1. • Click to edit Master text styles
• Second level the Outsourced Supply Chain
Globalise
• Third level
Opportunities in Eastern Europe & Beyond
• Fourth level
Jeremy Davidson
• Fifth level
25th November 2010
Opportunities in Eastern Europe & Beyond Slide No. 1

2. Key Themes
 Black Sea region is recovering from recession
• Click to editgrowth in demand critical
o Consumer-led Master text styles
•
 Second level
Black Sea has considerable potential as a key Gateway for C & E Europe as
• Third level
well as Central Asia
• Fourth level
o Shipping FE Imports via N Europe no longer makes sense; direct
shipment a viable and better alternative
• Fifth level
 W Europe retailers already dominant and changing logistics practices
 Controlling logistics cost as important as in W Europe
Opportunities in Eastern Europe & Beyond Slide No. 2

3. Black Sea Region Overview
GDP per capita
• Click to edit Master text styles Pop (m) Per Capital GDP
• Second level Russia
2009
142
in 2009
$15,176
Turkey 75 $13,952
• Third level Ukraine
Romania
46
22
$6,873
$12,214
•
Bulgaria 8 $12,296
Fourth level
Average EU-27 $30,651
• Fifth level Average OECD $33,732
 Per capital GDP & Consumption half of EU-27 average
 Growth potential in consumption greater than EU
 Large populations looking to improve standard of living
 Increase in demand for FMCG & Consumer Durables
Opportunities in Eastern Europe & Beyond Slide No. 3

4. Recovery from Recession
GDP Change in Black Sea Economies
2008 - 2011
10.0%
5.0%
• Click to edit Master text Effect of 2008-09 Recession
styles
Major Economies
0.0%
• Second level
Russia Turkey Ukraine Romania Bulgaria 2008
2009
-5.0% % change GDP Exports Imports
•
2010F
-10.0%
Third level Canada
France
-3.1
-3.2
-19.2
-15.0
-19.0
2011F
-12.5
•
-15.0%
Fourth level Germany
Italy
-6.3
-6.5
-18.2
-23.9
-12.9
-19.0
-20.0% Japan -8.0 -32.1 -20.5
• Fifth level United Kingdom
United States
-5.9
-3.5
-13.3
-12.6
-16.7
-19.5
 Decline in region similar to that
Euro area -5.1 -17.8 -15.3
seen in leading economies OECD total -4.7 -15.7 -17.4
 RU & TU expected to recover Russian Federation -9.7 -12.9 -35.1
strongly
 RO & BG slower recovery forecast
 Projected growth rates expected to
be higher than in W Europe
Opportunities in Eastern Europe & Beyond Slide No. 4

5. Investment in BS Region
• Click to edit Master text styles
• Second level
• Third level
• Fourth level
• Fifth level
 Sharp decline in GDP
 Fall off in foreign direct investment
 Reduction in relative County Risk
Scores vs EU-15
 Fundamentals still sound
Opportunities in Eastern Europe & Beyond Slide No. 5

6. Retail Logistics: Key Sector
 Retail logistics spend >50% of total market in W Europe; probably even
higher in BS Region
•

Click to increasing imports from China & SE Asia
BS countries
edit Master text styles
• Second levellabel & cheaper brands
o Growth of own
•
 Most leading retailers are W European and often supply the BS Region
ThirdNlevel ports and ship down (road/rail)
through European
• Fourth level
o Critical mass/economic quantities
•

Fifth level costsrepresent up to 50% of value of goods. Hence
Often freight costs can
reducing logistics critical
o More centralisation
o Direct shipment from countries of origin
o For cheap footwear at €15/pai5, logistics can represent 15%
 On-carriage from ports to RDC’s still problematic; poor road infrastructure
Opportunities in Eastern Europe & Beyond Slide No. 6

7. The Black Sea as a Gateway
 Black Sea (BS) strategically placed as
Gateway to both West & East
• Click to edit Master text styles
 Imports from Far East can be landed in BS
• Second level Ports and shipped inland
• Third level  Infrastructure improving with rail an
increasing option
• Fourth level
 Turkey a critical gateway to Iran, Iraq and
• Fifth level Central Asia
CONTAINER SHIPMENTS IN BLACK SEA - 2009
BULGARIA
 Russia to develop BS ports as alternative
GEORGIA
UKRAINE to Baltics
RUSSIA  Istanbul terminals effective for
ROMANIA transshipment
1.9 M TEU forecast for 2010 vs 1.5 M TEU in 2009
Opportunities in Eastern Europe & Beyond Slide No. 7

8. Leading Retailers in Region
Romania Ukraine Turkey Bulgaria
1 Metro Fozzy Migros Kaufland
•2 Click to edit Master text styles
Carrefour Metro Bim Rewe
•3 Second level Fursnet
Selgros Carrefour CBA
4 Kaufland ASB Metro Picadilly
•5 Third level Kishenya
Billa Tesco Familia
6 Rewe Auchan BTT Carrefour
•7 Fourth level Anastor
Plus Teknosa Metro
•8 Mega
Fifth level Tayriya Kiler Fantastico
9 Auchan Eko Tespo c/c Billa
10 Dederman Rewe Carsi Europa
 Region targetted by retail multiples from W Europe
 Displacing traditional retailers and stimulating demand
 Transferring retailing practices and approach to logistics
 W European 3PL’s have followed – not always successfully
Opportunities in Eastern Europe & Beyond Slide No. 8

9. Black Sea Retailers & FE Imports
• Click to edit Master text styles
• Second level
• Third level
• Fourth level
• Fifth level
 Regional retail multiples source from the same FE vendors as
in W Europe
 Purchasing often remains centralised at Retailers’ HQ’s
 Opportunities for local solutions esp logistics
Opportunities in Eastern Europe & Beyond Slide No. 9

10. Centralisation & Outsourcing
 Centralisation of Logistics by leading retail
multiples vary, on average 20%
• Click to edit Master text styles mass’, supplier
 Problems with ‘critical
• Second level compliance, vehicle utilisation etc
 Centralisation depends on efficient inbound
• Third level collection & consolidation
• Fourth level
Outsourced Logistics in CEE
• Fifth level
Country
 Direct store deliveries common
Outsourced
2008 2012
Poland 23% 35%  Local produce and products still
Hungary 22% 30%
Czech Republic 23% 35% important
Slovakia 13% 25%
Romania 28% 35%  Shortage of suitable 3PL’s
Bulgaria 18% 30%
CEE Total 21% 32%  Level of outsourcing set to increase & 3PL
W. Europe 50% + little change
market will grow
Source: Analytica & NYK
Opportunities in Eastern Europe & Beyond Slide No. 10

11. Direct Shipment to Romania
Nautical
Miles
Shanghai to Rotterdam 10,409
Shanghai to Constanta, RO 7,980
• Click to edit Master text styles Kg CO /ton
2
• Second level
Rotterdam Sea
via Rotterdam via Constanta
327.7 251.2
• Third level Road/rail
Road
Rail
167
0
0.3
6.1
Total 494.7 257.6
• Fourth level Constanta
Reduction via Constanta 48%
• Fifth level
• A retailer importing 2,000 containers/year through Constanta
can save €1.8 million & reduce CO2 footprint by 7,000 t
Opportunities in Eastern Europe & Beyond Slide No. 11

12. © via donau 2006
Using the Danube
• Click to edit Master text styles
• Second level
• Third level
• Fourth level
• Fifth level
 Rail from Hamburg to Krems in Austria
 Shipped by barge to Central Europe and
Black Sea regions
 Can be used in reverse for imports via Constanta
 Significant cost & CO2 savings
Opportunities in Eastern Europe & Beyond Slide No. 12

13. Supply Chain Efficiencies
END-TO-END LOGISTICS COSTS
Delivered to store Cost per cbm
• Click to edit€ Master text styles
ex-China
Sea Freight 78 € 51 € 81
Qtr 1 08 Qtr 2 09 Qtr 2 10
DELIVERY TO STORE
& RETURNS
33%
€ 37 € 36 € 37
OCEAN FREIGHT
Warehousing & ON-CARRIAGE
• Second level168 €€142 €€176
€ 54 55 58
Delivery to store 46%
Total €
• Third level € 1.40
Cost per pair of shoes € 1.18 € 1.47 WAREHOUSING
21%
• Fourth level
What if…. Savings
Cost/pair
€ 0.03
Increase stock-turns by 30%
 Average selling price of a pair of
• Fifth level € 0.06
€ 0.15
Increase drop size by 50%
Increase container loading by 20%
shoes lower in BS Region but
Shipped direct from FE € 0.16
Did all this … € 0.40
logistics cost the same
Savings of 27%  Even more critical to make supply
chain more efficient
 Shipping direct from FE easy to do
and implement
Opportunities in Eastern Europe & Beyond Slide No. 13

14. Streamline the Supply Chain
V Retail RDC R
Origin CFS
• Click to edit Master text styles
E
N
E
T
D A
• Second level
O
R Mfr DC
I
L
S
• Third level Origin RDC
DC Bypass

•Challenges faced by retailers in BS region no different to those in W Europe.
Fourth level
 •Opportunities to streamline & save money by:
Fifth level
o Shipping direct to RDC in region (€20-30/cbm)
o Performing more operations in origin countries (eg Origin DC’s)
 W Europe wages for warehouse worker € 25,000 pa vs €6,000 in RO
and € 3,000 pa in China
o Consolidating across product ranges & co-loading with competitors:
better container fill & lower cost per cbm.
Opportunities in Eastern Europe & Beyond Slide No. 14

15. Shipping can be risky !
• Click to edit Master text styles
• Second level
• Third level
• Fourth level
• Fifth level
Opportunities in Eastern Europe & Beyond Slide No. 15

16. Piracy still a major threat
Reported incidents each month during past 12 months
• Click to edit Master text styles
• Second level
• Third level
• Fourth level
• Fifth level
Opportunities in Eastern Europe & Beyond Slide No. 16

17. THE WORLD IS FOUR-
• Click to edit Master text styles
•
FIFTHS WATER
Second level
• Third level
THE REST IS THERE FOR
• Fourth level
• Fifth level
MOORING PURPOSES !
Opportunities in Eastern Europe & Beyond Slide No. 17