It is more than eight years since Geodis bought what was then called TNT Freight Management in 2007 for €460 million – including the former Wilson Logistics business TNT had itself acquired just three years earlier – doubling its freight forwarding revenues overnight and turning the French company into one of Europe’s top five forwarders.
Kim Pedersen, executive vice president of Geodis Freight Forwarding – the new name for what for many years was known as Geodis Wilson – says that since 2007 things have really taken off for the Geodis group, not only in terms of brand and footprints in the world, but also through several acquisitions, although none during the last five years, until the recently announced plan to buy OHL (see pages 52-54). In this time, he says the company has been establishing a global organisation, finding its position in the market in terms of end-to-end solutions, from road distribution, warehousing, consultancy, to freight forwarding and all the way through to full truckload transport.
Because customers are becoming more global in their purchasing, this year it pulled all these elements together under a single Geodis brand, itself an operating division of SNCF Logistics, which in turn is a business within the French state-owned rail group SNCF. Combined, Geodis is the number one transport and logistics operator in France and ranked number four in Europe, with an international reach that includes a direct presence in 67 countries and a global network spanning over 120 countries. As a global freight forwarder, it stands at number 11 in the world in both air freight and ocean freight, by volume, with forwarding revenues making up around 39% of Geodis’ €6.8 billion turnover in 2014 – meaning annual forwarding revenues of around €2.89 billion.
Pedersen says this change was driven by customers, informed by Geodis’ annual Strategic Customer Council, where its top customers advise it about important trends. Among the benefits is the ability to present a single face to customers in terms of the way it organizes its quotes and “value propositions”.
Pedersen adds: “So, the brand is an element of change that also brings us into the next chapter after the mergers and acquisitions, and into a true global logistics provider with one recognisable brand.”
That said, it is still principally a European player at its heart, with France alone accounting for 44% of Geodis’ revenues and 31% coming from other European activities. But its business in the Americas makes up 12%, Asia-Pacific 11%, China makes up a further 5%, Brazil 2% and 2% in Middle East and Africa – and it is these regions where the company’s growth is concentrated.
“Inside, we have split our activities into five boxes, and I’m in charge of the biggest box, in terms of people and turnover, which is the freight forwarding activities. And for us, freight forwarding covers mainly airfreight and ocean freight, and outside Europe also the logistics activities that are linked to our main transport modes.”
The four other lines of business in Geodis are: Distribution & Express, the parcels business – mainly in France – that is growing rapidly through e-commerce; the Road Transport full truck load business; Contract Logistics, “which is also growing through change from e-commerce”; and Supply Chain Optimisation (SCO), a 4PL consultancy activity that provides support for all of those other business lines, Pedersen says. “That part is becoming more and more wanted by customers with the vast international complexity of their flows – but with a wish of steering their supply chain through one point of contact, regardless how many logistics suppliers are part of the final solution,” he explains.
Supply chain optimisation
“Clearly it is our ambition to feed our own network with opportunities coming through such activities – but this works only where we are truly competitive. It is becoming more a natural element of the larger accounts that we do not only talk about the transport itself, but also about the optimisation of the transport.”
If you go back to the 1980s and 1990s, the way companies wanted to save costs was to start sourcing in China, instead of building a factory in, say, Sweden, and the whole calculation was based on that. “Now we have come a step further, where people not only source in China, they source where it is cheapest for them at a specific moment in the production cycle,” Pedersen says.
“So you can have several sources, which makes your supply chain more complex. And then on top of the freight costs themselves, the cost of having merchandise in stock is taken into a more holistic calculation that is also driving choices – in terms of where to put your sourcing, where to put your warehousing, which market you want to focus on.”
He says Geodis Freight Forwarding has selected four markets that are particularly important and where it is focusing much of its investments: Brazil, India, China, and the US. Knowing those marketplaces really well means forwarders and 3PLs can guide their customers through each stage to help identify the best place to put their warehouse in Brazil to distribute whatever merchandise, taking account issues such as local customs clearances and tax regulations.
“So you are not only following what the customer wants, the container to São Paulo, you start to advise them on, say, maybe you should put the warehouse in Campinas and allow that extra transit time and save costs elsewhere.”
Continuous improvement plans
Geodis calls that kind of dialogue a ‘CIP’ or continuous improvement plan. “It is an element that is constantly in the dialogue with customers these days, compared to what it was 10 or 15 years ago,” he says.
He says the people within that SCO unit speak a lot with the freight management division, especially when the business involves transport outside Europe, because very often it is for western European companies that have their decision-making centres in western Europe. “If you take the big pharmaceutical companies or the big toy manufacturers, even if they source in different parts of the world, they keep their head office in Denmark or Sweden or Germany or Switzerland, or wherever it is. But the (physical) flows are everywhere,” Pedersen explains.
“In the old days, the shipping manager was the last office in the warehouse, moving the container or pallets, and you have a small office in the warehouse where they put the labels on. That was the guy who was making a decision about how to move it. Now that decision happens with Nestlé in Switzerland in the big head office, where we then conduct information to them, talk to them about how they can optimise the global supply chain, and then it happens everywhere else – the physical flow. And the ones who can guide those big companies to manage the flow will be the winners in 2015 and in the years to come.”
These reviews are done on an almost continuous process. “We call them QBRs: Quality Business Reviews, and we do that every month,” Pedersen explains. “And in some contracts we have the duty to come up with cost-saving ideas, improvement plans. I am personally involved in several of these, where every month you follow up on projects that can improve their supply chain, in terms of cost savings, time improvements, security and safety – which is also an important element, to reduce theft. When they source in certain countries, you are exposed to new challenges that you would not think about in Germany or western Europe.”
One reason these now need to be done monthly is the volatility in freight rates – particularly ocean freight rates, currently, which from Asia to Europe recently fell almost 50% in the space of six weeks, for example.
“The very agile customers very quickly make new calculations and say: ‘We sourced in Bangladesh before, now we will source in Vietnam,” Pedersen says. “They have different manufacturers set up where they can switch on and switch off really quickly.”
Because everything is now done via EDI, forwarders note that customers can also turn off and turn on their forwarding partners relatively easily and quickly too.
Sourcing changes can, of course, be due to factors not directly related to transport costs. “For example, in China you have 7% to 12% inflation, year over year,” Pedersen says. “As a result, Mexico becomes a much less expensive country to put your assembly factory to serve the American market.”
Skilled supply chain engineers make calculations based upon all these factors.
“If you are a large global company, and if you tap into the potential of your people, you will have tons of opportunities, constantly, in reviewing and improving your global supply chain,” says Pedersen. “Yes, it (the supply chain) becomes more fragmented on the one hand, but it is full of opportunities on the other.”
The QBS meetings have been taking place monthly for some time with the really big customers, but are more recent for smaller players, increasing dramatically in the last four or five years. Pedersen says one reason for this new emphasis is because you can only “optimize” the container freight rate so much. “So you have to look at other items you can optimize.” Examples might include taking into account the duty rates of countries or states, or obstacles such as sourcing equipment or congestion, where circumstances and rules can change frequently.
Fluctuating freight rates does create instability for forwarders, but is nothing new, Pedersen says, although what seems to be more a new trend is the constant elements of overcapacity, particularly in ocean freight. But for a freight forwarding company, fluctuations of 20%, 30%, 40% are relatively normal, and the aim is to pass this on to customers. One challenge is when locking in rates for a longer period, but again this is nothing new.
“When the rates are very low, you can say to a certain extent it is more difficult for us to make profit. But in another way, you can say it stimulates global trade, and thereby we have more volumes. “
But these factors increase the need for strong IT systems and good people to manage these things. “And then you’re back to a discussion about how to attract talent,” he notes.
Pedersen jokingly quotes someone from a large bank in New York who said: ‘Freight forwarding is not a difficult business – it is all about IT and people!’.
In the past forwarders provided an application that a customer could access to follow their orders on via track and trace, whereas these days this data is fed into a system that the customer wants to work in.
“So, the stronger and the more reliable our data and our systems, the bigger our chance to be the winner when companies select their logistical partners,” Pedersen says.
Geodis made a decision three years ago to deploy the same operational system across its Freight Forwarding network worldwide, giving more consistent visibility all over the world. “If you go back to the period of merger-mania where our big competitors and ourselves bought a lot of companies to increase market share and geographical coverage, to be able to serve clients everywhere in the world, they also bought many systems that needed to be interfaced.
“The more interfaces, the higher the risk when it comes to data management. So we decided to scrap all of this – and to go for one single system, also with a customer facing component called IRIS.”
That was a “massive” investment in the technology in training, “but it can optimise and standardise our processes and thereby reduce our so-called ‘cost per file’, which is eventually giving us a competitive edge to the market,” Pedersen says.
But a single system means being able to give customers “a single truth: where is your shipment in China? Is it in transit to Brazil? Has it arrived in Brazil? Because people all over the world update their milestones in the same system,” Pedersen says.
“That is a major advantage that we see now, that we have deployed this all over the world. I would say it is almost a qualifier for the future, because clients are asking for this kind of visibility and immediate information.”
As the experiences of certain other major forwarders has shown, this is not easy to achieve.
“So I am glad we have this implementation process successfully behind us!” says Pedersen.
Having this single system in place is a major benefit in Quality Business Review meetings with customers that have a centralised global procurement structure for their entire supply chain. “You really talk to them on the level of supply chain optimization,” Pedersen says.
“Let’s say we analyse a client’s airfreight and ocean freight flows from central Europe to South America. We can analyse that transport mode itself and optimise it, more or less constantly, as there are a lot of changes ongoing, for example with the Middle East carriers offering new capacity at lower rates, new transit times and new routings that can offer savings for the customer, if he can accept that day extra. Those things are changing all the time.
“You can also look at a warehouse management and optimisation there. How do you react if a customer says: ‘Yes, I know we signed a five-year contract with you in a warehouse in São Paulo, but the province up north is now cheaper – so I would like you to empty half of the warehouse and ramp up a new solution in the north.’
“Our response would be to find a way for the client and us to fulfill the contract while at the same time starting to design a new solution in a new warehouse that makes it cheaper for him overall, even if there is an empty warehouse space left to pay for. That’s true optimization in a partnership that enables mutual gains.
“Supply chain directors, procurement directors, and logistics directors on our customers’ side, are also incentivised by finding such savings – it is their job, and we help them in fulfilling it, also by driving these monthly meetings.
“So this is going on all the time, and what we can see in the marketplace is that those who are really strong in providing such solutions are taking market share. And we believe we are in a very good position to do exactly that.”
Moving up the ladder
And Geodis’ freight forwarding volumes have been growing by annually up to 8% globally – compared with a market itself growing around 4% for air freight and around 5% for ocean freight – “mainly because we focus on and support the growth trends of our existing clients”, although also by focusing on high-growth and emerging markets and by specializing in certain industry verticals. For example, Geodis’ business in Mexico grew by 44% last year, mainly because of customers moving their assembly lines to Mexico to serve the American market. “We invest in resources to support our clients where their growth is happening, and Mexico is a fantastic example of that,” says Pedersen. “We capture such trends, and if we do very well, we can ride that wave and grow with the customer.”
Having the right IT systems and people is clearly important, but size matters too.
“It is also about global leverage. When procuring capacity from the leading shipping lines and airlines, you need to have buying power to negotiate the right rates. We feel very confident that we are positioned strongly in this regard.”
With Geodis Freight Forwarding currently number 11 in the world for both air freight and ocean freight, Pedersen is ambitious to get into the ‘Top 10’, based on volumes, rather than turnover – “because the turnover depends very much on which corridors you are working with,” he says. “The next time we meet at Transport Logistics in Munich, in 2017, you will see that we have passed the ‘Top 10’ mark in both air and ocean freight!” nnn