Growth in global trade presents a big opportunity for logistics companies, but a similar growth in competition means they will have to take a smarter approach to management and systems, says Andrew Dalziel , VP of Marketing and Product Management at Kewill.
Global trade is expected to grow by 98% over the next 15 years according to HSBC’s recent HSBC’s Global Connections 2012 report. It is predicted that international businesses will recover more rapidly than previously expected, with most of them in search of the best trade partners to enable development of new trade corridors.
This growth presents an opportunity for logistics companies to grow their market share, but how can they go about doing so most profitably, given that there are so many new competitors out there?
Business models and trends
The first signals of emergence from the current slowdown will be an increase in mergers and acquisitions, with imports expected to grow faster than exports in emerging markets, such as; China, India, Brazil and Indonesia over the next five years, identified by the HSBC report.
It’s therefore imperative that logistics companies use mergers and acquisitions not only as a means of growth, but as a route to finding economies of scale. This will enable them to achieve greater geographical coverage and wider product offerings, attracting customers through a broader service offering.
To support mergers and acquisitions, as well as organic growth, logistics companies must have efficient process and flexible systems in place, so they can offer a superior service at an attractive price.
Mergers and acquisitions will force consolidation, as companies look to offer global coverage and a wider range of services. This in turn will create greater competition between these newer, larger companies, which will increasingly need to look to differentiate through innovative products and customer service. They will of course also compete by being competitive on price – not necessarily providing the lowest cost, but the best value for money, which is more about service.
For instance, the ability to deliver accurately to short lead-times will become increasingly important in a fast moving world, putting further strain on logistics companies and freight forwarders to deliver against tight schedules, as retailers and distributors continue to try to minimise capital tied up in inventory.
For this reason, visibility through collaboration will be absolutely essential for accurate forecasting and planning of shipments, optimising the end-to-end international supply chain and ultimately meeting customer demand while keeping costs down.
Hybrid sourcing models with a mix of local production or assembly, with near shoring and offshoring will become more common, driving greater supply chain complexity as traditional linear supply chains evolve into demand-driven networks. While this will lead to new opportunities for logistics services, the increased complexity will put strains on existing systems and processes.
Consumer pressure for improved sustainability will also drive logistics companies to find more environmentally friendly transportation methods, exploring alternative energies that reduce CO2 emissions. Yet further complexity.
Tightly managing costs and maintaining margins will be critical to ensuring the growth of logistics business’, with accurate costings whether for long-term contracts or one-off shipments becoming more and more important to ensuring competitive, yet profitable pricing. As a result, it is likely that further business intelligence, comparison and optimisation tools will emerge for improved and more accurate evaluation of different modes, rates and routes.
As global trade gains momentum and reaches further into the emerging economies, compliance will continue to become more of a burden as new and additional customs, security and financial regulations are introduced. On top of this, the potential risk of parts of the European Union splintering off will hinder the free movement of goods.
In terms of operational costs, as crude oil reserves get used up prices will continue to trend upwards. Consequently, logistics companies will have to focus further on efficiencies, through better planning and optimisation, both in forwarding, joint shipments and road transport.
With competition on the rise, there is likely to be a shift in focus to investing more time in retaining contracts, as the cost of winning new contracts and on-boarding new customers is usually much higher than retaining an existing customer.
Information is king!
The three main flows of data throughout the supply chain are; physical movement of goods, detailed information about shipments and financial data. Companies need software applications in place to tightly manage their costs, pricing and invoicing to generate profitable revenue.
Logistics companies also need to ensure that they have both a scalable and flexible IT platform in place to support both their merger and acquisition and organic growth plans, enabling their future growth. They will also increasing look for more accurate planning and optimisation tools that can run over their critical business systems, squeezing out more profit and offering better customer service.
Visibility of shipments will become even more critical, to ensure that deadlines are met but also that information can be shared with customers, as part of adding value to a basic service. Visibility of shipments also generates data that can be fed into analytics systems, so that improvements can be continuously made.
Outsourcing IT to a hosted managed services provider will become more common practice, whether on a pure hosting or SaaS based pricing model, so that they can focus on their core competencies – the logistics services provision.
Technology will become increasingly embedded in or linked to both the physical goods through the use of barcoding or RFID tags on pallets and cases, GPS tracking of inventory, etc. and the tracking and management of assets with GPS tracking of ships, containers, trucks and more use of on-board computers on lorries, etc. All the information will be fed back to the core business systems for transaction updates, storage, analysis and ultimately more accurate and improved planning, optimising the end-to-end supply chain.
The expansion of world trade presents a real opportunity for logistics companies, as winning market share in a growing market is easier than a saturated one.
With a demand to keep costs down through optimisation of the whole supply chain, we will see significant consolidation throughout the industry. In turn, this will result in intensified competition.
Business models will be forced to adapt and evolve as supply chains become increasingly complex. This will drive innovation and result in the development of new products and services that can keep pace with the growing demands and complexities of global trade.
Logistics companies will need to handle higher volumes of trade, with greater complexity at a faster rate, whilst remaining competitive on price. Information will become ever more important in the battle for improved planning, optimisation and execution.
Technology will become more tightly linked and embedded with both the physical goods and assets. Therefore, an IT platform that supports the growth ambitions of the business is critical. Now is the time to gear up or risk getting left behind!