Logistics - adapting to FMCG sector consolidation
By Michelle Russell | 1 October 2012
Consolidation and globalisation in the food sector has put new demands on logistics providers
As the global food industry consolidates and companies become more international, so too are the customer bases of many logistics firms. This growth has meant logistics companies have had to adapt to the growing needs of its customers overseas and become more than simple hauliers.
A road haulier delivering product from A to B (or factory to warehouse) and from B to C (warehouse to store) is the common perception of the Logistics Services Provider (LSP). However, in reality, logistics companies have become much more than hauliers as the needs of food manufacturing and retailing customers become increasingly demanding.
As manufacturers and retailers seek growth beyond domestic shores, logistics providers have found themselves extending their operations in order to accommodate this growth.
Far from being pure domestic transport, storage and distribution providers, many international LSP firms now offer services encompassing intermodal freight transport involving multiple modes of transportation, import/export/customs, and multi-vendor consolidation programmes to help reduce or eliminate higher shipment costs.
Netherlands-based CEVA Logistics is a company that was created in anticipation of this trend.
Formed in 2007 as a result of the merger of TNT Logistics and EGL Eagle Global Logistics, CEVA employs around 15,000 staff and has a presence in 170 countries. For the year ending 31 December 2011, the group reported revenues of EUR7bn (US$9bn).
CEVA's chief commercial officer Inna Kuznetsova tells just-food: "CEVA is an unusual company because we were created to service the specific needs of global companies.
"Five years ago our owners realised that supply chain management as a discipline was changing with not only consolidation but globalisation and supply chain management processes were becoming more complex as a result and at the same time, the need to drive more agility into the business."
Kuznetsova says the global economic slowdown has forced many manufacturers and retailers to look at their supply chain, not just as a cost centre but as a "driver of the flexibility, of the agility of their business".
This, she says, has brought a new set of requirements for logistics firms, who now need to be able to optimise their customer's supply chain globally and "end-to-end", as opposed to locally and by "point-to-point".
"You use your inventory globally, even if that requires accelerating the delivery of some particular part by air rather than ocean," Kuznetsova says.
CEVA recently signed a five-year ocean freight contract with US food giant Heinz, a deal described as an "end-to-end solution".
Kuznetsova says: "That [agreement] allows us to collect all the shipment data, talk to Heinz on a regular basis and recommend what we can improve in their supply chain management. That makes the supply chain management flexible and when it becomes more flexible, it allows you to roll out into new markets, to address any kind of challenges. Sometimes in the global world today, a challenge in one market such as Thailand might impact your performance in another market. So we are much more interconnected with the business, and that will bring a lot of challenges but also opportunities at the same time."
While CEVA was a company created for the purpose of addressing an existing need, US-based logistics firm Johanson Transportation found itself having to adapt in order to meet the needs of its customers in their overseas ambitions.
The company, which was created in 1971, started out with four employees and this has since grown to over 60 operating from seven offices in five US states. Of the company's customers, around 70% operate in the food industry.
"Our company started primarily as a domestic transpiration logistics company dealing primarily in the food and ingredients industry," Danielle Negueloua, director of international for Johanson Transportation tells just-food. "The company began getting enquiries about ten years ago about international logistics, because there was a need, one because they were purchasing product from overseas but also because they were seeing opportunities with global companies."
She added: "We are seeing a lot of companies in the food industry going global and a lot of consolidation. And there is so much overlap. There are people that buy from each other, people that compete in other markets, those that struggle with a bad crop year and so buy from a broker that in another year they might sell back to because of over-capacity ... there is a lot of that going on and we have a lot of companies that deal with each other whether it's as competitors or within their own supply chain."
As a result, Negueloua says the role of the logistics company over the years has had to change in order to adapt. She says Johanson began offering international services through obtaining licenses and creating partnerships globally.
"For us, partnership are very key, you have logistics companies that have global locations all around the world. But for us, we have certain niches in certain countries and we sell on that. We find that if you try to be all to all you fail in everything. We have niche markets where we build relationships so we understand the issues, whether it's food, or other products."
Negueloua says it is important to provide knowledge and experience to customers, particularly when entering new markets.
"They need our knowledge and experience and that's not just in the movement [of goods] but understanding the cost. We find we are working with companies much much further and earlier on in the process to discuss with them if it's a good potential market ... especially in the food business where there is so much more at stake."
Penske Logistics is another company that has adapted to meet the growing needs of its customers overseas.
The company, which handles food logistics in addition to having customers in the automotive and cosmetics industry, has a presence in Brazil and China, which it entered to support its existing customers.
Joe Gallick, senior vice president of global sales at Penske, says the company's approach has become "very consultative", with the firm offering "fully customisable logistics and supply chain solutions".
"We spend a great deal of time up front with our customers," Gallick tells just-food. "We know each has different needs and key performance indicators (KPIs). To have a successful logistics relationship there needs to be close collaboration, clear goals and measurement to demonstrate the value delivered. Once our logistics engineers can standardise processes and data it makes it much easier for future incremental improvements and supply chain optimisation."
Gallick says Penske has also had to adapt its business according to the customers and the markets they serve.
"In the US, Penske Logistics offers an extensive number of logistics services heavily oriented toward truck transportation, transportation optimisation of other trucking carriers, and warehousing. In Brazil and China, our solution mix is different. In these countries, the demand for our services is more oriented toward distribution centre optimisation and managing other transportation carriers and their shipments on behalf of our customers."
But what of the challenges that accompanying customers into new markets presents?
Kuznetsova points to customs clearance as an area that she suggests could create issues.
"As a company becomes more global, the importance of customs grows, because there are more borders to cross. So you need to have a logistics provider who has trusted expertise in customers. It becomes part of logistics and if a company can provide the full package of logistics, customs clearance then take it to the warehouse, you can significantly reduce the time and improve the accuracy."
At Johanson, Negueloua highlights the issue of food safety standards from market to market.
"In the food industry there is concern for certain products coming from certain countries such as China on quality. Any food item transported through international freight will have challenges, whether it be certain laboratory analysis that has to be done, documentation for customs and approval from the country's version of the USDA [US Department of Agriculture]. It all brings about challenges. And if you do have issues with your product you have to do a return so there is export and an import back so you're dealing with that whole circular movement."
And so as the food and retail industry consolidates and companies compete to become more global, certain markets become more appealing.
For most logistics companies, these markets continue to be the BRIC markets, which are discussed in another part of this just-food managment briefing.
Sectors: Baby food, Bakery, Canned food, Cereal, Chilled foods, Commodities & ingredients, Condiments, dressings & sauces, Confectionery, Dairy, Dried foods, Emerging markets, Fresh produce, Frozen, Ice cream, Meat & poultry, Natural & organic, Private label, Retail, Seafood, Snacks, World foods
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