Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.
What do Global Shippers Really Want from their Logistics Providers?Tuesday, January 23, 2007 > 09:20:58
The often used saying “careful what you ask for because you may get it” is an apt description for one of the major trends in the forwarding business: consolidation among the leading players.
Unquestionably, large, and even medium-sized and small shippers, are thinking more globally. They want to manufacture or source from low-cost countries and they want to sell into emerging markets. As a result, supply chains are becoming more extended and far more complicated. And shippers expect their logistics service providers to be able to help them on this global scale. They want their freight moved by logistics providers capable of artfully maneuvering through the complexities posed by global trade, such as confusing customs regulations, inadequate transportation systems and cultural differences.
To be able to provide such a service, the leading players have been on a rampant consolidation trend. One of the major reasons cited for recent consolidations is the belief that shippers would prefer to severely consolidate their points of contact for their global supply chain needs.
Yet current research brings into question if that's what shippers really want.
Consulting group Unisys Corp., for example, recently published a survey designed to get a sense of global shippers' perspectives on a variety of issues, including forwarder consolidation. The survey consisted of in-depth interviews with senior management from 52 major intercontinental corporations in industries such as technology, pharmaceuticals, food and retail. Specifically selected for their high expenditure on global shipping (average annual intercontinental transportation expenditures of $150 million), the survey respondents were responsible for intercontinental freight, distribution, logistics or supply chains.
The Unisys study found that despite the billions spent on shipping industry consolidation in the name of efficiency and better customer service, almost three-quarters of large shippers would rather do business with several shipping providers than centralize their operations with one major supplier. Respondents overall felt that the bigger a logistics provider was, the less flexible and user-friendly its systems were.
Rather, many respondents indicated that they had an intentional, specific logistics strategy to diversify their business among multiple providers so as to encourage competition and lower prices. They felt that multiple suppliers keep prices and services competitive, and that often niche logistics providers deliver a better service, communicate faster, and are more flexible.
Our own annual research of outsourcing strategies concurs that Canadian shippers prefer to use multiple logistics service providers for various reasons: 63 per cent do so to better serve different geographic areas; 61 per cent say multiple providers offer a greater range of expertise; 54 per cent use multiple providers to gain better leverage on pricing; 37 per cent say multiple providers makes it easier to compare service levels; and 28 per cent choose multiple providers because they want to avoid reliance on any one provider….
We know from our own annual studies that cost reduction remains the single most important challenge for Canadian shippers. That a marketplace with multiple service providers makes for more competitive rates is beyond argument. But there are more variables that are part of the overall cost equation than just rates.
In addition to reducing costs, shippers also have the conflicting tasks of improving customer service, enhancing their supply chain execution, keeping up with technological advances and requirements and serving new markets. In such cases, employing many logistics providers may actually serve to increase costs when the performance of those relationships is examined in greater detail. What is gained through more competitive rates may be more than compromised by the difficulties and waste inherent in employing multiple providers, all of whom may employ different IT platforms and don't have the expertise or scope to see the overall picture.
Current research also routinely indicates that shippers are looking for closer, more integrated relationships. Such relationships are far more strategic in nature and more focused on value creation. I'm not at all certain such relationships are possible when shippers try to have them with 30 different logistics service providers or when the providers involved have the feeling they are always just one low-ball rate quote away from losing the contract….