News / Europe's defence spending boost means more demand for specialised logistics

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A sharp increase in public spending on defence in Europe is set to transform the armaments industry, driving a surge in production output, and with it a potentially significant increase in demand for specialised logistics.

A study this year by management consultant Kearney estimates that an increase in defence spending to 3% of GDP would require up to 760,000 new skilled workers in Europe – a clear indication of the size the industry could to swell to.

But recently, NATO announced it would be going further, its member nations making a commitment to spending 5% of GDP on defence by 2035.

There are numerous examples of defence industry firms already being engaged in a hiring spree. Germany’s Rheinmetall, the continent’s largest ammunition maker, is reported to be boosting its workforce by around 29%, or up to 9,000 people, by 2028, primarily product developers, engineers, welders, and electronics technicians.

Faced with shrinking demand in their core business, automakers like Volkswagen and Daimler are said to be mulling a greater presence in military vehicle production.

Kearney’s study did not examine the impact of increased defence spending on demand for logistics specifically. However, one of its authors, Guido Hertel, told The Loadstar that in Germany, the authorities had drawn up documents outlining the concept of Drehscheibe Deutschland, which acknowledges the country’s new role as a logistics hub in the event of a large-scale defensive operation.

“This may indicate a need for increased logistics capacity, especially as the German government is allocating additional funds to defence and infrastructure, including that for railways, airports, roads, bridges, etc,” he said.

Defence spending is already ramping up, according to ING’s senior sector economist, transport & logistics, Rico Luman.

“It’s unlikely we’ll see an immediate surge, rather a steady increase as the net spending target should be reached by 2035. With heavy industry still struggling with high energy costs, hitting production levels structurally, its muted growth could counter some of the positive impact of the defence spending hike,” he told The Loadstar.

Nevertheless, he highlighted “massive new capital investments” that would bolster manufacturing activity in Europe, as well as the construction sector – Germany is targeting significant transport infrastructure development. This is set to strengthen overland transport provision which faces the prospect of having to accommodate more raw materials coming in via the ports.

“In the Netherlands, the defence ministry is already closing long-term contracts to secure transport capacity,” Mr Luman added.

FreightAmigo, a digital supply chain finance platform, claimed on its website that the boom in the European defence industry was likely to have “far-reaching effects on the logistics sector.”

There would be a greater need for cross-border specialised container shipping and freight transport services, while the industry’s stringent security measures would create new challenges and opportunities for LSPs, it noted.

The management of complex and intricate supply chains, necessitating advanced logistics coordination, will become a much sought-after skill.

However, a number of LSPs already present in the vertical, contacted by The Loadstar, were tight-lipped on the prospects.

“No comment,” said Mads Drejer, global COO and EVP of Denmark’s Scan Global Logistics (SGL). In 2021, SGL won a seven-year contract, valued at DKr1.8bn ($276m) with Denmark’s Ministry of Defence Acquisition and Logistics Organisation, while other clients include defence contractors to the UN, NATO and the the US government.

There was a similar reply from Geodis, a member of France’s Land and Air Defence and Security Industries Association, GICAT, while DHL referred to the group’s Strategy 2030, which focuses on investing in rapidly growing sectors such as life sciences & healthcare, new energy, and ecommerce.

“These are the areas we are currently prioritising, as we see significant development potential in them.”

It is difficult to assess how much of defence/military-related transport and logistics in Europe is carried out in-house and what percentage is outsourced.

“That’s something I don’t have the answer to really,” said Mr Luman. ”I would assume that little is outsourced currently, for security reasons. But the question is whether that can last, given the planned expansion. Some less-sensitive logistics may be optional for outsourcing, such as the transport of less-sensitive equipment.

“It could provide incumbent LSPs in the vertical with more opportunities and open the door to new entrants. But they should be aware that, given the degree of specialisation required and the associated sensitivity, they will have to go through very strict and extensive qualification procedures.”