Border Busting Logistics

Border Busting Logistics

Copyright 2004, Traffic World, Inc.

The growth in cross-border trade expected with the expansion of the European Union creates new opportunities for fourth-party or lead logistics providers.

"The 4PL market in western Europe is set to make its presence strongly felt in the chemicals, electronics/high-tech and automotive sectors," said London-based Research firm Frost & Sullivan. In a study of the 4PL market it forecasts 4PL revenue in Western Europe to grow from approximately $5.8 billion in 2002 to about $16.1 billion by 2010.

The growth will be driven by globalization as more companies develop Pan-European distribution networks and require 4PL-type logistics services providers to manage and coordinate them, it said. The accession of 10 countries to the European Union this May is expected to stimulate the growth of cross-border trade.

Technology will help 4PLs step into the breach, and not just supply-chain planning and execution technology. Frost & Sullivan point to radio frequency identification as providing 4PLs with better tools to manage international supply chains.

Still, the perceived flaws that have hindered the growth of the 4PL market in North America still apply in Europe. For instance there is the control issue: big shippers have baulked at the idea of outsourcing large chunks of their supply chains to 4PLs and losing control over crucial distribution activities. The report acknowledges this problem. "Most customers may be hesitant to outsource their core logistic activities to 4PL providers and prefer to keep the intellectual capital and control of certain supply-chain components in-house," it said.

To gain wider acceptance and be successful, 4PLs must persuade customers that there are merits in large-scale, long-term outsourcing agreements, and generate "continuous benefits once initial cost savings are achieved," according to Frost & Sullivan. The concept is in "a relatively nascent stage of development" and a change in customer perceptions will address the problem of the "ambiguity surrounding its (4PLs) definition," said the firm.

That may be so but so far 4PLs have not been able to change those perceptions. "I think you run into the same issues," said Brooks Benz, associate partner, based in the Wellesley, Mass. office of Accenture''s Supply Chain Management practice. European countries are small by comparison to the United States and there is a greater variety of rules and regulations governing cross-border trade. In this environment hiring a 4PL in an overarching managerial role has its attractions, he conceded.

"The problem is nobody wants to pay a premium to do that," he said. And although 4PLs can make the case that long-term partnerships yield continuous savings, two or three years down the road when the initial savings have been captured, it still becomes more difficult to justify a premium of 35 or 40 percent to employ a 4PL, he said.