Over the next few weeks we’ll be looking at the drivers of the global logistics and express markets in 2012 and assessing what they mean for companies in the sector.

2012 Trend 1: Continuing consolidation will require the alignment of 3PL company strategy and customer requirements.

The logistics industry has seen a substantial amount of consolidation in the last 10 years. Mergers and acquisition activity has ranged from multi-billion dollar deals for large corporations to acquisitions of smaller niche companies that serve a strategic purpose. However, even after continual consolidation in the logistics sector, the market is still highly fragmented and margins remain relatively low vis-à-vis the rest of the service sector.

Due to this fragmentation and low margins, consolidation is set to continue. This will be accentuated by the problems in the Eurozone, which have significantly increased the potential for a further global economic slowdown. With margins already slim, some logistics companies will struggle to stay afloat, causing them to either exit the market or to be swallowed up by larger corporations.

As such, consolidation is set to continue and while 3PL clients will always be cost-conscious they will progressively be considering the stability and the reputation of a 3PL in the market. This will mean that clients will increasingly look towards the more established and proven companies for their services or remain with their current provider so long as the relationship is strong and the solution offers value-for-money.

Implications for 3PLs

Even though average company profits have fallen in the logistics industry, there is still scope in most balance sheets for further acquisitions. However, to maximize revenue moving forward, 3PLs will have to look at the following cycle:

1. Plan: What is the planned company strategy with regards to the services offered and the geographies covered? Expansion, contraction or just maintenance?

2. Assess: Considering the customer requirements should go hand-in-hand with the above, as 3PLs can’t have a company strategy if they don’t know what their current or target customers need in the future.

3. Analysis: A Gap Analysis is then required to comprehend how close they are to being able to successfully serve customers going forward.

4. Action: If there is a large discrepancy between the two then the company strategy needs to either determine how to fill that gap or make up for the lost revenue when customers begin to move to competitors. This is where potential acquisitions not already planned in stage 1 may come in.

5. Evaluate: How successful were any plans that were then implemented? Are there any lessons to be learned?

Most companies should have the first two elements of this in place. If not, good luck. The remaining steps may or may not need external help depending on the company’s size and structure, but the crucial factor is that this process is in place, acted upon and continually repeated.

The question is how many parts of this does your company do?

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    April 2012
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    Copyright © Logic Consulting 2012. All rights reserved. Images courtesy of Tomas Fano and alvarogalve.