Changing supply chain in a growing Europe


The unexpectedly strong and sustained growth in europe is leading to changes in international goods flows. Nearshoring is on the rise in eastern europe and morocco at the expense of offshoring in the far east. however, factors such as Brexit, heightened risks of terrorist attacks and political unrest are creating new uncertainties in european supply chains. this sixth consecutive edition of the scm map of europe visualizes the most important economic developments for supply chains.

By Martijn Lofvers

With 742 million citizens, of which 511 million live in the EU, Europe continues to be an interesting sales market – especially now that the economy is showing strong and sustained growth. A number of countries in Central and Eastern Europe, such as Hungary, Poland, Romania and Bulgaria, particularly stand out with growth rates of three percent or more, and the Turkish economy is now recovering following the failed coup in 2016.

Meanwhile the German economy, regarded as the powerhouse of Europe, is also gathering steam. The industrial and logistics sectors have made a significant contribution to Germany’s economic upswing over the past two years and the country once again tops the World Bank’s global ‘Logistics Performance Index’ this year. Brexit and taxation.

In terms of economic growth in the EU, the United Kingdom is bringing up the rear because of the continued uncertainty about Brexit and its consequences for citizens and businesses. In an effort to prevent a potential exodus of foreign companies, the UK government has reduced corporation tax by one percentage point to 19 percent. A number of other EU countries, including Luxembourg, Italy and France, have implemented similar tax reductions for businesses.

In addition to tax rates, other deciding factors for companies when choosing where to base their factories or distribution centres (DCs) are the local labour costs and productivity associated with production operatives and warehouse employees. The cost of renting warehouse space also plays a role in these considerations, since prices can vary considerably from one region of Europe to another. Last but not least, decisions about where to locate a DC are influenced by the geographical proximity to the ultimate sales market and the site’s motorway access.

One Belt, One Road

The economic differences around the world are mirrored in the changing goods flows to and from Europe. There has been a sharp increase in container shipments from Europe to North America, yet a decline in the other direction – evidence of Europe’s export success. In 2015, ocean freight from Europe to Asia remained stable compared with the previous year, while there was actually a fall in container shipments from Asia to Europe.

Now that Chinese economic growth is slowing down, the Chinese government wants to create a new, faster ‘Silk Road’ – a landbased trade route between China and Europe – in the ‘One Belt, One Road’ initiative. This will reduce the time it takes to transport a container from China to London to 18 days instead of 36. The economies of the countries along this route should all stand to benefit from this mega project. The volume of twenty-foot equivalent unit (TEU) containers from China to Europe along this route through Kazakhstan increased from 13,200 TEUs in 2013 to 46,100 TEUs in 2015: an impressive growth figure, but still a relatively small number compared with the 14 million TEUs shipped by sea.

In addition to the route via the Trans-Siberian railway line, an alternative route through Iran and Turkey is planned as part of this project to reduce the dependence on Russia. However, the countries along the alternative route are not without political risks. Having said that, the risk of terrorist attacks has increased in Europe this year too, particularly in Germany, Switzerland and the UK, according to the risk experts at Aon. There is also a considerable chance of labour strikes and political disturbances in Belgium, Germany, France, Portugal, Spain, Italy, Poland and – once again – the UK.

Download: SCM Map Europe 2017-2018