ProLogis Releases Study Results - Analyst Blog

ProLogis (PLD), a leading global provider of distribution facilities, recently came out  with its research on the supply chain mechanism in Europe, focusing specifically on transport collaboration. The research report, titled “Transport Collaboration in Europe,” explored the various options available to individual companies to collaborate with both competitors and non-competitors in order to reduce the transportation costs.

The in-depth study analyzes the market statistics gathered from various sources including indigenous reports prepared by ProLogis market officers through primary research, industry data, reports by brokerage companies and data providers.

Transport collaboration refers to collaboration among organizations engaged in transportation activities to facilitate cost reduction through optimum utilization of available resources. It can be classified in to several sub-categories such as functional, intra- or inter-industry, intra-international, strategic and operational, equity arrangement, and supply chain.

The supply chain category is further subdivided into vertical, horizontal and lateral collaboration. Vertical collaboration refers to the strategic alliance along different levels in the supply chain, while horizontal collaboration is among companies within the same level of the supply chain. Vertical and horizontal collaboration can be both integrated to form lateral collaboration among participating companies.

The report revealed that freight transport costs accounted for approximately 30% of total supply chain costs in Europe, owing to which various companies are exploring both horizontal and vertical transport collaboration. The study unearthed that an increasing array of companies have started practicing horizontal collaboration to minimize costs. In horizontal collaboration, organizations need to work in unison with their competitors.

The primary objective of this collaboration is to reduce ‘the empty truck problem' through transportation exchange. For example, if a shipment is carried in one haul (line-haul or back-haul), the shipper could either request a shipment for its empty route from other shippers (in-sourcing), or offer the shipment to another shipper who can carry it  out on its behalf (out-sourcing).

The report also divulged that horizontal collaboration has inherent problems that need to be overcome, the primary among them being lack of mutual trust between competitors. If an organization does not feel confident about sharing information, it will discontinue providing vital know-how essential for the success of the program.

However, the report stressed that the potential cost savings and other benefits surpass the risks to such an extent that third-party organizations and logistics parties are gradually being induced to make horizontal collaboration a sucess story.

ProLogis owns and manages interest in over 2,400 distribution facilities, service offices, and properties spanning 475 million square feet (including properties under development) of space. The company leases its industrial facilities to over 4,400 customers, which mostly include manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs.

ProLogis integrates international scope and expertise with a strong local presence in markets to ensure accurate and seamless flow of goods to appointed destinations. The distribution facilities of the company function as processing centers for goods for its customers, enabling them to store adequate inventory to meet increased demand and mitigate the risks from a possible breakdown in the supply chain.
 
We maintain our Neutral recommendation on ProLogis, which currently has a Zacks #3 Rank that translates into a short-term Hold rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a Neutral rating and a Zacks #3 Rank for AMB Property Corp. (AMB), a competitor of ProLogis.