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The logistical advantage
Written by: Petr Vykoukal
Photo: Petr Poliak

In the coming months, great changes are in store for the transport and logistics industry. Transformations will be driven mainly by the expansion of the EU, and they will result in not only greater opportunities, but fiercer competition as well.

IN THE NEXT FEW YEARS the most important factor affecting the Czech transport and logistics services market will be the country's EU membership. "As the Czech Republic's EU accession approaches, its geographic location will take on ever-greater importance," says Petr Lelek, Schenker's general director. His opinion is shared by Michael Stolarczyk, Maersk Sealand's general director for the Czech Republic. "This is the natural geographical gateway to Europe. If you mark a map of Europe using cities like London, Moscow, Madrid, and Istanbul, you'll see that the Czech Republic is right in the middle," he says. "First manufacturing companies came here, and today providers of services, including logistics, are beginning to show interest in this country. The location is suitable for building distribution centers serving all of Europe," adds Stolarczyk. Jiří Stojar, DHL's general director, sees a further stimulus for transport/logistics companies in the fact that the Czech Republic is becoming a target for automotive and hi-tech investments.

Auto industry attracting additional players
But in addition to opportunities, existing players on the market will also see heightened competition. The French logistics and transport company Gefco, of the PSA Peugeot Citroe¨n group, has focused on the Czech Republic so it can provide services for parent company's new factory, a joint venture with Toyota under construction in Kolín. Christophe de Korver, the general director of Gefco's Czech branch, acknowledges that several years ago the Central European region was of little strategic value to the company. But it has recently decided to become involved in the area, starting three years ago in Poland, and this coming spring in the Czech Republic. The main impetus is the two new PSA factories to be built in Kolín and Trnava, Slovakia. Gefco's edge over its competitors is its strong parent company. "Entering a developed market where there is already lots of competition is very difficult, and succeeding is far more complicated," de Korver notes. "Thanks to the large PSA projects, in which we will participate, everything is much simpler. It also helps us in our search for new employees, because we have the great advantage of being able to offer them the certainty of long-term employment."

Michael Stolarczyk

Ubiquitous outsourcing
Demand for logistics services will also rise because foreign companies operating in the areas of retail sales and the production of fast-moving consumer goods are accustomed to outsourcing their logistics and transport services. For example, one central warehouse close to a highway near Prague supplies the nine Carrefour hypermarkets in this country. According to Jana Havlíčková of Carrefour, the company's logistics are outsourced to ND Logistics, which built and operates the warehouse for this purpose. An external supplier was selected on the basis of references, as Carrefour works together with the same service provider in France.
Production offers even greater possibilities for outsourcing. Disposable diaper maker Kimberly Clark avails itself of the services of Maersk Logistics on the basis of a 3PL contract (see sidebar on page 34). This firm imports the raw materials for disposable diapers and delivers them directly to the production facilities. Then the disposable diapers that are made from them are packaged and placed on pallets and returned to Maersk employees, who store them in their warehouse and deliver them as ordered.
Although such a degree of outsourcing is for now more the domain of large international firms, efficiency demands are forcing smaller firms to take similar steps. This may be why managers of transport and logistics firms on the Czech market anticipate further growth in the area of value-added services and logistics. In the future this field should account for a substantially greater share of the sales of most of the players on the market. For example, logistics currently account for 15% of Schenker's sales, but over several years this should rise to 25%. Ladislav Valášek, director of marketing and strategy for the transport company Čechofracht, is even more optimistic. He expects his company's share of logistics services to rise from their current 10% to 30% in the next two to four years.

Business made easy
The main result of EU accession will be the elimination of borders on the movement of goods, which should essentially mean the end of lines at borders. But the word "essentially" is key. New member countries still won't be part of the Schengen Agreement (the treaty on the elimination of passport controls at borders). This means that although truck drivers won't be required to submit documentation on the goods they are carrying, they'll still have to show their passports. But this should substantially shorten waiting times at borders and free transport firms from currently crippling time constraints.
" Today a margin of twelve hours must be set aside for transport from the Czech Republic to France," de Korver says. The elimination of borders will have one more effect: "Today the trucks waiting at borders represent 17% of the total Czech transport fleet," says Petr Krásný, director for marketing and communication at Volvo Trucks. "The elimination of borders will thus increase the available transport capacity," he adds. But this could cause stagnation in sales of trucks intended for international transport. Krásný believes EU accession will also create pressure to renew the fleet used for domestic transport, thereby more than making up for the slack.
The railways have a great future in the new situation. "Many global customers request railway transport, not only because it can save them money, but also because it's environmentally friendly," Stolarczyk says. Over the last four years, Maersk has increased the volume of its railway transport seven-fold. Lelek also sees possibilities in combined (road and railway) transport. Some shipments will also be switched from air to land. "In the field of transport we anticipate significant growth in land transport, especially for both individual parcels and carloads. With individual parcels in particular there is a clear trend where land transport is gaining shipments originally carried by air," Stojar says. But representatives of some firms are worried about how small transport and shipping firms will behave. "It could happen that they'll want to assert themselves in the new environment even at the cost of temporarily lowering their prices, which could cause a short-term influx of some customers," says Lelek with concern.
The possibility of better planning of cross-border transport also means opportunities for distribution centers. As de Korver points out, "The Poland, Czech, Slovak, Hungarian, and Austria region is about the same size as France. We have customers there that supply the entire country from a single distribution center. The elimination of borders between the nations of Central Europe would make the same thing possible here, with the entire region being served by one distribution center."

Changes to hit officials as well
EU accession will also leave some victims. "The elimination of the customs regime at the borders will result in decreased revenues from customs-declaration activities and fewer workers," says Valášek. Representatives of other firms share his view. According to de Korver, although some of the loss of revenues will be compensated for by services provided in connection with new formalities relating to VAT and Intrastat (reporting exports for statistical purposes), they won't amount to much.
EU accession will not only affect the customs workers who will lose their jobs as a result, but there will also no longer be any reason for the existence of a large part of the customs administration. A document called "Impacts of EU Accession on Customs Administration Authorities" states that 80% of the Czech Republic's current foreign trade involves the EU and the states joining it alongside the Czech Republic. So in the future a great part of the activities currently conducted by customs will no longer be needed. This will require substantial cuts in the existing customs administration staff. The document also states that the number of customs offices will be reduced from the current 91 to 25-30 regional offices and possibly other places where trade with non-EU countries will be concentrated.

Accession brings good and bad changes Ian Glogoski Logistics and transport experts anticipate that EU accession will bring them new possibilities and make their work simpler. But they do acknowledge that this step will also have its downside. One is that although the elimination of borders and customs houses for the movement of goods within the EU could mean less paperwork, the fact is that there will be more. "With exports there will be a new obligation to prove the actual export of goods or to fill in Intrastat (reporting exports for statistical purposes) forms, etc. Also, the use of consignment and 'call-off' warehouses will become more complicated," says Ian Glogoski, a specialist on duty and VAT with PricewaterhouseCoopers. Suppliers of goods or semi-finished products will have to be registered as VAT payers in the Czech Republic, and although their tax liabilities will be credited to them, the additional paperwork could make their lives so unpleasant that they would prefer moving their warehouses to their home countries or to a place where the rules are simpler. This will be facilitated by the fact that the free movement of goods will allow for better transport planning, and the storage of goods in the target country will not be so important. Many current EU member states shift the obligations of exporters-operators of consignment and call-off warehouses to the importers, or they substantially simplify these obligations. "A country that offers such simplification can take a significant share of the logistics market in the Central Europe," Glogoski notes. That tax simplification can be a truly great competitive advantage is illustrated by the case of the conditions for imports from non-EU countries into the Netherlands at the beginning of 1993. Importers that were headquartered in the country didn't have to pay VAT on imported goods (which they would recoup after a month in any case) when they came into the country, but rather when they sold them. But Belgian importers had to pay the tax up front and wait as long as two months for it to be returned to them. The result of this obligation, which required additional resources when planning cash flows, manifested itself very soon. Firms headquartered in Belgian ports immediately moved, along with thousands of jobs, to the neighboring Netherlands, and although Belgium introduced similar simplification the next year, it never regained its position.

A new business vocabulary Christophe de Korver Not long ago the word "logistics" began appearing in managers' vocabulary, becoming so prevalent that the uninformed see it as another business "buzz word" without meaning. But this is far from the truth. "Although logistics is a very old science - it traces back to the Napoleonic wars - it didn't start migrating from the military to the world of business until the 1980s," says Petr Pernica, the head of the logistics department at the Prague School of Economics. The reason it took so long to arrive in the corporate sphere is that for many years mass production was the accepted way to make expenditures more effective. When its possibilities were exhausted and growing competition led to worse results, it was logistics that showed the way to increase efficiency. " Logistics isn't merely the mechanical connection of transport, material handling, storage, and packaging - it's an entirely new discipline," Pernica says. "Logistics connects a firm with its suppliers and customers." According to this definition, the connection between transport and logistics isn't too pronounced. However, there is a significant connection in the identity of those that offer logistics services: most of them were originally shippers and forwarders. "Of course our core activity is transport, but growth is limited for a firm today that wants to engage solely in transport," explains Christophe de Korver, the general director of Gefco ČR. Added value services, which include logistics, offer possibilities for further growth. The option of buying transport and logistics services in a single place is welcomed by customers who now expect transporters to provide logistics services as a standard part of their offers. The logistics industry is still going through much development. For example, the term "Third Party Logistics" (3PL) - i.e., complete outsourcing of the entire logistic chain - is becoming commonplace. "Customers can focus only on production and marketing," Pernica explains. In the recently appearing, and for now rather theoretical, 4PL, the provider of logistics services should control production and the ordering of supplies based on contacts with customers. Experts are also beginning to use the term 5PL - a virtual provider of logistics services. The firm does not own any equipment, it just coordinates the activities of several sub-suppliers based on 3PL.

People moving logistics Petr Pernica Logistics manager is a relatively new position in Czech firms. "Demand for filling these positions arose in the years 1992-1993," points out Ctirad Vondrášek, country manager for the Hays Czech Republic personnel agency. Since then interest in filling such positions has been growing. "But the demand is far from that of sales positions, since until now many companies have yet to establish separate positions for logistics," says Martina Mastná, a consultant for the Hill International personnel agency. There are often large differences between the job descriptions of logistics officers. "In small firms the officer is nothing but an 'improved dispatcher' who is responsible for transport and storage," says Petr Pernica, head of the logistics department at the School of Economics. Conversely, in international firms the activities that fall under the aegis of logistics managers cover a much broader area, and are becoming ever more important to their firms. Because of the "novelty" of this position one could expect that there would be a shortage of logistics managers on the labor market. But this isn't entirely true. "It's true that there is a shortage of logistics managers, but this applies mainly to those who already have some experience. There aren't enough of them, but there is a relative sufficiency of graduates," Vondrášek notes. People who are interested in such work have already had enough opportunities to learn it or to gain some experience. "Most good logistics managers learned their jobs over years of practical experience, especially within multi-national companies," Mastná comments. "In many cases they have linked the experience they have gained to their more general economics or technical education. In recent years it has become more common to start specializing in logistics in college," she adds. In the Prague School of Economics, logistics exists as an ancillary field of study. "Each semester 50 to 60 students pursue our ancillary specialization, and most of them go to work for firms that provide logistics services," Pernica observes. "Many also find jobs with commercial firms that can no longer get along without logistics."