Globalisation has affected almost every industry sector. The sourcing of goods has shifted to points remote from their final markets. The unrestricted and rapid movement of them has added complexity to the supply chain, increasing the logistical burden on manufacturers and retailers, who, according to independent market analyst Datamonitor, (DTM.L), will increasingly look to outsource logistics functions to third parties. In fact, Datamonitor's "European Logistics Market Map," research estimates that 45% (Euro 175.5 bn) of total logistics spend in 2008 across the EU15* will be on outsourced logistics services. However, several key trends in the logistics industry have emerged which will have to be addressed if logistics service providers (LSPs) are to win this new business, compliments of the globalising supply chain.
The expansion of the global air cargo and express delivery sectors
The first implication of the shift in the supply chain has been the expansion of the global air cargo and express delivery sectors, especially in China. All four of the large integrator firms are attempting to establish a foothold.
For example, UPS are attempting to double their number of flights there to try and maintain the 125% increase in export volume they experienced in the country in 2004. A similar pattern has emerged within Eastern Europe, no more so than in Poland, where UPS and DHL have both made acquisitions in the past 12 months in order to compete with the already-present TNT.
Acquisition or partnership has been the second implication of the shift in the supply chain
The pattern of growth through acquisition or partnership has been the second implication of the shift in the supply chain. The primary reason for this is to either gain quick access to new markets or to increase critical mass in order to compete effectively. A prime example of this is Exel, who in 2004 acquired fellow UK firm Tibbet & Britten, strengthening its position domestically while simultaneously gaining access to new markets in the US and the Asia Pacific region.
With customers now becoming increasingly multi-national in their sourcing, LSPs will have to maintain a similar level of geographic service so as to either remain the preferred supplier or to try and win new business.
The emergence of the Lead Logistics Provider (LLP)
The logistics industry is still highly fragmented, and as a result companies may have to deal with multiple LSPs within the supply chain, all with their own specific area of expertise. However, the LLP removes this problem by managing the various parties while providing a single interface with the client. As such, the greater the breadth of service that an LLP can manage, the greater the chance it has of winning customers. Some LSPs even take this one step further and combine to form LLPs. For example, Keuhne & Nagel created a joint venture with FM Logistic in 2004 to provide logistic activities to the Hi-tech industry.
Electronic tagging - Security, visibility and the ability to track shipments
Production physically moving further away from its end-user market has meant an increase in both transport costs and time. At the same time, just-in-time production and a constant emphasis on keeping working capital costs low means that building up large amounts of buffer stock within regions is not a valid strategy.
Meanwhile, managing the supply chain as a whole has increased in complexity, as inbound goods originating from all regions need to be co-ordinated or merged in transit. As a result, the need for visibility across the system and the ability to track shipments has also increased.
Technology will play a vital role in the industry. RFID, the electronic tagging of goods, is beginning to penetrate the market, with Wal-Mart insisting that all suppliers use the system. If this spreads, LSPs will have to learn to integrate this approach effectively into their supply chain tracking in order to monitor efficiency and satisfy future customers. This will increase security of shipments from this aspect, but a widening geographic sourcing strategy could also increase suppliers' exposure to potentially less secure environments, especially in terms of import and export points.
Chris Morgan, logistics analyst at Datamonitor comments:
"Companies continue to farm out logistic operations to LSPs to take advantage of their specialist capabilities. For logistics companies to fully exploit the outsourcing sum that will be available by 2008, and in order to extend this percentage split geographically, players will have to ensure that they constantly monitor several ongoing trends, with the ultimate aim of minimising costs, maximising efficiency and satisfying ever increasing customer demands."
*EU15 - Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom