Six Freight “Facts” That Are Wrong
Sometimes what is taken as a fact doesn’t hold up to closer scrutiny. And the freight industry is no exception.
This post looks at six freight “facts”, and what makes them more fiction than fact.
1. Logistics growth is all about the M&As
2015 was a record year for 3PL M&As, driven by the need to optimise assets, increase scale, and increase reach. Against a backdrop of yield dilution and declining value of world trade, winners are anxiously repositioning for growth.
But perhaps more telling than growth as a driver for M&As was the context. 2015 was a record year for M&As across the board. A Bloomberg review of key M&A activity focused on finance, consumer, telecommunications, technology and healthcare, with logistics not even getting a mention. The driver? Historically low interest rates.
While M&As was certainly one channel of growth, senior logistics professionals rate M&A activity as only the 3rd most preferred method for driving efficiency and reducing costs. The most preferred method, at a whopping 86%, is harnessing technology.
2. 3PL Relationships Are All About Personal Relationships
When it comes to freight, it’s the personal touch that shippers are looking for in their third party logistics relationship, right? No, not any more.
Driven by more complex supply chains, shippers are looking for concrete results. Sure, personal relationships are important, but reliability (95%) and cost (80%) are what logistics decision-makers believe shippers are looking for when selecting a 3PL partner. Personal touch factors – communication, crisis management, and relationship – are less favored.
One explanation for this may be the new generation of employees, the Millennials, who will represent 50% of the workforce by 2020. Employees who grew up with E-Commerce are more accustomed to things just working out of the box. And reliability’s edge over cost still means that outstanding service can trump costs. And a handshake never hurt, right?
3. It’s “Game Over” for Mid-Sized Forwarders
With larger global forwarders swallowing rivals and outpricing competitors, the days of the smaller forwarder is numbered. Well, not necessarily.
One reason why there are still so many smaller players, is technology (or lack thereof). The industry was a late adopter, holding back on process automation, and staying offline. Back then, only the larger players could afford any degree of automation. But many aspects stayed manual at larger forwarders, reducing efficiency. And the technology was bulky, sprawling enterprise software that didn’t evolve.
Accessible, cloud-based technology, with the nimbleness to integrate rapidly, is now empowering smaller players. As Transport Intelligence’s latest report, Global Freight Forwarding 2016 , puts it:
“New, exciting technologies are being developed which have the potential to transform forwarding and trade processes. They could also allow small and medium size forwarders to compete more effectively against the big corporates as technology becomes increasingly cheap and democratized.”
Another reason for smaller providers to breathe easy? Niche specializations in routes or types of cargo can still win over shippers that are looking for reliability first and foremost.
Construction work to widen the Panama Canal
4. The New Panama Canal Means Larger Ships Docking In New York
Widening the canal has extended the ship size it can accommodate from 5,000 to 14,000 TEUs, still 4,000 TEUs short of ultra-large container vessels that breeze through the Suez Canal.
But regardless of the Panama Canal’s size, the Bayonne Bridge now stands in the way of the larger ships getting to the New Jersey container terminals. Work to raise the bridge’s roadway was scheduled for completion before the expanded Panama Canal opened, but it’s still not ready. In fact, authorities expect it to be operational only in late 2017. Only then, will the maximum size of ships that can dock in New Jersey increase, and only from 9,200 to about 12,000 TEUs.
Nevertheless, by 2020, the widened Panama canal is anticipated to shift about 10% of Asia – US container traffic from the West Coast to the East Coast.
5. Logistics Doesn’t Need To Change, Because Trade Is Growing
This attitude, prevalent until 2008, may have once been warranted. But a series of right hooks, in the form of the global recession, plunging oil prices, and ominous moves from technology companies, has made it clear that logistics needs to change fast.
Dropping profits provides the critical motivation to change. Some senior freight decision makers believe that at an industry level, the three core services (air, ocean and truck freight) are not currently profitable. Ocean freight faring the worst, with only 44% considering it currently profitable.
6. Online Freight Sales Platform Are A Threat
This final false “fact” was probably correct until relatively recently.
There’s been a marked emergence of online sales platforms connecting players across the freight supply chain. Online logistics marketplaces, like BCG Container xChange (for the exchange of container equipment and slots), or Convoy (last mile delivery), have helped changed the industry’s perception of online freight marketplaces.
And a changing environment also means that yesterday’s threats are today’s opportunities. Over 85% of logistics providers do not see the emerging online freight sales platforms (like Freightos) as a threat, while a full 64% are confident they represent a lucrative opportunity to expand business.
Several references are made in this post to the recently published, The Future Of Freight research paper, which is based upon the perspectives of the 90+ senior decision makers from the world’s largest logistics companies.