Anybody care to unload me?

Logistics Powerhouse (or not)

At a policy level, the decision is made: Flanders must become a logistics powerhouse, an ‘intelligent pivot point’ in Europe.  We have our central location, our existing infrastructure and a tremendous amount of know-how in logistics—all this needs to be optimally exploited.  Our future prosperity depends on it.   Perhaps, but at least three key questions need answering. 

Firstly, will the goods keep on flowing?  Much of this strategy and the associated investments in our ports and transport infrastructure assume a continued growth in international trade well into the coming century.  There are an increasing number of warning signals, however, that we best hold this assumption under critical review.  The oil price is one such factor.  Cheap oil has enabled the massive growth in international trade during the past two to three decades.  But cheap oil came to an abrupt end in 2008 when prices peaked at $140 a barrel.  Prices have eased in the wake of the economic crisis but in recent months picked up again to the $70 range (and this when we are still in deep economic crisis).  As soon as the economy picks up properly oil prices are likely to shoot upwards again because the key drivers behind the high oil price (e.g. the marginal cost of new production) have not changed (in fact, they have got worse—investment in new production has declined due to the financial crisis).  Secondly, the economic crisis has led to a collapse in international trade.  The Port of Antwerp, for example, is looking at 10-50% declines in volume, depending on the type of freight.  Trade should pick up again once the global economy gets going, but few know when and at what pace.  Also, there are questions being raised about whether it should reach those heady heights of years past.  The world’s top exporters, Germany and Japan, have been hit particularly hard by the crisis and are beginning to wonder if their economies should be so export-orientated.  Thirdly, the congestion and infrastructure problem in Flanders is not unique.  As argued in a recent Foreign Affairs essay(1) , most of the major ports around the world are hampered by congestion problems, creating delays and uncertainty in companies’ supply chains.  This is driving costs up, and in response companies appear to be beginning to shorten their supply chains. 

Finally, in the longer term the manufacturing cost-differentials globally will ease, as Asian wages increase.  Obviously there will still be specialisation, but ultimately this should be more in terms of know-how.   This fits too in the emerging ‘materials management’ (better known under the ‘cradle-to-cradle’ concept) approach whereby manufacturers will be asked to take much greater responsibility for the materials they use, leading to greater use of ‘leasing’ concepts and hence shorter supply chains.  International trade is obviously not going to go away, and will remain pivotal for a small country like Belgium that is located centrally in an open European market.  What is more uncertain is the extent and scale to which trade will re-emerge following the economic crisis.

Secondly, if we do let the goods flow over our territory, how do we ensure that it makes economic sense to do so?  There are plenty of stats and cases showing that logistics does add economic value, but some economists wonder if this can be sustained in the years ahead.  The National Bank of Belgium reported that in the period 2006 the direct and indirect economic contribution of Belgium’s six major harbours (Antwerp, Zeebrugge, Ghent, Ostend, Brussels and Liége) amounted to approximately 10% of total added value in Belgian GDP and about 8% of total domestic employment.  That is obviously significant.  The many cases illustrate these stats well.  Take the Port of Antwerp, itself responsible for about 3% of GDP.  The Port argues that about 20% of incoming goods are processed here.   Logistics service providers located at the port, like Katoen Natie and Hessenatie Logistics, own vast warehousing facilities where they offer a range of different added value services. These include relatively straightforward storage, stock management or repackaging services, but also more complex reverse supply chain services (managing product returns), production services (reasonably standardised production processes like pre-assembly, canning, filtering, flaking, etc) and collaborative supply chain services (see the article by Ben Devis).  These same companies also are key actors in the plan to cluster logistical activities further inland.  Katoen Natie, for example, is building a huge facility at the Port of Brussels.