GXS Insights

Trade within Europe has Grown Rapidly, Thanks to the Single Market. But Where is it Heading?

John Lamb Weighs the Prospects.

Europe is the world’s largest single market thanks to a lengthy and sometime tortuous process of political integration, but those who run Europe’s supply chains still face big challenges.

National differences are very apparent in Europe. Italy remains the home of the small to medium-sized business where logistics outsourcing is rare. France is very regulated and, at around 30%, boasts the highest level of outsourcing in Europe.

Governments keen to retain national identities preserve many of these differences. For the supply chain manager they are a minefield, but they may matter less in the future thanks to the recent enlargement of the European Union.

This has prompted a move eastwards in the region’s €800 bn logistics market as countries such as the Czech Republic, Hungary and Poland become natural distribution centres for the whole of Europe.

For the moment companies such as the Lego toy firm, that are pioneering these new territories, must cope with underdeveloped infrastructures─there are few motorways─a scarcity of specialist distribution sheds, and a lack of local skills.

In spite of the credit crunch, money is pouring in to develop these regions─an investment given extra urgency by the fact that the main entry points for Europe─Rotterdam and Antwerp─are suffering congestion and a shortage of land for warehouse facilities.

There is also the prospect that manufacturing will return to Central and Eastern Europe as companies switch from outsourcing much of their production to the Far East to a policy of near sourcing from lower cost areas of Europe.

At present, the high cost of diesel is one of the hottest issues for European logistics managers. Price hikes have sparked protests in several countries and are already pushing up the cost of transport across the continent.

The fact that prices vary from country to country─largely due to differences in local taxes ─does not help fleet planners either. UK hauliers, who pay the highest prices in Europe, are already pressing for a tax on foreign operators.

And there seems little prospect of lower fuel costs in the immediate future. Demand for oil from emerging nations such as China and India is rising dramatically and could mean European prices will remain at a high level permanently.

While not fending off fuel protests, politicians are currently trying to end delays at borders within the European Union by harmonising customs procedures and introducing electronic document exchange.

However significant hurdles to conducting business across Europe still remain. Tighter security measures to counter terrorism and cut theft are acting to slow European supply chains. Legislation such as the Authorised Economic Operator scheme, which requires that traders in the European Community are certified as secure and reliable adds an extra layer of form filling to European trade.

Despite the introduction of the euro most companies run separate bank accounts for each country in which they do business, resulting in extra charges and slower payment times. The creation of a single euro payment area (SEPA), due to be completed by 2012, will address this issue by ensuring that money transfers can be made directly from one account to another.

European banks, who are investing €10bn in SEPA, are also planning to introduce a system for exchanging invoices, orders and other business documents electronically, which could save European businesses €250bn per year.

European expansion may have induced some growing pains, but it has also provided new opportunities for supply chain managers, provided the regulators get it right.