A glimpse into the future of transportation;
Evaluating the developments in the European transportation market and their consequences for the fleet of commercial vehicles.
An empirical research project presenting forecasts for the future.
Written for the Commercial Vehicles Marketing Department of Akzo Nobel ‘s Coatings Group.
Robert Greidanus Faculty of Management and Organization University of Groningen April 2003.
R.P. Greidanus Sassenheim, April 2003
Supervisors:
Mrs. M. SC. N. Campbell Prof. Dr. L. Karsten
This research project is executed for the Commercial Vehicles Marketing Department of the Akzo Nobel Coatings group, completing my study at the Faculty of Management and Organization of the University of Groningen. It offers forecasts
for the Dutch and the European transportation market and the consequence for the fleet of vehicles within Europe.
Trends beschrijven in Transport en Logistiek is als het beschrijven van het universum.
Alles hangt met elkaar samen en er is altijd wel ergens wat aan het veranderen.
R. van Leeuwen, researcher, Transport and Logistics Netherlands
Executive summary
The objective of this research project is to indicate and value the most salient factors influencing future developments within the West European transport market and to indicate to what sort of commercial vehicles they will lead.
The indicated drivers will function as a framework whereupon a forecast is created. This forecast can be characterized as policy sustaining for the marketing department of Akzo Nobel. However, the forecast can not describe precisely the future situation of the transportation market, but it is written with the intention to provide a direction of where the transportation market is heading.
The most important developments having a significant influence on the European transportation market are:
• Longer measures for commercial vehicles: With the possibility to enlarge the sizes, large transportation companies replace their vehicles for new longer vehicles offering more transporting capacity. Despite the significant consequences this driver could have for an increase of registrations, it is not likely to occur on short term.
• The increasing role of the Information technology: New technological possibilities enable an increasing outsourcing from logistics activities of ship-from-parties to professional logistics organizations. These organizations fulfil the need for transportation capacity and offer additional logistics activities.
• New distribution concepts: The logistics tasks of the ship-from-parties are taken over and their freight will be conveyed with help of new concepts where facilities as cross-docking and distribution centres are established throughout Europe on a more regional focused manner.
• Introduction of the 48 hours working legislation: A stimulus for the co-operation between European transporting organizations what could lead to an increase of takeovers and mergers.
• Outsourcing the transportation task: Ship-from-parties are focusing more and more on their core competences in search for profitability. Additional tasks are out sourced.
• The Maut in Germany, a new road tax: Tax for the users of the roads in Germany what will increase the transportation costs. This is likely to be introduced in other European countries as well.
• The use of other modalities to transport cargo through Europe; Effort of the European Commission and the European governments to stimulate the use of other modalities.
• Competition between the Western and Eastern transportation companies. Differences in for example salaries lead to differences in transport prices and result in unequal competition between the companies.
• Specific innovation of vehicles; within the segment of grouped distribution a shift from the use of trailers towards an increase of the use of semi-trailers will occur. These semi- trailers are likely to be constructed of Aluwood or Aluminium only; the cargo is less sensitive for theft, side panels are easier to replace when they are damaged and the construction is lighter as Plywood.
It is clear that all those developments lead to an increasing co-operation and eventually merger of transportation companies; participating in a European network will be essential to conquer the low profit margins by offering a scheduled transportation service with additional activities. This European network could be owned by a logistics organization where the transportation company is transporting for or be formed with the help of other transportation companies operating in different regions in Europe.
A distinction between logistics organization and a transporting organization could occur.
Transporting organizations can convey the freight on demand of the logistics organizations without the possession of “wheels.” Other organizations like TNT offer everything. Besides offering intelligent logistics solutions for their clients through taking over responsibilities, they convey the cargo within a global network by their own vehicles.
For the family owned transportation companies, a significant part of the transportation market, difficult times will continue when they won’t specialize themselves and start to combine forces with other small transportation companies. Low profit margins within the transportation market do not provide the backbone to survive bad economical circumstances resulting in a lower demand for transportation capacity. Unless they start to co-operate with other transportation companies, who focus on a specific region or offer value added services for a segment or region, they will go bankrupt. Grouped distribution and the new concept of physical distribution could be the answer.
What are the main consequences for the commercial fleet of vehicles?
• A significant increase of sales of commercial vehicles should not be expected until the economic situation in Europe will improve; therefore the already existing transport capacity is too big and the economic prospects are too bad.
• The percentage of semi-trailers will continue to increase in contrast to the percentage of trailers within the grouped distribution network because of the increasing importance of time reduction with the (de-) coupling of trailers, the assurance of fuller truckloads and the exchange of semi-trailers on long transporting distances.
• The use of Aluwood or aluminum due to the constraining and the increased control of overweight will replace the construction of boxes with plywood. The Dutch government has the objective to decrease the overweight problem significantly and raised the fines.
Another advantage of the new way of construction is that when one of the sides of the trailer is damaged, they are easily replaced.
• The use of curtain sided trailers is not a suitable solution to this overweight problem, because of the increased risk of theft and damaging by falling cargo.
• Due to the increasing sizes of the transporting organizations and their park of vehicles, standardization of vehicles is in place. The differentiation between the companies is found within the services offered by the logistics organization to a specific segment of the transportation market.
• When an increasing competition between the logistics organizations occurs, the appearance of the vehicles is more and more important. Smaller companies, who are taken over, have to refurbish their vehicles in the colours of the overtaking organization.
In conclusion, with an increasing focus on core competencies by companies and the internationalisation of the transporting logistics organizations, the responsibility for the fleet of vehicles will be increasingly outsourced to other service organizations. It concerns activities like;
washing, re-styling and imaging the vehicles. Because of the effort to gain the responsibility over a significant share of the market for small transportation companies, it is wiser for Akzo Nobel to focus more on logistics organizations possessing their own fleet of vehicles; less effort could lead to more future safety of market share.
Table of Contents
EXECUTIVE SUMMARY ... I
ACKNOWLEDGEMENTS ...3
CHAPTER 1 AKZO NOBEL, THE BACKGROUND OF THE COMPANY ...4
1.1 HISTORY OF AKZO NOBEL...4
1.2 THE SUB BUSINESS UNIT CAR REFINISHES...5
CHAPTER 2 INTRODUCTION TO THE PROBLEM ...7
2.1 THE PROBLEM STATEMENT...7
2.1.1 Introduction ...7
2.1.2 Objective...7
2.1.3 Questions building a framework ...8
2.2 CONSTRAINTS OF THE RESEARCH...9
2.2.1 Explanations of the definitions...10
2.3 THEORETICAL FRAMEWORK...11
2.4 WHERE ARE THE DATA OBTAINED? ...12
CHAPTER 3 ANALYSIS OF THE DUTCH TRANSPORTATION MARKET ...13
3.1 INTRODUCTION...13
3.2 HOW IS THE TRANSPORTATION MARKET STRUCTURED? ...13
3.3 THE DUTCH TRANSPORTATION MARKET PLACED IN PORTERS 5-FORCES MODEL...16
3.3.1 Competitors...17
3.3.2 New entries ...21
3.3.3 Substitutes...23
3.3.4 Suppliers ...24
3.3.5 Buyers (clients and ship-from-party)...28
3.3.6 Legislation ...29
3.4 STRATEGY BASED UPON THE 5-FORCES MODEL OF PORTER...33
3.4.1 Result of the Porters analysis...33
3.4.2 The three generic strategies...33
3.4.3 The transaction cost theory of Nooteboom...36
3.4.3 Conclusion; What should the strategy be?...37
CHAPTER 4 DEVELOPMENT OF THE TRANSPORTATION CONCEPT...39
4.1 FROM SUPPLY CHAIN MANAGEMENT TO DEMAND CHAIN MANAGEMENT...39
4.2 NEW CONCEPT OF PHYSICAL DISTRIBUTION...40
4.2.1 From 3PL to 4PL...41
4.2.2 Developments in the distribution centres...42
4.3 CONCLUSION...44
CHAPTER 5 DEVELOPMENTS IN THE DUTCH TRANSPORTATION MARKET...45
5.1 THE DUTCH TRANSPORTATION MARKET...45
5.1.1 Political drivers...45
5.1.2 Economical drivers...47
5.1.3 Social drivers ...49
5.1.4 Technical Drivers...50
5.2 BUILDING UP A FORECAST...52
5.2.1 A forecast for the Dutch market ...52
5.2.2 Data analysis; the interpretation of data ...52
5.3 FORECAST...54
5.3.1 Forecast 1a; the developments on the macro level...56
5.3.2 Forecast 1b; the developments on a micro-level ...59
5.3.3 Forecast 2; Bankruptcies and mergers of transportation companies...60
5.3.4 Forecast 3; The role of the information technology ...61
CHAPTER 6 COMPARISON WITH THE EUROPEAN TRANSPORTATION MARKET ...64
6.1 INTRODUCTION; HOW IS EUROPE DIVIDED? ...64
6.2 WESTERN REGION OF EUROPE...65
6.3 CENTRAL REGION OF EUROPE...72
6.4 SOUTHERN REGION OF EUROPE...76
6.5 NORTHERN REGION OF EUROPE...79
CHAPTER 7 CONCLUSION; A FORECAST FOR THE EUROPEAN MARKET...82
7.1 INTRODUCTION...82
7.2 BUILDING THE EUROPEAN FORECASTS...82
7.2.1 Forecast 1; Long, longer, longest…. ...85
7.2.2 Forecast 2; New European transportation concepts ...85
CHAPTER 8 MONITORING THE EUROPEAN FUTURE; A RECOMMENDATION...87
8.1 WHAT ARE THE MOST IMPORTANT FACTORS? ...87
8.2 HOW AND WERE TO OBTAIN INFORMATION?...87
BIBLIOGRAPHY ...89
Appendices 90
Acknowledgements
Writing a thesis consists of a process where you gather your own data, where you reflect upon this data to decide whether it is useful or not, where you struggle with the balance between academic and practical relevancy and so on and so on… Until you can say; “It is done!”
This thesis presents the most important ‘drivers’ for the developments in ‘Transporting Europe’
and the consequences for the fleet of commercial vehicles. It is of interest for the Commercial Vehicles marketing department of Akzo Nobel. Finishing the thesis represents the end of my study at the Faculty of Management and Organization of the University of Groningen.
I would like to thank some people for their valuable contribution to my thesis or their friendship.
First of all, René Hauser for his advice, support and providing me the possibility to write my thesis for Akzo Nobel. Mrs. Campbell and Mr. Karsten supervised me and spend valuable time of reading and helping me with their useful comments. Close friends were my victim when I had some worries in writing my thesis, but supported me all the time. It is very good to have them around me. A special word goes out to my family, who gave me the opportunity to go to Groningen and to enjoy a beautiful study-time. I can not express how grateful I am.
Hope you will read it with the same interest as I had setting up the project and writing my thesis.
Robert Greidanus
Groningen, 26 May 2003.
Chapter 1 Akzo Nobel, the background of the company
1.1 History of Akzo Nobel
Akzo Nobel is the result of a merger of several companies. The first event goes back to the year 1777 when a small painting factory named “Det Holmbladske Selskab” was raised in Denmark.
The Dutch origin of the company has its roots in Groningen where it started in 1792, by Willem Wiert Willemszoon, an enamel and varnish distillery. Despite the company was taken over, activities were extended and were placed out of family control. Nevertheless, the name of the company remained Sikkens and developed itself into a successful company which received the title ‘Royal’ given by Queen Wilhelmina of the Netherlands in 1905.
In 1939, Sikkens had to move to the west of the Netherlands because they had not enough possibilities for further growth in Groningen. Possibilities because of the appearance of the main transportation roads (train, water and air) were abundant and made them decide to remove to Sassenheim. After World War II they restarted their activities and tried to meet the growing and exploding demands caused by the “Reconstruction period in Europe.” In 1962 and 1967, they merged respectively with “Koninklijke Zout Ketjen” and “Zwanenberg Organon”, this led to the name ‘KZO’.
In the two years that followed, they took over several companies before they merged with
“Algemene Kunstzijde Unie” and started the name of Akzo. Meanwhile in Sweden, Nobel Industries was the result of the foundation of two companies in 1984, when KemaNobel and Bofors merged. They had almost the same path of development as Akzo, developing with help of several mergers and take-overs. Eventually in 1994 the already existing company Akzo NV acquired all the shares of Nobel Industries and turned into Akzo Nobel.
The current Akzo Nobel N.V. has its world headquarters Arnhem, the Netherlands. Akzo Nobel has activities in 80 countries and the organization counts over 76.800 employees. From the house you live in and the food you eat, to the cars you drive and the medicines you take, it is plausible that Akzo Nobel is involved in their manufacture. To accomplish this, their activities are divided in three groups; Pharmacy, Coatings and Chemicals.
Subject of my research is a description of the transportation market and what sort of important factors can be identified causing changes in this market. For the commercial vehicles used within the transportation market Akzo Nobel manufactures paint. The production of this paint is executed by the Coatings group; an in-depth explanation of the activities of Coatings is necessary and is presented in following paragraphs. To start of a brief explanation of the other two Business Units in the next two paragraphs.
The Pharmaceutical group
The Pharmaceutical is focusing on the on-prescription-only-medicine, veterinary products and complex active pharmaceutical ingredients. Their three main strategic products, Organon, Intervet and Diosynth, are a healthy base for extensive growth and continuous profitability. Sales are consistent and the profit margins within this market are high.
In human healthcare Akzo Nobel has strong positions in oral contraceptives, infertility treatment products, hormone replacement therapy and antidepressants.
In the animal healthcare market Akzo Nobel manufactures vaccines for the prevention of infectious diseases, as well as antibiotics, antiparasitics, other pharmaceuticals and feed additives.
The Chemicals group
The names of the products manufactured in this Business Unit are long and complicated.
However the chemicals themselves are not recognizable once they reach the consumer. We come
across the products of Akzo Nobel in every day things such as ice cream, disinfectants, plastic, soups, soaps, detergents, paper and asphalt. Products are divided over sub units as base chemicals, catalysts, energy and functional chemicals, resins and salt.
Business Unit Coatings
Akzo Nobel is the world’s leading coatings company. They produce paint; (re)finishes and stains for industrial, transport and marine markets, but as well for the professional decorative sector.
The intention is that everything what is produced shall be covered with an Akzo Nobel product.
Therefore they split up the entire Coatings group into several sub units. These are:
• Decorative Coatings: To decorate and protect your house from weather influences with products as Flexa and Sikkens.
• Industrial Applications: This paint protects almost everything with their extensive range of products. They can be found on wood and metal buildings, aircraft, car parts, buses, agricultural and construction machinery, et cetera.
• Marine and Protective Coatings: These products are used in shipbuilding, ship maintenance and repair and by yacht and other pleasure craft owners.
Other sub business units are Powder Coatings, Printing Inks and Industrial Products.
To indicate the size of each Business Unit, the net turnover and the company result in 2001 of the company is indicated and been split up over the three Business Units.
Sales of the groups of Akzo Nobel
5,5 billion Euro; 39%
4 billion Euro;
4,6 billion 28%
Euro; 33%
Pharma Coatings Chenicals
Figure 1 Akzo Nobel; Sales, Year report 2002
1.2 The Sub Business Unit Car Refinishes
Car Refinishes (CR) is a sub unit from the Coatings Group. It produces paint, services and software for the West European Car Repair market. If the vehicle is damaged, the products are used to repair the car’s appearance. This sub business unit produces paint for the passenger cars and for the commercial vehicles market.
Akzo Nobel built their strategic plan to expand the business into new market segments. This was based on an analysis that recognized the segmentation of the global market around different price levels that in turn were clearly linked to different quality and service levels. The traditional Sikkens approach, the strong brand existing from the beginning of the company, was clearly positioned in the High-segment. But there were also important markets in the Med- and Low- segments, in addition, of course, to the commercial vehicles segment. The Car Refinishes management team knew that to remain into the growing global business, the business unit would have to expand into these additional segments.
In Europe, where the market was fragmented between different countries, the Commercial Vehicles sales force was organized along country lines with strong support from Sassenheim.
Marketing efforts focused on offering technical service and application expertise to commercial
vehicles refinishers; to bus manufacturers; to major fleets such as TNT, Campina, and Telefónica;
and to local and regional manufacturers of specialty vehicles. The European strategy for the commercial vehicles department also aspired to provide these companies with "total delivery management." This means basically, to take over the job of keeping large number of vehicles looking good by managing repairs and repainting damaged vehicles.
In 1999, the marketing department of Europe West added important knowledge to its commercial vehicles capabilities when it acquired Mason CT, the commercial vehicles market leader in the UK. The acquisition of this company provided new possibilities for the graphics/decals business, they were able to produce and print self-adhesive vinyl decals. This technology could produce large format printed images such as photographs and multi-colour logos; the types of images increasingly applied to trucks and buses for advertising and corporate identity purposes. This acquisition gave Car Refinishes a new opportunity and plans were formulated to use this as a starting point for exploring the potential of combining paint and decals in a novel approach to the commercial vehicles market.
For this reason a separation within the marketing department is made. A distinction was made between passenger cars and commercial vehicles by establishing the department of Car-repair and Commercial Vehicles. Both groups have organized their departments differently. The marketing group Car Repair Europe West has built its organization around two products; namely Sikkens and Lesonal. Employees have the responsibility for one of the products belonging to this line of the two products. Supportive managers enable the production, selling and give the technical support to develop these products.
Within the marketing department of Commercial Vehicles Europe West they formulate a marketing policy for each segment. For the mid and high segment they produce Sikkens Autocoat BT and Autocoat BT LV. The latter one is produced to meet the latest environmental demands concerning the solvents within the paint. Mason CT is aiming at the lower price segment. Each manager is responsible for the development, distribution and marketing policy of the products that belong to each brand. A technical support manager supports the group of managers.
The distinction between the two product markets, car repair and commercial vehicles, is relevant because of the different demands from the users. The surfaces of the vehicles are different; the commercial vehicles are larger and are used under more severe circumstances. It is recognized that the commercial vehicles market is a spin off from the car repair market, because it was formerly incorporated in the car repair market. With the growing importance of the commercial vehicles market and recognizing the different demands in this market, Akzo Nobel decided to set up in 1994 an independent department within the Sub Business Unit Car Refinishes, the commercial vehicle department.
Chapter 2 Introduction to the problem
What is the critical issue facing the department of Commercial Vehicles? In the past years the activities of the department Commercial Vehicles increased because of the growing market shares.
However, in the last years the market share of Akzo Nobel has not changed significantly. To at least protect its current position in the future, Akzo Nobel wants to know what will happen within the market in the future. And that’s where the proverbial shoe pinches; Knowledge concerning this market is poorly documented or is scattered over different organizations. The marketing managers have some indications of what will happen in the future, but they are not sure what initiates these developments and what the result will be for the vehicles. Therefore there is an increase in demand about information for the transportation market by the marketing department Commercial Vehicles of the Sub Business Unit Car Refinishes. What sort of commercial vehicles can be identified and how will the size of the fleet of vehicles develop? Can we make any predictions for the future and should we change our marketing policy to meet this changing commercial vehicles market? What drivers are stimulating these developments?
As already pointed out, the difficulty in this market is that information is poorly documented and if there are any statistics they are often incorporated in the statistics for the car refinish market as a whole. Therefore the marketing department wants a descriptive report indicating the most important variables influencing the developments within the commercial vehicles market. A list of the most important indicators to monitor future developments and scenarios of how the future could look like is made. A direct link will be made to the consequences for the park of the commercial vehicles. How this is going to be obtained is worked out in the following chapter.
2.1 The problem statement
2.1.1 Introduction
With defining a clear objective for the research and formulating several questions to reach this objective, the workability is improved. Therefore for a correct execution of the research, the problem statement will be split up in the formulation of the objective and a formulation of the main question. It assures that the thesis will meet the demands of relevancy and research ability1. After the formulation of the main questions they will be worked out in several sub questions, what will create a framework for the thesis. The function of the sub questions is to make the research operational, so it can be verified in practical situations and present the developments in a structured manner. 1 90.
2.1.2 Objective
As you can see in the paragraph “The introduction of the problem statement,” the marketing department of Commercial Vehicles lacks knowledge regarding the future development of the Commercial Vehicles market and what factors will influence the transportation market.
Key questions are;
• What factors caused new developments in the Commercial Vehicles market?
• Can the factors be used to predict future developments and are there any relationships between these factors for the CV-market?
• Is there a difference between the Western European countries for the CV-market?
• Is it possible to present these factors in a model?
• How can the Commercial Vehicles department of Akzo Nobel monitor these developments?
1 Bedrijkskundige Methodologie, Prof. Dr. Ir. A.C.J. de Leeuw, 1990
In order to answer these questions, the relationship between the company producing freight, the logistics organisations organizing the distribution, the transporters transporting it and the final receiver of the parcels, together with the influences upon this transportation market has to be investigated.
Figure 2 depicts this relationship. Factors influencing the above shaded area are going to be investigated and valued to indicate to the department of Commercial Vehicles what will be the most important variables for future monitoring.
The main objective of this research is:
To indicate and value the most important factors influencing future developments within the West European transport market and to indicate to what sort of commercial vehicles they will lead.
This objective is realised by answering the questions in the following paragraph. The research describes the transportation market and gives helpful insights to the marketing department of Commercial Vehicles developing their marketing policy.
2.1.3 Questions building a framework The main questions of this research are:
• How can the Dutch transportation market be characterized and defined?
• What are the drivers for developments within this segment of the transportation market?
• Can these developments be distinguished in other European areas as well?
• How can these developments be monitored in the future?
Deliver vehicles
Specify demands
Producer
Buyers
Transporters Client Akzo Nobel
Delivers at
Builders
Commercial Vehicles market
Transport market of goods
Area of research Logistic service
provider
Figure 2 Conceptual framework
The questions to make the main questions operational are;
How can the Dutch transportation market be characterized and defined to execute the research?
• How can the transportation market be described, structured and characterized?
• How can the environment of a Dutch transportation market be described?
• What is the area of research for this thesis?
What are the drivers for the developments within the defined segment of the Dutch transportation market?
• Describe the developments with help of the categorization in Political, Economical, Social and Technological factors
o What happened with the most important characteristics during the last five to ten years?
o What is the influence of these developments on the transportation market and do they influence the way the builders build the vehicles?
• Can these indicators be extrapolated and is it possible to incorporate these variables into a forecast?
Can these developments be distinguished in other European areas as well?
• Can the drivers for the Dutch market be recognized in other West European countries as well?
• What are the differences or similarities between the regions for the defined transportation market?
• To what sort and how many commercial vehicles do these developments lead?
How can these developments be monitored in the future?
• To what factors should the marketing department of Commercial Vehicles pay attention to be aware of future developments?
• Where and how can information be obtained?
2.2 Constraints of the research
Demands from the Commercial Vehicles department of Akzo Nobel and the University of Groningen shape the research. The main constraints in the research project are as follows:
• The market of influence for the Commercial Vehicles department for Europe West covers Europe with the exception of East Europe. To constrain the research and to describe the transportation market, the Netherlands are chosen. The findings for the Dutch market will be used for a comparison between the four remaining European regions.
• Because the Commercial Vehicles market covers a wide area of vehicles, the focus is going to be placed upon a smaller category of vehicles as an indication for the larger group. These are the trailers specified for grouped distribution; trailers or semi-trailers with a solid, curtain sided or hooded construction.
• At the end of April 2003 a written report will be presented in a presentation for the marketing department of Commercial Vehicles at Akzo Nobel. In this presentation, scenarios will be used to initiate a discussion of what could happen within the transportation market. This report will be used as an input for this discussion.
An executive summary will be embodied in another report concerning the Commercial Vehicles market and the positioning of the products Autocoat BT, Autocoat BT LV and Mason CT.
• In addition to the recommendations for the management of Akzo Nobel, a successful completion of my thesis will lead to my graduation. Therefore this project needs to meet
the demands of my supervisors Mrs. Dr. N. Campbell and Mr. Prof. Dr. L. Karsten from the University of Groningen.
2.2.1 Explanations of the definitions
• Marketing department of Commercial Vehicles: This department is a sub Business Unit falling under the Business Unit Car Refinishes. This is one of the BU’s under the Coatings Group. The other Groups of Akzo Nobel are Chemicals and Pharma.
• Commercial Vehicles: Vehicles, not used for passenger transportation, but for freight.
Consists of lorries, buses and special vehicles. Of importance for this thesis are the vehicles used in the transportation of freight: These are semi-trailers and trailers (Appendix A).
• The market of Commercial Vehicles can be indicated as a Business-to-Business market because the selling parties are trailer manufacturers and the buying parties are transportation companies. The latter one uses the vehicles to deliver a service to their clients.
• Transportation market: The way and with what means products are delivered from their manufacturer to the client. This can be done by car, train, water and by air. A further in- depth analysis shall be presented in the next chapter.
2.3 Theoretical framework
The way a transportation organization develops depends upon the developments in the demands and the developments from the transportation market. Is the transportation activity a regular service or is it incidental? Is the ship-from-party willing to outsource additional activities as well or does it concern the transportation task only? Is it an express delivery or can it be combined with freight from other companies? New developments in the market can lead to an adaptation of the vehicles used within the transportation market.
Classifying the transportation market covers a wide area of products and vehicles. To keep the research well-organized constraints are required. Thereafter, a description of the transportation market where the commercial vehicles are functioning is necessary.
The four most important chains within the transportation sequence are pictured in the following graph;
Ship-from-party Logistics service provider Transporting organization Receiving organization
Interviews with respondents from several stakeholders within the above-identified chain will be held in order to gain a representative image of the transportation market. The choice of these organizations is based upon interviews with experts and desk research and is described with help of the Five Forces methodology of Porter (1998)2. This method of analysis is going to be used to gain insights into the environment where the transportation company is operating in.
After this description the next step in Porters methodology is made: What should a transportation company do according to the three generic strategies of Porter? Those strategies are applied to a transportation company.
To answer the problem statement, a list is made of the most important factors influencing the developments in the CV market. This list is made by subdividing the wider environment groups;
Political drivers, Economic drivers, Social drivers and Technological drivers. This is the so-called PEST-model3. These factors will be identified and investigated regarding their influence and their development in the last years, to make some forecasts for the future. Some important factors are more thoroughly explored and if possible, extrapolated to do some further predictions for the future market.
Based upon interviews an indication is given of how likely a possible driver will occur and what the consequence will be. With help of stakeholders we can indicate what sort of influences is important in the decision to enlarge or replace the vehicles used for the transportation market.
What has to be recognized is that not all the future developments can be predicted and indicated.
There is always a group of variables that can’t be forecasted; new technical developments, customer trends and political laws.
Eventually, a forecast is written based upon the most important influences brought forward by the research. There are two possibilities; the qualitative and the quantitative approach. The latter one is characterized by calculating the future with help of an infinitive number of variables and values.
However, selecting some variables and calculating the future number of registrations of trailers and semi-trailers is pointless. The qualitative approach is used in its place. A forecast developed upon a qualitative approach provides a direction of where the managers of the marketing department have to think of. Interviews discussing factors, trends and other important variables are held with a representative group and not on a limited number of conversations. This provides
2 Strategy : Process, Content and Context, Wit, P. de, Meyer, R., page 344, 1998.
3 The essence of strategic management. Faulkner, D., and Bowman, C., page 60, 1990.
the marketing department of Akzo Nobel with information of what they can take in account in developing their marketing strategy.
When the conclusion for the Dutch transportation market is drawn, the findings for the Dutch transportation market are investigated in other West European countries as well. Are the influences the same or should the marketing managers from the Commercial Vehicles department take in account different influences? Finally, a conclusion of the West European market is drawn and a forecast based upon the most important variables is presented.
Where and how the developments can be monitored, is placed within a chapter 10. It describes the important sources where the marketing department can obtain the information in the future.
With some organizations appointments are made to provide this information.
2.4 Where are the data obtained?
In order to obtain a representative and objective image of the transportation market, interviews were held with experts from the identified chain. Additional research executed by desk research in several magazines and on the Internet completed this gathering of information. The main line of these interviews was build around the PEST model and was adapted to the expertise of the interviewees. The respondents are placed in appendix G.
Chapter 3 Analysis of the Dutch transportation market
3.1 Introduction
To give an impression of the size of the Dutch transportation market some statistics:
• 583.729.000 tons transported by road in 2000 within the Netherlands;
• 1.496.254.000 tons is transported in relationship with the Dutch domestic market or Dutch transportation companies;
• 24.092 new trailers and 7.929 semi-trailers produced in the Netherlands;
• 130.390 people are working in the transportation sector;
• More than 7% of the national income is earned within the transportation market in 2000.
It is obvious that the transportation market is vital for the economy. Without it, everything is motionless and a shortage of food, raw material, semi-manufactured articles and end products will occur. The economy would come to a stand still.
How can the transportation market be described? It is, briefly, a system consisting of the interaction of three subsystems4 influenced by several aspects. This is pictured in the following graph (Figure 3).
Figure 3 System approach
These subsystems and influences define the strategy of a transportation company. A strategy is necessary to survive the severe competition within the transportation market.
As pictured, the transportation market is composed of three subsystems, influenced by four different aspects. Each subsystem relies on another part of the system to function properly. To illustrate this: the category of transported goods determines the infrastructure and the means of transport. More specific; Heavy transport demands special vehicles and the closing of roads for a safe pass-through. Or a bouquet of flowers that is not possible to be transported by a curtain sided trailer but requires special conditioned trailers.
Chapter 5 pays more attention upon drivers of developments within the subsystems, because they initiate the most important developments within the transportation market; the system5 as a whole.
Meeting the final objective of this research, it is necessary to investigate the subsystems and the system as a whole as presented in the graphic above.
3.2 How is the transportation market structured?
Is it possible to structure the market in order to constrain the research? Yes, but a problem occurs immediately. Several ways to structure the market are available. One possibility is to use the classification of the category of the products to be transported. However, for making a forecast for the transportation market as a whole we should, according to the classification of TLN, examine 17 different categories of products to be transported with help of adapted vehicles and
4 Economie en Transport, Jaap de Wit and Henk van Gent, Uitgeverij Lemma BV, Utrecht, 2001
5 Een systeemvisie, by A.C.J. de Leeuw, Van Gorcum, Assen
Freight
Transportation system
Infrastructure Means of transport
Strategy of the company
Technical influence Political influence
Social influence Economical influence
Figure 4 Identified transportation chain
• Waste products vehicles
• Agriculture vehicles
• Distribution vehicles
• Car transport
• Building materials transport
• Exceptional transport
• Conditioned transport
• Vegetables and fruit transport
• Tip-up truck
• United couriers
• Physical distribution group
• Milk vehicles
• Ornamental plants vehicles
• DTSV (Tank Silo Transport)
• Saveetra
• Moving vehicles
• Deep Sea container alliance
logistics organizations.6 Given the time constraints, investigating 17 categories is not practical.
These 17 categories are
Another possibility to structure the research could be the examination of the companies charged with the transportation task. They are situated in the middle of the identified chain (figure 4).
They are the Logistics service provider and the Transporters. According to desk research and based upon interviews with representatives from for example the TLN7, these activities can be executed by four sorts of companies. These are;
o The Capacity transporter (e.g. Subcontractors) o The Specialist or quality transporter
o The Net worker o The Chain Organizer
How do these companies differ from each other? A review of the most important characteristics;
The Capacity transporter:
• Aims at a low cost price per kilometre.
• Fulfils transport notably on long distances.
• Doesn’t co-operate with other transporting organizations.
• Provides a continuous accessibility for clients to use their transporting capacity.
• Sub-contractors could work for them. (Sub-contractor; a one-man business with a small number of trucks, driving for other companies)
The Specialist or Quality transporters:
• Provides in quality measurable services for a special segment.
• Strives for a co-makers relationship relation with the ship-from-party.
• Fulfils the need for the handling and the transportation of parcels of ship-from-parties.
• Is willing to co-operate with other organizations, as long as it improves the services and the quality for their customer.
6 www.tln.nl
7 Transport and Logistic Netherlands (TLN)
Producer
Buyers
Transporters Client Area of research
Logistic service provider
The Networker:
• Provides standard services with the help of a complete network (transportation vehicles, distribution facilities, warehouses) with a high frequent scheduled service with the objective for a continuous stream of freight.
• Aims at providing a standard service.
• Is willing to co-operate with other transportation companies in order to build a complete network.
• Is chosen by their customers because of the relatively low price and the availability of standard services.
• Primary activity; filling in the need for transportation capacity and to control the process of standard services within the network.
The Chain Organizer:
• Aims at taking over and controlling parts of logistic organizations of ship-from-parties (by public or private warehousing).
• Searches for logistics solutions for their clients, the ship-from-parties.
• Fulfils the need for ship-from-parties to outsource the logistics activities.
• Is willing to co-operate with other transport-, distribution and warehouse companies, as long as it improves the solution for the logistical problems.
• Is chosen by the capability to solve logistics problems.
• Price is based upon the relative savings for the client, realized by the outsourcing of logistical services and activities (prices are based upon Activity Based Costing).
All these companies are involved in the transportation business; each offer different services and works according a different strategy. In order to sustain a profitable position within the transportation business and to escape from the increasing risk of going bankrupt because of the low profit margins, the company should choose a well-defined strategy. A strategy fitting the company is the most important issue in running a business; the transportation business isn’t an exception. The choice of a good strategy will be explored with help of the generic strategies from Porter. This is done after exploring the environment from a Dutch transportation organization.
Answering the question “in what sense the research could be constrained” is answered referring to information provided by the Central Bureau for Statistics. The constraining for the research is made through a choice of a specified category of freight, what comes forth out of the NSTR8. See appendix C for the categorization. According to this categorization, 36% of the cargo, transported internationally, fall under the category of remaining goods and products9. The main part of these products is transported by standardized vehicles (appendix D); platform, closed trailers and swap bodies trailers. Graphics of these trailers and semi-trailers with various mountings who are important for this thesis are placed in appendix A.
Because the research is constrained, it is not necessary to focus on the other categorizations of vehicles in appendix D. The other vehicles are special designed, where we don’t want to focus on.
Out of the research came forward that the transportation of these products fall under control of some logistics organizations, taking care of more and more logistics management activities besides the transportation task. Logistics management is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw-materials, in-process inventory, and finished goods. The management of the related information flow from point of
8Nomenclature uniforme des marchandises pour les Statistiques de Transport, Revisée. Source; www.cbs.nl
9 www.statline.cbs.nl
Figure 5 Distinguishing a trailer and a semi-trailer
origin to point of consumption for the purpose of conforming to ship-from-parties requirements is vital10. These requirements are value added services for the ship-from-companies situated at the beginning of the whole transportation chain as identified in the theoretical framework (chapter 2.3).
With reference to the here above mentioned categorization from TLN these activities are executed by the chain organizer. These logistics organizations offer these additional activities for several companies what enables them to profit from scale advantages by grouping the transportation of the different products in combined rides. This is the so-called grouped distribution. Grouped refers to the fact that shipments from several companies are combined into one ride and brought to the area where the delivery place is situated. This is to increase the truckload percentage in order to reduce the costs and increase the profitability.
What came out of the initial round of interviews and desk research is that vehicles representing 45% of the total registered vehicles in the Netherlands in 2001 mainly transport these products (appendix D). This category consists of closed vehicles, vehicles with or without hood, curtain- sided vehicles and vehicles with easy-to-change boxes. These constructions are divided over trailers and semi-trailers.
For the Commercial Vehicles marketing department of Akzo Nobel the developments for this group of vehicles is important. Therefore, the developments on the transportation companies using these vehicles to convey the freight will be worked out. The following chapter can be regarded as an introduction into the transportation market for the Netherlands. In chapter 5 more attention will be paid to grouped and physical distribution.
3.3 The Dutch transportation market placed in Porters 5-forces model
The first overview of the transportation market is made from a Dutch perspective. The Netherlands is leading in transporting Europe, with innovations and new concepts. Therefore, in order to mention the indicators leading to developments within Europe, the Dutch transportation market is investigated first. A closer look will be given to the vehicles, distribution concepts and logistical solutions behind transportation within the Netherlands.
Reason for a initial research in the Netherlands is that by looking at the geographical position of the Netherlands and studying the statistics of the transported volumes of cargo11, it pictures an important role of our country in ‘transporting Europe.’ Because of the increasing scale and focus from national perspective to international perspective of transportation, developments in logistical concepts in the Netherlands have their influence in Europe as well. After indicating the most important variables within the Dutch transportation market it is easier to compare these developments with other European countries.
The five forces model of Porter will be used to analyse the market where a transport company is operating in. Because the interest of the marketing department of Akzo Nobel is found in the use
10 Strategic Logistic Management, J.R. Stock & D. M. Lambert, 2001, p. 3
11 “Transport in cijfers” issued by TLN and www.statline.cbs.nl
Semi trailer Trailer
of trailers and semi-trailers used by the transportation market, a “simple” transporting organization is placed within Porter’s model. More sophisticated concepts behind the offer of intelligent logistical solutions are described in chapter 5. In this chapter we look at a transportation company in general, providing a transportation activity using commercial vehicles for a collecting and distributing function.
The ordinary model of Porter is slightly adapted (Figure ). Entree barriers influence the number of competitors active within the market because of the effect on the number of potential entries.
Therefore they are placed together into one group, called “Competitors”.
Furthermore “Legislation” is added to the model. As seen in the start up of the research, the change of the law in the past caused a development in the vehicles fleet. Therefore it is an influence what has to be pictured in the adapted five forces model of Porter.
Forces influencing this business by this model are;
• Competitors;
• Legislation;
• Buyers;
Figure 6 Field of forces transportation market, adapted from M.E. Porter, 1985
Each part is discussed in the following paragraphs to define what is of importance within the transportation market. In chapter 6, these drivers for developments in a particular segment of the transportation market will be explored more closely with help of the PEST-model.
3.3.1 Competitors
An indication about the transporting companies and the competition between the companies is found by the number of licenses to carry freight and the increase and decrease in these numbers over the last years. Lorries (including delivery vans) with or without trailers and semi-trailers, used on public roads for goods more than 500 kilo must have a registration certificate; the license.
There are several possibilities of how these companies or license holders (licensees) and their vehicles are registered12.
These possibilities are;
• Licensee as a driver for own account; organizations who execute the transportation for their own company.
• Licensee for Drivers-by-profession; companies who transport freight for others
12 Wet op goederenvervoer over de weg (Wgw).
Ship from party
Transporting organization Legislation
Bodywork builders Client;
For example wholesaler or end user
ICT suppliers Transport by air
Suppliers Buyers Substitutes
Transport by rail Transport by boat
National legislation European legislation
Municipal legislation
Competitors
New entries Numbers and sizes of competitive companies
• Suppliers;
• Substitutes
• Concern licensees; A license what can be used by several business units falling under one concern
• Mixed licensees; vehicles owned by a company for their own transportation activities and other activities as well
According to the law “Goederenvervoer over de weg” it is forbidden to transport freight, heavier than 500 kilo, without a license. The license should be in the truck cabin when the transporting activity is executed.
Each category has its own association. For example, the own drivers are organized by the EVO13 and the drivers-by-profession are registered by the NIWO14. Once a request to transport from someone is executed, the license is used.
Companies registered as driver-by-profession have to obtain another license to transport freight in Europe. With their normal license they are only permitted to transport in the Netherlands. They need an additional license to transport to other countries within the European Union. For freight transport to countries outside Europe a ‘permission’ is required. This is agreed through bilateral negotiation between the countries.
The licenses are not, as before 1992, attached to a driver or the registration plate of the vehicle. It is therefore possible that the number of licenses is less than the number of trucks, trailers or drivers possessed by the company. Depending on the place where the freight came from or the place of delivery, a domestic or a foreign license is needed. And when the ride is within the Netherlands only a domestic license is needed. The number of licensees depends on the legal structure of the companies. For example when a company is structured as a holding, they regard the concern as one license holder and register it as a concern licensee.
Between 1993 and 2002 an increase of 37% was observed in the number of licenses, but between 2001 and 2002 a decline appeared. The number of licensees declined from 12.310 to 12.105. This decline continued in 2003, until 12.072 licensees. (Additional data is obtained and will be sent to Akzo Nobel in the beginning of May). This decline is explained by the bad economical situation what discouraged the start up of transportation companies and increased bankruptcies and mergers.
Questions concerning this indicator are;
• How are these licensees distributed in 2002 over the companies?
• What does it say about the way the market is structured?
This is illustrated by the following graph (Table 1).
Only a domestic license And a foreign license Number of
licensees
License holders (percentage)
Number of licensees
License holders (percentage)
Number of domestic licenses
Number of Euro licensees
≤5 81.7% 39.7% 63.3% 13.1% 15.7%
6-10 11.2% 21.1% 14.8% 11.9% 12.3%
11-20 4.9% 18.4% 11.3% 16.9% 17.3%
21-50 1.7% 12.8% 7.7% 24.6% 25.9%
>51 0.39% 8% 2.89% 33.4% 28.7%
Total 2.265 licensees 8.833 licenses 9.840 licensees 95.371 domestic licenses
68.237 Euro licensees
Table 1 Dutch transportation companies divided by licenses, NIWO Year report 2001
67% of the 12.105 licensees have less than five licenses in possession. That represents 13 % of the total domestic licenses. On the other hand, 2.4% of the companies possess more than 50 licenses, what represents 31% of the total of licenses. That indicates that a large share of the
13 Eigen Vervoerders Organisatie (EVO)
14 Stichting Nationale en Internationale Wegvervoer Organisatie (NIWO)
companies is represented by small transportation companies, where a small group of the companies has a relatively large share of the vehicles. In the distribution of the licenses over the licensees the “20-80-rule” is in place as well. It is seen that 21.89% of the licensees posses 74,9%
of the domestic licenses and 71,9% of the foreign licenses.
By average a company possesses 8.6 domestic licensees in January 2002 what an increase is as compared with 8.1 in the year 1997. See table 2 for an indication of this development.
1997 1998 1999 2000 2001 2002
Domestic license 8.1 8.2 8.2 8.2 8.4 8.6
European license 6.2 6.3 6.3 6.3 6.6 6.9
Table 2 Domestic and European licenses, NIWO Year report 2001
Although it seems that it is only a small increase, it has to be taken in account that the weight of the first group (less than five licenses) is substantial. 67% has less than 5 licenses. When companies are growing, it takes a while of a reflection of this growth in the averages. It can be stated that although the number of transportation companies is decreasing, the existing transport companies are growing. Because of the low profit margins, smaller companies are going bankrupt or develop into big players by taking over other companies. Further explanation of the development of the transporting organization reference should be made to paragraph 5.2, where the new concepts and the outsourcing of tasks is described.
This shift from smaller companies increasing in seizes or going bankrupt is pictured by the following table as well. Due to the bankruptcy of notably the smaller companies, there is a shift towards bigger companies. These bankruptcies are indicated in table 3.15
Bankruptcy categorized by number of licenses per company
Year 1-5 6-10 11-20 21 and more Total
1998 36 29 21 14 100
1999 25 15 8 18 66
2000 30 19 25 15 89
2001 Year report 2002 will be issued half May 90 Table 3 Bankruptcy's of transportation companies, NIWO Year report 2001
The numbers of the smaller companies decrease or the smaller companies are increasing in size, what leads to a higher average of licenses per company. This development occurs after a significant increase in the establishment of companies in 1999 due to economic growth and the less severe legislation to start up a transportation company. The idea behind this development was that companies, who started to outsource the transportation activity, had less costs and placed the transportation orders by their former drivers possessing their own transportation company now.
That led to an increase of the licensees.
When we monitor the data concerning the license and licensees from 1993 till 2002, a few developments can be distinguished. In table 4 the numbers of licensee holders are pictured. They indicate the number of companies possessing less than 5 vehicles, 6-10 vehicles, et cetera.
• From 2000 a decline in the growth of licenses can be observed. The expectation is that the next year the number of license keepers will decline as well.
• The number of companies with more than 50 licenses increases whereas the number of small companies decreases.
For the year 20003, the number of the licensee keepers is available, but how this number is distributed over the categories is not yet available.
15 Source: NIWO Year report 2001
Size of the company Total license keeper with an Euro and a domestic license
01-Jan-93 01-Jan-95 01-Jan-00 01-Jan-01 01-Jan-02 01-Jan-03
< 5 2.207 3.240 5.854 6.239 6.229 n.a.
06-10 817 1.138 1.372 1.459 1.460 n.a.
11-20 982 896 1.067 1.103 1.112 n.a.
21-50 548 580 715 742 755 n.a.
51-100 136 141 192 204 211 n.a.
>100 32 39 67 68 73 n.a.
Total 4.722 6.034 9.267 9.815 9.840 9.757
Change in number, compared with
preceding years +28% +53.6% +5.9% +0.3% -0,80%
Table 4 Development in size of transportation companies, NIWO Year report 2001
This is however not sufficient to picture the fleet of vehicles. Therefore, a closer look at the data is needed in table 5. The main characteristics are;
• From 1993 till 2002, an increase of the licenses of 80.9% is observed
• This is equal with 6.8 % per year.
• However, in 2001 the growth rate is 3.9%. This is considerable lower as compared with former years (Table 5).
Domestic and Euro licenses categorized by size of the company
1 jan '93 1 jan '95 1 jan '00 1 jan '01 1 jan '02 Number
of
licenses Domestic Euro Domestic Euro Domestic Euro Domestic Euro Domestic Euro
< 5 5.330 4.063 7.339 5.877 11.818 9.893 12.465 10.542 12.529 10.743 6-10 7.595 4.670 6.895 5.678 10.659 7.393 11.280 8.267 11.337 8.418 11-20 11.922 6.696 14.953 8.087 15.452 10.346 16.022 11.314 16.145 11.810 21-50 16.775 9.972 17.806 10.926 21.674 14.382 22.751 16.427 23.417 17.672
>51 13.551 8.849 16.914 10.215 28.473 16.074 29.879 18.465 31.943 19.594
Total 55.173 35.250 63.907 40.783 88.076 58.089 92.397 65.015 95.371 68.237
Table 5 Domestic and Euro licenses by size of the company, NIWO Year report 2001
Conclusive; where a decrease of growth in the number of licensee keepers is significant (table 4), an increase is in place for the number of licenses (table 5). Bigger companies notably realize this growth (more than 21 licenses).
Explanation for this development
Smaller companies have more difficulties in surviving because of the low profit margins. This can be observed by the fact that the number of transport companies with 21 or more licenses increased, where notably the smaller transportation companies went bankrupt. A reason was that smaller companies could not compete with large companies who expanded because of the availability of more capital to provide more service to ship-from-party.
Another reason is that companies have to co-operate, because the ship-from-party wants them to.
This is because of living up to the higher demands from this company placed upon the transportation task. A good example is the demand of garden furniture manufacturer Hartman, who ordered his residential transportation companies to merge. If they would not merge, Hartman would use another transportation company. Therefore the three companies merged and formed VHB Logistics. This illustrates the power of the ship-from-party, mentioned in the theoretical framework as well. These ship-from-parties want to have the facility to do business with one transporting organisation only. That makes the organisation of the transportation process a lot easier.
3.3.2 New entries
A decrease in the number of licenses is already explained. Until 2001 an increase of the companies was significant. This increase was influenced by the attractiveness to enter the transportation market. To start up a transportation company low barriers existed; Money could be easily borrowed, a lot of drivers wanted to be their own boss and companies wanted to outsource the transportation task. They stimulated their own employees to start up companies and assured them they would hire them to execute the transportation task. The only rules to start up a transportation company were some barriers formulated by the NIWO. The government imposes demands upon;
1. Credibility, 2. Reliability and 3. Skills
However, in addition to the barriers formulated by the NIWO natural barriers exist. An example is the necessity of co-operating with other transportation companies in order to survive the sever competition. You have to be acquainted with ship-from-parties, or other transportation companies to be able to react quickly and to gain orders. Out of the interviews came forward that
“networking” is very important in this sector; to become profitable you have to co-operate with other companies as well. Together, better services are offered and scale advantages can be more easily obtained.
Because it was so easy to start up a transportation company, a lot of companies went bankrupt the last couple of years. The profit margins are low, the competition between the companies is very high and the international competition becomes more severe every year. The average return is pictured in figure 7 to indicate the low profit margins.
2,5 1,7
2 1,2 1
0,2 1,9
0,5 2
1 1,2
-0,2 0,8
-0,8 0,4
-1,2 0,1
-1,5 -1,5
-1 -0,5 0 0,5 1 1,5 2 2,5
Years
1994 1995 1996 1997 1998 1999 2000 2001 2002
Percentage (%)
Average return of a Dutch transportation company
Dom estic transport Border crossing transport Figure 7 Average return, NIWO Year Report 2001 and CBS An explication of the demands from the NIWO is as follows;
Ad 1. According to the European guidelines licensee holders should dispose over 9.000 euro for their first truck and 5.000 for each additional trucks. In addition at least 18.000 euro should be available to overcome eventual other costs.
Ad 2. A declaration of good behaviour should be handed in, this form is obtainable at the local town hall.
Ad 3. A declaration of a certificate of the Dutch association ‘Stichting Examenbureau Beroepsvervoer (SEB)’ is needed. Candidates are tested regarding their knowledge of financial management, vehicle management, logistics, people management and the transportation of international goods.
