The past year has seen the signing of some huge contracts. Somerfield signed a major contract with Wincanton worth some £900m over five years while DHL Logistics could boast a £1.6bn deal with the National Health Service. Among a number of multi-million contracts for NYK Logistics was a £21m deal with BSH Home Appliances while TDG signed a £20m deal with British Vita.
But it was not just the industry giants that could point to big contracts. TM Logistics won a £20m contract with Saint Gobain Isover, Turners renewed a £22m contract with Lafarge Cement and Ramage won a £7.5m contract with Ossian Retail Group.
Last year, the growth in European and international contracts was very apparent and that trend is continuing. Our survey reveals a number of major international supply chain contracts – for example Marks & Spencer’s deal with APL Logistics, AstraZeneca’s deal with Kuehne & Nagel and Kraft’s contract with DHL Exel.
Major European contracts include TDG’s £26m deal with Betonson, Schenker’s £16m deal with Targus and DHL Express’s £36m deal with RS Components.
This year we have included two massive postal contracts in the UK – both for UK Mail, the mail division of Business Post. One is with BBC TV licensing, worth £8.1m, while the other is with the Department of Work & Pensions and is worth £12m.
It is clear that the major players in the market are setting themselves stiff targets for growth. At Kuehne + Nagel, chief executive officer Klaus Herms says: “Global trade levels, the economic upswing in domestic markets, and the willingness of companies in trade and industry to outsource complex logistics functions to a professional provider constituted the main external conditions for Kuehne + Nagel.
“Correlating closely with the international logistics business, world trade grew between eight and 10 per cent in 2006, while global gross domestic product showed an approximate five per cent rise and generated strong impulses in domestic markets. In 2006, China again was the driving force behind global trade, while India and Eastern Europe also demonstrated above-average growth.
“In a globalised economy, logistics has become a key competitive factor. It is not surprising that companies are increasingly ready to outsource their logistics to external providers. This ranges from replicating services which are already outsourced in other regions or developing new activities, through to complete outsourcing of global logistics management. Logistics companies that offer truly global capabilities and the full scope of services across the supply chain are best positioned to benefit from this trend.
“In contract logistics, the objective for 2007 is to achieve organic growth of eight per cent, while maintaining stable margins, realised by the expansion of business activities in all regions, particularly Asia, South America and Eastern Europe.
According to DHL forecasts, the Asian transport market, currently estimated at US$700 billion, will nearly double by the year 2020. In fact, it now has its own Logistics Management University in Shanghai with 7,500 spots for employees and corporate customers offering internationally-recognised degrees in hand.
DHL parent Deutsche Post is reckoning on significant GDP growth in most of its major markets this year: 2.2 per cent in the US, 2.5 per cent in Japan and 2.7 per cent in the euro zone.
As a result it expects revenue to grow slightly. Profit from operating activities will be up at least three per cent over the comparable figure in the previous year. “In the Logistics Division, we anticipate a high single-digit percentage increase in revenue for 2007. EBIT growth should be around 15 per cent.”
Positive
At DHL Exel Supply Chain, the positive trend that started in the first quarter continued in the second: revenue climbed by 12.8 per cent to 6.4 billion euros, bolstered by the 10-year contract with the British health-care agency NHS as well as by higher revenue in Asia. In the DHL Freight business unit, revenue totalled 1.82 billion euros compared with 1.84 billion euros in the year-ago period.
Christian Salvesen has also seen some significant business wins. Stewart Oades, chief executive, said: “While the continued improvement in growing the business through new wins and increased retention rates is pleasing, there remains much to be done. The markets we operate in are still highly competitive and the performance of UK Transport is not acceptable. We have completed a thorough review of this business unit and have put in place a plan to move this business back into profit. Although this will take time, UK Transport is an essential part of our strategy to create a pan-European shared-user business.
“In the current year we expect revenue growth to continue and anticipate some benefit from the restructuring, although it will take longer before we see the full impact.”
Wincanton chief executive Graeme McFaull says: “In challenging markets, Wincanton once more made good overall profit progress. . . strong continuing momentum in our UK & Ireland business more than compensated for difficulties in certain operations in Mainland Europe.
Opportunities
“The European market is our core geographic focus, our home market. It is a market of 490 million consumers. It has a substantial manufacturing and retailing infrastructure and significant national, cross-border and international flows of raw materials, finished products and services. Six of the world’s ten largest trade flows, as identified by recent market research on global forwarding volumes, are intra-European movements in the consumer goods, industrial, high-tech, automotive, chemical and agricultural industries. It is business-critical trade flows such as these that Wincanton manages on behalf of customers. Europe is a geographic market in which the group is building a leading presence and which offers substantial opportunities for future growth.”
TDG has focused its strategy on increasing the proportion of business in specialised sectors where it can compete not solely on price but also on capability, flexibility and service.
It says that the increase in first half headline profits reflects the implementation of this strategy, with significant growth in specialised target sectors, such as chemicals and paper & packaging, supply chain management and freight forwarding.
The company announced a reorganisation into a Chemicals division and Contract Logistics division in April.
“The creation of a combined Contract Logistics division, encompassing all of TDG’s businesses other than the Chemicals division, enables us to make more effective use of our resources. This allows us to better meet the needs of our multinational customers such as Kimberly-Clark, for whom we now also provide inbound logistics and an integrated range of services.”
Acquisitions
Over the past 18 months it has been building its capability in freight forwarding, through a mix of organic growth and acquisitions and now has some £80m sales in this area.
Last year TDG’s huge Corus contract caused a stir in the market. This is now operational and, says TDG, volumes are increasing with the phased introduction of more product categories.
Cert is a prime example of a smaller player that has carved out significant niche in the market. Steve Selby, transport and development director, says: “We have experienced significant growth in the area of reworking and packaging for a range of FMCG sectors, including health and beauty products, electrical, and boxed clothing, as well as transport only solutions for drinks manufacturers.
“During the next 12 months Cert will be focusing on consolidating the new contract wins.”
Last year marked a period of substantial consolidation in the third party logistics. Nevertheless, the market is seeing further realignment this year. Eddie Stobart, possibly the only haulier in the UK to have its own fan club, has merged with the Westbury Property Fund to create a new logistics organisation under the name of the Stobart Group.
William Stobart, managing director of Eddie Stobart, said:
“We believe the future of industrial logistics is about the integration of all modes – linking roads with rail, ports and waterways and, in time, air freight.
“We believe there is a huge potential for companies who can respond to this demand and offer a fully integrated transport solution. A key part of the future strategy of the new, enlarged business will be to invest in the new port at Runcorn and maximise the development opportunities at Widnes to create an inter-modal port facility with road, rail and deep sea and inland waterway access capable of handling significant cargo volumes, linked to the haulage network.”
The Survey
The Logistics Manager Contracts Analysis provides details of the major third party logistics contracts signed in the year to 31st July 2007. The survey is compiled from information supplied by the third party logistics suppliers. We apologise for any errors or omissions. If you would like to contribute to the next survey, please contact the editor Malory Davies, email malory.davies@centaur.co.uk.
