store its product in a dedicated location within a multi-user warehouse outside of Barcelona, Spain. Under the terms of the contract, CEVA manages the inbound logistics for goods arriving from Lavazza’s factory in Italy, storage of the company’s products, and outbound delivery to customers on the Iberian Peninsula.

In short, it is an integrated solution that crosses a number of geographies. The whole thing is managed through CEVA’s Matrix platform, which links the firm’s warehouse and transportation management systems.

“All this is what I meant when I said there are benefits to a crisis, its helps innovation find acceptance and frees people to look at things in different ways,” Chiellino says.

Staying Green

The second innovation CEVA adopted to deal with the special conditions present in southern Europe was the creation of a “control tower” to manage its various logistics operations. Like an airport control tower, the IT manages all of the company’s deliveries.

“In practice what it means is that each day we have a team of people who are constantly monitoring, updating and managing the distribution of the goods we handle,” Chiellino explains. “This includes the last mile, from our cross docking facilities to our final destinations.”

But he does not stop there. The CEVA director goes on to tout the environmental benefits of the control tower, this at a time when governments across the region, and especially Spain and Italy, have rethought their commitments to renewable energy and other green initiatives, deeming them unaffordable during an economic crisis.

Chiellino says because the control tower allows CEVA to optimize truck routing and distribution, the company has reduced its CO2 emissions by 40 percent over the past three years.

“Our customers haven’t forgotten about the need to be green. The problem in our region is they are just not in a position to invest in these initiatives,” he says. “So something like the utilization of the control tower helps them achieve at least some of their green goals.

“The other thing we’ve done is integrate renewable energy into our own operations,” he continues. “When we really became active in southern Europe, we rented about 900,000 square meters of warehouse space and we covered about 40 percent of it with photovoltaic solar panels.

“I think that’s also helped us weather the trying times in countries like Spain and Italy, etc. — green processes aren’t the first thing clients are looking for these days — what a customer in an environment like this is looking for is a new cost saving solution — but they definitely feel good, feel like they are still acting in an environmentally sound way, by taking advantage of such a facility or such an initiative.”

Infrastructure Investment

Finding new ways to remain green is not the only change clients of companies like CEVA are dealing with. The consolidation that’s occurred in the ocean carrier industry has helped solidify Rotterdam’s place as Europe’s biggest and busiest port, and caused Mediterranean ports to struggle — read “invest significantly” — to maintain their relevance.

For example, Piraeus Port Authority S.A., in Greece, is currently engaged in a 600 million euro effort, to both modernize its facilities and link its container and car terminals to the national railway network. In Spain, meanwhile, the Port of Barcelona has opened a new semi-automated deep-water container terminal in the past year, a move that Sixte Cambra, President of the Port Authority of Barcelona, described as “effectively marking the start of our big expansion at the port.”

Not to be outdone, the Port Authority of Valencia, which oversees the busiest container terminals in Spain, the ports of Valinecia, Sagunto and Gandia, has become an active participant in the Container Security Initiative of the U.S. Customs and Border Protection, U.S. Department of Homeland Security.

Despite these and similar efforts, Chiellino says, “Today, we’re receiving far more goods from Rotterdam — and the same kind of change is occurring on the air freight side, where London, Frankfurt and Amsterdam have emerged as the big airports for air cargo transport.”

“A lot of what we do is organizing the distribution of goods arriving at these locations, putting them on trucks bound for other countries,” he continues.

“Of course, high margin and luxury foods continue to use the smaller ports and smaller airports,” he says. “As a result, Genoa remains a very important seaport in Italy and Milan, a very important airport; likewise, in Spain, Barcelona, Valencia and Madrid remain important ports of call, the latter being as an airport, of course.

“That said and to be completely honest, there has been a tremendous shift towards the northern European ports I mentioned earlier,” he says. “We serve many sectors of the economy — fashion, publishing, automotive, technology, the telecom industry, pharma, and retail — and we’ve seen a very consistent reduction of cargo coming through southern European countries, somewhere in the vicinity of 30 percent.”

In response — and again, to meet client’ demands for reduced costs — CEVA consolidated its presence in many Mediterranean tier countries, snuggling up close to each country’s main economic regions.

“This is a big change,” Chiellino says. “But you need to be where your clients need you to be. In Italy, for instance, this means having facilities in Milan, Rome, Tuscany and Turin.”

The CEVA director does not see recovery for the entire region in the near term — in fact, he believes recovery will not come until 2016. But he does see something else: a growing sense of stability.

“In some countries, for instance, namely Spain and Italy, we’ve seen the unemployment numbers remaining fairly consistent since June 2013, which suggests the days of their getting worse may be behind us,” he explains.

“At the same time, we’ve gotten some good political news. For instance, after what looked to be a governmental crisis in the making in Italy, our political class was able to come to an agreement and avoid the need to form a new government. So things are falling into place, and will continue to get better so long as countries in this region make all the necessary spending reforms.”

“You know in reflecting on this region and the impact the financial crisis has had on trade, I really do think that it’s true — that when you face a crisis and take the steps you need to in order to survive, you become stronger than you were before.

 “I think that’s a good point to remember, not only for companies but for people as well,” Chiellino says. “You know, it has been said that for Italy this has been the worst crisis since the end of World War II and for Spain, it has be the worst crisis since Franco. But I think there’s only one way to face this and that’s to address challenges head on and to be more proactive than you ever have before.” 

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