French and German road freight companies saw impressive growth in the 1990s through deregulation and the birth of a single European market (Exhibit 5). But recent competitive trends threaten the road freight industry, and companies must improve operations using information technology and continue the wave of consolidation.
Slow Information Technology Adoption
Deregulation and the increased demand for cross-border deliveries in a common European market drove productivity in French and German road freight the '80s and '90s. More competition led to consolidation, increased truck sizes, and improved processes.
IT investment (Exhibit 6), meanwhile, was more limited. Companies invested in network optimization and back-office automation, but these improvements accounted for only about 1.0 percent CAGR growth. French and German companies also worked to increase information visibility (i.e., tracking loads and capacities within the network) and to integrate IT systems from acquired companies. Productivity benefits from these steps are expected only in the next decade.
U.S. has Technology and Time Advantage
Despite France and Germany's efforts - and successes in - narrowing the productivity gap with the U.S., their road freight industries still lag 20 percent behind. More than half of the difference in productivity levels between the two European countries and the U.S. is due to the latter's more intensive use of IT. The U.S. industry is more advanced in its use of IT to improve efficiency.
Much of the advantage that American companies can claim is based on timing. Deregulation in France and Germany took place during the 1990s, while the U.S. passed through this stage in the 1980s. After U.S. companies went through a post-regulation wave of consolidation, they used IT to optimize their networks and to improve capacity utilization a full decade ahead of their European counterparts.
Challenge to Freight Companies
French and German road freight companies are at a crossroads. Falling prices have cut margins, consolidation has only just started, and lower-wage Eastern European companies are waiting in the wings to join the European single market. To continue diminishing the gap with the U.S., France and Germany will have to follow the U.S. example. Launch this chapter (PDF - 244 KB)
