IntroductionStrategic developmentThis article examines the influence of therelatedtotheimplementation of the Single EuropeanMarket (SEM)on thedevelopment strategiesEuropeanization ofof UK logistics and distribution serviceUKlogisticsandproviders. It investigates the ways in which themajor UKdistributors haveextended theirdistributionserviceoperations into Continental Europe and thelevels of successthattheyhavesofarachievedsuppliersDefinitionofdistribution industryMarilyn A. StoneThe distribution industry supplies a range oflogistics services within the supply chain. Ithas evolved fromtheprovisionof basictrans-portationofgoods,to encompassanumberofsupporting services which can include theThe authorprovision of transportation (or haulage),Marilyn A. Stone is a Lecturer in Marketing at Heriotinventory management and order processing,Watt University Business School, Riccarton,Edinburgh,UKwarehousing and storage,and increasinglysophisticatedsupport services,such as orderAbstractpicking, packaging, labelling, excise duties"Althoughbarrierstofreetradeacrossthe European Unioncontrol and management.In effect, there isa(EU) have been dismantled since the Single European Actspectrum of services offered by industrywas signed, some still remain which are likely to hinder UKoperators. Most of the major UK operatorsdistribution operatorsstrategicdevelopments in Europethat provide Continental European servicesRegrouping and consolidation of the larger distributionhavedevelopedfrombasictransportationoperatorsareunderway.UKdistributionoperatorshavesuppliers to higher level distribution-servicemoved towards closer integration of Continental Europeansuppliers.Those presently serving the Euro-operations with UKactivities.Somegroups arefocusing onpean market predominantly offer the higherthe Europeanmarkettotheexclusion ofallotherinternavalue-added services involving distributiontionalmarkets,implementingthestrategiclessonsofmanagementandincorporatingmanagementPorterofcostleadership,differentiationandfocus.Withininformation systems technology.theEuropeanmarket,UKlogisticssuppliersaretendingoconcentrate on theprovision of the higher value-addedservices of distribution to targeted markets,primarily thoseEuropeanUnionEUandtheSEMin northern Europe, located within the favoured "golden"Creation ofan SEM forroad haulageband of countries.For thefuture, theEU isplanning toservicesintegrateEuropeanroadandrailnetworks.ItistobeTheCockfieldReport(1985)advocated theanticipated that this improvement in infrastructure willremoval of physical, technical and fiscal barri-havepositiveeffectsonthe European distribution industryers within the transport sector, as well as otherHowever, the trend towards protecting domestic industrysectors ofeconomic activity, and was thewill constrain thedevelopment of integrated markets inprecursor of the Single European Act thatlogistics services.came intoforce inJuly1987.Theeliminationof frontierchecksforroad haulagetrafficwasrequired for the international transport ofgoods byroad between Economic Commu-nity (as it was known)member states.Quanti-tative restrictions inthe formofquotas wereto bephased out and conditions underwhichnon-resident carriers could operate"cabo-tage",that is,transportation serviceswithinanothermember state,hadto beestablished.European Business ReviewHarmonization has also been taking placeVolume 95 - Number 5- 1995 · pp. 9-14regarding heavy goods vehicle specifications,MCB University Press-ISSN0955-534X9
Introduction This article examines the influence of the implementation of the Single European Market (SEM) on the development strategies of UK logistics and distribution service providers. It investigates the ways in which the major UK distributors have extended their operations into Continental Europe and the levels of success that they have so far achieved. Definition of distribution industry The distribution industry supplies a range of logistics services within the supply chain. It has evolved from the provision of basic transportation of goods, to encompass a number of supporting services which can include the provision of transportation (or haulage), inventory management and order processing, warehousing and storage, and increasingly sophisticated support services, such as order picking, packaging, labelling, excise duties’ control and management. In effect, there is a spectrum of services offered by industry operators. Most of the major UK operators that provide Continental European services have developed from basic transportation suppliers to higher level distribution-service suppliers. Those presently serving the European market predominantly offer the higher value-added services involving distribution management and incorporating management information systems technology. European Union EU and the SEM Creation of an SEM for road haulage services The Cockfield Report (1985) advocated the removal of physical, technical and fiscal barriers within the transport sector, as well as other sectors of economic activity, and was the precursor of the Single European Act that came into force in July 1987. The elimination of frontier checks for road haulage traffic was required for the international transport of goods by road between Economic Community (as it was known) member states. Quantitative restrictions in the form of quotas were to be phased out and conditions under which non-resident carriers could operate “cabotage”, that is, transportation services within another member state, had to be established. Harmonization has also been taking place regarding heavy goods vehicle specifications, 9 European Business Review Volume 95 · Number 5 · 1995 · pp. 9–14 © MCB University Press · ISSN 0955-534X Strategic development related to the Europeanization of UK logistics and distribution service suppliers Marilyn A. Stone The author Marilyn A. Stone is a Lecturer in Marketing at HeriotWatt University Business School, Riccarton, Edinburgh, UK. Abstract Although barriers to free trade across the European Union (EU) have been dismantled since the Single European Act was signed, some still remain which are likely to hinder UK distribution operators’ strategic developments in Europe. Regrouping and consolidation of the larger distribution operators are under way. UK distribution operators have moved towards closer integration of Continental European operations with UK activities. Some groups are focusing on the European market to the exclusion of all other international markets, implementing the strategic lessons of Porter of cost leadership, differentiation and focus. Within the European market, UK logistics suppliers are tending to concentrate on the provision of the higher value-added services of distribution to targeted markets, primarily those in northern Europe, located within the favoured “golden” band of countries. For the future, the EU is planning to integrate European road and rail networks. It is to be anticipated that this improvement in infrastructure will have positive effects on the European distribution industry. However, the trend towards protecting domestic industry will constrain the development of integrated markets in logistics services
The Europeanization of UK logisticsEuropean Business ReviewVolume 95-Number 5-1995-9-14Marilyn A Stoneoperating practices, employment regulations(2)Multidomestic.i.e.providingtraditionaland operators'professional qualifications[1]services from adomesticbaseto severalEuropean countries (e.g.distributionPotential strategies for distributionservices; National Freight Consortium:operatorslatterly,NationalFreightCompanyUK operators'international strategies have(NFC)andTDG).In1992,NFCearnedabout33percentof itsoperatingprofitsbeenverymuchinfluenced bytrendsinUKfrom outside the UK (albeit this includedtrade. In 1970, UK trade (imports andUS as well as European activities).exports)withtheEuropeanEconomicCom-"Increasingly, our major clients are com-munity,as itwas thentermed,accountedforpanies which operate on an internationalthesameshareasthat withtheCommon-scale and use NFC services in severalwealth (20 per cent by value);the USA wasmarkets"[3].At the same time, in 1992,alsoa substantial tradingpartner.By1993TDG earned21per cent of its operatingthepattern oftrade had changed in favour ofprofits fromEuropeand Australia; how-theEUtothe disadvantageof theCommonever,owingtotheeffectsoftherecessionwealth,and to a lesser degree the USA.Thistrend towards trade with the EU (having 52in Europethis contributionfell in1993[4].per cent by value of UK imports and 56per(3)Eurolinkers:i.e.providing an internationalcent of UK exports) away from the traditionalnetwork on a limitedrangeofservicesCommonwealthandUSpartnersisreflectedbetween major European markets (e.g.in UK distribution operators'strategies.express delivery/parcels; Ducros).TakingtheexampleofTransportDevelop-mentGroup (TDG),rankedamongthetopThe major UK distributors have tended tofive UK distribution suppliers, its UK holdingdevelop multidomestic strategies.company,in1970,had subsidiarycompaniesin the Commonwealth (Australia and Cana-TrendsintheEuropeandistributionda),the USA, Holland and France.However,industrybythe late1980s,Canadian interestshadbeen soldandinvestmentwastakingplaceinIn 1992,transport and related industriesFrance,Spain, Germany and Portugal.Thisrepresented upto10per cent of EU coun-focus on Europe continued so that, by mid-tries'gross domestic product:theEUdistrib-1994,all theUSandAustralian interestswereutionmarketwasestimated tobef81billion,sold.The capital released from these sales isandforecast togrowtof107billionby1997being directed towards investment in UK andEuropean road haulagewasforecast toContinentalEuropeanbusinesses,inlinewithincrease by 6 per cent per annum and third-TDG's strategicmissiontobea leading Euro-partydistribution was expected togrowbypean distribution operator.Furthermore,between5and10percentinthefiveyearsTDG latterlyhas concentrated its Europeanfrom1992to1997[5.6].Freighttrafficwithinactivities within Holland and France,and toatheEUalone isforecast togrowby40perlesserdegree in Spain and Germany.centbytheendoftheyear2000Browne and Allen[2] suggested that UKdistribution operators can target their stra-Structure of the European distributiontegic development in three main ways:industry(1) Pan-Europeanr: i.e. providing European-wide service offering distribution bothThe freight transport market in Europe iswithin, and between, a number of Euro-characterized bya highdegree of fragmenta-pean countries (e.g. express deliverytion of ownership,although thetrend isservices; TNT, UPS).However, on thetowards increasingconcentrationofowner-widerportfoliooflogistics/distributionship.However, individual market sectorsservices,eventheprospectiveEuropeanshowconsiderablevariation.Theexpressmega-carriers such as NedLloyd andparcels market,forexample,hosts manylargeDanzas do not provide a wide range ofoperators,mainlybecausesubstantialcapitalbothnational and international servicesis required to set up extensive networks andon a European basis. They primarily offersortation hubs.By contrast, in thegeneralhaulage sector there are few barriers to entryhaulage and freight forwarding services.10
operating practices, employment regulations and operators’ professional qualifications[1]. Potential strategies for distribution operators UK operators’ international strategies have been very much influenced by trends in UK trade. In 1970, UK trade (imports and exports) with the European Economic Community, as it was then termed, accounted for the same share as that with the Commonwealth (20 per cent by value); the USA was also a substantial trading partner. By 1993, the pattern of trade had changed in favour of the EU to the disadvantage of the Commonwealth, and to a lesser degree the USA. This trend towards trade with the EU (having 52 per cent by value of UK imports and 56 per cent of UK exports) away from the traditional Commonwealth and US partners is reflected in UK distribution operators’ strategies. Taking the example of Transport Development Group (TDG), ranked among the top five UK distribution suppliers, its UK holding company, in 1970, had subsidiary companies in the Commonwealth (Australia and Canada), the USA, Holland and France. However, by the late 1980s, Canadian interests had been sold and investment was taking place in France, Spain, Germany and Portugal. This focus on Europe continued so that, by mid- 1994, all the US and Australian interests were sold. The capital released from these sales is being directed towards investment in UK and Continental European businesses, in line with TDG’s strategic mission to be a leading European distribution operator. Furthermore, TDG latterly has concentrated its European activities within Holland and France, and to a lesser degree in Spain and Germany. Browne and Allen[2] suggested that UK distribution operators can target their strategic development in three main ways: (1) Pan-European: i.e. providing Europeanwide service offering distribution both within, and between, a number of European countries (e.g. express delivery services; TNT, UPS). However, on the wider portfolio of logistics/distribution services, even the prospective European mega-carriers such as NedLloyd and Danzas do not provide a wide range of both national and international services on a European basis. They primarily offer haulage and freight forwarding services. (2) Multidomestic: i.e. providing traditional services from a domestic base to several European countries (e.g. distribution services; National Freight Consortium: latterly, National Freight Company (NFC) and TDG). In 1992, NFC earned about 33 per cent of its operating profits from outside the UK (albeit this included US as well as European activities). “Increasingly, our major clients are companies which operate on an international scale and use NFC services in several markets”[3]. At the same time, in 1992, TDG earned 21 per cent of its operating profits from Europe and Australia; however, owing to the effects of the recession in Europe this contribution fell in 1993[4]. (3) Eurolinkers: i.e. providing an international network on a limited range of services between major European markets (e.g. express delivery/parcels; Ducros). The major UK distributors have tended to develop multidomestic strategies. Trends in the European distribution industry In 1992, transport and related industries represented up to 10 per cent of EU countries’ gross domestic product: the EU distribution market was estimated to be £81 billion, and forecast to grow to £107 billion by 1997. European road haulage was forecast to increase by 6 per cent per annum and thirdparty distribution was expected to grow by between 5 and 10 per cent in the five years from 1992 to 1997[5,6]. Freight traffic within the EU alone is forecast to grow by 40 per cent by the end of the year 2000. Structure of the European distribution industry The freight transport market in Europe is characterized by a high degree of fragmentation of ownership, although the trend is towards increasing concentration of ownership. However, individual market sectors show considerable variation. The express parcels market, for example, hosts many large operators, mainly because substantial capital is required to set up extensive networks and sortation hubs. By contrast, in the general haulage sector there are few barriers to entry 10 The Europeanization of UK logistics Marilyn A. Stone European Business Review Volume 95· Number 5 · 1995 · 9–14
The Europeanization of UK logisticsEuropean Business ReviewMarilyn A. StoneVolume 95. Number 5.1995.9-14becauseeven thefinancing of themain capitalbusinesses,such as NFC,Wincanton andTDG, which were gaining an increasing shareasset,thetruck,canbespread overseveralyears. Regarding the road haulage sector, theof an overall market[10].Nevertheless, as UKextremeswithintheEUarerepresentedbytransportcompanies wentfor growth,profitthe UK and Italy. However, the highly fragmargins suffered[11]mented market may change if the currentIn terms of geographical coverage, thetrend ofacquisitions and mergers amongtrend hasbeenforthesmallerfirms tooperateoperators continues and leads togreateron alocal,regionalizedbasisand,ifappropri-concentrationaslargercompaniesbecomeate,to serve a particular industry sector.Thusmore dominant in many freight markets.they specialized, for example, in the North-In1989,thetop50Europeanroad-basedEast perhaps servingthefish industry.How-transportcompanieshadcombinedrevenuesever,astheygrew, either organically orbyoff34billionwhichrepresented37percentacquisition into largerbusinesses,theybeganof thetotal distributionexpenditure in west-to increase their geographic coverage as wellernEuropeof9obillion,althoughsomeas therangeof distribution services supplied.exaggerationoftheapparentdominancewasBy1988,roadtransportaccountedforoverdue to revenue figures including worldwide70per cent of allfreight inBritain, in terms ofearnings[7,8].The smaller regional transporttonnage lifted,whichwasmorethantentimescompanies,togetherwithown accountopera-the rail share of the market[10].Three factorstions,took up theremaining63percentofpromotedthis dominance of road transport:total distribution expenditure.The largest(1)Manysectors ofthedistribution industryindividual companies probably held at mosthadfollowed a trend towards theuseofsome 3per cent ofthetotal road-based market,heavierlorries.InMay1983,theUKa relatively small part of thetotal market inincreased the maximum permitted weightEurope,although the signs are thattheir shareforfive-axlearticulated vehicles to38is growing.tonnes gvw (i.e. gross weight of the vehi-cle, any on-board equipment and load),andthiswill continueuntil 1999whenTrends in theUK distribution industrytheEUlimitof40tonnes isappliedDuring the 1950s and 1960s, most British(2)The motorways weredeveloped intoafreight operatorsprovided basictransportnetwork with a relatively high degree ofservices,making littleattempttomarketconnectivity, which enabled firms todifferentiated servicesfor particularboost efficiencyand productivitythroughcustomers.Generally,freight services werereduced journey times. Longer dailygeared tothe needs of heavyindustry ratherjourneys became possible for vehicles andthan the emerging consumer-oriented indus-crews,enablingfleetandmanpowertries.Providers of professional haulage ser-savings.vices were typically small, restricted by licens-(3)Improvements weremadein road vehicleingregulations tooperating a limited rangeoftechnology, and unitization principlesroutes,and could maintain high rates owingwere applied extensively in freight han-to thequantity controls affecting the size ofdling.the market. To maintain flexibility in opera-The UK road freight market of the 1990s is ation, and to avoid the high public haulagehighly specialized industryworth approxi-rates,manyindustrial freighttransport usersmatelyf25billion[5].By1993,theturnoverpreferred to operate vehicle fleets on theiroftheUK'stop50 transportanddistributionown account, butwere often dogged by pooroperatorswasoverf11.2billion;thetopfourutilization and inefficiency[9]WithinEurope,UKdomesticroadhaulageaccountingfor53percentofthatvalueandhas been deregulated since 1970 when quan-50per cent oftotalprofits.Theaveragepretaxtity licensing (the old A, B and C licensingprofitfor thetop50companieswas3.5persystem)was abolished.TheUK never hadcent,an improvement on the 3.4per cent inofficial control ofroad haulage rates.In thethe1992 survey.However,onefifth ofthe1980s, major restructuringofthe UK distribu-companiesdeclared pretaxlosses,includingtionindustryoccurred whichled toalargefour wherethelosspercentagewas indoublenumberofsmallfirmscoexistingalongsideafigures.The best-performing sector wascontract distribution, while freight forwardingmuch smallernumber of heavily capitalized11
because even the financing of the main capital asset, the truck, can be spread over several years. Regarding the road haulage sector, the extremes within the EU are represented by the UK and Italy. However, the highly fragmented market may change if the current trend of acquisitions and mergers among operators continues and leads to greater concentration as larger companies become more dominant in many freight markets. In 1989, the top 50 European road-based transport companies had combined revenues of £34 billion which represented 37 per cent of the total distribution expenditure in western Europe of £90 billion, although some exaggeration of the apparent dominance was due to revenue figures including worldwide earnings[7,8]. The smaller regional transport companies, together with own account operations, took up the remaining 63 per cent of total distribution expenditure. The largest individual companies probably held at most some 3 per cent of the total road-based market, a relatively small part of the total market in Europe, although the signs are that their share is growing. Trends in the UK distribution industry During the 1950s and 1960s, most British freight operators provided basic transport services, making little attempt to market differentiated services for particular customers. Generally, freight services were geared to the needs of heavy industry rather than the emerging consumer-oriented industries. Providers of professional haulage services were typically small, restricted by licensing regulations to operating a limited range of routes, and could maintain high rates owing to the quantity controls affecting the size of the market. To maintain flexibility in operation, and to avoid the high public haulage rates, many industrial freight transport users preferred to operate vehicle fleets on their own account, but were often dogged by poor utilization and inefficiency[9]. Within Europe, UK domestic road haulage has been deregulated since 1970 when quantity licensing (the old A, B and C licensing system) was abolished. The UK never had official control of road haulage rates. In the 1980s, major restructuring of the UK distribution industry occurred which led to a large number of small firms coexisting alongside a much smaller number of heavily capitalized businesses, such as NFC, Wincanton and TDG, which were gaining an increasing share of an overall market[10]. Nevertheless, as UK transport companies went for growth, profit margins suffered[11]. In terms of geographical coverage, the trend has been for the smaller firms to operate on a local, regionalized basis and, if appropriate, to serve a particular industry sector. Thus they specialized, for example, in the NorthEast perhaps serving the fish industry. However, as they grew, either organically or by acquisition into larger businesses, they began to increase their geographic coverage as well as the range of distribution services supplied. By 1988, road transport accounted for over 70 per cent of all freight in Britain, in terms of tonnage lifted, which was more than ten times the rail share of the market[10]. Three factors promoted this dominance of road transport: (1) Many sectors of the distribution industry had followed a trend towards the use of heavier lorries. In May 1983, the UK increased the maximum permitted weight for five-axle articulated vehicles to 38 tonnes gvw (i.e. gross weight of the vehicle, any on-board equipment and load), and this will continue until 1999 when the EU limit of 40 tonnes is applied. (2) The motorways were developed into a network with a relatively high degree of connectivity, which enabled firms to boost efficiency and productivity through reduced journey times. Longer daily journeys became possible for vehicles and crews, enabling fleet and manpower savings. (3) Improvements were made in road vehicle technology, and unitization principles were applied extensively in freight handling. The UK road freight market of the 1990s is a highly specialized industry worth approximately £25 billion[5]. By 1993, the turnover of the UK’s top 50 transport and distribution operators was over £11.2 billion; the top four accounting for 53 per cent of that value and 50 per cent of total profits. The average pretax profit for the top 50 companies was 3.5 per cent, an improvement on the 3.4 per cent in the 1992 survey. However, one fifth of the companies declared pretax losses, including four where the loss percentage was in double figures. The best-performing sector was contract distribution, while freight forwarding 11 The Europeanization of UK logistics Marilyn A. Stone European Business Review Volume 95· Number 5 · 1995 · 9–14
The Europeanization of UK logisticsEuropean Business ReviewMarilyn A StoneVolume 95. Number 5-1995-9-14attractedthethinnestpretax margins,whichsteel/concretemanufactureandexhibitionmight be expected, having the lowest value-contracting).It traded under a multitude ofadded service. Players that expanded signifi-companynames.From the early1980scantly in 1993 included NFC,Hays, Unigate,onwards,TDG extended its distributionTibbett &Britten,MayneNickless,DHLservices alongthe west coast of the USANFT andNYK,as well asHoyers,Mercantilewhile at the same time increasing its presence(GB), GB Express, Heron Distribution andinFrance, buying into a joint venture in Por-Target Express Parcels at the lower end of thetugal, and expanding its car transportationTop 50[12].services in south-eastern Australia. In theearly 1990s, it became involved in Spain.However, by 1992,TDG had sold its USTrends indistribution in continentalinterests and concentrated its non-UK opera-Europetions in Europe,inHolland, Franceand,toaDuring the 1990s there will be a polarizationlesserextent,inSpainandGermany.Interestsof the industryleadingto ten-20 integratedin Australia and Portugal were sold in April1994,fora numberofreasons,oneofwhichpan-European companies offering a widerange of services.The market will consolidatewas the peripherality of the locations.into a smaller number of large operators and aOn the otherhand, NFC has made itsmassofsmallplayers(lessthanf5millionacquisitions primarily in North America. Itturnover)which willbecome subcontractors,entered European distribution“piggyback-leaving themiddle-sized operatorstobeing"on itslong-established relationship withasqueezed out or to move into niche markets, ifmajorUKcustomer,Marks&Spencer,andappropriate[13].expanded with it into France and Spain. LEPMost logistics activity in Europe is beingGroup subsidiary, Swift (itself acquired bylocatedwithinthe"golden"band-Europe,Salvesen inOctober1993),hasmade severalincluding mostoftheUK, TheNetherlandsacquisitionsto extend its capability on theand Belgium,easternFranceand westernEuropeanContinentandOceanand,throughGermany,Switzerland and northern Italy-its subsidiary,McGregor Cory,has an acqui-which corresponds to the concentration ofsition programme targeting Holland andpurchasing power in terms of"purchasingSpain.Christian Salvesen andP&Ohave alsopower density",i.e.GDP/km?[14].However,built up substantial operations covering thethere are largedifferences incomparativemainEuropeanmarkets.Otherscompanies,costsoflogistics expenditurebycountry,withlikeNFTandBOCDistribution Services,TheNetherlands the most efficient, Francehavemade littleornodevelopmentmoveshaving the higher costs,and the UKranked inoutsidetheUK.Wincantonentered thethe middle[15].The studyfound differencesGerman marketbutdecided towithdraw.betweencountries inthedevelopmentofUK distributioncompanies seekingtotransport infrastructure,whichreflected thepenetrate Europe have preferred to acquirepriorities of national governments.Therecompanieswithcapablelocal management.were also considerabledifferences intaxationFor example,TDG's Albany(distributionpolicies: diesel prices at the pump varieddivision)purchased,inSeptember1992,betweenECU252(179)inFranceandCotradipSA,a wholly owned wines andECU365(259)inItalyand,asfuelcostsspirits distribution company of the Remycan represent 10-20 per cent of the costs ofCointreau group.The business operatedoperating a vehicle, this would effect distribu-250,000sq.ftofwarehousingcapacityfromtion costs.Vehicles'excise duties also showedfivelocations inFrance.In the sameyear,wide differences.1992,NFC'sExel LogisticsacquiredBOSFinances of France,which comprisedthreefood distributioncompanies withsomeofGeneraldistributionoperatortrendsFrance's largest supermarkets on their cus-The extent to which UK distribution opera-tomer lists.Hays also expanded its breadth oftors havemoved outside the UK has varied.European distribution services by its acquisiAsdiscussedabove,TDG inthe1970sownedtion,in France, of Groupe Fril in1992 and ofcompaniesinHolland,France,AustraliaandMordhurst,inGermany,in1993North America which offered diverse servicesThus,notwoUK distribution companies(predominantlyhaulagebutalso reinforcedhaveapproached Europe in thesame way,12
12 The Europeanization of UK logistics Marilyn A. Stone European Business Review Volume 95· Number 5 · 1995 · 9–14 attracted the thinnest pretax margins, which might be expected, having the lowest valueadded service. Players that expanded signifi- cantly in 1993 included NFC, Hays, Unigate, Tibbett & Britten, Mayne Nickless, DHL, NFT and NYK, as well as Hoyers, Mercantile (GB), GB Express, Heron Distribution and Target Express Parcels at the lower end of the Top 50[12]. Trends in distribution in continental Europe During the 1990s there will be a polarization of the industry leading to ten-20 integrated pan-European companies offering a wide range of services. The market will consolidate into a smaller number of large operators and a mass of small players (less than £5 million turnover) which will become subcontractors, leaving the middle-sized operators to be squeezed out or to move into niche markets, if appropriate[13]. Most logistics activity in Europe is being located within the “golden” band – Europe, including most of the UK, The Netherlands and Belgium, eastern France and western Germany, Switzerland and northern Italy – which corresponds to the concentration of purchasing power in terms of “purchasing power density”, i.e. GDP/km2[14]. However, there are large differences in comparative costs of logistics expenditure by country, with The Netherlands the most efficient, France having the higher costs, and the UK ranked in the middle[15]. The study found differences between countries in the development of transport infrastructure, which reflected the priorities of national governments. There were also considerable differences in taxation policies: diesel prices at the pump varied between ECU 252 (£179) in France and ECU 365 (£259) in Italy and, as fuel costs can represent 10-20 per cent of the costs of operating a vehicle, this would effect distribution costs. Vehicles’ excise duties also showed wide differences. General distribution operator trends The extent to which UK distribution operators have moved outside the UK has varied. As discussed above, TDG in the 1970s owned companies in Holland, France, Australia and North America which offered diverse services (predominantly haulage but also reinforced steel/concrete manufacture and exhibition contracting). It traded under a multitude of company names. From the early 1980s onwards, TDG extended its distribution services along the west coast of the USA, while at the same time increasing its presence in France, buying into a joint venture in Portugal, and expanding its car transportation services in south-eastern Australia. In the early 1990s, it became involved in Spain. However, by 1992, TDG had sold its US interests and concentrated its non-UK operations in Europe, in Holland, France and, to a lesser extent, in Spain and Germany. Interests in Australia and Portugal were sold in April 1994, for a number of reasons, one of which was the peripherality of the locations. On the other hand, NFC has made its acquisitions primarily in North America. It entered European distribution “piggy backing” on its long-established relationship with a major UK customer, Marks & Spencer, and expanded with it into France and Spain. LEP Group subsidiary, Swift (itself acquired by Salvesen in October 1993), has made several acquisitions to extend its capability on the European Continent and Ocean and, through its subsidiary, McGregor Cory, has an acquisition programme targeting Holland and Spain. Christian Salvesen and P&O have also built up substantial operations covering the main European markets. Others companies, like NFT and BOC Distribution Services, have made little or no development moves outside the UK. Wincanton entered the German market but decided to withdraw. UK distribution companies seeking to penetrate Europe have preferred to acquire companies with capable local management. For example, TDG’s Albany (distribution division) purchased, in September 1992, Cotradip SA, a wholly owned wines and spirits distribution company of the Remy Cointreau group. The business operated 250,000sq.ft of warehousing capacity from five locations in France. In the same year, 1992, NFC’s Exel Logistics acquired BOS Finances of France, which comprised three food distribution companies with some of France’s largest supermarkets on their customer lists. Hays also expanded its breadth of European distribution services by its acquisition, in France, of Groupe Fril in 1992 and of Mordhurst, in Germany, in 1993. Thus, no two UK distribution companies have approached Europe in the same way
The Europeanization of UK logisticsEuropean Business ReviewMarilyn A. StoneVolume 95. Number 5.1995.914although,inthemain, UK distribution com-seen by some as the way to achieve interna-panies areconcentratingon northern Europe,tional distribution.For example,Rasinelli&more especially Holland, France and, toaColetti of Italy is working closely with P&Olesser extent,SpainandGermany.Further-Trans European.Othergroups are continuingmore,despitecompaniesbeingabletoofferto develop on their own.Within theEuropeandistribution servicesacross countryborders,market, TDGis concentrating on providingmanylogistics operators haveremainedthe higher value-added services of distributionnationally focused. This reflects operatorsto particular targeted markets, primarilythosefocus on geographical regions, as well as thein northern Europe, located within theinfluence of sales and marketing.which arefavoured "golden" band of countries. Theseofenorganizedregionally,or atleastonadistribution services linkwiththe servicesofcountry basis.theTDGUKstrategicbusinessunits(SBUs)and theirown strategicplansforgrowth.Europeanbusiness opportunities arerequiredFuture developments in Europeanto match the overall TDG company missionlogistics/distributionandstrategy,as well asthose ofthe individualThe SEM has encouraged many companies toSBUs.Thus,TDGmanagement judgesconsiderpan-Europeanmanufacturingopportunities for European market develop-marketing and logistics.Critical factors influ-ment not only on the basis ofachievement ofaencing the nature of theEuropean distribu-particular rate of return on capital, or equiva-lentfinancialmeasure,butalsoontheoveralltion market have been geography, retail pat-tern,supply-chaincontrol and informationfit within the Groupstrategicplan and philoso-technology.Futuredevelopments of UKphy.For the future, the EU is planning furtherdistribution operators are encouraging multi-domestic strategies towards the Europeanintegrationofthe Europeanroad and raildistribution industry.Apart from mergers andinfrastructure throughaprogrammeoftheacquisitions,a series of jointventures,minor-trans-Europeannetworks at a costofECUity holdings and operating agreements (stra-400billion(300billion)bytheyeartegic alliances and information partnerships)2000[19].This is expected to have positiveemerged during the late 1980s which suggest-effectson thedistribution industry,buttheed that a geographical spread of distributionthreatened trend towards protecting Conti-operation can beperformedwithoutoutrightnental domestic industryis constrainingtheownership,and without some of the cost andfullimplementation of theSEMandtheassociated problems of integration.There is adevelopmentof integrated markets in logisticstrend towards a range of specialist "co-ordina-services.tors"subcontractingthefunctions necessaryClearly multinationals set thepace in theSEMwhen itcomestoexploitingtheopenphysically to provide the distribution ser-vice[16]. In the example of TDG, it prefers toborders.Customs &Excise calculated that themake 100 per cent acquisition of firms under-SEM hascut intra-Communitytransporttaking high value-added distribution services,costs toUKfirmsbyat leastf5.7millionasubcontracting muchof the lower-profityear purely through savings in drivershaulage elements of the service.However, ittimes[20]. However, this trend will have tohas recently become a partner in a logisticsovercometherestrictions introducedbymanagement agreement in Spain, which is aContinental national governments to protectconsiderablechangefromtheacquisitionsoftheir national operators. It is anticipated thatentrepreneurial businesses inFranceandalthoughbarriers tofreetrade across theEUHollandmadeinthe1970sand1980shavebeenprogressivelydismantled sinceSome distribution service operators,1987,thosebarriers whichremain will notnotably TDG, have decided to focus on thedisappear overnight. Difficulties continue inEuropean market to the exclusion of all otherimplementing the spirit of the SEM, whichinternational markets,taking to heart thehinderUKdistribution operators'activities instrategiclessonsofPorter[17,18] ofcostEurope.AsrecentlyasMay1994,Frenchleadership,differentiationandfocus.customs used EU"redtape"to oblige BritishRegroupingand consolidation is underwayoperators,whosetruckswerefitted withsecondfuel tanks,topayfinesofuptof2o00amongdistributiongroupstaking advantageof thechanged environment.Partnerships areto make their deliveries. More worrying is the13
although, in the main, UK distribution companies are concentrating on northern Europe, more especially Holland, France and, to a lesser extent, Spain and Germany. Furthermore, despite companies being able to offer distribution services across country borders, many logistics operators have remained nationally focused. This reflects operators’ focus on geographical regions, as well as the influence of sales and marketing, which are often organized regionally, or at least on a country basis. Future developments in European logistics/distribution The SEM has encouraged many companies to consider pan-European manufacturing, marketing and logistics. Critical factors influencing the nature of the European distribution market have been geography, retail pattern, supply-chain control and information technology. Future developments of UK distribution operators are encouraging multidomestic strategies towards the European distribution industry. Apart from mergers and acquisitions, a series of joint ventures, minority holdings and operating agreements (strategic alliances and information partnerships) emerged during the late 1980s which suggested that a geographical spread of distribution operation can be performed without outright ownership, and without some of the cost and associated problems of integration. There is a trend towards a range of specialist “co-ordinators” subcontracting the functions necessary physically to provide the distribution service[16]. In the example of TDG, it prefers to make 100 per cent acquisition of firms undertaking high value-added distribution services, subcontracting much of the lower-profit haulage elements of the service. However, it has recently become a partner in a logistics management agreement in Spain, which is a considerable change from the acquisitions of entrepreneurial businesses in France and Holland made in the 1970s and 1980s. Some distribution service operators, notably TDG, have decided to focus on the European market to the exclusion of all other international markets, taking to heart the strategic lessons of Porter[17,18] of cost leadership, differentiation and focus. Regrouping and consolidation is under way among distribution groups taking advantage of the changed environment. Partnerships are seen by some as the way to achieve international distribution. For example, Rasinelli & Coletti of Italy is working closely with P&O Trans European. Other groups are continuing to develop on their own. Within the European market, TDG is concentrating on providing the higher value-added services of distribution to particular targeted markets, primarily those in northern Europe, located within the favoured “golden” band of countries. These distribution services link with the services of the TDG UK strategic business units (SBUs) and their own strategic plans for growth. European business opportunities are required to match the overall TDG company mission and strategy, as well as those of the individual SBUs. Thus, TDG management judges opportunities for European market development not only on the basis of achievement of a particular rate of return on capital, or equivalent financial measure, but also on the overall fit within the Group strategic plan and philosophy. For the future, the EU is planning further integration of the European road and rail infrastructure through a programme of the trans-European networks at a cost of ECU 400 billion (£300 billion) by the year 2000[19]. This is expected to have positive effects on the distribution industry, but the threatened trend towards protecting Continental domestic industry is constraining the full implementation of the SEM and the development of integrated markets in logistics services. Clearly multinationals set the pace in the SEM when it comes to exploiting the open borders. Customs & Excise calculated that the SEM has cut intra-Community transport costs to UK firms by at least £5.7 million a year purely through savings in drivers’ times[20]. However, this trend will have to overcome the restrictions introduced by Continental national governments to protect their national operators. It is anticipated that, although barriers to free trade across the EU have been progressively dismantled since 1987, those barriers which remain will not disappear overnight. Difficulties continue in implementing the spirit of the SEM, which hinder UK distribution operators’ activities in Europe. As recently as May 1994, French customs used EU “red tape” to oblige British operators, whose trucks were fitted with second fuel tanks, to pay fines of up to £2,000 to make their deliveries. More worrying is the 13 The Europeanization of UK logistics Marilyn A. Stone European Business Review Volume 95· Number 5 · 1995 · 9–14
The Europeanization of UK logisticsEuropean Business ReviewMarilyn A StoneVolume 95. Number 5-1995-9-14CorporateDevelopmentConsultantsLtd(CDC).UKnewmotorwaytax(orvignette)introducedon5marketfor contractdistribution",Consultancy report1January1995for transport operators goingCDC,1988.to, or through, Belgium, Denmark, Holland,6Moens, L.,"European road freight through the"90s",Germany and Luxembourg of f1,000 perFocus, Vol. 11 No. 10, December 1992,pp.25-9.vehicle per annum[21]. Furthermore, opera-MotorTransport,"Top50European road-basedtors fromthose same countrieswill continuetransport companies",Motor Transport, Vol. 25 No.toget freeuseofUK roads until1998atleast.10, 1990.Suchpracticesprotect theContinental Euro-Cooe,J,Browne,M.and Peters, Murea8pean domestic haulage industries.Logistics, Blackwell, Oxford,1991.9Mackie, PJ., Simon, D. and Whiteing,A.E., The BritishTransport Industry and the European Community.ConclusionGower,Aldershot, 1987.Alongside the implementation of the SEM,10 Whiteing,A.E. and Bamford, C.G., Distribution in theUK:an industry note (Case 9)", in Clarke-Hill,C.andmajor UK logistics and distribution servicesGlaister,K.W. (Eds),Cases in StrategicManagement,suppliers haveincorporatedContinentalPitman, London, 1991, pp. 225-33European activitieswithin theirfundamental11Gaines,M.,"Growingpains and profits",Motormarketing strategies. However, while in theTransport,6thannual surveyon transport companies1980s the approach was somewhat haphazardoperations,Vol.21No.2,1991,pp.14-7.and opportune, in the1990s ithas been much12Moore, D., Lancaster, M. and de Silva, D., "Motormore cohesive, systematically planned andTransport's guide to British transport companies:monitored.Increasingly,theadviceofstrat-British Transport, top 50ranked by turnover",MotorTransport, Vol.24 No.3, Coopers & Lybrand,1994egists such as Porter has been incorporatedp. ii.withincompanystrategicmanagement,com-WalenskiF.heviewfromFranceTranp13biningstrategies of costleadership,differentia(report on Philip Henmann Overseas Lecture, Novem-tion and focus. It is anticipated that the threatber 1991, "European transport as seen from France.towardsprotectingContinental domesticThe goal:pan European integrated logistics net-industry will constrain the efforts of UKworks"),January-February 1992,pp.16-7.logistics operators to become fully integrated14 Warner, B.,"Prospects for European logistics throughwithin the European market, and will encour-the90s,Focus,Vol.11No.10,December1992,pp.2-6.age them all the more to concentrate on high15Instituteof Logistics and Distribution Management,value-added, niche markets froma domestic"Playing on a cabbagepatch (close examination ofbase ratherthan attempt to offer truly com-the ILDM's European Distribution Costs Surveyprehensive, cross-border services.explodesafew longheld misconceptions)",reportedin"Europeanlogistics:comparativecostsandpractice"Distribution,Touche RossonbehalfofILDMandEuropean Logistics Association,11 June1992.References16Anderson,C."UKlogisticscompanies:wherenext?"Focus,March1992,pp.9-121ButtonK.Thelibralizationftranportsvice17Porter,M.E.,CompetitiveStrategy:TechniquesforinSwann,D.(Ed.),TheSingleEuropeanMarketandAnalysingIndustriesandCompetitors,FreePress,NewBeyond:AStudyoftheWiderImplicationsoftheYork, NY, 1980Single European Act, Routledge, London,1992,ch.6pp.146-61.18PorterM.E.,CompetitiveAdvantage:CreativeandSustainingSuperiorPerformance,FreePress,New2 Browne, M. and Allen, J.,"Logistics strategies forYork, NY, 1985.Europeinooper(Ed.)ogisticsandDistributiPlanning. 2nd ed. Kogan Page, London, 1994, ch. 7.19Dixon,H.,"Super-highways sans frontieresFinanciapp. 122-34.Times,21February 1994,p.173NationalFreight Company,1992Annual Review,NFC,20Towers, J,"Europe'sbenefits still tobe seized"M1992.Logistica, Motor Transport, May 1994,p.3.4National Freight Company.1993Annual Review,NFC21Transport News,"Call for Euro road taxrebate1993.scheme"TransportNews,6November199414
new motorway tax (or vignette) introduced on 1 January 1995 for transport operators going to, or through, Belgium, Denmark, Holland, Germany and Luxembourg of £1,000 per vehicle per annum[21]. Furthermore, operators from those same countries will continue to get free use of UK roads until 1998 at least. Such practices protect the Continental European domestic haulage industries. Conclusion Alongside the implementation of the SEM, major UK logistics and distribution services suppliers have incorporated Continental European activities within their fundamental marketing strategies. However, while in the 1980s the approach was somewhat haphazard and opportune, in the 1990s it has been much more cohesive, systematically planned and monitored. Increasingly, the advice of strategists such as Porter has been incorporated within company strategic management, combining strategies of cost leadership, differentiation and focus. It is anticipated that the threat towards protecting Continental domestic industry will constrain the efforts of UK logistics operators to become fully integrated within the European market, and will encourage them all the more to concentrate on high value-added, niche markets from a domestic base rather than attempt to offer truly comprehensive, cross-border services. References 1 Button, K., “The liberalization of transport services”, in Swann, D. (Ed.), The Single European Market and Beyond: A Study of the Wider Implications of the Single European Act, Routledge, London, 1992, ch. 6, pp. 146-61 . 2 Browne, M. and Allen, J., “Logistics strategies for Europe”, in Cooper, J. (Ed.), Logistics and Distribution Planning, 2nd ed. Kogan Page, London, 1994, ch. 7, pp. 122-34. 3 National Freight Company, 1992 Annual Review, NFC, 1992. 4 National Freight Company, 1993 Annual Review, NFC, 1993. 5 Corporate Development Consultants Ltd (CDC), “UK market for contract distribution”, Consultancy report CDC, 1988. 6 Moens, L., “European road freight through the ’90s”, Focus, Vol. 11 No. 10, December 1992, pp. 25-9. 7 Motor Transport, “Top 50 European road-based transport companies”, Motor Transport, Vol. 25 No. 10, 1990. 8 Cooper, J., Browne, M. and Peters, M., European Logistics, Blackwell, Oxford, 1991. 9 Mackie, P.J., Simon, D. and Whiteing, A.E., The British Transport Industry and the European Community, Gower, Aldershot, 1987. 10 Whiteing, A.E. and Bamford, C.G., “Distribution in the UK: an industry note (Case 9)”, in Clarke-Hill, C. and Glaister, K.W. (Eds), Cases in Strategic Management, Pitman, London, 1991, pp. 225-33. 11 Gaines, M., “Growing pains and profits”, Motor Transport, 6th annual survey on transport companies’ operations, Vol. 21 No. 2, 1991, pp. 14-7. 12 Moore, D., Lancaster, M. and de Silva, D., “Motor Transport’s guide to British transport companies: British Transport, top 50 – ranked by turnover”, Motor Transport, Vol. 24 No. 3, Coopers & Lybrand, 1994, p. ii. 13 Walenski, F., “The view from France”, Transport (report on Philip Henmann Overseas Lecture, November 1991, “European transport as seen from France. The goal: pan European integrated logistics networks”), January-February 1992, pp. 16-7. 14 Warner, B., “Prospects for European logistics through the ’90s”, Focus, Vol. 11 No. 10, December 1992, pp. 2-6. 15 Institute of Logistics and Distribution Management, “Playing on a cabbage patch (close examination of the ILDM’s European Distribution Costs Survey explodes a few long held misconceptions)”, reported in “European logistics: comparative costs and practice”, Distribution, Touche Ross on behalf of ILDM and European Logistics Association, 11 June 1992. 16 Anderson, C., “UK logistics companies: where next?”, Focus, March 1992, pp. 9-12. 17 Porter, M.E., Competitive Strategy: Techniques for Analysing Industries and Competitors, Free Press, New York, NY, 1980. 18 Porter, M.E., Competitive Advantage: Creative and Sustaining Superior Performance, Free Press, New York, NY, 1985. 19 Dixon, H., “Super-highways sans frontières”, Financial Times, 21 February 1994, p. 17. 20 Towers, J., “Europe’s benefits still to be seized”, MT Logistica, Motor Transport, May 1994, p. 3. 21 Transport News, “Call for Euro road tax rebate scheme”, Transport News, 6 November 1994. 14 The Europeanization of UK logistics Marilyn A. Stone European Business Review Volume 95· Number 5 · 1995 · 9–14