In short, there are a number of main challenges, says Andrew Dalziel, VP Marketing and Products Management of Kewill, as he attempts to provide some of the answers.
Freight forwarders and 3&4PL’s face continuous change, economic uncertainty in many markets, a growing requirement to comply with increasing regulation, and the need to respond to customers with a more personalised and differentiated service.
Five significant areas that are causing sleepless nights and where companies need to concentrate are as follows:
1. The economy and the pressure on margins
The global economy is still sluggish or stagnant in many countries, slow growth in the US, and the Eurozone sovereign debt crisis are leading to negative growth in some countries.
Low economic growth and high unemployment in Western Europe, with recession in some economies, has resulted in lower consumer demand – leading to a reduction in manufacturing output. Therefore, there are less goods that need to be moved by freight forwarders and 3&4PL’s, resulting in a more competitive marketplace and price pressure.
Meanwhile, inflationary pressures and new taxes are driving up costs – high fuel costs, congestion charges and road taxes all impact the 3&4PL providers. There is overcapacity in global shipping which is put pressure on rates and encouraging slow steaming to reduce fuel costs. The UK government is considering a new lorry tax that could be introduced as early as April 2014, whereby all trucks travelling in the UK, could be charged £9 a day (UK companies may be charged lower annual road tax, helping to level the playing field with international trucks operating in the UK) Source: http://www.telegraph.co.uk/finance/newsbysector/transport/8296931/Lorry-drivers-face-9-a-day-UK-road-charge.html.
With everyday fixed overheads and operating costs continuing to rise and increasing price competition, margins are squeezed from both sides. Freight forwarders and 3&4PL’s, need to monitor and manage their costs carefully. To become more efficient and maintain margins, companies need to automate order management and other transactions to streamline their processes, as well as connect with supply chain partners to exchange data. This can help provide greater visibility in order to ensure delivery accuracy and track the status on orders. Good information also allows them to measure and better manage their business performance.
2. Customer service is key to differentiate from your competition
Purely being competitive on price is not enough to differentiate from your competition. Logistics services providers are expected to achieve customers service levels of 99.8% or greater, with shipments on time and with no damage. If freight forwarders and 3&4PL’s cannot achieve their service level agreements they risk penalty charges and potentially losing customer contracts to competitors.
Agility is frequently crucial to 3&4PL’s to be able to provide a more competitive and differentiated service to their customers, while forwarders need to improve customer service and lower operational costs through improved shipment management, automation of processes and end-to-end visibility.
Market demand for greater outsourcing, multimodal transport and full supply chain management solutions means that 3PL warehouses can often differentiate through offering value added services such as packing/repacking, labelling, light assembly, pallet and route optimisation.
Forwarders and other logistics service providers need to work together to differentiate through providing better visibility and control of freight in transportation, e.g. a forwarder will arrange for a shipment to be shipped from Asia to Benelux, where a local 3PL truck will pick up the load and transport to its final destination, such as Germany. For this process to work, the 3PL needs a precise forecast of the forwarders expected delivery time and needs to be informed if this changes, so the shipment cross-over runs smoothly, with no party involved left waiting around, wasting time (and therefore money), but most importantly ensuring that the load is delivered to the end destination on time.
3&4PL customer contracts typically last 3 years, so its important they have the ability to quickly and easily add new customers to their logisitics IT systems. Technology can differentiate a 3 or 4 PL from their competitors through helping them offer a cost-effective and enhanced services to their customers. You only have a limited time to make money on a contract and if you do not perfor m and differentiate, you risk it not being renewed.
3. International expansion needs international platforms
Consolidation through mergers and acquisitions is common, as the large and mid-sized logistics service providers become increasingly international and look to grow their market shares, meet customer demand for international coverage and drive greater efficiencies through leveraging economies of scale.
For the national 3PL, this may involve moving into other neighbouring countries. For forwarders, it may mean entering new emerging markets.
Many logistics companies are pursuing aggressive growth plans that involve a mix of M&A and organic growth strategies. As new routes are added and major investments in hubs made, freight forwarders’ and 3&4 PLs expertise in selecting and operating in the right markets is vital for success and growth.
Companies need standardised IT platforms to support global and regional expansion, and manage operating costs rather than rely on multiple, un-integrated legacy systems that do not provide the necessary visibility across the business.
4. Compliance with regulation is not an option
Complying with legislation is a constant burden, but the business case is clear – comply or risk shipment delays or even fines.
Trading in the EU is fairly hassle free, but further afield in the Middle East and Africa, it becomes a challenge for multimodal freight forwarding and transport companies, as export documentation compliance, customs regulations and the use of different transport modes adds complexity.
Trade compliance, customs procedures and duties for import/export to non-EU countries, all put a strain on margins. IT systems can help ease the burden of compliance and, for example, improve efficiency when preparing and submitting declarations.
5. Disconnected IT systems are inefficient and costly
Poor information technology can lead to a lack of visibility and inefficiencies that lead to increased costs, poor customer delivery performance and sub-optimal customer satisfaction. More than 1/3 of a logistics service provider’s IT budget can often go on trying to integrate disparate systems due to mergers and acquisitions, and third party systems.
Logistics service providers need to be able to easily and quickly integrate their business critical IT systems with those of their customers and partners, to give better visibility of the status of orders and the location of customer stock, as well as enhance business agility. IT and centralised data can help enable the logistics service provider to respond more quickly and efficiently to their customers needs.
Data is increasingly being centralised by the large logistics providers to ensure a single version of the truth, while flexible IT solutions allow new clients to be added quickly, with consistency and access to better information enabling logistics providers to offer a differentiated customer service. Ultimately, this is the key to success in tough trading environments.