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Logistics as an opportunity to increase the competitiveness of the European Union

The paper was presented at the Polish Logistics Congress “Logistics 2006 – Best practices in logistics”. Poznań, May 10-12, 2006.

Introduction

The enlarged European Union of 25 member states faces new challenges, including leveling differences in economic development, creating a new structure for the EU economy, and establishing production, trade, and transport links within its territory. The Union must also take into account transport and communication links with the entire world, and especially with its immediate geographical surroundings. The goal is to stimulate economic growth and development to serve the constant improvement of the quality of life for EU citizens. In global economic competition with major areas such as Russia, China, the USA, or India, one can win mainly through the systematic increase in the competitiveness of EU products. A significant part of the cost of products at the recipient’s location consists of logistics costs. Logistics costs include both direct costs and derivative costs caused by the unreliability or inefficiency of supply chains.
In the European Union, initiatives and projects have been undertaken to improve logistics solutions, among which was the so-called EULOC-process, in which forecasts, visions, and political priorities were outlined by an international team.

2. Factors influencing changes in logistics

Logistics systems belong to the category of rapidly changing systems influenced by external needs and conditions, because logistics keeps up with user requirements, striving to satisfy their expectations to the maximum. There is a lot of truth in the slogan that only those who offer a better but cheaper service can win. Users make choices based on the utility functions of the product being purchased. Optimization usually concerns the costs that the buyer/user has to bear, so they may purchase a more expensive product if the logistics service compensates for it.
The following forces can be cited as factors of change in logistics:

1)         increase in transport intensity and the mobility of the population in the global economy,
2)         new technologies in ICT systems, including the use of satellite and radio identification systems,
3)         cost efficiency,
4)         changes in the system of logistics companies,
5)         new products and services,
6)         public policy.

Ad. 1. Statistics on transport and road traffic indicate an increase in demand for transport services that exceeds GDP growth across the European Union. This is a phenomenon occurring in developed regions of the world. The Union is, in a sense, surprised by this state of affairs because the service sector is developing faster than the production of tangible goods. It was therefore assumed that the demand for transport would fall or grow more slowly than GDP as a whole. Neither of these cases occurred. This is a result of modern logistics requirements and the new function of transport. Deliveries of smaller batches of cargo, carried out more frequently, in accordance with the Just-in-Time principle, have contributed to an increase in transport intensity and to the growing share of road transport in Europe. At the same time, actions are being taken to promote environmentally friendly modes of transport: rail, inland shipping, intermodal transport, or short-sea shipping (motorways of the sea). In practice, this means, on the one hand, increasing budget expenditures on these modes of transport, and on the other, increasing the financial burden on road transport and growing congestion on roads.
Experience to date shows that the demand for transport services will grow, including the need for transport over increasingly greater distances both within the EU25 and in trade with other regions of the world. Cooperation and competition between the EU and the USA, Russia, China, or India will require increasing expenditures in transport hubs (ports, airports, multimodal terminals), in transport routes, and in the land infrastructure of ports and airports. New member states, including Poland, will generate additional traffic through high rates of production and consumption growth.

Ad. 2. New communication, satellite, and radio technologies radically improve the flow of information about cargo, means of transport, senders, and recipients. The growing use of intelligent transport systems will favor further growth in transport, as well as better management of transport means.

Ad. 3. Global transport costs are rising with the increase in the number of operations, rising labor and fuel costs, the introduction of infrastructure usage fees, the raising of safety requirements, and congestion. Efficiency means reducing unit costs through more efficient organization of supply chains, better utilization of rolling stock, new technologies, or materials management. EU transport policy aims at constant and sustainable growth in the efficiency of all modes of transport. The greatest opportunities for efficiency growth lie in rail, multimodal, and shipping transport. However, the highest efficiency growth has already occurred in road transport and aviation.

Ad. 4. Logistics companies are undergoing radical changes in organizational structure, moving away from hierarchical structures towards network structures. Furthermore, the globalization of business culture, unification, and deepening of interoperability, with strong support from advanced telecommunications systems. A tendency towards the dominance of big players is emerging, which is confirmed by mergers of large companies as well as purchases and acquisitions of smaller ones. There is therefore a real threat to medium-sized companies, while there is a chance for the survival and development of small and niche, deeply specialized, and flexible companies that can operate in market segments considered uninteresting for large companies. Cooperation between large and small companies will, of course, be possible and necessary. Global consolidation of logistics companies will lead to the formation of global logistics centers, and supply chains will be concentrated in the hands of a few large companies, with a demonstrated willingness to cooperate with small, specialized operators.

Ad. 5. Products and services are increasingly oriented towards satisfying the needs of goods producers and recipients as best as possible, which, combined with the emergence of large (global) logistics companies, will favor technological and organizational integration as well as engineering innovation. This also means supporting research and development, because without knowledge, technical progress, and modern organization, this strategy could not succeed. Logistics solutions will increasingly influence the location of production, including the relocation of manufacturing activities to those regions that will be appropriately developed in terms of transport. So far, the most highly developed regions continue to develop faster than assumed, and peripheral regions develop more slowly than expected, despite financial support.

Ad. 6. The forces presented in points 1–5 influencing real processes in logistics constitute a significant problem for transport policy, trade policy, competition protection measures, and the investment policy of governments and the authorities of the European Union. Political decision-makers must be guided by concern for maintaining the EU’s competitive position in the world, ensuring transparent conditions for competition within the Union, and ensuring the constant growth of citizens’ well-being. The European Union is intended to care for leveling regional development inequalities, and this means creating opportunities for regions through appropriately high infrastructure investment expenditures. New member states, and especially Poland, are recognized as an area (region) with an urgent need for large expenditures on the development of transport infrastructure, developed in a manner sustainable with the requirements of economic growth, environmental protection requirements, and EU transport and trade policy. This is particularly important for Poland, which is a large country located in the middle of Europe, between Russia and the West. Transport and logistics can become our country’s national industry.

Full article in PDF format.

Ref-Plen-Liberadzki.pdf