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The assessment of competitive intensity in logistics markets

The assessment of competitive intensity in logistics markets Logist. Res. (2011) 3:49–65 DOI 10.1007/s12159-011-0050-0 OR IGINAL PAPER Peter Klaus Received: 2 March 2011 / Accepted: 2 March 2011 / Published online: 23 March 2011 Springer-Verlag 2011 Abstract The markets for freight transportation and other 1 Logistics services in a changing arena of competition logistics services are undergoing rapid transformation: concentration of demand and supply in the hands of fewer, The markets for freight transportation and other logistics larger shippers and service providers, new business models services are undergoing rapid transformation—both on the of highly integrated intermodal, ‘‘fourth-party’’ and supply- demand and the supply side. Demand for logistics services, chain wide logistics service offerings, and a dramatically currently estimated at more than € 1.100 bill. p.a. for the increasing volatility in the general economic environment United States, and at € 900 bill for Europe, is massively are among the reasons for the changes. As a consequence, affected in quantity and quality by the growing volatility of the ‘‘strategic’’ task of assessing the opportunities and economic developments in the world. And new kinds of power of certain players in the markets, and the important service offerings, as well as new formations of service political and judicial task of assessing and maintaining providers are emerging at the supply side of the logistics competition in those markets have become very difficult. market arenas, too: Traditional ways of meeting the challenges involved with Main drivers of those changes and turbulences are: defining and ‘‘measuring’’ markets and competitive inten- 1. the continuing internationalization of transport chains sity do not seem to be sufficient any more. This paper and logistics networks which—as a consequence of reports on a study of the new challenges, which strategists, ‘‘globalization’’—is causing European and global administrators, judges, and politicians face in their efforts value chains to stretch out over ever longer distances to assess competitive situations in logistics markets. It and more stages with increasing international division develops suggestions for a consistent and practical process of labor; and structure of defining and measuring logistics markets 2. increasing concentration of logistics demand in the and market positions. hands of fewer, but increasingly more powerful large ‘‘shippers’’ and logistics client companies; Keywords Competitive intensity  Competition law Logistics industry studies  Market intelligence  Market boundaries  Relevant markets  Workable competition Wilson [24] estimated the depressed 2009 volume for the US at $ 1095 b. (corresponding to € 912 b at an assumed exchange rate of 1.20 $/€, which is considered a realistic long-term Dollar/Euro equivalent), while Klaus et al. [12] estimate he comparable volume of the 27 nations of the European community, plus Switzerland and Norway, at € 880 b. After-recession’’ figures for the year 2010 are anticipated to come out about 5% higher. For example, through the shift of control over logistics services from hundreds or even thousands of consumer goods suppliers to P. Klaus (&) newly formed ‘‘inbound’’ logistics systems by the big retail chains Friedrich-Alexander-Universitaet Erlangen-Nuernberg, such as WALMART; METRO or REWE. See, e.g., the DVZ- Nuernberg, Germany Newsletter No. 18 of 2.5.09 ‘‘Aldi is Working on New Procurement e-mail: peter.klaus@wiso.uni-erlangen.de Logistics System’’. 123 50 Logist. Res. (2011) 3:49–65 3. corresponding concentration in logistics services pro- changes reduce competition (e.g., especially those in Nos. vider markets due to industry mergers, acquisitions, 1. to 3. in the list above), while others intensify competition and joint ventures; (Nos. 4 to 7). 4. the entry of new types of logistics service providers As a consequence, strategy planners in logistics com- into established logistics service markets through panies who are considering the entry into new market developments such as the privatization and expansion segments, or mergers and acquisitions, as well as admin- of formerly publicly owned providers of postal, rail, istrators and judges in public and legal institutions who are aviation, and communication services. These used to responsible for the organization and regulation of logistics see themselves primarily as the trustees of public markets, are confronted with new kinds of issues. In order interests. Today they aggressively compete for sales to assess present and future logistics market realities and profits in open markets; properly, new questions must be considered regarding the 5. new business models of ‘‘contract’’ and ‘‘fourth-party definitions and data that should be used to correctly assess logistics (4PL)’’, which offer logistics- and other the boundaries of markets and positions of power by the value-added services in highly integrated and sophis- players involved: ticated ways—often having evolved from traditional • Are traditional practices in defining market bound- transport and forwarding activities, aries—such as the traditional distinctions between 6. … including the emergence of ‘‘hybrid’’ logistics carrier and forwarder markets—still appropriate in a providers, i.e., spin offs from in-house logistics time for integrated logistics services? operations of large corporations who are becoming • What is the relevance of traditional distinctions aggressive players for third-party business in the open between the transport modes of road, rail, water, air market as well. They offer specialized industry know in a time of more, and more intermodal, seamlessly how, the benefit of stable base capacity utilization, and organized transport chains? capital strength through their corporate parents, which • How narrowly and detailed—respectively how broadly may be based in manufacturing industries, retailing, IT and aggregated—should markets be defined to assess and consultancy services; market shares; for example, in the integrating European 7. political, technological, and economic changes at a Community of 500? million people, considering van- global scale, causing dramatically increased volatility ishing political and administrative boundaries, and the of markets which used to be considered stable and simultaneous elimination of infrastructural boundaries continuously growing. through new tunnels, bridges, and the gradual develop- The combined effects of these developments make it ment of efficient Trans-European transport corridors? difficult to correctly assess market positions and intensities of competition in the huge, diverse markets for transpor- tation and broader logistical services. Some of these 2 A challenge of getting to more consistent assessments of competitive intensities in logistics markets Compare the annual lists of merger activities in the logistics sector such as the KPMG ‘‘M&A Update—Transport & Logistics’’ under Against this background, established practices in defining www.kpmg.de, as well as Klaus et al. ([12] S. 68 ff.). market boundaries and market positions in the field of Compare current business reports by formerly state-owned Deut- sche Post as ‘‘DHL’’, the Dutch post office as ‘‘TNT’’, the British logistics services should be critically examined. New postal service as ‘‘GLS’’ or the French railway system through answers must be found on how to measure market shares, ‘‘GEODIS’’. competitive intensities, and assure their comparability. Compare: the annual studies by Langley and Cap Gemini ([14], In order to highlight and concisely describe the related 2010) ‘‘The State of Logistics Outsourcing’’. problems and to develop a systematic framework for the Note the historical development of classic international carriers assessment of market boundaries and market shares, a such as KUHNE & NAGEL, SCHENKER or HELLMANN into integrated logistics providers, or the transformation of medium-sized three-part study was initiated in 2009 by the Fraunhofer transport companies such as BETZ, GEIS, DSV, FIEGE or RHENUS Institute at Nuernberg, Germany, under the guidance of this into diversified contract logistics providers. For sources and refer- author. It was based on the current legal and institutional ences see the ‘‘Top 100’’ company profiles in Klaus et al. [12]. 7 situation of the European logistics industry: European examples are ARVATO, a subsidiary of the Bertelsmann Group; HERMES, a subsidiary of the OTTO retail group, and • First part of the study was a review of conceptual Rail4Chem, which grew out of the BASF chemical corporation. contributions to the issue of assessing competitive The most obvious manifestations of the new economic volatility intensities in the Economics, Business Administration, were the ‘‘New Economy Boom’’ about the year 2000, and the and Competition Law literatures. worldwide financial and economic crisis of 2008/2009. 123 Logist. Res. (2011) 3:49–65 51 • Secondly, current practices in the definition of markets financial strength, access to sales or procurement and market boundaries and market shares were docu- markets, integration with other companies, legal mented on the basis of three different approaches: a or actual barriers to market entry by other review of current transport and logistics data reporting companies, actual or potential competition from structures by public institutions as a factual frame of companies based within or outside the area of reference and important source for market definitions; a application of this law, the ability to switch its detailed analysis of recent decision cases by the buying or selling activities to other goods or European Commission related to mergers and acquisi- services, and the possibility that customers or tion requests; and a series of interviews with business suppliers could switch to other companies should practitioners and experts on their thoughts about be taken into account… meaningful logistics market definitions. 3. A company is assumed to have a dominant market • Thirdly, a framework for the more consistent and position if it has a market share of at least one quantifiable assessment of market boundaries and market third. shares by selected competitors has been outlined and §36: suggested on the basis of this research. 1. Any merger which could be expected to establish This paper is a summary report on the study. It is or reinforce a dominant market position… must be intended as an invitation to more academic discussion and prohibited! future research in the important field of logistics industry studies, which have received relatively little attention in The analogous provisions of the EG Treaty (version of academic research so far. 29.12.2006) in Article 82 are: The abuse of a dominant position in the single market or a significant part of the same by one or more companies is 3 Conceptual contributions to the assessment incompatible and is prohibited insofar as it can interfere of competitive intensity with trade between the member states. In particular, this abuse can consist of the following: 3.1 The ‘‘free market premise’’ and fundamental (a) the direct or indirect enforcement of unreasonable purposes of competition law purchase or sales prices or other business conditions; (b) the restriction of production, sales or technical Behind all economic and legal considerations of competi- development to the detriment of the consumer; tion in our economic system is the ‘‘free market premise’’, (c) the attachment of different conditions for the equiv- which can be traced back to Smith [23]. It holds that the alent service to trading partners, where this would ‘‘invisible hand’’ of competition in free markets is the most lead to a competitive disadvantage; effective way of guiding people’s natural inclination (d) the attachment of conditions to the closure of toward self-interest toward the good of society. contracts whereby the contractual partners accept In the case of Germany, the ‘‘Free Market Premise’’ is additional services that bear no relation to the legally founded in the provisions of §§ 19 and 36 of the contractual item, either objectively or with regard to Law against Restraints on Competition (GWB, version of accepted practice. 15.12.2008): §19: When assessing merger plans, the EU Commission has, in accordance with the EU Merger Control Regulation of 1. The abuse of a dominant position in a market by one or 20.1.2004, Art. 2, to take into account more companies is forbidden. (a) the necessity to maintain and develop competition in 2. A company has a dominant market position insofar as it is as a seller or buyer of a certain type of commodity the single market, especially in respect of the structure or commercial service in the objectively and territo- of all markets affected and actual or potential compe- rially relevant market tition from companies based within or outside the Union; 1. without competitor or facing no significant com- (b) the market position and the economic and financial petition or strength of the companies involved, the options 2. has a superior market position in relation to its available to suppliers and customers, their access to competitors; in this respect, its market share, procurement and sales markets, legal or actual 9 barriers to market entry, the development of supply The full study has been published in German and English language and demand with regard to respective products and [13]. In this paper it is referred to as ‘‘the study’’. 123 52 Logist. Res. (2011) 3:49–65 services, the interests of intermediaries and final consumers and the development of technical and economic advances, insofar as these are to the consumer’s advantage and do not obstruct Total market competition. (unbounded) …Mergers that would seriously interfere with effective competition in the single market or in a significant part thereof, in particular through the establishment or reinforcement of a dominant position, must be deemed incompatible with the Relevant single market. market Competition law, hence, has to make sure that market Spatial dimension behaviors which could significantly reduce or abolish Fig. 1 Three principal dimensions to be considered in setting the competition for the public good will not occur. There must boundaries of a ‘‘relevant market’’ be sufficient number of competitors in any market as to make monopolistic or oligopolistic behaviors by individual market participants impossible. No single player in a given A ‘‘relevant market’’ in the context of assessing the market should gain power over the behavior of other workings and intensity of competition must be defined market players. along these dimensions. This leads to three difficult questions which need to be The object dimension—in the case of logistics and other resolved in any legal proceeding related to the effective service markets usually the most complex and difficult one protection of market competition, namely: to capture—relates to the type and characteristics of the • How to appropriately define the boundaries of ‘‘rele- objects upon which a certain logistics service is provided, vant markets’’, i.e., within which spatial, temporal, and the technology by which that service is applied, and the object-related boundaries of a market can a potential situational context within which the service is transacted: restriction or abuse of competition be identified and • Market boundaries may be drawn around the physical prevented? properties of the objects which are being transported, • How to determine what is ‘‘competitive’’ respectively stored, or otherwise handled in logistical operations. ‘‘non-competitive’’ behavior in a specific situation: This leads to categorizations of markets such as ‘‘bulk Which kinds of business behaviors are compatible with cargo’’ logistics, ‘‘parcels services’’, or ‘‘steel product the idea of competitive markets, respectively—how are logistics’’. Often implicit in market segmentation behaviors identified that are incompatible with the approaches related to the physical properties of logis- ‘‘free market premise’’? tics objects are differentiations by the objects’ weight/ • How to assess the ‘‘workability’’ of competition, on a volume characteristics (such as for ‘‘parcel’’ versus scale between the theoretical constructs of ‘‘perfect ‘‘less-than-truckload’’ versus ‘‘full-truckload’’ transport competition’’ and ‘‘perfect monopoly’’ in a market, how markets) or their physical shape and handling charac- to determine the point when competition no longer teristics (‘‘palletized freight’’, ‘‘liquid goods’’, ‘‘haz- functions—is becoming ‘‘unworkable’’—and therefore ardous goods’’ logistics). open to potential abuse by individual players? • Markets may alternatively be described by a specific ‘‘technology’’ applied in the logistical treatment of the 3.2 Critical dimensions for the description objects, when certain means and methods of producing and definition of ‘‘relevant’’ logistics markets the logistics service are the primary characteristics defining a market, as in the case of ‘‘road transporta- The boundaries of market, at a conceptual, highly abstract tion’’ versus ‘‘air transportation’’, ‘‘(ISO) container level, may be described along three dimensions: the logistics’’, ‘‘or ‘‘E-logistics’’. ‘‘object’’ dimension, the spatial dimension, and a tem- • When markets such as ‘‘retail logistics’’, ‘‘health care poral dimension, as Fig. 1 illustrates. logistics’’, and ‘‘military logistics’’ are referred to, it is the primary association, dedication, or ownership of the objects to a certain type of customer, industry. • Another object-related descriptor of markets may be a Bulletin C 372 of 09.12.1997 by the European Commission certain phase in the process of value creation for a regarding the definition of a relevant market. Object-related dimension Logist. Res. (2011) 3:49–65 53 product (as with ‘‘intra-plant-logistics’’ or ‘‘reverse also grow out of regional customer habits or buying pref- logistics’’). erences, or from circumstances within a company such as • Another fundamental aspect often used in defining the limitations of the range of sales channels. markets is the type and quality of logistics activity (or Precisely defining spatial boundaries, especially for the ‘‘function’’) that is transacted upon the logistical object operations of transport companies, is difficult, because in order to increase its value to a customer—such as a their primary production resources—i.e., vehicles and ‘‘transfer in time’’ in the case of storage, a ‘‘rearrange- drivers—are mobile by definition, but practical limits to the ment of objects’’ in the case of sorting, picking- geographic range of their operation exist nevertheless. packing, consolidation-deconsolidation activities, a The European Commission defines a geographically ‘‘change of location’’ in the case of transportation. relevant market as follows: When market boundaries are set by the dominant The relevant geographic market comprises the area in logistical function, high-level segment descriptions are which—for those companies offering competitive ‘‘transport logistics’’, ‘‘warehouse logistics’’, (or ‘‘just- products and services—there are sufficiently homo- in-time transport’’ when qualitative descriptors are geneous competitive conditions, which can be dis- considered in further differentiating markets). tinguished from neighboring areas because the • Last not least, logistical functions may be performed competitive conditions there are appreciably at various quality levels, which define sub-segments different. like ‘‘standard’’, ‘‘expedited’’, or ‘‘premium’’ logistics services. This means that national boundaries within Europe are no longer considered relevant for the identification of rel- Many combinations of object-related characteristics to evant markets in the context of competition law. describe and define logistics markets are being applied in The third fundamental dimension for the definition of a actual logistics business practice. There is no apparent relevant market is the temporal one. Because competition systematic in those definitions, as the review of current is a dynamic process, the intensity of competition may vary practices in Sect. 4 of this paper will illustrate. over time. But besides the object-related descriptions of markets, Temporally defined dominance of a market by a logis- two other fundamental dimensions for their description tics services provider may result from temporal limitations need to be discussed briefly: the spatial and temporal on the goods or services provided, such as the provision of dimensions. logistics services at trade fairs, the Olympics or the Soccer Some logistics markets are global. But most are delim- World Cup. ited to a certain geographical space. Because logistics Temporary competitive advantage and market domi- providers are operating out of given locations, they are nance may also exist for a product innovator and ‘‘first often restricted in their ability to offer services to a certain mover’’ onto a new market, when new kinds of services or region or route. new technologies are introduced. For example, the The geographically relevant market area can be—in the ‘‘inventor’’ and first operator of standardized ocean con- case of, for example, bicycle couriers, taxi companies or tainers, Malcolm McLean and his company SEALAND, in-plant contract logistics operations—a single city, or a enjoyed a monopolistic position for some time. But the narrowly confined economic region. In the case of logis- ‘‘ownership’’ of a market by a first mover is usually tem- tical networks for postal and parcel services, for general porary and will be lost after a while by the actions of other cargo or the widespread distribution of consumer goods, competitors (as was the case in standardized container the relevant area may be a country such as Germany, a traffic, when other operators entered the new market and continent such as Europe, or—in the case of the ‘‘inte- also utilized McLean’s innovation). grators’’ air-transport-based express freight networks— the world. The inclusion or exclusion of a specific player to a market is influenced by the economically viable range of operations from the operations base of a certain service provider, and by other restrictions such as a legally Cf. Neiser [19]. assigned authority to serve particular routes, by cabotage Cf. Beckmann [3], also Arnheim [2]. See Form A/B to regulation No. 17 and Section V of Form CO to regulations, linguistic barriers, by customs or other legal- Regulation (EEC) Nr. 4064/89 on the control of mergers of administrative restrictions. Spatial market boundaries may companies with community-wide significance. Cf. Neveling [20]. This customary term refers to the globally active express freight carriers such as UPS, FEDEX, DHL and TNT. Cf. Neveling [20]. 123 54 Logist. Res. (2011) 3:49–65 3.3 From static to dynamic definitions of markets: It is the question about ‘‘Workable Competition’’ [6]. ‘‘Relevance’’ and ‘‘workability’’ of competition Competition is ‘‘not workable’’, if buyers are captive—if in logistics they do not have alternative options for satisfying their needs. It is workable, when buyers have some freedom to The SEALAND example suggests that a one-time defini- switch to other sellers. This freedom is not depending on tion of market boundaries and resulting competitive posi- the availability of same or similar products and services tions will not be enough: Should not the assessment of offered by sellers who are in direct competition with each competitive intensity have to consider the longer-term other. It is given as long as there is choice between prod- context of a whole product life cycle? With respect to ucts or services which are ‘‘functionally equivalent’’ (or spatial boundaries: where should these boundaries be set if ‘‘substitute products’’!)—such as, for example an elec- services for specific customers are tied into wide-ranging tronic email may be relative to a traditional letter mail service networks? And which are the object-related char- message. Sellers’ market behaviors may be disciplined also acteristics of a market that distinguish players who sig- by the mere possibility of the introduction of new products nificantly affect the competitive intensity from those who and services or the entry of additional suppliers (‘‘potential do not? competitors’’) if the monopolist raises prices beyond a The identification of meaningful, ‘‘relevant’’ market reasonable level. boundaries is a complex task which will not be met in To summarize: The intensity of competition in a given formalistic, static ways, but needs to appropriately consider market depends not only on the number and attractiveness the markets’ dynamics. Some answers to the difficult of directly competing products but also on the level of questions raised by the dynamics of competition and attractiveness of possible substitutes and the speed with market developments are offered in the literatures of which potential competitors are able to react to profitable Economics, Management, and Law; market entry opportunities. In a classic contribution to the discussion on competition The recent discussion about the ‘‘More Economic ‘‘The Meaning of Competition’’, the Nobel laureate, von Approach’’ is taking the argument of competition as a Hayek [9], made it clear that the task of influencing and process which is dynamically and interactively taking place controlling the behavior of market players in the interests between the demand sides and supply sides of markets one of the community means more than just trying to regulate step further: It is argued that competition law may allow for ‘‘perfect competition’’, as it is assumed in Economics degrees of monopolization even permanently in the interest textbooks. For the maintenance of competition, it is of the overriding goal of increasing the ‘‘welfare’’ of the important, he argued, that temporary monopolies, which people and communities concerned. In pursuit of this innovative and active innovators temporarily create by broader goal, a trade-off between possible ‘‘allocative developing and offering superior new products or ser- inefficiencies’’ by markets that are less than perfectly vices, are not to be discouraged, but allowed to exist for competitive and of ‘‘production efficiencies’’ should be some time and then ‘‘disappear as soon as someone else considered. Production efficiencies may arise, for example, can more effectively satisfy the demands of the buyer’’ [9]. when a company is allowed to realize superior economies This means that boundaries of markets should be set in of scale from very high production volumes that could not ways to motivate players in those markets to innovate and be achieved in a competitive market, so that—on bal- to be rewarded for offering unique, value creating solutions ance—positive contributions to the ‘‘welfare’’ of the to their customers’ problems and demands. At the same community will be achieved. time, competition should make sure that the dynamics of the creative destruction of temporary monopolies through 3.4 The ‘‘demands and needs’’ perspective competition are preserved. The challenge of meaningful regulation of competition is now in answering the question Discussions regarding the definition of ‘‘relevant markets’’ where the tipping point is between still-functioning com- and assuring ‘‘workable competition’’, as they have been petition and unacceptably restricted competition. sketched out so far, describe the changing views of the role of competition in the economic literature from a rather static and narrow toward a more dynamic, broader per- spective. This is accompanied by a change of perspectives This corresponds well to the American management professor Bowman’s [5] definition of ‘‘Strategic Management’’. He demanded from a provider- and supply side toward a customer needs that effective strategic management is ‘‘seeking for a time a and demand-side view. ‘‘localized monopoly’’, (which) ‘‘makes the market less perfect, disturbs the equilibrium, and earns for a time excess profits’’… ‘‘Corporate strategy can be conceived of as continuing search for rent, where rent is intended in the sense of returns to a ‘‘unique place’’. Cf. Schmidtchen [21, 22] and sources quoted there. 123 Logist. Res. (2011) 3:49–65 55 Traditionally markets are defined from the point of view ‘‘demand and needs’’ oriented perspective on markets and of providers of goods and services. The economist Mar- competition has been suggested, e.g., by Germany’s Fed- shall argued in his famous volume on ‘‘Principles of Eco- eral Supreme Court, the Bundesgerichtshof (BGH), who nomics’’ ([17], p. 383 ff.) that ‘‘a great city may contain as noted many markets as there are important branches of trade’’— All goods that are, according to their characteristics, i.e., groups of providers who produce and sell goods that their economic purpose and price, so close to one are physically and technically similar, based on the groups’ another that the rational consumer considers them established methods and technologies of production. In both suitable for a particular purpose and inter- today’s economic environment Marshall’s ‘‘branches of changeable, should be integrated into a single market. trade’’ would be referred to as ‘‘industries’’. The related concept of market definition is referred to as the ‘‘industry The German Federal Cartel Office also defines a buyers’ concept’’. market in its ‘‘Information on Merger Control’’: But if the ultimate aim of competition is the maximi- Only those goods or commercial services that cus- zation of public welfare, as the ‘‘free market premise’’ tomers see as interchangeable in respect of their nature, suggests, a supply side ‘‘industry-focused’’ conception of purpose and price should be attributed to a market…. markets is not appropriate. This has been argued impres- sively in one of the most quoted articles of modern man- A decisive criterion for the inclusion of competitors into agement literature on ‘‘Marketing Myopia’’ by the the boundaries of a market is the functional interchange- American marketing professor Levitt [15]. He vividly ability of their products and services. The market for demonstrated the fundamental weakness of the industry transportation and logistical services, hence, must be concept for assessing competitive situations in modern, defined by the logistical function to be fulfilled—e.g., the dynamic markets through the example of the decline of the movement or ‘‘transfer in space’’ of objects, their ‘‘transfer once mighty and highly profitable American railway in time’’ through storage and buffering, and the change of companies. Because of their short-sightedness—‘‘myo- the order and arrangement of objects by picking, consoli- pia’’—they took a narrow industry approach to their market dation, sorting, and deconsolidation etc., regardless of the and competition as a ‘‘market for rail transport’’ for too means and methods of production and of the sense of long. Competitors they considered were other railroads identification which the producers and sellers may have only. This made them fail to recognize the growth of with a ‘‘trade’’ or industry. competition in cargo movements from trucks, buses, and aircraft, which rapidly developed since the 1920s and made the railroad loose much of their business over the following 4 Survey of current practices in the definition decades: ‘‘They (the railroads) let others take customers of markets, market boundaries, and market shares away from them because they assumed themselves to be in the railroad business rather than in the transportation The study on competitive intensities in logistics mar- business. The reason they defined their industry wrong was kets—on the basis of the terminological and conceptual because they were railroad oriented instead of transporta- discussion summarized above—looked next at current tion oriented’’ ([15:138]). actual practices in logistics market definitions. Four sepa- An earlier rationale of a ‘‘demands and needs’’ approach rate ‘‘snapshots’’ were taken in the research to illustrate the in the literature on competition is attributed to the econo- diversity of those practices. mist Abbott [1]. Anticipating Levitt’s argument against ‘‘Marketing Myopia’’, it is based on the idea that the rel- 4.1 Reporting structures of public institutions evant definition of a market must be derived from the point as a frame of reference for market definitions of view and the needs of the buyer and customer. All and assessments in current legal products that can provide the desired satisfaction of need— and business practice which may be physically and technically very different should be considered as alternatives or substitutes and Statistical offices, the authorities of public administration, hence be included into the boundaries of a given market. It the courts, and other institutions are active in collecting and is not primarily the manufacturers and suppliers but rather the users and consumers who should be asked which Cf. BGH, WuW/E BGH 2433, 2436f. ‘‘Gruner & Jahr: Zeit II, and available alternatives best meet their needs. WuW/E BGH 2150, 2153 ‘‘Stainless Steel Cutlery’’. Today, Abott’s and Levitt’s criticism of a myopic Leaflet on controlling merges be the German Cartel Office, Policy industry perspective has found broad acceptance—not only Directorate, July 2005, p. 14. in business but also in the general antitrust practice. A i.e. ‘‘the study’’ by Klaus et al. [13]. 123 56 Logist. Res. (2011) 3:49–65 Fig. 2 Structures and objects of transportation reporting by selected public institutions (Legend: x = true; O = conditionally applicable, – = not considered) publishing data related to logistics markets. Their reporting Another important authority in Germany, the ‘‘Bundes- structures and data have great influence on the way market netzagentur’’, is organized along the lines of an ‘‘industry’’ assessments are being made by in legal proceedings and approach. There are organizational units responsible for everyday business practice. regulating ‘‘postal’’ and ‘‘rail’’ network services. For example, Germany’s Federal Office of Statistics, The organizational and reporting structures and the data Federal Motor Transport Agency (KBA), and the European provided by these institutions influence strongly how the statistical agency Eurostat, due by statutory regulations, are public, the media, and also the public authorities and courts required to collect and periodically publish information think and act in regard to transportation and logistics relevant to the transport and logistics industries. Their markets. As a consequence, in their analyses, decisions and reporting structures typically are supply- and industry-ori- actions, market boundaries are assumed to correspond with ented. At the highest level of aggregation markets and ‘‘modes of transport’’ and related industry categories. segments are distinguished primarily by ‘‘modes of trans- Figure 2 gives a summary of the some of the most port’’, i.e., rail, road, water, and air, sometimes by the types important public report structures related to transport. of logistical ‘‘objects’’—distinguishing between ‘‘passen- Figure 2 proves that changes in the understanding of ger’’ and ‘‘freight’’ transport—and by geographical criteria markets from a supply side and strongly transport-related (usually ‘‘national’’ vs. ‘‘cross-border’’). point of view to a wider logistic and competitive demand- The ‘‘Bundesamt fu ¨rGu ¨ terverkehr’’ (BAG), which, as side perspective are not (yet) reflected at all in the insti- an independent federal agency, is responsible for a variety tutional and reporting structures of key public authorities. of tasks in the administration of the freight transport sector such as industry-wide market monitoring, the planning, 4.2 The practice of decision-making in the European coordination, and control of market entry procedures Union’s antitrust and competition-law procedures (including, since 2005, the management of the German truck highway toll system) also pays attention to the For a preliminary overview of current decision practices ‘‘institutional’’ dimension. It reports on ‘‘third-party’’ ver- related to transport and logistics markets in the European sus ‘‘in-house/private carriage’’ cargo operations. Union, an ad hoc Internet-based analysis of more than 200 publicly documented decisions of the EC Commission on issues related to competition law was performed in e.g. the VerkStatG, BStatG—a popular collection of statistical data relating to transport and logistics in is the annual ‘‘Verkehr in Zahlen’’ (Transport in Figures) published by BMVBSt (latest: BMVBSt 2009). Cf. http://ec.europa.eu/competition/mergers/cases/index/m31.html. 123 Logist. Res. (2011) 3:49–65 57 Fig. 4 The relative frequency of criteria identified from 138 decisions as actually used in logistics market demarcation It indicates that decisions of the Commission are pri- marily based on an industry-oriented and supply side approach to market definitions, such as the function pro- vided, the mode of transport, and the type of vehicle employed. The Commission does not seem to have con- Fig. 3 Overview of the number of cases analyzed according to 25 sistently applied a demand-based perspective so far. This activity, carriers, and transportation ‘‘technology’’ is corroborated further by some decisions, where explicit statements about market boundaries are found: In ‘‘Case Nr. COMP/M4746 (Deutsche Bahn/English preparation in the study [13]. The thematic search grid used Welsh & Scottish Railway Holdings of 2007, p. 3 ff.)’’ the in the process is shown in Fig. 3. After eliminating deci- Commission noted that sions where the Commission had applied the ‘‘simplified …the Commission has in previous decisions con- procedure’’ in line with Regulation (EC) No. 139/2004 of cluded that providers of freight forwarding services January 20, 2004, on the control of company mergers (EC and of transport of goods do not directly compete Merger Regulations), 138 logistics related cases were with each other… identified for the analysis. These are broadly based on the nature of the logistics service activities involved (‘‘trans- proving the Commission’s past practice of distinguish- portation’’, ‘‘warehousing’’, ‘‘support activities’’) and the ing markets primarily by the logistics service ‘‘production modes of transport and transport technologies used technology’’ and arrangements (i.e., in the case of ‘‘for- (‘‘land’’, ‘‘water’’, ‘‘sea’’, or ‘‘air’’). warders’’, the use of sub-contractors and consolidation of Each of the cases then was coded with respect to the shipments to provide efficient transport services, in the case market definition criteria that the Commission had applied of the ‘‘carriers’’ the operation of directly owned assets). explicitly or implicitly, using the terminological and con- The demands and needs of shippers and alternative options ceptual categories developed in Sect. 3.2 above: by shippers are not considered in the Commission’s market definition (while shippers in most situations expect the • Type of logistical ‘‘object’’ and weight class provision of a defined movement of cargo from a shipping • type of logistical service activity resp. the ‘‘function’’, to a receiving location with no regard to the means of • mode of transport, production and organizational arrangements employed by • network structure, the service provider, as actual logistics practice and the • type of vehicle/loading unit, shipper statements reported in Sect. 4.2 suggest). Another • geographical horizon. explicit statement example emphasizing the supply-side- Figure 4 shows the result of the coding effort. More details on the analysis of competition law related decisions by the European Commission are presented in ‘‘the study’’ [13, Multiple coding was permitted. section 4.2.1]. 123 58 Logist. Res. (2011) 3:49–65 oriented market view employed by the Commission is on the Federal Office for Cargo Transport (BAG), and a well- p. 5, fig. 17 of the case: known stock market analyst for the logistics industry from bankers SAL OPPENHEIM were asked to give their views … there are strong indications that a separate market on most appropriate logistics markets definitions and for rail freight services may be distinguished assessments of current competitive intensities in important There is no explanation of the nature of the ‘‘strong logistics market segments. The structure and results of indications’’ given. However, the Commission—somewhat these interviews—in condensed form and cleaned up contradictory—does acknowledge (p. 6 fig. 20) that slightly in places to remove statements made off the record—is documented in Appendix I of the study. … for smaller consignments (i.e., smaller than full Insofar as the perspective of the interviewees relates to block train loads) there appears to be higher substi- the logistical service activity of ‘‘transport’’, the interview tutability between rail and road. results showed a consensus that the nature of the transport Another example indicating explicitly a supply-side object (‘‘full-load’’, ‘‘less-than-truckload’’, ‘‘parcel/express orientation in the Commission’s decisions, but some freight’’, ‘‘handling characteristics’’) and the geographical uncertainty and inconsistency in its application is in n Case horizon (‘‘local’’, ‘‘national’’, etc.), as well as the degree of No. COMP/M. 4786 (Deutsche Bahn/Transfesa of 2008): complexity and the capacities that a logistics service pro- vider is offering do play an important role in their approach In previous cases, the Commission has found that the to defining markets. provision of transport services could be considered a All interviewees confirmed that today the ‘‘production relevant market distinct from freight forwarding ser- technology’’ of rail, road, or other ways of ‘‘producing’’ the vices … service employed by providers no longer plays a significant On the other hand, the commission states role. They are interested in the quality of the service, the fit of the service provided to their specific logistical demands, and the market investigation indicated that Finished competitive pricing regardless of which mode of transport and Vehicle Logistics (FVL) could be considered a sep- production system is used. Insofar as references to transport arate market from general freight forwarding and technologies or modes of transport were made by the inter- contract logistics because of the specific demand of viewees, these quite clearly were reflections of the geo- customers….and partial substitutability between the graphical characteristics of demand (‘‘air’’ and ‘‘ocean’’ are different modes of transport … without alternative for intercontinental transport needs, This confirms the assumption that motivated the study ‘‘road’’ and ‘‘rail’’ for continental and national routes), or they reported here: That there is an unmet challenge in pro- were indications of quality levels sought-after (‘‘air’’ for fast, viding a consistent and appropriate definition of relevant high quality but expensive transport services, ‘‘ocean’’ and markets for antitrust decisions in the diverse European ‘‘rail’’ for slower, cheaper transportation qualities). logistics markets! Furthermore, a distinction between the services provided by ‘‘primary’’ providers—the ‘‘carriers’’ providing trans- 4.3 Market definitions and assessments of current port services using their own assets—or by ‘‘intermediar- competitive intensities in the logistics industry ies’’ frequently active in logistics such as ‘‘freight by selected experts forwarders’’, ‘‘third-party/fourth-party service providers’’ were also seen as no longer relevant by all the intervie- To add to the review of current practices in the definition of wees. Most carriers today offer the range of services of logistics market boundaries and competition intensity, forwarders, and forwarders use the full range of options to another mainly economic and business perspective, a series ‘‘carry’’ freight from operating own equipment, to leasing, of interviews with senior experts from the logistics industry contracting, and spot market purchases. The uses of certain was conducted as part of the study. production technologies and arrangements are no longer a Selected representatives of major buyers or clients and useful differentiator. In some cases, the choices by ship- ‘‘shippers’’ from the logistics sector, namely BOSCH and pers—beyond the criteria of price, logistical fit, and service REWE, and also with senior representatives of the major quality—are determined by the focus versus broad range of logistics service providers DB SCHENKER and KUEHNE services offered by a given provider. In some cases, the & NAGEL, as well as three more knowledgeable ‘‘exter- more focused, specialized provider will be preferred; in nal’’ market experts, namely an American expert on other, the highly diversified provider offering a large range logistics markets Dick ARMSTRONG, a representative of of services (‘‘one-stop shopping’’) will be preferred. 26 27 i.e. distinguished ‘‘from the road freight market’’. cf. [13]. 123 Logist. Res. (2011) 3:49–65 59 The results of the interviews clearly indicate that prac- in Europe that represents the current state of the entire titioners today—not surprisingly—are perceiving market transport and logistics industry. But is also appears to be boundaries from a ‘‘demands- and needs-oriented’’ per- accepted as a fair reflection of everyday market realities in spective. It is the types of object which need logistical the logistics industry today. It is widely compatible with service, the type of logistical activity, and function that is the structure of the logistics industry’s professional asso- sought for, and the levels of quality and price desired that ciations, which have evolved over time. It also provides determine market boundaries and competitive intensities— basic compatibility with the few internationally known not primarily the means and technologies used by the logistics market studies, such as the annual ‘‘State of providers of the service. Logistics’’ report for the United States, which has been issued there since the 1980s. 4.4 The ‘‘Top 100 in Logistics’’ studies as a reflection The ‘‘Top 100’’ segmentation structure provides for the of current practice in the definition, segmentation, following 15 sub-markets: and measurement of logistics markets • Domestic bulk and full-load freight transport markets the sub-segments: Among practitioners involved in logistics in the German- • Bulk logistics speaking world—particularly the owners and managers in the • General full-load transport through non-specialized logistics service provider industry and decision-makers in the (‘‘dry van’’) truck and railroad-car equipment; shipping community, but also management consultants in the sector, representatives of the business associations, jour- • Heavy haulage and crane services; nalists and politicians—the ‘‘Top 100 in Logistics’’ studies by • Tanker and silo specialized transportation; the authors of this study have found broad acceptance. The • Other transport services with specialized equipment leading logistics association in the German-speaking world, (e.g., automotive, flat-glass, hi-cube transports, etc.). the Federal Logistics Association BVL, is the co-publisher of • Domestic markets for less-than-truckload cargoes and this study and regularly reports the results to its nearly 10,000 other logistics services with sub-segments: members. The logistics trade magazine with the largest cir- culation in Europe, ‘‘Deutsche Logistik Zeitung DVZ’’ reports • Less-than-truckload cargo and value added regularly and extensively on the ‘‘Top 100’’ data and devel- services; opments. Many companies use the survey and its prescribed • Consumer goods distribution and consumer goods market-segment structure to work out their position in the contract logistics; market. Last but not least, even the German government • Industrial contract logistics, especially industrial makes reference to market definitions and data from this procurement logistics, production supply and spare source, as did German and European ministries and courts in parts procurement; various proceedings. • Hanging garment logistics; The ‘‘Top 100’’ market segmentation structure, volume, and • High-tech goods, trade fair and event logistics, new growth estimates for the logistics industry, which are published furniture transport and removals; annually as part of the ‘‘Top 100’’, became a de facto standard • Terminal services, port, warehousing and other for logistics market research in significant parts of the German services not included in other logistical services; and European professional logistics community. • CEP-parcel, real courier, and specialized express This is explained, for one, by the fact that there has been freight services; no other comprehensive publication on logistics markets • Markets for border-crossing transport: 28 • International land-based transport and forwarding First published in 1997 from Deutscher Verkehrs-Verlag, Ham- burg: the latest English-language edition published is ‘‘Top 100 in services; European Transport and Logistics Services 2009’’ [12], the latest German-language ‘‘Top 100—2010’’ [13]. The German transport industries‘associations such as ‘‘Bundes- Cf. e.g. the comments on ‘‘Gueterverkehr und Logistik’’ on the verband Guterverkehr, Logistik und Entsorgung BGL’’, the former homepage of the Federal Ministry of Transport, Building and Urban ‘‘Bundesverband Spedition und Lagerei BSL’’, now ‘‘Deutscher Planning and the remarks of the German Chancellor on the Speditions -und Logistikverband DSLV’’, ‘‘Verband Deutscher importance of logistics to Germany as a business location during Eisenbahnunternehmen’’, ‘‘Bundesverband internationaler Express- her inaugural address to the 24th BVL Congress in Berlin in 2007. und Kurierdienste’’, ‘‘Verband Deutscher Reeder’’ especially for the interests of industry and carriers, ‘‘Bundesverband Materialwirtschaft There are numerous studies of specific market segments and und Logistik’’ BME. aspects, such as those by the business consultants MRU Manner- Romberg [16] for the CEP markets, and the commercial market The current edition is Wilson [24]. Its elementary logistics definition research reports by British transport and logistics market research was originally suggested by Heskett [10]. Other international work using companies Datamonitor and Analytica, as well as Ehmer et al. (2008). similar definition is Davis [7]or Bowersox et al. [4]. 123 60 Logist. Res. (2011) 3:49–65 Fig. 5 The 15 ‘‘Top 100’’ Bulk Logistics Air Freight Market Segments estimated in General Truckload/ 11.0 8.2 Ocean Freight billion Euro potential market Full Carload (FCL) 12.8 volumes, data as of 2007 16.0 Heavy Haulage and Crane Services International 1.0 Land-based Transp. 11.5 Tank Container and Silo Log. CEP 6.0 11.0 Specialized Truckload Log. Total Market 9.5 Terminal Operations/ Germany Warehousing 205 bn. 23.5 Less-than-truckload (LTL) 6.5 High-Tech, Event, Furniture Log. 5.6 Consumer Goods Contract Log. 26.0 Hanging Garments Logistics Industry-oriented 0.6 Contract Log. 55.0 • Intercontinental transport and forwarding services, • The practice of market segmentation through direct focus on ocean and sea port operations; market participants in the economy, such as the • International air cargo carrier and airfreight for- regulatory authorities and courts dealing with relevant warder services. issues shows that, although a broadly shared body criteria for setting market boundaries is available (see The relative economic weight of the 15 segments is Sect. 3.2 above!), there is no consensus on the relative illustrated in Fig. 5. relevance and the order at which these criteria should In light of the considerations in this study, it is clear that the be applied. This makes it necessary to ‘‘Top 100’’ current pragmatic segmentation of the logistics markets—although widely accepted in practice—is not design a consistent framework for ranking and entirely consistent from the perspective of a clear structure and applying the dimensions along which market bound- hierarchy of criteria. In particular, it cannot fully satisfy the aries should be set and relevant markets be defined! requirements of a competition-oriented market view. • Current market segmentation approaches are not bal- anced with respect to Euro volumes. The absolute sizes and economic ‘‘weight’’ of logistics markets segments 5 Reconstruction of an improved framework is extremely varied (cf. e.g., for the ‘‘Top 100’’ segment for the definition of market boundaries size in Fig. 5!). They range from annual sales volumes and measuring market volumes for the German logistics market of a macro-econom- ically negligible € 0.6 bn for the small ‘‘hanging 5.1 Current practices in the definition of market garment’’ logistics segment clothes, to the very large boundaries—critical review and consequences ‘‘industrial contract logistics’’ segment at € 55 bn: for an improved framework A new segmentation structure should form market The review of current views and practices in defining segments whose sales volumes are more in balance. logistics market boundaries, as summarized in the pre- They should represent a measurable minimum vol- ceding section, illustrated how heterogeneous these are and ume relative to the € 900 European logistics market, which kinds of questions should be answered in efforts to as well as allow for appropriate differentiation and improve this situation: sub-segmentation of the very large segments! 123 Logist. Res. (2011) 3:49–65 61 • The relatively wide acceptance of the pragmatic market minimum volume of any lane-, service area, or otherwise segmentation of the ‘‘Top 100’’ and related interna- specialized market—for practical purpose of at least more tional studies, including many years of time series data than than € 1 bn in annual business volume. collected there, provides a solid—if not perfect— • Data and verifiability starting platform for an improved framework for the definition of market segments and their assessment: A final pragmatic restriction on the definition of relevant market segments comes from the availability and validity A new framework should not diverge unnecessarily of data sources that are required for their quantitative from the concepts and structures accepted in practice assessment. If data cannot be gathered that are of sufficient in order to maintain as far as possible the compara- accuracy and objectively verifiable on a segment, relevant bility of results over time. markets cannot be defined. The design of an improved segmentation framework, as a consequence of the insights gained from the study so far, 5.2 Generic grid for the description and segmentation should incorporate the following recommendations: of logistical markets • Primacy of a longer-term demand-and-needs-oriented On this basis of these considerations, in the study [13], a market perspective simple conceptual grid for generic descriptions of logistics The arguments of Hayek [9], Levitt [15], and others (in markets was constructed. particular those summarized by Mueller [18], cf. 3.4!) Figure 6 shows the grid, first in aggregated graphical show that market shares in markets that are defined form. A path of gradual differentiation of the total market according to the ‘‘industry perspective’’ do not permit valid for logistical services is shown in the grid by the empha- assessments of competitive intensities in logistics markets. sized arrows (illustrated for the case ‘‘time definite express In order to judge whether there is sufficient (i.e., ‘‘work- freight market’’ segment). able’’—see Sect. 3.3!) competition, the options to sub- The claim is that this ‘‘generic’’ grid allows for detailed stitute certain types of logistics by other offerings and the and consistent descriptions of any logistical service mar- likelihood of entries by potential competitors must be taken kets at increasing levels of detail. into account. Figure 6 also shows a process, in principle, suggesting a It follows that ‘‘relevant markets’’ should be determined standardized sequence of steps in setting and quantifying primarily from the point of view of needs and demands of the boundaries of a ‘‘relevant’’ market segment for a given specified ‘‘customer groups’’. The prioritization of market problem: segmentation criteria and standardized sequence of apply- • In Step 1 (see Box 1 in the left sidebar in Fig. 6), the ing those criteria in setting market boundaries must con- ‘‘object-related’’ boundaries are identified and catego- sider this point, as provided in the ‘‘generic grid’’ for the rized. Types of logistical objects are usually related to description of logistics markets in Sect. 3.3 above. specific shipper and ‘‘customer group’’ industries. • Consideration of resource flexibility and appropriate Quantitative information about shipper/customer indus- scaling of market segments tries, the flows of requiring logistical services are—at least partially—available in public statistical reports. • In Step 2, market boundaries are narrowed to the type In the field of logistical services—especially the trans- of logistical service activity that is relevant in a given portation markets—there is a high degree of flexibility with context. respect to the resources used by service providers. This • In Step 3, further narrowing of market boundaries may flexibility allows them to substitute and relocate service apply by taking into account the qualitative differen- production resources relatively quickly from one geo- tiation features of the logistical services under consid- graphical location to another (such as by redirecting and eration and the required nature of the relationship repositioning vehicles and staff to other routes and service between buyers and sellers. areas), or substituting and mixing their production tech- nologies (i.e., especially various modes of transport) rela- tively freely to satisfy new market needs. Such as Eurostat and the Statistisches Bundesamt of Germany. An appropriate level of ‘‘granularity’’ in defining seg- See. Klaus et al. [12] for detailed explanations and references. ments and subsegments of logistics markets should be set, There is deliberately no account of ‘‘alternative technologies’’ here considering the fact that most European logistics services because a needs- and demand-based perspective of market assessment are now offered in a widely open € 900 bn relevant should include the substitution options based on the availability of logistics market. Segmentations should consider a alternative technologies). 123 62 Logist. Res. (2011) 3:49–65 Fig. 6 A generic description and segmentation grid for logistics markets—illustrated for the ‘‘time definite express freight’’ market segment • Steps 4 and 5 conclude the stepwise process of setting 2. General freight transport with standardized truck, the boundaries of a relevant market by establishing wagon and container equipment temporal and geographical horizons, to which an 2.1 Short-Haul/Short-Line assessment and analysis of the intensity of competition 2.2 Long-Haul should refer. 3. Freight transport with specialized vehicle equipment 5.3 Reconstruction of an integrative market 3.1 Tank and silo transportation segmentation structure and standardized 3.2 Miscellaneous freight transport with special- measurement process ized equipment (e.g., automobile, flat glass, refrigerated, or jumbo transportation) A standardized logistics market segmentation structure, which is consistent with the considerations discussed 4. Logistical integration and value-added services for above, has been suggested in the study [13] as follows: bulk and full-load cargoes I. Markets for Bulk and Full Load Cargoes: II. Markets for standardized and non-standardized Less- than-Truckload (LTL) cargo 1. Bulk Commodity Transport 5. LTL networks for standard ‘‘dry’’ freight 1.1 Short Haul/Short Line 6. Consumer goods distribution transport (‘‘neo- 1.2 Long Haul bulk’’) 1.3 global/maritime ‘‘specialized Bulk’’ 7. Specialized LTL networks (garments, hi-tech, 1.4 global/maritime ‘‘standardized—Container’’ furniture, etc.) 8. Warehouse and terminal services, port, storage, 35 and other supplementary services not included in According to this demarcation, the total annual volume for the other logistical services geographical area under consideration can be calculated (in this case € 200 billion for all logistical services in Germany in 2009). The other 9. Integrated consumer goods contract logistics data presented are the orders of magnitude taken from Klaus et al. 10. Integrated industrial contract logistics [12] and consolidated for the purposes of Illustration. 10.1 industrial procurement and production Short-haul transport refers to local and regional operations where vehicles typically operate from a local basis to which they return logistics within one shift. Short-Haul/Short-Line operations are quite distinct 10.2 industrial distribution and spare parts organizationally and with respect to equipment used from Long-Haul logistics operations. 123 Logist. Res. (2011) 3:49–65 63 Fig. 7 Illustration of Systematized Market Share Assessment—European Full-Truckload Market III. Markets for CEP—parcel, courier, and specialized calculating market shares and providing a consistent express freight logistics quantitative basis for the assessment of intensities of competition. 11. Regional, national, and European CEP services 12. Global integrator and airfreight services 1. Illustration of the Reconstructed Market Measurement Concept Using a Selected European Logistics Market IV. General integration and value-added logistics ser- as an Example vices activities This process and the results it delivers are illustrated 13. International forwarding through the following five-step procedure and through two 14. ‘‘4PL’’ and ‘‘non-asset based’’ contract logistics representative examples in Figs. 7 and 8: This structure is widely compatible with the data his- 2. As a first step, a qualitative profile and description of tories and consolidation methods which have evolved in the boundaries of a ‘‘relevant market’’ is established by the ‘‘Top 100’’ studies ([12], 2010). highlighting the relevant cells in the grid (following Fig. 6). 5.4 Toward a systematic process of assessing market shares and intensities of competition in logistics For the purpose of illustration the market for non- specialized, standard full-load transportation is The study [13] reported in this paper, as its final, practically highlighted in Fig. 7 in both the upper and the useful result, suggests a systematic, standardized process of lower section of the grid. 123 64 Logist. Res. (2011) 3:49–65 Fig. 8 Illustration of Systematized Market Share Assessment—German ‘‘Time-Definite Express Freight Market’’ 3. Quantitative assessment of sales volume of the ‘‘rel- In Fig. 7, this company’s revenue after the assumed evant market’’: merger is assumed at € 6 bn. Next, the total sales volumes of the relevant 5. Determining the market share of the company to be market—for the observation period and geographi- considered from a competitive point of view: cal horizons selected—will be entered in the upper The comparison of the sales volumes of the section of the grid in Fig. 7. Data are drawn from the ‘‘relevant market’’ of € 69 b. and of the company annual ‘‘Top 100’’ survey of the European logistics under consideration of € 6 b. results in a market markets, showing a total volume of sales. share estimate of 8.7%. For non-specialized truckload moves in Europe of € 69 bn per year. 6. Case-Related qualitative assessment of the intensity of competition 4. Assessment of the relevant sales volume of the company whose competitive position is to be analyzed If the examination of market shares identifies a (for example under consideration of an assumed potentially anti-competitive constellation, more merger): extensive qualitative assessment of the case will be necessary. This will have to take into account whether any high market share can be considered as temporary or permanent, whether there is potential The data used here are drawn from a recent study of the European competition or specific reasons justifying an full truckload market [11]. 123 Logist. Res. (2011) 3:49–65 65 10. Heskett J (1972) Interorganizational problem solving in a channel unusually high markets based on the arguments of of distribution. In: Interorganizational decision making, confer- the ‘‘more economic approach’’. ence, Chicago 11. Klaus P (2010) Machtig, unbeliebt, unprofitabel—und wenig Figure 8 illustrates a second example where an imagi- verstanden? Der LKW Ladungsverkehr in Europa und seine nary merger between two companies would achieve a Zukunft. In: Festschrift fu ¨ r Hans-Christian Pfohl. Gabler Verlag, dominant market position. Wiesbaden, im Druck The systematic process of defining and measuring 12. Klaus P, Hartmann E, Kille C (2009) Top 100 in European transport and logistics services 2009. DVV Medien, Hamburg markets and, ultimately, assessing the intensities of com- 13. Klaus P, Kille C, Roth M (2010) The intensity of competition in petition in a given case is believed to be ‘‘generic’’ in the European markets for logistics services. Fraunhofer Verlag, sense that it could help the companies and authorities to Stuttgart better and more consistently act and control today’s and 14. Langley CJ Jr, CapGemini/USA (2010) The state of of logistics outsourcing—2007 third-party logistics, results and findings of tomorrow’s logistics markets in Europe. the 12th annual study. Georgia Tech, Atlanta Ga., USA 15. Levitt T (1960) Marketing Myopia. Harvard Business Review, Repr. July–Aug 2004, p 138 16. Manner-Romberg H et al (2009) Prima ¨rerhebung auf den Ma ¨rk- References ten fu ¨ r Kurier-, Express- und Paketdienste. Im Auftrag der Bundesnetzagentur. MRU GmbH, Hamburg 17. Marshall A (1890) Principles of economics. Macmillan and Co., 1. Abbot L (1955) Quality and competition. An essay in economic London theory. Columbia University Press, New York 18. Mu ¨ ller C (2007) Abschied vom Bedarfsmarktkonzept bei der 2. Arnheim E (1991) Der ra ¨umlich relevante Markt im Rahmen der Marktabgrenzung. Nomos Verlag, Baden-Baden Fusionskontrolle. Heymanns Verlag, Mu ¨ nster 19. Neiser J (1981) Die Praxis der deutschen Fusionskontrolle: die 3. Beckmann P (1968) Die Abgrenzung des relevanten Marktes im deutschen Erfahrungen bei der wettbewerbsrechtlichen Beurtei- Gesetz gegen Wettbewerbsbeschra ¨nkungen. Gehlen Verlag, lung von Unternehmenszusammenschlu ¨ ssen unter Beru ¨ cksichti- Berlin Zu ¨ rich gung der amerikanischen Praxis Duncker Humblot, Berlin 4. Bowersox DJ, Calantone Roger J, Rodriguez Alexandre M (2003) 20. Neveling K (2003) Die sachliche Marktabgrenzung bei der Estimation of global logistics expenditures using neural net- Fusionskontrolle im deutschen und europaischen Recht. Medien works. J Bus Logist 24(2):21–36 Verlag Ko ¨ hler, Tu ¨ bingen 5. Bowman EH (1974) Epistemology, corporate strategy and aca- 21. Schmidtchen D (2005a) Der more economic approach in der deme. Sloan Manag Rev 15. Jg. Wettbewerbspolitik. In: German working papers in law and 6. Clark JB (1901/1980) The control of trusts. Macmillan and Co., economics, Vol 2005. p 6 Englewood Cliffs 22. Schmidtchen D (2005b) Effizienz als Leitbild der Wettbewerb- 7. Davis HW, Company (2007) Aktuelle Fortschreibung der Davis spolitik: Fu ¨ r einen more economic approach. In: Encyclopedia of Database, Pra ¨sentation anla ¨sslich der Jahreskonferenz des law and economics, vol 2005, Issue 1, Article 3 Council of Supply Chain Management Professionals (CSCMP), 23. Smith A (1776/1981) An inquiry into nature and causes of the Oct 2007 wealth of nations. J.M. Dent & Sons Ltd. Everyman’s Library, 8. Ehmer P, Heng S, Heymann E (2008) Logistik in Deutschland. London Wachstumsbranche in turbulenten Zeiten’’, Hrsg. Deutsche Bank, 24. Wilson R (2010) State of logistics report 2010, Ed. Council of Frankfurt, Okt. 2008 Supply Chain Management Professionals (CSCMP), Oak Brooks, 9. Hayek FA (1952) Der Sinn des Wettbewerbs. In: Hayek, Indi- Ill vidualismus und wirtschaftliche Ordnung, Erlenbach und Zu ¨ rich. S. 122–140 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Logistics Research Springer Journals

The assessment of competitive intensity in logistics markets

Logistics Research , Volume 3 (1) – Mar 23, 2011

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Springer Journals
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Copyright © 2011 by Springer-Verlag
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Engineering; Engineering Economics, Organization, Logistics, Marketing; Logistics; Industrial and Production Engineering; Simulation and Modeling; Operation Research/Decision Theory
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1865-035X
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10.1007/s12159-011-0050-0
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Abstract

Logist. Res. (2011) 3:49–65 DOI 10.1007/s12159-011-0050-0 OR IGINAL PAPER Peter Klaus Received: 2 March 2011 / Accepted: 2 March 2011 / Published online: 23 March 2011 Springer-Verlag 2011 Abstract The markets for freight transportation and other 1 Logistics services in a changing arena of competition logistics services are undergoing rapid transformation: concentration of demand and supply in the hands of fewer, The markets for freight transportation and other logistics larger shippers and service providers, new business models services are undergoing rapid transformation—both on the of highly integrated intermodal, ‘‘fourth-party’’ and supply- demand and the supply side. Demand for logistics services, chain wide logistics service offerings, and a dramatically currently estimated at more than € 1.100 bill. p.a. for the increasing volatility in the general economic environment United States, and at € 900 bill for Europe, is massively are among the reasons for the changes. As a consequence, affected in quantity and quality by the growing volatility of the ‘‘strategic’’ task of assessing the opportunities and economic developments in the world. And new kinds of power of certain players in the markets, and the important service offerings, as well as new formations of service political and judicial task of assessing and maintaining providers are emerging at the supply side of the logistics competition in those markets have become very difficult. market arenas, too: Traditional ways of meeting the challenges involved with Main drivers of those changes and turbulences are: defining and ‘‘measuring’’ markets and competitive inten- 1. the continuing internationalization of transport chains sity do not seem to be sufficient any more. This paper and logistics networks which—as a consequence of reports on a study of the new challenges, which strategists, ‘‘globalization’’—is causing European and global administrators, judges, and politicians face in their efforts value chains to stretch out over ever longer distances to assess competitive situations in logistics markets. It and more stages with increasing international division develops suggestions for a consistent and practical process of labor; and structure of defining and measuring logistics markets 2. increasing concentration of logistics demand in the and market positions. hands of fewer, but increasingly more powerful large ‘‘shippers’’ and logistics client companies; Keywords Competitive intensity  Competition law Logistics industry studies  Market intelligence  Market boundaries  Relevant markets  Workable competition Wilson [24] estimated the depressed 2009 volume for the US at $ 1095 b. (corresponding to € 912 b at an assumed exchange rate of 1.20 $/€, which is considered a realistic long-term Dollar/Euro equivalent), while Klaus et al. [12] estimate he comparable volume of the 27 nations of the European community, plus Switzerland and Norway, at € 880 b. After-recession’’ figures for the year 2010 are anticipated to come out about 5% higher. For example, through the shift of control over logistics services from hundreds or even thousands of consumer goods suppliers to P. Klaus (&) newly formed ‘‘inbound’’ logistics systems by the big retail chains Friedrich-Alexander-Universitaet Erlangen-Nuernberg, such as WALMART; METRO or REWE. See, e.g., the DVZ- Nuernberg, Germany Newsletter No. 18 of 2.5.09 ‘‘Aldi is Working on New Procurement e-mail: peter.klaus@wiso.uni-erlangen.de Logistics System’’. 123 50 Logist. Res. (2011) 3:49–65 3. corresponding concentration in logistics services pro- changes reduce competition (e.g., especially those in Nos. vider markets due to industry mergers, acquisitions, 1. to 3. in the list above), while others intensify competition and joint ventures; (Nos. 4 to 7). 4. the entry of new types of logistics service providers As a consequence, strategy planners in logistics com- into established logistics service markets through panies who are considering the entry into new market developments such as the privatization and expansion segments, or mergers and acquisitions, as well as admin- of formerly publicly owned providers of postal, rail, istrators and judges in public and legal institutions who are aviation, and communication services. These used to responsible for the organization and regulation of logistics see themselves primarily as the trustees of public markets, are confronted with new kinds of issues. In order interests. Today they aggressively compete for sales to assess present and future logistics market realities and profits in open markets; properly, new questions must be considered regarding the 5. new business models of ‘‘contract’’ and ‘‘fourth-party definitions and data that should be used to correctly assess logistics (4PL)’’, which offer logistics- and other the boundaries of markets and positions of power by the value-added services in highly integrated and sophis- players involved: ticated ways—often having evolved from traditional • Are traditional practices in defining market bound- transport and forwarding activities, aries—such as the traditional distinctions between 6. … including the emergence of ‘‘hybrid’’ logistics carrier and forwarder markets—still appropriate in a providers, i.e., spin offs from in-house logistics time for integrated logistics services? operations of large corporations who are becoming • What is the relevance of traditional distinctions aggressive players for third-party business in the open between the transport modes of road, rail, water, air market as well. They offer specialized industry know in a time of more, and more intermodal, seamlessly how, the benefit of stable base capacity utilization, and organized transport chains? capital strength through their corporate parents, which • How narrowly and detailed—respectively how broadly may be based in manufacturing industries, retailing, IT and aggregated—should markets be defined to assess and consultancy services; market shares; for example, in the integrating European 7. political, technological, and economic changes at a Community of 500? million people, considering van- global scale, causing dramatically increased volatility ishing political and administrative boundaries, and the of markets which used to be considered stable and simultaneous elimination of infrastructural boundaries continuously growing. through new tunnels, bridges, and the gradual develop- The combined effects of these developments make it ment of efficient Trans-European transport corridors? difficult to correctly assess market positions and intensities of competition in the huge, diverse markets for transpor- tation and broader logistical services. Some of these 2 A challenge of getting to more consistent assessments of competitive intensities in logistics markets Compare the annual lists of merger activities in the logistics sector such as the KPMG ‘‘M&A Update—Transport & Logistics’’ under Against this background, established practices in defining www.kpmg.de, as well as Klaus et al. ([12] S. 68 ff.). market boundaries and market positions in the field of Compare current business reports by formerly state-owned Deut- sche Post as ‘‘DHL’’, the Dutch post office as ‘‘TNT’’, the British logistics services should be critically examined. New postal service as ‘‘GLS’’ or the French railway system through answers must be found on how to measure market shares, ‘‘GEODIS’’. competitive intensities, and assure their comparability. Compare: the annual studies by Langley and Cap Gemini ([14], In order to highlight and concisely describe the related 2010) ‘‘The State of Logistics Outsourcing’’. problems and to develop a systematic framework for the Note the historical development of classic international carriers assessment of market boundaries and market shares, a such as KUHNE & NAGEL, SCHENKER or HELLMANN into integrated logistics providers, or the transformation of medium-sized three-part study was initiated in 2009 by the Fraunhofer transport companies such as BETZ, GEIS, DSV, FIEGE or RHENUS Institute at Nuernberg, Germany, under the guidance of this into diversified contract logistics providers. For sources and refer- author. It was based on the current legal and institutional ences see the ‘‘Top 100’’ company profiles in Klaus et al. [12]. 7 situation of the European logistics industry: European examples are ARVATO, a subsidiary of the Bertelsmann Group; HERMES, a subsidiary of the OTTO retail group, and • First part of the study was a review of conceptual Rail4Chem, which grew out of the BASF chemical corporation. contributions to the issue of assessing competitive The most obvious manifestations of the new economic volatility intensities in the Economics, Business Administration, were the ‘‘New Economy Boom’’ about the year 2000, and the and Competition Law literatures. worldwide financial and economic crisis of 2008/2009. 123 Logist. Res. (2011) 3:49–65 51 • Secondly, current practices in the definition of markets financial strength, access to sales or procurement and market boundaries and market shares were docu- markets, integration with other companies, legal mented on the basis of three different approaches: a or actual barriers to market entry by other review of current transport and logistics data reporting companies, actual or potential competition from structures by public institutions as a factual frame of companies based within or outside the area of reference and important source for market definitions; a application of this law, the ability to switch its detailed analysis of recent decision cases by the buying or selling activities to other goods or European Commission related to mergers and acquisi- services, and the possibility that customers or tion requests; and a series of interviews with business suppliers could switch to other companies should practitioners and experts on their thoughts about be taken into account… meaningful logistics market definitions. 3. A company is assumed to have a dominant market • Thirdly, a framework for the more consistent and position if it has a market share of at least one quantifiable assessment of market boundaries and market third. shares by selected competitors has been outlined and §36: suggested on the basis of this research. 1. Any merger which could be expected to establish This paper is a summary report on the study. It is or reinforce a dominant market position… must be intended as an invitation to more academic discussion and prohibited! future research in the important field of logistics industry studies, which have received relatively little attention in The analogous provisions of the EG Treaty (version of academic research so far. 29.12.2006) in Article 82 are: The abuse of a dominant position in the single market or a significant part of the same by one or more companies is 3 Conceptual contributions to the assessment incompatible and is prohibited insofar as it can interfere of competitive intensity with trade between the member states. In particular, this abuse can consist of the following: 3.1 The ‘‘free market premise’’ and fundamental (a) the direct or indirect enforcement of unreasonable purposes of competition law purchase or sales prices or other business conditions; (b) the restriction of production, sales or technical Behind all economic and legal considerations of competi- development to the detriment of the consumer; tion in our economic system is the ‘‘free market premise’’, (c) the attachment of different conditions for the equiv- which can be traced back to Smith [23]. It holds that the alent service to trading partners, where this would ‘‘invisible hand’’ of competition in free markets is the most lead to a competitive disadvantage; effective way of guiding people’s natural inclination (d) the attachment of conditions to the closure of toward self-interest toward the good of society. contracts whereby the contractual partners accept In the case of Germany, the ‘‘Free Market Premise’’ is additional services that bear no relation to the legally founded in the provisions of §§ 19 and 36 of the contractual item, either objectively or with regard to Law against Restraints on Competition (GWB, version of accepted practice. 15.12.2008): §19: When assessing merger plans, the EU Commission has, in accordance with the EU Merger Control Regulation of 1. The abuse of a dominant position in a market by one or 20.1.2004, Art. 2, to take into account more companies is forbidden. (a) the necessity to maintain and develop competition in 2. A company has a dominant market position insofar as it is as a seller or buyer of a certain type of commodity the single market, especially in respect of the structure or commercial service in the objectively and territo- of all markets affected and actual or potential compe- rially relevant market tition from companies based within or outside the Union; 1. without competitor or facing no significant com- (b) the market position and the economic and financial petition or strength of the companies involved, the options 2. has a superior market position in relation to its available to suppliers and customers, their access to competitors; in this respect, its market share, procurement and sales markets, legal or actual 9 barriers to market entry, the development of supply The full study has been published in German and English language and demand with regard to respective products and [13]. In this paper it is referred to as ‘‘the study’’. 123 52 Logist. Res. (2011) 3:49–65 services, the interests of intermediaries and final consumers and the development of technical and economic advances, insofar as these are to the consumer’s advantage and do not obstruct Total market competition. (unbounded) …Mergers that would seriously interfere with effective competition in the single market or in a significant part thereof, in particular through the establishment or reinforcement of a dominant position, must be deemed incompatible with the Relevant single market. market Competition law, hence, has to make sure that market Spatial dimension behaviors which could significantly reduce or abolish Fig. 1 Three principal dimensions to be considered in setting the competition for the public good will not occur. There must boundaries of a ‘‘relevant market’’ be sufficient number of competitors in any market as to make monopolistic or oligopolistic behaviors by individual market participants impossible. No single player in a given A ‘‘relevant market’’ in the context of assessing the market should gain power over the behavior of other workings and intensity of competition must be defined market players. along these dimensions. This leads to three difficult questions which need to be The object dimension—in the case of logistics and other resolved in any legal proceeding related to the effective service markets usually the most complex and difficult one protection of market competition, namely: to capture—relates to the type and characteristics of the • How to appropriately define the boundaries of ‘‘rele- objects upon which a certain logistics service is provided, vant markets’’, i.e., within which spatial, temporal, and the technology by which that service is applied, and the object-related boundaries of a market can a potential situational context within which the service is transacted: restriction or abuse of competition be identified and • Market boundaries may be drawn around the physical prevented? properties of the objects which are being transported, • How to determine what is ‘‘competitive’’ respectively stored, or otherwise handled in logistical operations. ‘‘non-competitive’’ behavior in a specific situation: This leads to categorizations of markets such as ‘‘bulk Which kinds of business behaviors are compatible with cargo’’ logistics, ‘‘parcels services’’, or ‘‘steel product the idea of competitive markets, respectively—how are logistics’’. Often implicit in market segmentation behaviors identified that are incompatible with the approaches related to the physical properties of logis- ‘‘free market premise’’? tics objects are differentiations by the objects’ weight/ • How to assess the ‘‘workability’’ of competition, on a volume characteristics (such as for ‘‘parcel’’ versus scale between the theoretical constructs of ‘‘perfect ‘‘less-than-truckload’’ versus ‘‘full-truckload’’ transport competition’’ and ‘‘perfect monopoly’’ in a market, how markets) or their physical shape and handling charac- to determine the point when competition no longer teristics (‘‘palletized freight’’, ‘‘liquid goods’’, ‘‘haz- functions—is becoming ‘‘unworkable’’—and therefore ardous goods’’ logistics). open to potential abuse by individual players? • Markets may alternatively be described by a specific ‘‘technology’’ applied in the logistical treatment of the 3.2 Critical dimensions for the description objects, when certain means and methods of producing and definition of ‘‘relevant’’ logistics markets the logistics service are the primary characteristics defining a market, as in the case of ‘‘road transporta- The boundaries of market, at a conceptual, highly abstract tion’’ versus ‘‘air transportation’’, ‘‘(ISO) container level, may be described along three dimensions: the logistics’’, ‘‘or ‘‘E-logistics’’. ‘‘object’’ dimension, the spatial dimension, and a tem- • When markets such as ‘‘retail logistics’’, ‘‘health care poral dimension, as Fig. 1 illustrates. logistics’’, and ‘‘military logistics’’ are referred to, it is the primary association, dedication, or ownership of the objects to a certain type of customer, industry. • Another object-related descriptor of markets may be a Bulletin C 372 of 09.12.1997 by the European Commission certain phase in the process of value creation for a regarding the definition of a relevant market. Object-related dimension Logist. Res. (2011) 3:49–65 53 product (as with ‘‘intra-plant-logistics’’ or ‘‘reverse also grow out of regional customer habits or buying pref- logistics’’). erences, or from circumstances within a company such as • Another fundamental aspect often used in defining the limitations of the range of sales channels. markets is the type and quality of logistics activity (or Precisely defining spatial boundaries, especially for the ‘‘function’’) that is transacted upon the logistical object operations of transport companies, is difficult, because in order to increase its value to a customer—such as a their primary production resources—i.e., vehicles and ‘‘transfer in time’’ in the case of storage, a ‘‘rearrange- drivers—are mobile by definition, but practical limits to the ment of objects’’ in the case of sorting, picking- geographic range of their operation exist nevertheless. packing, consolidation-deconsolidation activities, a The European Commission defines a geographically ‘‘change of location’’ in the case of transportation. relevant market as follows: When market boundaries are set by the dominant The relevant geographic market comprises the area in logistical function, high-level segment descriptions are which—for those companies offering competitive ‘‘transport logistics’’, ‘‘warehouse logistics’’, (or ‘‘just- products and services—there are sufficiently homo- in-time transport’’ when qualitative descriptors are geneous competitive conditions, which can be dis- considered in further differentiating markets). tinguished from neighboring areas because the • Last not least, logistical functions may be performed competitive conditions there are appreciably at various quality levels, which define sub-segments different. like ‘‘standard’’, ‘‘expedited’’, or ‘‘premium’’ logistics services. This means that national boundaries within Europe are no longer considered relevant for the identification of rel- Many combinations of object-related characteristics to evant markets in the context of competition law. describe and define logistics markets are being applied in The third fundamental dimension for the definition of a actual logistics business practice. There is no apparent relevant market is the temporal one. Because competition systematic in those definitions, as the review of current is a dynamic process, the intensity of competition may vary practices in Sect. 4 of this paper will illustrate. over time. But besides the object-related descriptions of markets, Temporally defined dominance of a market by a logis- two other fundamental dimensions for their description tics services provider may result from temporal limitations need to be discussed briefly: the spatial and temporal on the goods or services provided, such as the provision of dimensions. logistics services at trade fairs, the Olympics or the Soccer Some logistics markets are global. But most are delim- World Cup. ited to a certain geographical space. Because logistics Temporary competitive advantage and market domi- providers are operating out of given locations, they are nance may also exist for a product innovator and ‘‘first often restricted in their ability to offer services to a certain mover’’ onto a new market, when new kinds of services or region or route. new technologies are introduced. For example, the The geographically relevant market area can be—in the ‘‘inventor’’ and first operator of standardized ocean con- case of, for example, bicycle couriers, taxi companies or tainers, Malcolm McLean and his company SEALAND, in-plant contract logistics operations—a single city, or a enjoyed a monopolistic position for some time. But the narrowly confined economic region. In the case of logis- ‘‘ownership’’ of a market by a first mover is usually tem- tical networks for postal and parcel services, for general porary and will be lost after a while by the actions of other cargo or the widespread distribution of consumer goods, competitors (as was the case in standardized container the relevant area may be a country such as Germany, a traffic, when other operators entered the new market and continent such as Europe, or—in the case of the ‘‘inte- also utilized McLean’s innovation). grators’’ air-transport-based express freight networks— the world. The inclusion or exclusion of a specific player to a market is influenced by the economically viable range of operations from the operations base of a certain service provider, and by other restrictions such as a legally Cf. Neiser [19]. assigned authority to serve particular routes, by cabotage Cf. Beckmann [3], also Arnheim [2]. See Form A/B to regulation No. 17 and Section V of Form CO to regulations, linguistic barriers, by customs or other legal- Regulation (EEC) Nr. 4064/89 on the control of mergers of administrative restrictions. Spatial market boundaries may companies with community-wide significance. Cf. Neveling [20]. This customary term refers to the globally active express freight carriers such as UPS, FEDEX, DHL and TNT. Cf. Neveling [20]. 123 54 Logist. Res. (2011) 3:49–65 3.3 From static to dynamic definitions of markets: It is the question about ‘‘Workable Competition’’ [6]. ‘‘Relevance’’ and ‘‘workability’’ of competition Competition is ‘‘not workable’’, if buyers are captive—if in logistics they do not have alternative options for satisfying their needs. It is workable, when buyers have some freedom to The SEALAND example suggests that a one-time defini- switch to other sellers. This freedom is not depending on tion of market boundaries and resulting competitive posi- the availability of same or similar products and services tions will not be enough: Should not the assessment of offered by sellers who are in direct competition with each competitive intensity have to consider the longer-term other. It is given as long as there is choice between prod- context of a whole product life cycle? With respect to ucts or services which are ‘‘functionally equivalent’’ (or spatial boundaries: where should these boundaries be set if ‘‘substitute products’’!)—such as, for example an elec- services for specific customers are tied into wide-ranging tronic email may be relative to a traditional letter mail service networks? And which are the object-related char- message. Sellers’ market behaviors may be disciplined also acteristics of a market that distinguish players who sig- by the mere possibility of the introduction of new products nificantly affect the competitive intensity from those who and services or the entry of additional suppliers (‘‘potential do not? competitors’’) if the monopolist raises prices beyond a The identification of meaningful, ‘‘relevant’’ market reasonable level. boundaries is a complex task which will not be met in To summarize: The intensity of competition in a given formalistic, static ways, but needs to appropriately consider market depends not only on the number and attractiveness the markets’ dynamics. Some answers to the difficult of directly competing products but also on the level of questions raised by the dynamics of competition and attractiveness of possible substitutes and the speed with market developments are offered in the literatures of which potential competitors are able to react to profitable Economics, Management, and Law; market entry opportunities. In a classic contribution to the discussion on competition The recent discussion about the ‘‘More Economic ‘‘The Meaning of Competition’’, the Nobel laureate, von Approach’’ is taking the argument of competition as a Hayek [9], made it clear that the task of influencing and process which is dynamically and interactively taking place controlling the behavior of market players in the interests between the demand sides and supply sides of markets one of the community means more than just trying to regulate step further: It is argued that competition law may allow for ‘‘perfect competition’’, as it is assumed in Economics degrees of monopolization even permanently in the interest textbooks. For the maintenance of competition, it is of the overriding goal of increasing the ‘‘welfare’’ of the important, he argued, that temporary monopolies, which people and communities concerned. In pursuit of this innovative and active innovators temporarily create by broader goal, a trade-off between possible ‘‘allocative developing and offering superior new products or ser- inefficiencies’’ by markets that are less than perfectly vices, are not to be discouraged, but allowed to exist for competitive and of ‘‘production efficiencies’’ should be some time and then ‘‘disappear as soon as someone else considered. Production efficiencies may arise, for example, can more effectively satisfy the demands of the buyer’’ [9]. when a company is allowed to realize superior economies This means that boundaries of markets should be set in of scale from very high production volumes that could not ways to motivate players in those markets to innovate and be achieved in a competitive market, so that—on bal- to be rewarded for offering unique, value creating solutions ance—positive contributions to the ‘‘welfare’’ of the to their customers’ problems and demands. At the same community will be achieved. time, competition should make sure that the dynamics of the creative destruction of temporary monopolies through 3.4 The ‘‘demands and needs’’ perspective competition are preserved. The challenge of meaningful regulation of competition is now in answering the question Discussions regarding the definition of ‘‘relevant markets’’ where the tipping point is between still-functioning com- and assuring ‘‘workable competition’’, as they have been petition and unacceptably restricted competition. sketched out so far, describe the changing views of the role of competition in the economic literature from a rather static and narrow toward a more dynamic, broader per- spective. This is accompanied by a change of perspectives This corresponds well to the American management professor Bowman’s [5] definition of ‘‘Strategic Management’’. He demanded from a provider- and supply side toward a customer needs that effective strategic management is ‘‘seeking for a time a and demand-side view. ‘‘localized monopoly’’, (which) ‘‘makes the market less perfect, disturbs the equilibrium, and earns for a time excess profits’’… ‘‘Corporate strategy can be conceived of as continuing search for rent, where rent is intended in the sense of returns to a ‘‘unique place’’. Cf. Schmidtchen [21, 22] and sources quoted there. 123 Logist. Res. (2011) 3:49–65 55 Traditionally markets are defined from the point of view ‘‘demand and needs’’ oriented perspective on markets and of providers of goods and services. The economist Mar- competition has been suggested, e.g., by Germany’s Fed- shall argued in his famous volume on ‘‘Principles of Eco- eral Supreme Court, the Bundesgerichtshof (BGH), who nomics’’ ([17], p. 383 ff.) that ‘‘a great city may contain as noted many markets as there are important branches of trade’’— All goods that are, according to their characteristics, i.e., groups of providers who produce and sell goods that their economic purpose and price, so close to one are physically and technically similar, based on the groups’ another that the rational consumer considers them established methods and technologies of production. In both suitable for a particular purpose and inter- today’s economic environment Marshall’s ‘‘branches of changeable, should be integrated into a single market. trade’’ would be referred to as ‘‘industries’’. The related concept of market definition is referred to as the ‘‘industry The German Federal Cartel Office also defines a buyers’ concept’’. market in its ‘‘Information on Merger Control’’: But if the ultimate aim of competition is the maximi- Only those goods or commercial services that cus- zation of public welfare, as the ‘‘free market premise’’ tomers see as interchangeable in respect of their nature, suggests, a supply side ‘‘industry-focused’’ conception of purpose and price should be attributed to a market…. markets is not appropriate. This has been argued impres- sively in one of the most quoted articles of modern man- A decisive criterion for the inclusion of competitors into agement literature on ‘‘Marketing Myopia’’ by the the boundaries of a market is the functional interchange- American marketing professor Levitt [15]. He vividly ability of their products and services. The market for demonstrated the fundamental weakness of the industry transportation and logistical services, hence, must be concept for assessing competitive situations in modern, defined by the logistical function to be fulfilled—e.g., the dynamic markets through the example of the decline of the movement or ‘‘transfer in space’’ of objects, their ‘‘transfer once mighty and highly profitable American railway in time’’ through storage and buffering, and the change of companies. Because of their short-sightedness—‘‘myo- the order and arrangement of objects by picking, consoli- pia’’—they took a narrow industry approach to their market dation, sorting, and deconsolidation etc., regardless of the and competition as a ‘‘market for rail transport’’ for too means and methods of production and of the sense of long. Competitors they considered were other railroads identification which the producers and sellers may have only. This made them fail to recognize the growth of with a ‘‘trade’’ or industry. competition in cargo movements from trucks, buses, and aircraft, which rapidly developed since the 1920s and made the railroad loose much of their business over the following 4 Survey of current practices in the definition decades: ‘‘They (the railroads) let others take customers of markets, market boundaries, and market shares away from them because they assumed themselves to be in the railroad business rather than in the transportation The study on competitive intensities in logistics mar- business. The reason they defined their industry wrong was kets—on the basis of the terminological and conceptual because they were railroad oriented instead of transporta- discussion summarized above—looked next at current tion oriented’’ ([15:138]). actual practices in logistics market definitions. Four sepa- An earlier rationale of a ‘‘demands and needs’’ approach rate ‘‘snapshots’’ were taken in the research to illustrate the in the literature on competition is attributed to the econo- diversity of those practices. mist Abbott [1]. Anticipating Levitt’s argument against ‘‘Marketing Myopia’’, it is based on the idea that the rel- 4.1 Reporting structures of public institutions evant definition of a market must be derived from the point as a frame of reference for market definitions of view and the needs of the buyer and customer. All and assessments in current legal products that can provide the desired satisfaction of need— and business practice which may be physically and technically very different should be considered as alternatives or substitutes and Statistical offices, the authorities of public administration, hence be included into the boundaries of a given market. It the courts, and other institutions are active in collecting and is not primarily the manufacturers and suppliers but rather the users and consumers who should be asked which Cf. BGH, WuW/E BGH 2433, 2436f. ‘‘Gruner & Jahr: Zeit II, and available alternatives best meet their needs. WuW/E BGH 2150, 2153 ‘‘Stainless Steel Cutlery’’. Today, Abott’s and Levitt’s criticism of a myopic Leaflet on controlling merges be the German Cartel Office, Policy industry perspective has found broad acceptance—not only Directorate, July 2005, p. 14. in business but also in the general antitrust practice. A i.e. ‘‘the study’’ by Klaus et al. [13]. 123 56 Logist. Res. (2011) 3:49–65 Fig. 2 Structures and objects of transportation reporting by selected public institutions (Legend: x = true; O = conditionally applicable, – = not considered) publishing data related to logistics markets. Their reporting Another important authority in Germany, the ‘‘Bundes- structures and data have great influence on the way market netzagentur’’, is organized along the lines of an ‘‘industry’’ assessments are being made by in legal proceedings and approach. There are organizational units responsible for everyday business practice. regulating ‘‘postal’’ and ‘‘rail’’ network services. For example, Germany’s Federal Office of Statistics, The organizational and reporting structures and the data Federal Motor Transport Agency (KBA), and the European provided by these institutions influence strongly how the statistical agency Eurostat, due by statutory regulations, are public, the media, and also the public authorities and courts required to collect and periodically publish information think and act in regard to transportation and logistics relevant to the transport and logistics industries. Their markets. As a consequence, in their analyses, decisions and reporting structures typically are supply- and industry-ori- actions, market boundaries are assumed to correspond with ented. At the highest level of aggregation markets and ‘‘modes of transport’’ and related industry categories. segments are distinguished primarily by ‘‘modes of trans- Figure 2 gives a summary of the some of the most port’’, i.e., rail, road, water, and air, sometimes by the types important public report structures related to transport. of logistical ‘‘objects’’—distinguishing between ‘‘passen- Figure 2 proves that changes in the understanding of ger’’ and ‘‘freight’’ transport—and by geographical criteria markets from a supply side and strongly transport-related (usually ‘‘national’’ vs. ‘‘cross-border’’). point of view to a wider logistic and competitive demand- The ‘‘Bundesamt fu ¨rGu ¨ terverkehr’’ (BAG), which, as side perspective are not (yet) reflected at all in the insti- an independent federal agency, is responsible for a variety tutional and reporting structures of key public authorities. of tasks in the administration of the freight transport sector such as industry-wide market monitoring, the planning, 4.2 The practice of decision-making in the European coordination, and control of market entry procedures Union’s antitrust and competition-law procedures (including, since 2005, the management of the German truck highway toll system) also pays attention to the For a preliminary overview of current decision practices ‘‘institutional’’ dimension. It reports on ‘‘third-party’’ ver- related to transport and logistics markets in the European sus ‘‘in-house/private carriage’’ cargo operations. Union, an ad hoc Internet-based analysis of more than 200 publicly documented decisions of the EC Commission on issues related to competition law was performed in e.g. the VerkStatG, BStatG—a popular collection of statistical data relating to transport and logistics in is the annual ‘‘Verkehr in Zahlen’’ (Transport in Figures) published by BMVBSt (latest: BMVBSt 2009). Cf. http://ec.europa.eu/competition/mergers/cases/index/m31.html. 123 Logist. Res. (2011) 3:49–65 57 Fig. 4 The relative frequency of criteria identified from 138 decisions as actually used in logistics market demarcation It indicates that decisions of the Commission are pri- marily based on an industry-oriented and supply side approach to market definitions, such as the function pro- vided, the mode of transport, and the type of vehicle employed. The Commission does not seem to have con- Fig. 3 Overview of the number of cases analyzed according to 25 sistently applied a demand-based perspective so far. This activity, carriers, and transportation ‘‘technology’’ is corroborated further by some decisions, where explicit statements about market boundaries are found: In ‘‘Case Nr. COMP/M4746 (Deutsche Bahn/English preparation in the study [13]. The thematic search grid used Welsh & Scottish Railway Holdings of 2007, p. 3 ff.)’’ the in the process is shown in Fig. 3. After eliminating deci- Commission noted that sions where the Commission had applied the ‘‘simplified …the Commission has in previous decisions con- procedure’’ in line with Regulation (EC) No. 139/2004 of cluded that providers of freight forwarding services January 20, 2004, on the control of company mergers (EC and of transport of goods do not directly compete Merger Regulations), 138 logistics related cases were with each other… identified for the analysis. These are broadly based on the nature of the logistics service activities involved (‘‘trans- proving the Commission’s past practice of distinguish- portation’’, ‘‘warehousing’’, ‘‘support activities’’) and the ing markets primarily by the logistics service ‘‘production modes of transport and transport technologies used technology’’ and arrangements (i.e., in the case of ‘‘for- (‘‘land’’, ‘‘water’’, ‘‘sea’’, or ‘‘air’’). warders’’, the use of sub-contractors and consolidation of Each of the cases then was coded with respect to the shipments to provide efficient transport services, in the case market definition criteria that the Commission had applied of the ‘‘carriers’’ the operation of directly owned assets). explicitly or implicitly, using the terminological and con- The demands and needs of shippers and alternative options ceptual categories developed in Sect. 3.2 above: by shippers are not considered in the Commission’s market definition (while shippers in most situations expect the • Type of logistical ‘‘object’’ and weight class provision of a defined movement of cargo from a shipping • type of logistical service activity resp. the ‘‘function’’, to a receiving location with no regard to the means of • mode of transport, production and organizational arrangements employed by • network structure, the service provider, as actual logistics practice and the • type of vehicle/loading unit, shipper statements reported in Sect. 4.2 suggest). Another • geographical horizon. explicit statement example emphasizing the supply-side- Figure 4 shows the result of the coding effort. More details on the analysis of competition law related decisions by the European Commission are presented in ‘‘the study’’ [13, Multiple coding was permitted. section 4.2.1]. 123 58 Logist. Res. (2011) 3:49–65 oriented market view employed by the Commission is on the Federal Office for Cargo Transport (BAG), and a well- p. 5, fig. 17 of the case: known stock market analyst for the logistics industry from bankers SAL OPPENHEIM were asked to give their views … there are strong indications that a separate market on most appropriate logistics markets definitions and for rail freight services may be distinguished assessments of current competitive intensities in important There is no explanation of the nature of the ‘‘strong logistics market segments. The structure and results of indications’’ given. However, the Commission—somewhat these interviews—in condensed form and cleaned up contradictory—does acknowledge (p. 6 fig. 20) that slightly in places to remove statements made off the record—is documented in Appendix I of the study. … for smaller consignments (i.e., smaller than full Insofar as the perspective of the interviewees relates to block train loads) there appears to be higher substi- the logistical service activity of ‘‘transport’’, the interview tutability between rail and road. results showed a consensus that the nature of the transport Another example indicating explicitly a supply-side object (‘‘full-load’’, ‘‘less-than-truckload’’, ‘‘parcel/express orientation in the Commission’s decisions, but some freight’’, ‘‘handling characteristics’’) and the geographical uncertainty and inconsistency in its application is in n Case horizon (‘‘local’’, ‘‘national’’, etc.), as well as the degree of No. COMP/M. 4786 (Deutsche Bahn/Transfesa of 2008): complexity and the capacities that a logistics service pro- vider is offering do play an important role in their approach In previous cases, the Commission has found that the to defining markets. provision of transport services could be considered a All interviewees confirmed that today the ‘‘production relevant market distinct from freight forwarding ser- technology’’ of rail, road, or other ways of ‘‘producing’’ the vices … service employed by providers no longer plays a significant On the other hand, the commission states role. They are interested in the quality of the service, the fit of the service provided to their specific logistical demands, and the market investigation indicated that Finished competitive pricing regardless of which mode of transport and Vehicle Logistics (FVL) could be considered a sep- production system is used. Insofar as references to transport arate market from general freight forwarding and technologies or modes of transport were made by the inter- contract logistics because of the specific demand of viewees, these quite clearly were reflections of the geo- customers….and partial substitutability between the graphical characteristics of demand (‘‘air’’ and ‘‘ocean’’ are different modes of transport … without alternative for intercontinental transport needs, This confirms the assumption that motivated the study ‘‘road’’ and ‘‘rail’’ for continental and national routes), or they reported here: That there is an unmet challenge in pro- were indications of quality levels sought-after (‘‘air’’ for fast, viding a consistent and appropriate definition of relevant high quality but expensive transport services, ‘‘ocean’’ and markets for antitrust decisions in the diverse European ‘‘rail’’ for slower, cheaper transportation qualities). logistics markets! Furthermore, a distinction between the services provided by ‘‘primary’’ providers—the ‘‘carriers’’ providing trans- 4.3 Market definitions and assessments of current port services using their own assets—or by ‘‘intermediar- competitive intensities in the logistics industry ies’’ frequently active in logistics such as ‘‘freight by selected experts forwarders’’, ‘‘third-party/fourth-party service providers’’ were also seen as no longer relevant by all the intervie- To add to the review of current practices in the definition of wees. Most carriers today offer the range of services of logistics market boundaries and competition intensity, forwarders, and forwarders use the full range of options to another mainly economic and business perspective, a series ‘‘carry’’ freight from operating own equipment, to leasing, of interviews with senior experts from the logistics industry contracting, and spot market purchases. The uses of certain was conducted as part of the study. production technologies and arrangements are no longer a Selected representatives of major buyers or clients and useful differentiator. In some cases, the choices by ship- ‘‘shippers’’ from the logistics sector, namely BOSCH and pers—beyond the criteria of price, logistical fit, and service REWE, and also with senior representatives of the major quality—are determined by the focus versus broad range of logistics service providers DB SCHENKER and KUEHNE services offered by a given provider. In some cases, the & NAGEL, as well as three more knowledgeable ‘‘exter- more focused, specialized provider will be preferred; in nal’’ market experts, namely an American expert on other, the highly diversified provider offering a large range logistics markets Dick ARMSTRONG, a representative of of services (‘‘one-stop shopping’’) will be preferred. 26 27 i.e. distinguished ‘‘from the road freight market’’. cf. [13]. 123 Logist. Res. (2011) 3:49–65 59 The results of the interviews clearly indicate that prac- in Europe that represents the current state of the entire titioners today—not surprisingly—are perceiving market transport and logistics industry. But is also appears to be boundaries from a ‘‘demands- and needs-oriented’’ per- accepted as a fair reflection of everyday market realities in spective. It is the types of object which need logistical the logistics industry today. It is widely compatible with service, the type of logistical activity, and function that is the structure of the logistics industry’s professional asso- sought for, and the levels of quality and price desired that ciations, which have evolved over time. It also provides determine market boundaries and competitive intensities— basic compatibility with the few internationally known not primarily the means and technologies used by the logistics market studies, such as the annual ‘‘State of providers of the service. Logistics’’ report for the United States, which has been issued there since the 1980s. 4.4 The ‘‘Top 100 in Logistics’’ studies as a reflection The ‘‘Top 100’’ segmentation structure provides for the of current practice in the definition, segmentation, following 15 sub-markets: and measurement of logistics markets • Domestic bulk and full-load freight transport markets the sub-segments: Among practitioners involved in logistics in the German- • Bulk logistics speaking world—particularly the owners and managers in the • General full-load transport through non-specialized logistics service provider industry and decision-makers in the (‘‘dry van’’) truck and railroad-car equipment; shipping community, but also management consultants in the sector, representatives of the business associations, jour- • Heavy haulage and crane services; nalists and politicians—the ‘‘Top 100 in Logistics’’ studies by • Tanker and silo specialized transportation; the authors of this study have found broad acceptance. The • Other transport services with specialized equipment leading logistics association in the German-speaking world, (e.g., automotive, flat-glass, hi-cube transports, etc.). the Federal Logistics Association BVL, is the co-publisher of • Domestic markets for less-than-truckload cargoes and this study and regularly reports the results to its nearly 10,000 other logistics services with sub-segments: members. The logistics trade magazine with the largest cir- culation in Europe, ‘‘Deutsche Logistik Zeitung DVZ’’ reports • Less-than-truckload cargo and value added regularly and extensively on the ‘‘Top 100’’ data and devel- services; opments. Many companies use the survey and its prescribed • Consumer goods distribution and consumer goods market-segment structure to work out their position in the contract logistics; market. Last but not least, even the German government • Industrial contract logistics, especially industrial makes reference to market definitions and data from this procurement logistics, production supply and spare source, as did German and European ministries and courts in parts procurement; various proceedings. • Hanging garment logistics; The ‘‘Top 100’’ market segmentation structure, volume, and • High-tech goods, trade fair and event logistics, new growth estimates for the logistics industry, which are published furniture transport and removals; annually as part of the ‘‘Top 100’’, became a de facto standard • Terminal services, port, warehousing and other for logistics market research in significant parts of the German services not included in other logistical services; and European professional logistics community. • CEP-parcel, real courier, and specialized express This is explained, for one, by the fact that there has been freight services; no other comprehensive publication on logistics markets • Markets for border-crossing transport: 28 • International land-based transport and forwarding First published in 1997 from Deutscher Verkehrs-Verlag, Ham- burg: the latest English-language edition published is ‘‘Top 100 in services; European Transport and Logistics Services 2009’’ [12], the latest German-language ‘‘Top 100—2010’’ [13]. The German transport industries‘associations such as ‘‘Bundes- Cf. e.g. the comments on ‘‘Gueterverkehr und Logistik’’ on the verband Guterverkehr, Logistik und Entsorgung BGL’’, the former homepage of the Federal Ministry of Transport, Building and Urban ‘‘Bundesverband Spedition und Lagerei BSL’’, now ‘‘Deutscher Planning and the remarks of the German Chancellor on the Speditions -und Logistikverband DSLV’’, ‘‘Verband Deutscher importance of logistics to Germany as a business location during Eisenbahnunternehmen’’, ‘‘Bundesverband internationaler Express- her inaugural address to the 24th BVL Congress in Berlin in 2007. und Kurierdienste’’, ‘‘Verband Deutscher Reeder’’ especially for the interests of industry and carriers, ‘‘Bundesverband Materialwirtschaft There are numerous studies of specific market segments and und Logistik’’ BME. aspects, such as those by the business consultants MRU Manner- Romberg [16] for the CEP markets, and the commercial market The current edition is Wilson [24]. Its elementary logistics definition research reports by British transport and logistics market research was originally suggested by Heskett [10]. Other international work using companies Datamonitor and Analytica, as well as Ehmer et al. (2008). similar definition is Davis [7]or Bowersox et al. [4]. 123 60 Logist. Res. (2011) 3:49–65 Fig. 5 The 15 ‘‘Top 100’’ Bulk Logistics Air Freight Market Segments estimated in General Truckload/ 11.0 8.2 Ocean Freight billion Euro potential market Full Carload (FCL) 12.8 volumes, data as of 2007 16.0 Heavy Haulage and Crane Services International 1.0 Land-based Transp. 11.5 Tank Container and Silo Log. CEP 6.0 11.0 Specialized Truckload Log. Total Market 9.5 Terminal Operations/ Germany Warehousing 205 bn. 23.5 Less-than-truckload (LTL) 6.5 High-Tech, Event, Furniture Log. 5.6 Consumer Goods Contract Log. 26.0 Hanging Garments Logistics Industry-oriented 0.6 Contract Log. 55.0 • Intercontinental transport and forwarding services, • The practice of market segmentation through direct focus on ocean and sea port operations; market participants in the economy, such as the • International air cargo carrier and airfreight for- regulatory authorities and courts dealing with relevant warder services. issues shows that, although a broadly shared body criteria for setting market boundaries is available (see The relative economic weight of the 15 segments is Sect. 3.2 above!), there is no consensus on the relative illustrated in Fig. 5. relevance and the order at which these criteria should In light of the considerations in this study, it is clear that the be applied. This makes it necessary to ‘‘Top 100’’ current pragmatic segmentation of the logistics markets—although widely accepted in practice—is not design a consistent framework for ranking and entirely consistent from the perspective of a clear structure and applying the dimensions along which market bound- hierarchy of criteria. In particular, it cannot fully satisfy the aries should be set and relevant markets be defined! requirements of a competition-oriented market view. • Current market segmentation approaches are not bal- anced with respect to Euro volumes. The absolute sizes and economic ‘‘weight’’ of logistics markets segments 5 Reconstruction of an improved framework is extremely varied (cf. e.g., for the ‘‘Top 100’’ segment for the definition of market boundaries size in Fig. 5!). They range from annual sales volumes and measuring market volumes for the German logistics market of a macro-econom- ically negligible € 0.6 bn for the small ‘‘hanging 5.1 Current practices in the definition of market garment’’ logistics segment clothes, to the very large boundaries—critical review and consequences ‘‘industrial contract logistics’’ segment at € 55 bn: for an improved framework A new segmentation structure should form market The review of current views and practices in defining segments whose sales volumes are more in balance. logistics market boundaries, as summarized in the pre- They should represent a measurable minimum vol- ceding section, illustrated how heterogeneous these are and ume relative to the € 900 European logistics market, which kinds of questions should be answered in efforts to as well as allow for appropriate differentiation and improve this situation: sub-segmentation of the very large segments! 123 Logist. Res. (2011) 3:49–65 61 • The relatively wide acceptance of the pragmatic market minimum volume of any lane-, service area, or otherwise segmentation of the ‘‘Top 100’’ and related interna- specialized market—for practical purpose of at least more tional studies, including many years of time series data than than € 1 bn in annual business volume. collected there, provides a solid—if not perfect— • Data and verifiability starting platform for an improved framework for the definition of market segments and their assessment: A final pragmatic restriction on the definition of relevant market segments comes from the availability and validity A new framework should not diverge unnecessarily of data sources that are required for their quantitative from the concepts and structures accepted in practice assessment. If data cannot be gathered that are of sufficient in order to maintain as far as possible the compara- accuracy and objectively verifiable on a segment, relevant bility of results over time. markets cannot be defined. The design of an improved segmentation framework, as a consequence of the insights gained from the study so far, 5.2 Generic grid for the description and segmentation should incorporate the following recommendations: of logistical markets • Primacy of a longer-term demand-and-needs-oriented On this basis of these considerations, in the study [13], a market perspective simple conceptual grid for generic descriptions of logistics The arguments of Hayek [9], Levitt [15], and others (in markets was constructed. particular those summarized by Mueller [18], cf. 3.4!) Figure 6 shows the grid, first in aggregated graphical show that market shares in markets that are defined form. A path of gradual differentiation of the total market according to the ‘‘industry perspective’’ do not permit valid for logistical services is shown in the grid by the empha- assessments of competitive intensities in logistics markets. sized arrows (illustrated for the case ‘‘time definite express In order to judge whether there is sufficient (i.e., ‘‘work- freight market’’ segment). able’’—see Sect. 3.3!) competition, the options to sub- The claim is that this ‘‘generic’’ grid allows for detailed stitute certain types of logistics by other offerings and the and consistent descriptions of any logistical service mar- likelihood of entries by potential competitors must be taken kets at increasing levels of detail. into account. Figure 6 also shows a process, in principle, suggesting a It follows that ‘‘relevant markets’’ should be determined standardized sequence of steps in setting and quantifying primarily from the point of view of needs and demands of the boundaries of a ‘‘relevant’’ market segment for a given specified ‘‘customer groups’’. The prioritization of market problem: segmentation criteria and standardized sequence of apply- • In Step 1 (see Box 1 in the left sidebar in Fig. 6), the ing those criteria in setting market boundaries must con- ‘‘object-related’’ boundaries are identified and catego- sider this point, as provided in the ‘‘generic grid’’ for the rized. Types of logistical objects are usually related to description of logistics markets in Sect. 3.3 above. specific shipper and ‘‘customer group’’ industries. • Consideration of resource flexibility and appropriate Quantitative information about shipper/customer indus- scaling of market segments tries, the flows of requiring logistical services are—at least partially—available in public statistical reports. • In Step 2, market boundaries are narrowed to the type In the field of logistical services—especially the trans- of logistical service activity that is relevant in a given portation markets—there is a high degree of flexibility with context. respect to the resources used by service providers. This • In Step 3, further narrowing of market boundaries may flexibility allows them to substitute and relocate service apply by taking into account the qualitative differen- production resources relatively quickly from one geo- tiation features of the logistical services under consid- graphical location to another (such as by redirecting and eration and the required nature of the relationship repositioning vehicles and staff to other routes and service between buyers and sellers. areas), or substituting and mixing their production tech- nologies (i.e., especially various modes of transport) rela- tively freely to satisfy new market needs. Such as Eurostat and the Statistisches Bundesamt of Germany. An appropriate level of ‘‘granularity’’ in defining seg- See. Klaus et al. [12] for detailed explanations and references. ments and subsegments of logistics markets should be set, There is deliberately no account of ‘‘alternative technologies’’ here considering the fact that most European logistics services because a needs- and demand-based perspective of market assessment are now offered in a widely open € 900 bn relevant should include the substitution options based on the availability of logistics market. Segmentations should consider a alternative technologies). 123 62 Logist. Res. (2011) 3:49–65 Fig. 6 A generic description and segmentation grid for logistics markets—illustrated for the ‘‘time definite express freight’’ market segment • Steps 4 and 5 conclude the stepwise process of setting 2. General freight transport with standardized truck, the boundaries of a relevant market by establishing wagon and container equipment temporal and geographical horizons, to which an 2.1 Short-Haul/Short-Line assessment and analysis of the intensity of competition 2.2 Long-Haul should refer. 3. Freight transport with specialized vehicle equipment 5.3 Reconstruction of an integrative market 3.1 Tank and silo transportation segmentation structure and standardized 3.2 Miscellaneous freight transport with special- measurement process ized equipment (e.g., automobile, flat glass, refrigerated, or jumbo transportation) A standardized logistics market segmentation structure, which is consistent with the considerations discussed 4. Logistical integration and value-added services for above, has been suggested in the study [13] as follows: bulk and full-load cargoes I. Markets for Bulk and Full Load Cargoes: II. Markets for standardized and non-standardized Less- than-Truckload (LTL) cargo 1. Bulk Commodity Transport 5. LTL networks for standard ‘‘dry’’ freight 1.1 Short Haul/Short Line 6. Consumer goods distribution transport (‘‘neo- 1.2 Long Haul bulk’’) 1.3 global/maritime ‘‘specialized Bulk’’ 7. Specialized LTL networks (garments, hi-tech, 1.4 global/maritime ‘‘standardized—Container’’ furniture, etc.) 8. Warehouse and terminal services, port, storage, 35 and other supplementary services not included in According to this demarcation, the total annual volume for the other logistical services geographical area under consideration can be calculated (in this case € 200 billion for all logistical services in Germany in 2009). The other 9. Integrated consumer goods contract logistics data presented are the orders of magnitude taken from Klaus et al. 10. Integrated industrial contract logistics [12] and consolidated for the purposes of Illustration. 10.1 industrial procurement and production Short-haul transport refers to local and regional operations where vehicles typically operate from a local basis to which they return logistics within one shift. Short-Haul/Short-Line operations are quite distinct 10.2 industrial distribution and spare parts organizationally and with respect to equipment used from Long-Haul logistics operations. 123 Logist. Res. (2011) 3:49–65 63 Fig. 7 Illustration of Systematized Market Share Assessment—European Full-Truckload Market III. Markets for CEP—parcel, courier, and specialized calculating market shares and providing a consistent express freight logistics quantitative basis for the assessment of intensities of competition. 11. Regional, national, and European CEP services 12. Global integrator and airfreight services 1. Illustration of the Reconstructed Market Measurement Concept Using a Selected European Logistics Market IV. General integration and value-added logistics ser- as an Example vices activities This process and the results it delivers are illustrated 13. International forwarding through the following five-step procedure and through two 14. ‘‘4PL’’ and ‘‘non-asset based’’ contract logistics representative examples in Figs. 7 and 8: This structure is widely compatible with the data his- 2. As a first step, a qualitative profile and description of tories and consolidation methods which have evolved in the boundaries of a ‘‘relevant market’’ is established by the ‘‘Top 100’’ studies ([12], 2010). highlighting the relevant cells in the grid (following Fig. 6). 5.4 Toward a systematic process of assessing market shares and intensities of competition in logistics For the purpose of illustration the market for non- specialized, standard full-load transportation is The study [13] reported in this paper, as its final, practically highlighted in Fig. 7 in both the upper and the useful result, suggests a systematic, standardized process of lower section of the grid. 123 64 Logist. Res. (2011) 3:49–65 Fig. 8 Illustration of Systematized Market Share Assessment—German ‘‘Time-Definite Express Freight Market’’ 3. Quantitative assessment of sales volume of the ‘‘rel- In Fig. 7, this company’s revenue after the assumed evant market’’: merger is assumed at € 6 bn. Next, the total sales volumes of the relevant 5. Determining the market share of the company to be market—for the observation period and geographi- considered from a competitive point of view: cal horizons selected—will be entered in the upper The comparison of the sales volumes of the section of the grid in Fig. 7. Data are drawn from the ‘‘relevant market’’ of € 69 b. and of the company annual ‘‘Top 100’’ survey of the European logistics under consideration of € 6 b. results in a market markets, showing a total volume of sales. share estimate of 8.7%. For non-specialized truckload moves in Europe of € 69 bn per year. 6. Case-Related qualitative assessment of the intensity of competition 4. Assessment of the relevant sales volume of the company whose competitive position is to be analyzed If the examination of market shares identifies a (for example under consideration of an assumed potentially anti-competitive constellation, more merger): extensive qualitative assessment of the case will be necessary. This will have to take into account whether any high market share can be considered as temporary or permanent, whether there is potential The data used here are drawn from a recent study of the European competition or specific reasons justifying an full truckload market [11]. 123 Logist. Res. (2011) 3:49–65 65 10. Heskett J (1972) Interorganizational problem solving in a channel unusually high markets based on the arguments of of distribution. In: Interorganizational decision making, confer- the ‘‘more economic approach’’. ence, Chicago 11. Klaus P (2010) Machtig, unbeliebt, unprofitabel—und wenig Figure 8 illustrates a second example where an imagi- verstanden? Der LKW Ladungsverkehr in Europa und seine nary merger between two companies would achieve a Zukunft. In: Festschrift fu ¨ r Hans-Christian Pfohl. Gabler Verlag, dominant market position. Wiesbaden, im Druck The systematic process of defining and measuring 12. Klaus P, Hartmann E, Kille C (2009) Top 100 in European transport and logistics services 2009. DVV Medien, Hamburg markets and, ultimately, assessing the intensities of com- 13. Klaus P, Kille C, Roth M (2010) The intensity of competition in petition in a given case is believed to be ‘‘generic’’ in the European markets for logistics services. Fraunhofer Verlag, sense that it could help the companies and authorities to Stuttgart better and more consistently act and control today’s and 14. Langley CJ Jr, CapGemini/USA (2010) The state of of logistics outsourcing—2007 third-party logistics, results and findings of tomorrow’s logistics markets in Europe. the 12th annual study. Georgia Tech, Atlanta Ga., USA 15. Levitt T (1960) Marketing Myopia. Harvard Business Review, Repr. July–Aug 2004, p 138 16. Manner-Romberg H et al (2009) Prima ¨rerhebung auf den Ma ¨rk- References ten fu ¨ r Kurier-, Express- und Paketdienste. Im Auftrag der Bundesnetzagentur. MRU GmbH, Hamburg 17. Marshall A (1890) Principles of economics. Macmillan and Co., 1. Abbot L (1955) Quality and competition. An essay in economic London theory. Columbia University Press, New York 18. Mu ¨ ller C (2007) Abschied vom Bedarfsmarktkonzept bei der 2. Arnheim E (1991) Der ra ¨umlich relevante Markt im Rahmen der Marktabgrenzung. Nomos Verlag, Baden-Baden Fusionskontrolle. Heymanns Verlag, Mu ¨ nster 19. Neiser J (1981) Die Praxis der deutschen Fusionskontrolle: die 3. Beckmann P (1968) Die Abgrenzung des relevanten Marktes im deutschen Erfahrungen bei der wettbewerbsrechtlichen Beurtei- Gesetz gegen Wettbewerbsbeschra ¨nkungen. Gehlen Verlag, lung von Unternehmenszusammenschlu ¨ ssen unter Beru ¨ cksichti- Berlin Zu ¨ rich gung der amerikanischen Praxis Duncker Humblot, Berlin 4. Bowersox DJ, Calantone Roger J, Rodriguez Alexandre M (2003) 20. Neveling K (2003) Die sachliche Marktabgrenzung bei der Estimation of global logistics expenditures using neural net- Fusionskontrolle im deutschen und europaischen Recht. Medien works. J Bus Logist 24(2):21–36 Verlag Ko ¨ hler, Tu ¨ bingen 5. Bowman EH (1974) Epistemology, corporate strategy and aca- 21. Schmidtchen D (2005a) Der more economic approach in der deme. Sloan Manag Rev 15. Jg. Wettbewerbspolitik. In: German working papers in law and 6. Clark JB (1901/1980) The control of trusts. Macmillan and Co., economics, Vol 2005. p 6 Englewood Cliffs 22. Schmidtchen D (2005b) Effizienz als Leitbild der Wettbewerb- 7. Davis HW, Company (2007) Aktuelle Fortschreibung der Davis spolitik: Fu ¨ r einen more economic approach. 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Journal

Logistics ResearchSpringer Journals

Published: Mar 23, 2011

References