Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Divided By a Common Language

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They are old trading partners but when it comes to freight transportation Europe and the United States can be worlds apart. To be sure, there are many similarities. The Great Recession struck both sides of the Atlantic creating carrier capacity surpluses that drove down freight rates. Now, as the recessionary tide recedes, rates are recovering and there is less excess capacity. Metrics such as fill rates, on-time delivery and cost are equally as important on both sides of the Pond.

But there are differences that should give companies that are developing distribution networks on the other side of the Atlantic pause for thought. Here are some examples to help guide you.

Different geographies

Across the patchwork of countries that make up Europe there are fewer national transportation providers than in the US. Geographic coverage can vary a great deal from carrier to carrier, with larger, pan-European providers offering a much larger footprint than smaller, more regional rivals.

Rate resumes

Freight rates are also more fragmented in European countries for LTL (groupage) freight. US carriers are used to quoting a published base rate and discounts, whereas their counterparts in Europe tend to quote a per-pallet or per-loading meter rate for each individual shipment. The lack of a baseline means that when doing business in Europe it is critical that buyers do their homework and pre-qualify carriers ahead of time as much as possible.

The distance factor

Distance-based rating is rare in Europe compared to the US where it is considered to be a best practice. As mentioned, European rating structures are typically based on a flat rate, per-pallet, or per-loading meter rate. This can make managing complex, highly dynamic distribution networks with multiple stops more challenging. Slowly customers are starting to adapt distance-based rating to leverage optimization capabilities of transportation management systems and to drive down the overall transportation cost. On the other hand, Europe’s multi-modal mix of road, rail, inland waterway and short sea transportation gives shippers more options.

Extended supply chain

It is a commonly accepted practice amongst shippers in Europe for carriers and forwarders to sub-contract loads. Shippers in the US are far less accepting of this practice. This is due to the way Europe is divided by historical borders, the carrier challenge of having to maintain a complete footprint across the continent, and the bidding routines that are leveraged in Europe. These factors can make supply chains more complex in on the continent and buyers need to be cognizant of what quality controls are in force to make sure that lower-tier carriers are performing satisfactorily.

Fixing rates

Bids tend to adhere to a one- or two-year cycle in Europe, and once a rate is set shippers expect the provider to maintain it for the agreed period. Shippers typically award carriers the volume of an entire lane unless the lane has a very high volume or complexity. This practice can be leveraged since it is acceptable for forwarders and carriers to sub-contract loads. American shippers may have similar expectations but there is less likelihood that a negotiated rate will endure for the full bid cycle.

Political risk

The controversy over permitting Mexican drivers to do business in the US is an example of a political/labor dispute in North America that can disrupt trade. However, such issues are much more prevalent in Europe. For example, Russia recently threatened to restrict the number of permits it allocates to Polish drivers annually to protect its domestic industry. Poland took issue with the decision and threatened to close the eastern border to prevent Russian-bound trucks going through Poland. Another source of disruptions is the many trade union strike actions that take place on the continent. For example, the ports that serve the cross-channel trades between France and the UK are prone to strike-related stoppages. When this happens truck drivers have two options: use the Chunnel that connects the UK to mainland Europe, or take a ferry. Strikes or the threat of strikes continually disruption European supply chains and drive the need for on-demand planning.

Driver numbers

Problems caused by driver shortages is a major issue in the US, and one that is expected to surface again after being masked by the recession. Fluctuations in supply and demand are just as prevalent in Europe, however the impact on the transportation market depends on the economic and unemployment situation within individual countries or regions. For long haul international transportation the driver base is predominantly Eastern European. Local drivers are more prevalent on short to medium routes in Western Europe. Local factors can make it more difficult for local drivers to enter the cross-border freight market, but the ready supply of individuals from Eastern Europe provides a buffer against personnel shortages.

Shades of green

In general the Europeans have embraced sustainability and green supply chains more enthusiastically than Americans. But there is a flip side to this story. While the US Environmental Protection Agency lays down guidelines for truck emissions by vehicle type, no such standards exist in Europe. A number of companies have taken the initiative themselves by developing their own emissions baselines in collaboration with providers. Another complication is that the energy efficiency of transportation modes can differ from country to country. For example, trains in Switzerland have a carbon footprint that is virtually zero because renewable energy sources are used extensively in that country. A German coal train on the other hand is at the opposite end of the energy-efficiency spectrum, emitting as much if not more CO2 per container moved as road transportation.

The transatlantic gap is closing as supply chains and the managers that run them become more international. Meanwhile, if you are crossing the Atlantic it might pay to put together a transportation phrase book.

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