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1. Of Fish and Blouses and the Future of Regional Economies

Published onMar 26, 2020
1. Of Fish and Blouses and the Future of Regional Economies
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A Japanese school girl snatches the last sheer black blouse off the rack at a Zara store in downtown Tokyo. She had popped into Zara for some casual browsing, recognized the blouse from a recent music video, loved it, noticed it was the last one in the store, and feared it might not be there the next time she went shopping. On the other side of the world, a Madrid housewife carefully selects two large fresh fillets of Namibian hake at a Mercadona grocery store. From her experience, she knows that the fish—caught, cut, and packed by Caladero—will be fresh from the sea.

These two very different products in very different locations share a common connection: the products spent a brief stint, perhaps only a few hours, in Zaragoza, Spain, only a short time before they were bought by the two consumers. Zaragoza is no giant metropolis and is known neither for manufacturing clothing nor for catching fish. In fact, with fewer than 800,000 people, the modest Zaragoza metropolitan area has one-sixth the population of greater Madrid or Barcelona. Nor is Zaragoza a big fishing port; it sits 250 kilometers northwest of the Mediterranean and 250 kilometers southeast of the Atlantic Ocean. Some might say that Zaragoza sits in the middle of nowhere.

So why isn’t Zara’s fashion business handled in the clothing capitals of Europe, like Paris or Milan, or in the low-cost textile manufacturing regions of China? Why would the fish-processing company Caladero send 200,000 metric tons of fish a year to an arid, land-locked warehouse 250 kilometers from the sea? The answer lies in the economics of how and where goods move from a myriad of global sources to a multitude of global consumer outlets. These two companies, and many others, chose this particular small city in Spain because of the agglomeration of economic activities, known as a logistics cluster, that is centered there.

The Story of Zara

Although one might think that making a blouse starts with a bolt of cloth, it really begins with a bolt of inspiration. Zara’s young designers and store managers constantly scan the fashion world, celebrity trendsetters, and Zara’s own sales data for ideas and insights into customers’ desires. Like young people everywhere, Zara’s designers go to concerts, party in nightclubs, people-watch, and talk with everyone they know. In the fast-paced world of fashion, speed wins. At Zara, speed means spotting trends quickly, crafting designs quickly, making clothes quickly, and getting them into stores quickly.

For example, when Madonna wore a certain blouse at the beginning of her 2005 concert tour, one of Zara’s 300 designers realized that his customers would love the singer’s look. And with an average of 50,000 screaming fans per concert location, the designer knew that Zara could sell a lot of clothing if it could get the blouse into stores before the concert tour’s buzz wore off.

Most clothing retailers could never have hoped to tap into Madonna’s new look without extensive preparations, market research, and the approval of senior managers—a process spanning many months. These slow and careful processes mean that most clothing retailers stick to just two to four carefully planned major seasons per year (e.g., their spring/summer, fall/winter collections).

But Zara isn’t like most retailers. When Zara designers see a hot new look, they have the authority to do what it takes to bring the idea to market. Zara’s designers don’t need endless committee meetings to launch a new line or tinker with an existing one. They are empowered to tap inventories, redesign garments, authorize manufacturing (by trusted local seamstresses who can quickly sew the pattern), and then ship the new clothing off to stores. In this particular case, Zara designed a Madonna concert–inspired blouse and got it into stores in only three weeks, before Madonna finished her tour1.

Zara’s speedy response to the Madonna concert wasn’t a one-off fluke or the result of a special effort. To go from idea to sales, Zara needs just five to six weeks for totally new designs and only two weeks for a modified design. Thus, as the Economist reported, “When Spain’s Crown Prince Felipe and Letizia Ortiz Rocasolano announced their engagement in 2003, the bride-to-be wore a stylish white trouser suit—which raised some eyebrows among those concerned with royal protocol. But within a few weeks, hundreds of European women were wearing similar outfits”—designed, made, distributed and sold by Zara.

Zara’s fast design-to-display operation may seem risky, but Zara makes only small batches of new styles. If the new style fails to sell well in the first week, Zara cancels it. If a new design does sell well in the first week, Zara might make more until some other new design supplants the old one. Few clothes stay in the warehouse for long. In an average two-month period, the stock turnover will be around 70 percent. Zara’s speed has earned it a sterling supply chain reputation; the stores get all the replenishment products they demand in less than two days.

With so many new styles every week in Zara stores, customers know they will always find something fresh and exciting when they shop. They also know that they need to buy fast, because Zara replaces styles very quickly. As Luis Blanc, a director for Zara’s parent company Inditex, explains, “most important, we want our customers to understand that if they like something, they must buy it now, because it won’t be in the shops the following week. It is all about creating a climate of scarcity and opportunity.”2 The result: the average Zara customer visits a Zara store an average of seventeen times per year, compared to an average of three visits per year for customers of other clothiers.

Local Labor: A Small Price to Pay for Faster Response

Haute couture, perhaps, but Zara can’t be expensive. To keep costs low, Zara optimizes and automates its logistics operations. Leading-edge robots take instructions from state-of-the-art algorithms to handle most of the tasks in Zara’s massive distribution center, which is located in the middle of the immense Zaragoza logistics park.

Although Zara automates many manufacturing and logistics activities, sewing still requires deft human hands. For fast fashion items, like the Madonna-inspired blouse, Zara relies on a network of hundreds of local sewing cooperatives in northwestern Spain and northern Portugal. Although these small shops are among the least expensive in Europe, their labor costs are six to sixteen times higher than those of their Chinese counterparts used by most other clothiers.

But Southern European workers offer something that China can’t: affordable speed. Ocean freight from China to Europe adds three to seven weeks to the design-to-display process and to the replenishment cycle time. Fast airfreight from China to Europe costs many times more per kilogram than ground transportation within Europe (and has a heavy carbon footprint). Using nearby producers means fast turnaround—an order of magnitude faster than competitors—obviating the need to forecast what customers will want many months in advance. As a result, Zara stocks lots of fresh merchandise on the shelf when consumers want it and avoids having too much stale merchandise that can be moved only by lowering the price. Fast revenues and very little discounting lead to superior financial results. “If you produce what the street is already wearing, you minimize fashion risk,” notes José Luis Nueno, a marketing professor at IESE Business School in Barcelona.3 To get from hundreds of factories to hundreds of stores—each with the right assortment, colors, and sizes—Zara uses the Zaragoza distribution center.

Zara Comes to Zaragoza

Despite the similarity of names, Zara didn’t start in Zaragoza but in the town of Arteixo in the extreme northwestern corner of Spain, just off the Atlantic’s Bay of Biscay. Zara grew rapidly with its savvy eye for fashion and quick design-produce-distribute retailing model. As the company expanded, it started thinking about a location for a new state-of-the-art distribution center to handle the shipments to retail outlets in the seventy-seven countries where it does business.4 “We needed a location closer to Europe than the existing facility in northwest Spain,” said Raúl Estradera, Zara’s director of communications and industrial relations. “It needed to have a good transport infrastructure and qualified human resources.”5

While Zara’s parent company, Inditex, was inking a deal with the Spanish community of Catalonia to build a large new distribution center in Barcelona, the neighboring state of Aragón and the city of Zaragoza were crafting a bold plan to build the largest logistics park in all of Europe, called PLAZA (Plataforma Logística de Zaragoza). Zaragoza and Aragón envisioned a literal “green field” development that would convert farmland into a bustling 1,200 hectare (3,000 acre) logistics park with excellent highway, rail, and airfreight connections. Hearing of Inditex’s intention to build in Barcelona, the Aragónese creators of PLAZA rushed to woo the retailer to PLAZA. PLAZA’s organizers knew that Inditex’s reputation for logistics expertise would make Inditex a key first customer that would validate the PLAZA project. If Inditex said “yes,” then others would come to PLAZA, too. And if Aragón could get PLAZA off the ground, the large size of the park and the resulting economies of scale would deter others in southeastern Europe from building competing facilities.

Inditex agreed to abandon the Barcelona deal and come to Zaragoza, but only if PLAZA accelerated its development plans to meet Inditex’s schedule for opening the distribution center. Inditex insisted on stiff multimillion euro penalties for any delays, and PLAZA’s government developers—with obvious trepidation—agreed. In 2002, Inditex sent a team led by Jorge Méndez, Lorena Alba, and Juan Villacampa, who make up the core of the firm’s logistics department, to Zaragoza to oversee the development of what was at the time the first fully automated warehouse facility at Inditex. By 2003, Inditex had inaugurated the gargantuan distribution center, covering a whopping 120,000 square meters (1.3 million square feet)—about the size of twenty-three American football fields—under one roof. The structure is 20.8 meters high, about seven stories.

Orderly Ordering: A Choreography of Clothing

Zara’s distribution center typifies the kind of activities that take place in modern distribution facilities. Twice a week, Zara replenishes its stores to keep the latest fashions in stock and to deliver new designs to its retail outlets. Store managers review the list of available items provided by headquarters and submit their orders by 7 o’clock every Monday morning, after the busy weekend selling period. Zara’s commercial department then allocates inventory to stores, a process that includes the challenge of allocating high-demand clothing for which store orders exceed the available supply. Next, Zara’s Warehouse Management System converts the clothing allocations into millions of commands to robots that pull the allocated articles of clothing out of storage, place them onto conveyors, and send them to the automated sorting equipment that routes each garment to the right packing area. Once packed, each box of garments is loaded and shipped to one of more than 1,500 Zara stores worldwide.6

Zara’s systems automation manager, Jorge Savirón, is a man with a mission. “The job we have here at the distribution center is to serve the stores with the products they need, on demand and on time,” he told me as we walked through the mammoth building. To keep equipment utilization high, this automated warehouse splits each of the two weekly picking-and-packing operations into four half-day batches: one on the Monday/Tuesday and the other on the Thursday/Friday work cycle. On each day, sorting ends by 5 p.m. to meet the loading deadline for the outbound trucks and airfreight shipments at the nearby Zaragoza airport.

Although 800 people work inside the Zara distribution center in Zaragoza, the vast scale of the facility, the extensive automation, and the multiple work shifts make the building seem eerily empty. A few people appear here and there, standing out amid the shine of state-of-the-art mechanical equipment housed in the enormous complex. Robots replace manual-labor workers, conveyors replace forklift drivers, barcodes and scanners replace human eyes, and computers replace paper files and clipboards. Workers oversee the machines, monitor the progress of each picking, packing, and loading cycle, and make sure the right clothes go to the right store on the right truck. Ubiquitous computer terminals and hand-held scanners make it possible for a small crew to handle millions of items a week under tight deadlines with high accuracy.

Trucks Outbound, Inbound, and All Around

On one side of the distribution center, workers load clothes into dozens of trailers for delivery to Zara stores around Europe. Because no one Zara store needs a full truckload of clothing twice a week, Zara consolidates multiple store orders on each trailer. Workers load each trailer in reverse order of deliveries: the last box in the trailer will be the first one out at the first delivery stop. In some cases, a truck from Zaragoza drops its load at a small distribution center in the destination country or city, and smaller trucks perform capillary distribution to the individual stores. Clothes bound for overseas outlets go by air.

When the workers load the last item in a trailer, a big silver Mercedes tractor backs up to that trailer, hitches to it, and pulls the trailer onto Spain’s wide-open highways for the delivery run.7 On the other side of the warehouse, similar silver Mercedes trucks back their trailers into the distribution center’s loading bays to replenish the warehouse. As of 2011, Zara could deliver product ready for sale to all European stores within 24 hours and all stores worldwide within 48 hours.

Wanted: More Space and More Speed

As Zara grew from a single store opened in 1975 on a downtown street in A Coruña, Spain, to more than 1,500 stores worldwide in 2011,8 it grew its Zaragoza distribution center as well. Only a few years after the Zaragoza facility opened, Zara enlarged it by 50 percent to a total of 180,000 square meters (nearly two million square feet). Adding physical floor space was just one of Zara’s solutions to growth. Innovation, in the form of new processes and upgraded software, doubled the capacity of key pieces of equipment. While the size of the Zara distribution center increased by 50 percent, its productive capacity increased by more than 100 percent. Zara anticipates more growth in the years ahead. By 2014, it expects to sort a million garments per day and have automated storage systems holding some thirty-four million articles of clothing. Inditex has invested more than 220 million euros in Zara’s Zaragoza distribution center, generating 800 direct jobs and an estimated 1,600 to 2,000 indirect jobs.

Flying Fish

Forty-five nautical miles off the coast of Namibia, the Nora hauls in the final catch of the day. Like other fishing boats plying these waters, the Nora comes here to take advantage of a rare natural occurrence. Off the southwest coast of Africa, dark cold waters well up from deep in the Atlantic, bringing nutrients and an ecosystem of plankton and other sea creatures that produce a rich bounty of fish. Spaniards’ favorite white-meat hake and flavorful horse mackerel thrive in these waters. Only a few places in the world produce these marine multitudes; one location is here, making Namibia’s sparsely populated 1,500-kilometer-long coast a fertile fishing ground.

To bring this bounty to market, boats like the Nora set out from Walvis Bay, Namibia, and other African ports. Using either nets or long lines of hooks, the fleets of fishermen cast their luck to Neptune and hope for a full hold of fish for Caladero, the largest processor and distributor of fresh fish in Spain. Catching the fish is the first of a long chain of events that brings the fish from Namibia to places like one of Madrid’s supermarkets.

Below deck, the crew of the Nora quickly stores the catch in high-performance refrigerated storage facilities. The Nora’s hold keeps the fish in ideal conditions: very cold but never frozen. The moment the Nora pulls the fish from the ocean, Caladero’s freshness clock begins its inexorable countdown. Because the Spanish are the second-largest consumers of fish per capita, behind only the Japanese, Caladero knows it must please a very discerning clientele. Even with the best of refrigeration technology, Caladero must get the fish into consumers’ kitchens within a few days to ensure the freshest “taste of the sea” flavor.

What’s the Catch of the Day?

Like all fishing boats, the Nora’s catch varies from day to day. That poses a real challenge for Caladero, because getting top dollar for fish means selling the fish fresh—not frozen—and that means selling everything the boat catches rather than what each food retailer might have ordered. Caladero doesn’t want any surprises in terms of unsold fish or unhappy customers.

Fortunately, information travels faster than fish. As the boat turns for home, the Nora’s captain calls Caladero on a satellite telephone. Caladero asks only one question of the captain: “What is the catch?” Today, the captain has good news. The Nora snagged large numbers of hake and a smattering of orange roughy, a fish sometimes referred to as “the diamond of the sea.” Caladero records the data about the catch from the Nora as well as other boats around the world—from the waters of Nova Scotia to Peru, Scandinavia, India, and Japan—and immediately starts contacting grocery store chains and retail fish markets to negotiate orders and to craft retail promotions if the day’s catch was larger than expected. Caladero wants to find a home for every fish the Nora caught before those fish ever arrive in Spain.

The Route of a Trout

After reaching the port, Namibian officials inspect the catch to ensure the Nora pays her taxes and doesn’t exceed her quota. Next, the fish goes to Caladero’s processing plant for sorting and packing for the journey to Spain. Stacks of Styrofoam trays hold heavy mixes of fish and ice. As the crow flies, 7,260 kilometers lie between Walvis Bay, Namibia, and Madrid, Spain. In theory, direct operations could fly fresh African fish straight to the Madrid airport in only eight hours. Add a few hours on either end for loading, unloading, retail distribution, and packing, and fish could go from the fisher’s boat to the shopper’s basket in one day.

But that’s not what happens, for two important reasons. First, Walvis Bay provides only a relatively small fraction of Caladero’s fish supplies from Africa. Furthermore, this amount fluctuates from one day to the next. The catch at Walvis Bay wouldn’t consistently fill even a small freighter plane. Second, Walvis Bay has only 80,000 people, which means very little airfreight traffic comes to it. For direct airfreight operations, Caladero would need to pay the full cost of an empty plane to come to Walvis Bay and then pay for the flight to Spain, even if the flight to Spain was half empty. To make the fish affordable, Caladero consolidates all of its African fish supplies at the nearest big airport, which is Johannesburg’s international airport in South Africa. Such consolidation achieves two important goals: First, it justifies the use of a very large cargo plane to take the fish coming from several African ports to Spain—thereby lowering the cost per pound flown. Second, the combination of loads from many boats in multiple African ports tends to arrest the daily fluctuations of each boat’s catch. Highs and lows from different boats and ports tend to cancel each other out, allowing Caladero to plan its transportation needs with confidence.

Thus, instead of a fast flight to Spain, Caladero’s fish cross 1,200 kilometers of forbidding Kalahari Desert to reach Johannesburg. With as much as 500 kilometers between gas stations in the desert, Caladero trusts its perishable cargo only to special trucks with additional fuel tanks, advanced refrigeration units, and seasoned drivers. Two border crossings (Botswana and South Africa) and animals on the highway add to the challenges of getting the fish to Johannesburg on time. Sensors constantly monitor the temperature of the truck’s precious cargo, ensuring that the Kalahari’s worst doesn’t spoil Caladero’s best.

Into the Belly of the Beast

As the catch of the day trundles its way across the hot, dusty stretches of Namibia, Botswana, and South Africa, a Boeing 747 freighter flies to meet it. The 747 is one of the fastest, largest commercial cargo planes in existence. Four engines with a total of nearly a quarter of a million pounds of thrust push the 875,000-pound loaded plane to a cruising speed 85 percent the speed of sound. On this southbound journey, the plane that will carry Caladero’s fish does not come to South Africa empty. Rather, it carries fashionable clothing, high-tech equipment, medicine, and other items that are either of high value, perishable, or in need of timely delivery.

On the ground, the sleek leviathan reveals a big secret. The nose of the plane flips high into the air to expose a gaping maw 8 feet high and 10 feet wide that opens onto a cavernous deck over 170 feet long. A second 10-foot high door behind the wing and smaller fore and aft lower deck cargo doors provide full access to all the cargo areas. Special powered rollers built into the deck enable workers to quickly load up to thirty 8-foot by 10-foot pallets of freight on the main deck and another thirty-two standard airfreight containers on the lower deck.

As the freshness clock ticks, the airfreight operations at Johannesburg do what they can to speed the turnaround-time of the plane. Caladero already has its pallets of fish sitting in a refrigerated warehouse near the plane and ready to go as soon as the carrier unloads it. The ground crew quickly loads the cargo, secures it, and completes the paperwork for the flight.

The Economics of Maximum Capacity

This whale of a plane can swallow almost a quarter of a million pounds of fish for the journey to Spain. For both Caladero and the airfreight company, filling the plane to maximum capacity makes economic sense because it minimizes the cost per unit of cargo. But this issue reveals a crucial fact about the economics of logistics. Planes, trucks, rail cars, ships, and other logistics conveyances have two definitions of capacity: weight and volume. A Boeing 747-8F freighter can carry a maximum of 308,000 pounds (140 metric tons) of cargo, or it can carry a maximum of 30,000 cubic feet (858 cubic meters) of cargo. In freight transportation lingo, if a conveyance carries very dense cargo, such as fish, engine blocks, or liquids, then it is said to “weigh-out” when it reaches its weight limit before its volume limit. For example, 308,000 pounds of liquid (e.g., water) fills less than 5,000 cubic feet or 1/6 the volume capacity of the plane. On the other hand, if a conveyance carries very light cargo, such as fluffy fabrics or fragile goods surrounded by packing peanuts, then it is said to “cube-out” when it reaches its volume limit before its weight limit.

For Caladero and the airfreight company to really get the highest-utilization, least-cost shipping—or greatest profit from a plane, truck, or other conveyance—the freight planners try to combine dense and light cargo to reach capacity nirvana: filling every cubic foot while tipping the scales right to the weight limit. Like a real-life game of Tetris, these planners optimize the shape, size, and weight of consolidated freight as much as possible. In the case of Caladero’s chartered 747, the company talked with Inditex (the parent of Zara) about filling the unused volume of the 747. Caladero and Zara are located next to each other in the Zaragoza logistics park, PLAZA. Also, Zara has a need to import wool. South Africa is the world’s largest producer of mohair and fifth largest producer of wool. Fluffy fabrics or yarns make the perfect lightweight cargo to counterbalance the dense pallets of fish. By combining the two cargos with just the right mix of weight and volume, Caladero and Inditex can both enjoy lower shipping costs.

Destination: Less-Known

Occasionally, on its way to Europe, the plane will dip down for a quick stop in Uganda to pick up a load of fresh Nile perch, and that evening the fish will arrive in Spain. But the 747 does not fly to Madrid, the largest city and largest airport in Spain. The reason is that as big as Madrid is, the city doesn’t consume enough of Caladero’s fish to justify chartering such a large plane flight just for that city. So, instead of going direct to Madrid or any of the other large Spanish cities, Caladero’s fish goes from Johannesburg, South Africa, to Zaragoza, Spain.

Zaragoza’s airport has less than 1 percent the passenger volume of Madrid (435,000 vs. 48 million passengers a year). In 2010, Zaragoza airport handled only about 35 daily civilian aircraft operations, as opposed to 1,200 aircraft movements a day in Madrid. Thus, planes can take off and land in Zaragoza almost anytime they like. Despite its small population size, however, Zaragoza doesn’t have just a small commuter airport with puny runways. In the 1950s, US Air Force engineers helped enlarge the airport to handle the heaviest military aircraft for the Cold War, such as bomb-laden B-52 strategic bombers. Even today, the Spanish Air Force still uses the facility; and the airport provided a backup landing site for the US Space Shuttle. As a result, the extra-long, heavily reinforced runways provide a perfect landing and take-off spot for loaded air freighters like the one carrying Caladero’s catch of the day. In this way, Zaragoza enjoys a peace dividend in the form of high-capacity infrastructure now being shared with civilian freight applications.

From Net to Slam-Dunk in Sales

As the loads of fish sail into Walvis Bay, truck across the Kalahari, and fly toward Zaragoza, Caladero works feverishly to find buyers for the inbound catch. This task of matching inbound supply to outbound demand falls on the athletic shoulders of Alfredo Fabón García, the commercial director at Caladero. The former professional basketball player9 uses his two meters (6'7") commanding presence to lead a fast-paced team. As information about fish supply and supermarket orders floods in, he speaks with the urgency of a team coach facing seconds left on the clock during a big game, because the freshness clock never stops.

While the chartered 747 flies to Zaragoza, Alfredo worries about more than just that one African fish shipment. African fish comprise a small part of Caladero’s global network of over two dozen seafood sources. Caladero owns over eighty fishing vessels deployed around the world. Other planes bring fish from such places as Chile, Argentina, Canada, Vietnam, Japan, and the Indian Ocean to converge on Zaragoza. Moreover, Caladero hauls in more than just fresh wild-caught fish; it also buys farmed fish such as salmon, bass, bream, and turbot, as well as frozen shellfish such as shrimp, prawns, cuttlefish, and squid. In total, the company handles over a million pounds of fish and seafood every single day, of which about 75 percent is wild. Just as Johannesburg consolidated several African fish sources in one location, so, too, Zaragoza consolidates the global inbound flow of fish for Caladero, to be distributed throughout Spain.

Caladero can’t control the weather or the fortunes of fishermen, but it can work with the grocery stores and other wholesalers to find a place for every fish caught. Alfredo Fabón García represents a new breed of managers in the fisheries industry. When I visited the facility in 2010, he said that until recently “the bulk of the fisheries industry was very traditional and did not always operate in accordance with modern standards of efficiency. Often it was not very professional.” In contrast, high efficiency and flexibility let Caladero counterbalance the stormy variations in the daily catch. For instance, if one of the fishing areas fails to catch much fish, Caladero might increase purchases from independent fishermen and from other parts of the world. And if the chartered 747 in Johannesburg isn’t full of fish (and wool), they’ll offset the cost of the flight by taking on other cargo such as fruit or wine for export to Europe. If, on the other hand, Caladero’s fleet catches too much fish, then they can codesign a promotion with supermarkets on the fly to encourage more purchases. For example, while I visited the company, Caladero’s regular group of fishermen caught a massive supply of bluefish—three times more fish than customers had ordered. The company crafted a special radio and Internet advertising plan in conjunction with Mercadona, its largest supermarket partner, sold all the fish to retailers within 12 hours, and had the fish in stores within 24 hours.

Efficiency and speed means utilizing all of Caladero’s assets to ensure timely delivery of product at the lowest possible prices. Centralizing operations at a single location is the only way Caladero can balance worldwide supply and demand in real time.

Boundary-less Inbound/Outbound Operations

The need for efficiency in a fast-paced operation with unpredictable supply patterns pushed Caladero to develop a somewhat unusual organizational structure. “When I started out here a few years ago,” Alfredo told me, “the commercial team was divided in two different departments: purchasing and sales.” This traditional back-office/front-office split between purchasing and sales is quite common among many companies, but the operational results suffered because the left hand that was selling the fish didn’t know what the right hand that was catching the fish was doing: the sales department would sell fish that Caladero didn’t catch or would fail to sell surges in the catch. The result was disappointed customers, unsold fish, and errors in orders.

Caladero realized that because nobody knows the available inbound fish situation better than the buyers, it made sense to merge the purchasing and sales departments to create a “war room” for more effective fast-paced information processing. A third function, logistics, also needed to be in the new war room. Logistics knew the in-transit status of all the inbound and outbound fish and was responsible for acquiring transportation assets and negotiating with transportation carriers. They knew when the shipments of fish would reach key locations and could adjust operations to get the right fish processed and moved as quickly as possible. The merged team does buying, selling, and coordinates the logistics that route the fish from supply to the market. By colocating all these functions in a single place, where the fish were processed, Caladero shortened the communication times, increased efficiency, and reduced errors.

Adding Value Means Adding Volume

When the fish finally land in Zaragoza, workers quickly roll the chilly pallets into Caladero’s sprawling 59,000 square meter (633,000 square foot) facility. The giant building sits so close to the runway that the company had to sink it 20 meters (66 feet) into the ground to prevent aircraft from clipping the roof as they touched down on the runway. When the facility runs at full capacity, 600 workers in fluorescent-yellow safety vests operate 33 automated production lines, three automated warehouses, and two container supply stores. Flexibility means the plant can handle 60 different types of fish, from tiny anchovies to massive tuna. Both optical and x-ray scanners examine the fish for quality and freshness. Caladero designed and operates every aspect of the facility to preserve the freshness and taste of the fish.

Any place where goods congregate becomes a natural location for doing more—adding value to those goods as they pass through the hub. For that reason, Caladero became more than just a wholesale fish distributor. In the past, supermarkets bought whole fish from Caladero, and supermarket personnel filleted and prepared the fish for sale at the market’s fish counter. Then, Caladero started offering to perform this service in their automated centralized plant, which could be far more efficient than the supermarket’s own fish department.

Supermarkets liked buying display-ready fish because it cut down on their labor costs, reduced the smell of handling the raw fish themselves, and improved food safety because the fish spent less time in the open air of the retail store. Caladero then expanded its offerings from plain fish fillets to include various preprepared seafood products such as the Spanish favorite of hake stuffed in green peppers, ready-to-grill fish brochettes on skewers, premade shrimp cocktail, and a seafood medley for paella. As of 2010, Caladero was preparing over 500,000 trays a day. Fast, efficient logistics and value-added services contributed to Caladero’s 20 percent annual revenue growth from 2005 through 2010.


Along with the services brought by Caladero come opportunities for suppliers. This includes attracting other companies to the PLAZA logistics park in Zaragoza, companies that would not be there if it weren’t for Caladero. For example, Caladero encouraged Sealed Air Corporation to build a specialized packaging plant in PLAZA that offers a high-tech solution to the fresh-fish shelf-life challenge. Simply put, oxygen is the enemy of fresh fish: air oxidizes the fish, encourages bacterial growth, and creates strong odors and stale flavor. Sealed Air Corporation developed a special Styrofoam tray, named Cryovac, which keeps freshness in and oxygen out. Innovative active coatings on the tray even absorb any residual oxygen inside the package to add days to the shelf life of the fish. Highly specialized manufacturing equipment in the Caladero plant packs the fish in an oxygen-free environment. As an added bonus, the Cryovac prevents fishy odors—even those from the most aromatic anchovies—from leaking into the grocer’s store or the consumer’s refrigerator. A second supplier, Logifruit, which makes recycled plastic containers for the fish, also moved to Zaragoza to better serve Caladero.

Caladero’s high performance and new services mean new investments and more jobs. Caladero alone invested some 110 million euros in its PLAZA distribution center/factory and generated 600 jobs in Zaragoza. Caladero’s new facility was so important to Mercadona, its main supermarket partner, that in 2009 the retailer invested 24 million euros (in exchange for which it got a 16.5 percent minority stake in the fish processor) to help finance the project. The investment and tighter partnership gave Caladero the money it needed to complete the factory and ensured Mercadona a steady supply of high-quality seafood.10

Deconsolidation: The Fish Stream Out in All Directions

Finally, the fish leave Caladero’s Zaragoza plant through one of thirty-four truck docking doors. Sealed trays of fish, in either display-ready consumer-friendly packaging or in wholesale trays, go from the refrigerated building into a refrigerated truck for the final leg of the journey. From here the fish will disperse across Spain. Caladero distributes fish to over 1,300 stores in the Spanish Mercadona grocery distribution system—the Walmart of grocery stores in Spain with 30 percent of the market—as well as to many other supermarkets and fish markets. In essence, a single massive river of processed fish splits into many streams as Caladero’s delivery trucks fan out from Zaragoza to deliver their still-fresh catch to supermarkets and city wholesale markets around the country.

Zaragoza’s location at the literal crossroads of two major highways lets Caladero distribute fish across Spain with a minimum of delay. Zaragoza is Spain’s fifth largest city and sits equidistant from the first four: Madrid, Barcelona, Valencia, and Bilbao. Thus, it is within only a little more than three hours’ drive from the major Spanish population centers. This location enables Caladero to bring the freshest possible fish to the greatest possible number of people. With efficient and timely logistics, consumers know that when they finally put the Caladero-provided fish in the pan or on the grill, they’ll enjoy that fresh “taste of the sea.”

Creation of a Logistics Cluster

Neither Zara, Caladero, nor other similar companies would be in Zaragoza were it not for the investment and support of the regional government of Aragón and the municipal government of Zaragoza. That government support arose from the personal experiences of Juan Antonio Ros, a native of Aragón and a stalwart civil servant, who relayed the story over lunch at the modern restaurant at the Hotel Rey Fernando II de Aragón in PLAZA. He and his brothers and sisters could not find worthwhile jobs in the Aragón area. That inspired Ros to try to create regional economic development opportunities. In 1993, Ros went to Aragón’s then-president Emilio Eiroa and said, “Mr. President, Aragón needs to look for something new because we are highly focused on just one the industry: automotive. We have to look for something else. We cannot rely on the GM factory forever.”

The president’s initial response was not encouraging because, at the time, GM’s local Opel plant was still growing and hiring. Yet Ros was given permission to submit proposals to the president’s ministers. This initial, noncommittal response would be the first of many non-encouraging, yet nondiscouraging responses for Ros. Allowed to continue and develop his plans, Ros embarked on a multiyear effort to create and refine a vision for new economic opportunities for the Aragón region. His efforts would span five presidential administrations and involve both municipal and national governments before finally leading to the PLAZA logistics park.

Initially, Ros focused on the Zaragoza airport as a key resource for his economic development proposals. The years 1992 to 1994 marked the phase-out of US Air Force control of the Zaragoza Air Base and the turnover of the facility to the Spanish government. The new-found availability of the facility for civilian use made potential commercial opportunities possible. Ros initially proposed aviation-related economic development projects tied to the Eurofighter aircraft manufacturing program and the potential for an aircraft repair and maintenance hub at Zaragoza. These ideas failed to gain interest. “I was preaching in the desert,” Ros told me. “It was almost impossible to find anyone in the Government at the time who fathomed the implications. So I said, ‘we’ll have to think of new ideas.’” Those new ideas took Ros in the direction of logistics.

A Well-Connected Region

Ros started thinking more broadly about the geographic and infrastructure resources of the region. He considered the potential value of the region’s central location. In addition to its place at the crossroads of well-developed highway and railway connections between Madrid, Barcelona, Valencia, and Bilbao, Zaragoza sits equidistant from both coasts of Spain (Atlantic and Mediterranean) with ready access to four of the five largest Spanish seaports: Barcelona, Tarragona, Valencia, and Bilbao. Further links extend west across Spain to Portugal, east to France (especially the Toulouse area with its industrial concentration) and the rest of continental Europe. “We are in the middle of an area of influence, a nexus between major cities in Western Europe,” Ros mused, “how can we profit from that?”

The answer was logistics. As the saying in real estate circles goes, “the three most important factors in determining value are location, location, and location.” Central crossroads such as Zaragoza offer consolidation and efficient distribution opportunities from and to multiple places. Zaragoza’s location optimized access to a dispersed network of suppliers and customers on the Iberian Peninsula. According to Zara’s Savirón, “Zaragoza is a good distribution location for us because here at PLAZA we are right next to the airport and have fast access—with no traffic—to major European highways. Barcelona and Madrid are a mere three hours away, and even Paris is relatively close.” For Zara’s distribution into Europe, the Zaragoza location reduces the distance traveled by many goods by some 800 kilometers (500 miles) compared to the original location in northwest Spain. Over twenty million people representing about 60 percent of Spain’s GDP live within a 300 kilometer radius. A daylong truck journey of 1,000 kilometers (600 miles) delivers goods across the entire Iberian Peninsula, to all of France, Switzerland, and into parts of Belgium, Germany, and Northern Africa.

Even being inland, with no port access, became an advantage rather than a hindrance. The Zaragoza logistics cluster has become an inland port for multiple Mediterranean and Atlantic ports. And connectivity was Zaragoza’s other main advantage beyond location. Zaragoza’s multiple modes of transportation give new and growing companies more opportunities to optimize the size, frequency, cost, and shipping time of inbound and outbound shipments.

Choosing the Right Plot of Land

Picking the right plot of land around Zaragoza meant finding a spot with plenty of open space and uncongested access to Zaragoza’s road, rail, and air infrastructure. To be economically viable, the development needed to find inexpensive land and lots of it. Ros literally bicycled the perimeter of Zaragoza looking for promising land. Fortunately, a large swath of unpopulated farmland sat nestled in a broad curve of both the main Madrid–Barcelona highway and the railway between Madrid and Barcelona. This area sat at the end of the runway of the Zaragoza Airport. Ros researched the landowners to minimize the chance of opposition.

Ros labored for nearly six years trying to further his proposed logistics project. Although he won unanimous support from the usually antidevelopment Zaragoza city council and got some seed funding from Aragón, he couldn’t convince the central government in Madrid to fund the project. He also encountered numerous bureaucratic roadblocks related to the airport, railways, and a nearby eighteenth-century canal. Burned out from the hard work and slow progress, Ros quit his job in 1999.

Only six months later, a new Aragón administration asked Ros to return to his post. New laws, new political support, and new leaders in key ministerial positions convinced Ros to return. “The new man in charge of my department was Carlos Esco, who was Aragón’s President Iglesias’ right-hand man. The new administration had made several good decisions, the first of which was to pass a new zoning law. So I thought it was worth giving it another try,” Ros said.

The new minister of public works, Javier Velasco Rodríguez, who looks like a distinguished Spanish warrior from an El Greco painting, picked his words carefully when we sat in his office at the magnificent Pignatelli building (originally built at the end of the eighteenth century and now the seat of the Aragón Government) in Zaragoza. “Entering the Government of Aragón in 1999,” he recounted, “we performed a careful analysis of the region’s situation. We determined that Aragón was excessively dependent on the automobile industry.” Velasco continued telling the tale, leaning forward, palms out before him. “A lot revolved around the automobile sector. We were conscious that much more had to be done. As the newly inaugurated President of Aragón, Marcelino Iglesias became a strong advocate for diversification. We needed to broaden the industrial base of our economy.”


The new administration crafted a new type of zoning law, used for the first time in Aragón. The zoning law became known simply as the Logistics Center Law. It enabled land to be reclassified as an “area of strategic economic interest” that enabled expropriation and protected that land from other types of development. The new law also created the legal notion of “supramunicipal” status for projects that would help avoid any disagreements between the regional government of Aragón and the municipal authorities of Zaragoza and surrounding towns. In essence, the law let Aragón take the lead on regional economic development projects, of which PLAZA would be the first. The government also developed special “execution procedures” that were far more flexible than those stipulated under the Autonomous Planning Legislation, allowing fast-tracking of many issues. A public corporation “PLAZA, Sociedad Anónima” oversaw the project. Shareholders in PLAZA included the government of Aragón, the city of Zaragoza, and two large local banks, Ibercaja and Caja de Ahorros de la Inmaculada (CAI).

Velasco led the battle to create a new nexus of economic activity in Aragón. A shrewd and consummate deal maker, Velasco played a major role in negotiating all the public-sector and private-landowner dealings, getting the required approvals, avoiding obstacles, and obtaining the land needed for PLAZA.

Creating the 1,200-hectare development meant purchasing 1,000 hectares of land from private landowners. Although the government considered involuntary expropriation of the land on the basis of a clear public need, that tactic carried significant financial risks. With expropriation, aggrieved former landowners could readily wage a multiyear legal battle, and a judge might easily declare a land price two to three times higher than what the government expected, which would ruin the economics of PLAZA. Fortunately, Velasco convinced 99 percent of the landowners to commit to a joint negotiation in which all landowners got the same consensus price. After extensive haggling, the government reached a deal with all but one landowner and voluntarily bought 999.5 of the needed 1,000 hectares. Only one landowner refused to sell and the government expropriated that last 0.5 hectare. “That half-hectare of land is still giving us headaches,” sighed Velasco.


Build It and Make Them Come

Next, the government had to convert pastoral farmland into a modern business park. That meant investments in infrastructure. They built a crosscutting network of wide roads to enable large trucks to move freely within the park and to connect PLAZA to the highway network. They installed all the required utilities, such as electricity, telecommunications, gas, water, and sewage. They also constructed green-spaces and jogging trails to create a more human atmosphere. Whereas the land cost some €85 million, adding basic utilities and services cost on the order of €300 million. Another €228 million was earmarked for rail infrastructure, but then clever coordination with the central government rolled that spending into the national railway budget.

Just building PLAZA would not be sufficient, so the developers marketed the park throughout the process. Even as they worked to plan PLAZA, the developers “presented the idea at the Logistics Trade Fair in Paris and then at SIL, the Barcelona logistics fair, accompanied by prominent Aragón businesses to showcase our new vision,” Velasco said. At the same time, Inditex, the parent company of Zara, was negotiating to build a new distribution center near Barcelona. Once Velasco and Esco learned of Inditex plans, attracting Inditex as the “anchor tenant” of PLAZA became the government’s number-one priority. EU regulation limited the kinds of subsidies that Aragón and Zaragoza could offer, but they did what they could to make PLAZA attractive to Inditex. In fact, Inditex signed the contract to buy into the project before the government even owned the land. PLAZA also marketed itself outside Spain, to China and Latin American countries such as Brazil, Mexico, and Colombia.

Other Logistics Activities in Aragón

The PLAZA logistics park is but one part of the larger, regional Aragón logistics cluster. The Aragón Government developed other, specialized logistics parks in the vicinity of PLAZA, including the following:

Plataforma Logística de Teruel (PLATEA) Connects the Atlantic and the Mediterranean via a railway corridor, “Cantábrico–Mediterráneo.” The first phase of the park—862,000 m2—was finished in 2007, and the plans call for tripling its size.

Plataforma Logística de Huesca (PLHUS) Includes 700,000 m2 dedicated to logistics activities. It is a new park, based on highway connections: the A23 highway (Somport-Sagunto) and the A22 road (Lérida-Huesca-Pamplona). As of 2010, five companies were operating in the park.

Plataforma Logística de Fraga (PLFraga) Sits at the midpoint between Zaragoza and Barcelona, where it serves mostly as a transport relay point for motor carriers serving Northeast Spain.

Mercados Centrales de Abastecimiento de Zaragoza (Mercazaragoza) This agri-food logistics park specializes in distribution and wholesale of fresh fruits and vegetables, as well as meats (with a slaughterhouse) for the Ebro valley.

Parque Tecnológico de Reciclado López Soriano (PTR) Specializes in recycling and the search for new industrial opportunities for optimizing the lifecycle of materials as well as energy regeneration.

Centro de Transportes de Zaragoza (CTZ) One of the oldest logistics parks in Spain, over 25 years old. The twenty companies operating there are all transport and logistics enterprises.

Terminal Marítima de Zaragoza (TMZ) An inland port for Barcelona, founded in 2001 and located inside the Mercazaragoza. It has a direct rail connection to the Barcelona Port. From TMZ, freight forwarders have access to the same type of services as if they were located in the port of Barcelona, with the same costs and level of service commitments. In 2010, the number of TEUs processed in TMZ increased by 72 percent compared to 2009.

While PLAZA is by far the biggest of these parks, together the parks constitute the Aragón logistics cluster.

The Competitive Advantages of Being Big

One of the boldest development decisions made by the Aragón Government was how big they made PLAZA right from the start. PLAZA is the largest logistics park in Europe. With a total area of 12,826,898 square meters, it is six times bigger than the next largest logistics park in Spain (Guadalajara, north of Madrid, at 2,100,099 square meters, followed by CILSA in Barcelona at 2,000,000 square meters). Why did Aragón commit to such a large park? Why didn’t the government think to develop the park in stages, thus minimizing the risk?

The answer lies in two factors. First, the bigger a logistics park is, the more efficient it is. A larger park has lower and more stable transportation costs into and out of the park. More important, larger parks offer higher levels of transportation service in terms of frequency, equipment availability, and range of transportation options.

The other factor supporting Aragón’s decision to commit to a mammoth park right from the beginning was the competitive positioning of the park within Spain. By building such a large park, Aragón deterred other regions from developing similar logistics hubs. Indeed, economists call this strategy “entry deterrence.” Spence argued in 197711 that an incumbent firm would sometimes hold “excess capacity” in order to deter entry. Later, other economists referred to this phenomenon as a leader/follower “Stackelberg Game12” in which a leader firm obtains an advantage by committing to produce a large quantity of some homogeneous good. The follower, upon observing the leader’s choice, then optimally decides to produce less of the good and the leader thereby gains market share and profit at the expense of its rival. While I found no direct evidence that the Aragónese government used game theory in their analysis, entry deterrence was clearly their intention. To this end, much of the publicity and marketing campaign prior to PLAZA’s opening may have been aimed at potential competitor regional governments within Spain.

Economic Impacts

For the community of Aragón, Zaragoza was a build-it-and-they-will-come story. On my first visit to the area, the PLAZA site looked pretty barren: a couple of small construction management buildings on a wide expanse of weedy, dusty dirt with many large earth moving bulldozers working about and raising dust. Given Inditex’s tight schedule, the Zara distribution center was among the first major buildings to go up. Next, other companies such as Imaginarium (toy retailer), Memory Set (IT equipment wholesaler) and DHL (express packages) moved into PLAZA. Then others came, including ARC International (tableware supplier), Pikolín (Spanish bed and mattress company), Bosch-Siemens (German home appliance maker), Caladero, and Decathlon (French sporting goods giant). As additional logistics and distribution operations moved into PLAZA, supporting supplier companies moved to the area, too. Trucking companies and airfreight carriers came, followed by maintenance shops that serve those companies. Other service businesses moved in, too. As of 2010, PLAZA had three hotels, several restaurants, and a shopping mall. According to Isabel Velasco, PLAZA’s sales manager, in May 2010 the park had more than 250 companies under contract, with 160 companies already operating there. With the companies under contract, PLAZA reached 80 percent capacity in terms of sale and leases of land.

Before PLAZA opened in 2000, Zaragoza’s airport ranked eighteenth in Spain in freight volume with a paltry 0.6 percent of the air freight in Spain, which was much less than the volume expected given that Zaragoza represents 1.8 percent of Spain’s population. By 2009, Zaragoza’s airport ranked third in Spain in freight volume with 6.5 percent of all airfreight in Spain. In essence, Zaragoza went from having much less than its fair share of airfreight to having many more times its fair share.

Unfortunately, at the time of this writing, Spain, like many other European economies, is mired in a torrent of asset declines, excess debt, declining GDP, growing trade deficits, and rising unemployment. This dark economic climate obscures the shining example that PLAZA represents, and from which hope should emerge for re-energizing developed economies. Aragón developed the PLAZA project with fastidious, long-range economic planning, extensive private agreements, government regulatory changes, broad public involvement including opposition parties’ endorsements, and holistic infrastructure coordination. In addition to this commercial success, the result was over 10,000 direct jobs in the logistics park, leading to educational and research activities and an international reputation for excellence.

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Copyright © 2012 Massachusetts Institute of Technology. (All rights reserved.)
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