Thursday, October 16, 2008

French and German trucking: IT for the long haul

French and German trucking: IT for the long haul

Continued consolidation is needed but won’t be enough—only IT-enabled innovation can help road freight companies enjoy productivity growth rates like those of the late ‘90s.

February 2003

The creation of a single market in Europe, coupled with deregulation, has undoubtedly benefited road freight companies in France and Germany. While the productivity of US trucking companies stagnated during much of the 1990s, their French and German counterparts enjoyed growth of about 5 percent a year (Exhibit 1).

Chart: French and German road freight: Productivity in motion

But looking down the road, the journey may become more difficult. Falling prices are keeping profit margins low, and Eastern European companies, with their lower-paid workers, eagerly await a chance to capture some of the market following the expected EU expansion in 2004. Customers today are generally more demanding. And after the acquisition spree of the late 1990s, many large French and German road freight companies remain barely more than loose-knit groups of independent distri-bution networks.

The spree had its roots earlier in the decade, when the European Union began relaxing and harmonizing the restrictions on truck capacity, abolishing mandatory prices for domestic and international freight, and liberalizing cross-border market access (Exhibit 2). At the same time, the establishment of the single market increased demand for cross-border transport, and customers began insisting on higher-value-added services such as faster shipments and time-definite deliveries. These developments intensified competition, and road freight companies responded by consolidating, increasing the size of their trucks, and using capacity more efficiently.

Chart: Regulatory changes paved  the way in Germany

IT innovations such as the optimization of networks and the automation of back-office functions accounted for only about a fifth of the productivity growth in the 1990s, and there is much more potential for improvement. In fact, by the end of the decade, French and German freight companies turned even more to IT to squeeze out productivity gains. These efforts focused on the integration of legacy IT systems of companies acquired during the consolidation spurt and on the further improvement of capacity utilization.

But French and German freight companies still lag behind their US counterparts and will have to go on investing in IT to catch up. Innovations in IT account for more than half of the productivity gap with the US trucking sector, which admittedly had a head start, since deregulation began in the United States about a decade earlier than it did in Europe. By the 1990s, the US industry had already consolidated, thus letting trucking companies concentrate on using IT to optimize their networks further and to improve their capacity utilization—for instance, through the deployment of advanced tools such as remote-tracking systems that can pinpoint the location of any vehicle in a fleet.

Structural differences explain the rest of the gap with the United States. Average hauls are twice as long there, for example, and US companies haul a slightly higher share of goods (such as coal) that are heavy but easy to load—goods that drive up the average ton-kilometer1 per hour worked.

Increased competition brought about by deregulation has pushed French and German road freight companies to consolidate and thereby to capture quick productivity improvements. Even so, the job isn’t done. Once consolidation reaches optimal levels, productivity advances will peak, and these companies will have to look elsewhere for continued improvements. But by applying innovations across a newly consolidated industry, road freight companies can enjoy productivity growth rates similar to those of the late 1990s.

About the Authors

François Bouvard is a principal in McKinsey’s Paris office, and Stephan Kriesel is a consultant in the Berlin office.


1A generally recognized measure of road freight production, ton-kilometers take into account both the weight of the shipment and the distance shipped per hour worked. The tons in this case are metric tons, which equal 2,205 pounds.