INTRODUCTION
The logistics sector has had an intensive ten years of growth and prosperity. Nevertheless, The COVID-19 pandemics have turned most of the industry participants into turmoil.
Which companies will be surviving and thriving during the recessions?
The answer will not make everyone happy, as those lucky ones had had the needed processes implemented before the recession happened.
Those lucky ones use the main classical and boring business acumens in their operations, like Process maps, business diversification, a healthy balance of new prospects in the sales pipeline, and healthy finances. In other words, companies that will survive this recession are resilient.
The pandemics have changed the businesses working in the global supply chains, and there is a fair chance that it will change in the upcoming future.
All those changes are creating uncertainties, headaches, and possibilities.
History has shown us that all significant possibilities were found during times of recession.
This guide is for Logistics companies owners and Leaders looking for ways to manage this uncertain situation and leverage future possibilities.
Within this report, we will underly the most significant economic, political, technological, and business trends, which are shaping and will shape the logistics sector.
Moreover, we will provide guidelines and solutions on how to get better use of future possibilities better.
Global Business and economic trends are significant for the logistics sector, as the upcoming events will be harsh. We already know from the 2008 recession that logistics companies are among the first sectors to feel the negative consequences.
Nevertheless, we need not forget that the global financial crisis was different than the recessions which we will face in the upcoming months. We believe that recession will be more severe than the previous one, as it will be felt in almost all sectors, and the most crucial part is that it started all over the world at once.
Many economists believe that we will have a fast recovery; of course, the second pandemic wave could worsen all the predictions dramatically.
Our aim is not to scare our readers, as we believe that there will be immense possibilities waiting for resilient companies.
Furthermore, we believe that knowing what is happening worldwide helps to prepare better for this upcoming battle.
Global trade
The global trade was already declining in 2019, according to the World trade organization (WTO). The COVID-19 situation has fastened the processes. International monetary fund (IMF) has changed its previous 3,4% growth projection into a – 3% decline due to the Pandemic.
All of the barometer’s component indices are currently well below trend. The automotive products index (79.7) was the weakest of all, due to collapsing car production and sales in major economies. The sharp decline in the forward-looking export orders index (83.3) suggests that trade weakness will persist in the short-run. Decreases in the container shipping (88.5) and air freight (88.0) indices reflect the weak demand for traded goods and supply-side constraints arising from efforts to suppress COVID-19. Only the index for electronic components (94.0) and agricultural raw materials (95.7) show signs of stability, although they too remain below trend.
Trade had already been slowing in 2019 before the Pandemic, weighed down by persistent trade tensions and weakening economic growth. WTO trade statistics show that the volume of world merchandise trade shrank by 0.1% in 2019, marking the first annual decline since 2009, during the global financial crisis. Trade was relatively weak in the final quarter of 2019, but this is unlikely to have been influenced by COVID-19, which was first detected very late in the year.
The COVID-19 caused tremendous consequences on world economics. According to the IMF, the global economy is projected to decrease sharply by –3 percent in 2020, much worse than during the 2008–09 financial crisis. As wen can see from the table below, the advanced economies will face abt. 6%, and the Eurozone will be hit by this recession the most.
The severity of this situation will depend on the stimulus which will be provided by each country, having in mind delays and varying amounts by each state; in my opinion, economies may face even more significant decline.
GDP
The COVID-19 caused tremendous consequences on world economics. According to the IMF, the global economy is projected to decrease sharply by –3 percent in 2020, much worse than during the 2008–09 financial crisis. As wen can see from the table below, the advanced economies will face abt. 6%, and the Eurozone will be hit by this recession the most.
The severity of this situation will depend on the stimulus provided by each country, having in mind delays and varying amounts by each state; in my opinion, economies may face an even more significant decline.
And we need not forget the possible second pandemic wave, which would paralyze the economies even more.
Global oil market
The other major headache is oil prices, which fall by 60% (UPDATE 1-Goldman Sachs Still Sees Crude Prices Falling After OPEC+ Deal). The correction will impact not only the industry but also massive economies that depend on oil prices like Russia and Norway.
The whole oil industry (Upstream, midstream, downstream) is facing significant losses. Due to demand cuts, the oil products were held (For almost a month) in the tanker vessels worldwide, summing up in enormous demurrage and financial costs.
Unemployment
The world has had the lowest unemployment rate for a decade. The COVID-19 caused massive layouts in tourism and entertainment, Brick and mortar retail, Logistics, and moved to other industries eventually.
According to economists, the unemployment rate in some economies can reach up to 25 percent. Among G20 USA and South Africa will be leading this list.
Politics
There was plenty of uncertainty and turmoil in the world political arena: Brexit, USA, and China’s trade war. The globalization has hit on the brakes.
Great Britain need’s to leave the Euro-zone by 31 DEC 2020. There is much doubt that the transition will work smoothly, having in mind the COVID-19 related.
The trade war between the USA and China increases tensions and has a significant adverse effect on economics.
The world leaders will need to decide; eventually, is the world deal with all issues at once.
COVID-19 impact on the global supply chains
There were a lot of talks before COVID-19 about near-shoring possibilities already. Many supply chain leaders believed that outsourced supply chains are not as cheap as everyone thought they are.
Moreover, the trade war with China has reached the next stage; the world is blaming China for this Pandemic. The costly tension created by the pandemics will hardly be forgettable for companies that have chains in Asia as the paralysis lead to stockouts, increased freight prices, and lost sales.
Global supply chains, in the rest of the world, due to locked borders, were paralyzed as well. Organizations are already looking for nearshore possibilities to lower the disruption risk and increase the robustness of their supply chains.
There is a fair chance that we will start hearing new countries in the global offshore market, putting on stage the Philippines and eastern European countries.
Sustainability and compliance
We can say with confidence that sustainability and environmental issues were the megatrends within the supply chains for the past decade.
There are opinions among the supply chain professionals stating that the COVID-19 may put sustainability into second place.
Nevertheless, the statements in the media from political and company leaders are showing the opposite truth. Moreover, there is firm evidence showing that the COVID-19 pandemics drawback attention to sustainability issues, as people around the world started to evaluate the surroundings and nature even more.
Last year introduced us to tightened sustainability and compliance regulations worldwide—for instance, Maritime Organization’s low-sulfur fuel regulation (IMO 2020). The overall impact could be as much as 240 billion USD, resulting and 40 billion USD increased transportation costs (A Sea Change for the Global Shipping Industry,” Goldman Sachs, June 18th, 2018). Meanwhile, the United States Environmental protection agency issued plenty of environmental laws and guidelines for the businesses operating in the USA.
The road freight forwarding sector was lucky. No concrete regulations will be implied. Nevertheless, the market provides signs that are not a distant future, when the environmental clauses will find its place not only for first-tier service providers.
DSV Panalpina and CMA CMG’s CEO’s talking with shipping watch informed that they are going to imply environmental clauses in future contracts with 3rd party service providers. This action will be taken to meet their ecological goals stated in companies’ strategies.
Most small or medium Logistic service providers are not prepared for the upcoming regulatory changes. That’s why logistics companies need to pay more attention to the sustainability-related regulatory basis and implement required documentation and processes into their operations.
During the last decade, technologies in the supply chain field have evolved at a fast pace. The market has been introduced with solutions helping supply chain organizations to increase visibility, planning capacity, more rapid document distribution, and to decrease manual jobs and error rates.
Today all technologies have API interactions; this allows us to eliminate some manual labor functions like bookkeeping.
What does it mean for companies without proper solutions?
There is a big chance that companies without needed technological solutions will not get business anymore.
There is no one to blame here. We need to understand that all companies are looking for efficiencies and technologies are providing with desired outcomes.
The other notable trend is especially important for traditional non-asset-based 3PL’s -emerging logistical platforms. The market was introduced with many different solutions: tendering platforms, load boards, price boards, etc. There are UBER based platforms, threatening classical intermediaries.
An increasing number of logistics startups are receiving attention from other companies and investors. Amazons Jeff Bezos invested in a UK based startup Beacon, which aims to disrupt the trillion billion market. Other multinationals are investing in Logistics technologies business, adding more value to their services.
We see a real treat to non-asset-based service providers without firm value proposition in the upcoming years.
Of course, we need not forget that According to wired, 95% of technologies fail to bring the promised value. Therefore, companies still have time to pivot correctly.Though It’s crucial not to forget that the time is elapsing fast, and companies need to act right away.
Multi-channel selling and marketing
Most of the traditional logistics service providers are using two primary sales channels: phone and exhibition. Few are starting using LinkedIn and email, but without proper salesmanship.
Today’s customers are changing; it’s related to increasing competition, technology revolution, and changing the customer decision journey.
If you would like to learn more about trends and tips related to marketing and sales for the Logistics service providers which are shaping the industry, please press the link to read our report:
Today customers see and receive 5000 sales messages every day
Your prospects are overwhelmed; therefore, new customer acquisition becomes hard.
The sales teams’ study has discovered that 80 percent of sales reps give’s up after four touchpoints with the prospect. Simultaneously, the same research informed that 90 percent of sales agents close the Deal after the 14th touching point. We need to stop here and think for a moment on those staggering results and the adverse effect on your companies future growth.
Earlier, there was no need for logistics companies to invest in marketing and other sales channels. Today Logistics companies without sales, marketing, and customer relationship strategies; eventually will not get any business.
This is the main reason why logistics companies are starting to invest in their brand visibility and professional appearance. An increasing number of logistics service providers create marketing managers, digital marketing analysts, customer relationships, and other related positions or outsource those activities.
If you would like to learn more about the importance of alignment of sales, marketing, and customer relationship strategies, and find out easy tips, how to execute those strategies, please read our report by pressing the link below.
Let’s face it; all prospects will wear out at some point. Putting all eggs into one basket is risky. Huge logistics service providers are already thinking about marketing and sales alignment. Moreover, they are implementing sales development tactics to reach growth.
Main drawbacks from this section
The economic, financial, political, and business trends indicate that we will have a recession and most likely more severe than it was in the 2008 banking crisis. Now companies need to increase liquidity. It can be achieved by cutting employment costs, improving process efficiency, reduce investments. In other word’s now is a great time to cut fat, but not the muscle, as the recession will be over and there will be a lot of possibilities.
Secondly, there is a massive chance that the global supply chains will be re-evaluated and redirected to other countries. Of course, it will not happen to start from tomorrow and not with all chains (for example, electronics are very dependent on China), but the narrative is becoming clear.
This new situation will create new possibilities for logistics service providers, as companies will be looking for third parties to arrange all needed processes. Furthermore, there will be possibilities for warehouse place providers, as companies will put more stock behind the cheeks. Global players are decreasing their supply chains; it means companies will be looking for new solutions.
The sustainability and technology trends shaping the industry will have significant impacts on future contracts. Companies that haven’t made any steps in those directions are highly advised to do this soon.
Earlier in the paper, we underlined main business and economic trends, which will shape the Logistics sector in the Long run.
Now it’s time to talk about the central short-term tendency – COVID-19. This new situation hit many businesses. We will look through every Logistics segment.
There are great opportunities to be found. Nevertheless, it is essential to deal with today’s situation and find a competitive edge.
It is essential to mention that most of the industry is struggling with the new reality. Companies that have a diversified portfolio has not seen a sharp decline. Some companies are even growing, but those organizations which were working with the Pandemic affected countries and sectors are facing huge losses.
Freight forwarding companies
At the end of May, Kuehne + Nagel informed firing 20000 employees as the projected turnover will decrease by 25%.
More or less, all industry is facing the same problems. We know small non-asset-based 3PL’s with 50% slashed turnover, and this is terrifying.
The biggest asset-based forwarders in Europe are cutting wages, reacting to the cargo decrease and upcoming recession.
Freight prices were either declining due to volume shortage or increasing due to backloads lack and wary by country and mode.
And this was a significant issue for both forwarders and shippers.
Container shipments
CMA CGM said in a press release that the volume was down 4.6% in the first quarter, but the Company’s CFO, Michel Sirat, told Lloyd’s List it expects quantity to be down around 15% in the second quarter.
Maersk expected volume to drop 20% to 25% in the second quarter across all its businesses.
The volume-related issues doubled prices for Container shipping to China from some locations. And this was mostly related to the COVID-19 situation.
Reacting to the issued created by the pandemics, container lines are increasing blank sailings, which makes planning procedures extremely hard and increases freight prices.
Future freight price projections are hardly predictable, as it will depend on many different factors like when the economy will start working again, how it will impact future trade, and so on.
Warehousing
The warehousing market is growing. It is related to COVID-19, as companies needed to store products for a longer time.
We predict that this market will be growing in the future due to the high likelihood that companies will start to increase safety stocks to avoid future disruptions.
The other significant trend which stipulates future warehousing industries growth in Europe is Brexit. UK does not have enough storage facilities, which means that companies inside the UK will start investing or using not distant locations. Having in mind that the UK is a vast consumer market, the warehousing market should revolve around it.
And the third trend is the ever-evolving e-commerce business. The traditional Brick and mortar retail is struggling, a lot of players either went bankrupt or are closing the stores in the USA.
According to the business insider, in 2019, we have had 19 retailers, and in 2020 already 20 retailers more either liquidated either reorganized.
There will be a lot of possibilities in serving e-commerce. Though, companies need to understand that serving e-commerce is different than doing Brick and mortar.
Another growing industry highly related to warehousing is parcel delivery services. This sector was snowballing related together with the booming e-commerce industry. And the pandemics have even increased this segment.
Dry bulk and Liquid chartering
The Baltic dry index (BDI) has reached it was down already in 2016, according to Hellenic shipping news. And during the COVID-19 has decreased the freight prices even more. Having in mind the IMO requirements, which implies to burn low Sulphur oil for ships without scrubbers, which is more expensive, the situation does not look right.
Nevertheless, the dry bulk indexes are starting to grow; the future of the prices is highly unpredictable; as it will depend on Crop and the demand from China.
Tanker vessel freight prices have increased from April, related to the shore storage shortages caused by pandemics. They were forcing shippers to use tankers as storage facilities and pay demurrage costs and higher freight costs. The rates started to decrease in May and dropped on April 27th from w440 to w180 in May (according to spglobal.com). Hellenicshippingnews predict that the low freight rates for all size tankers should stay until the global oil consumption reaches stability again. Having in mind the uncertainty this situation can remain for a long time.
Rail
The rail cargo deliveries sector in Europe, according to the railway gazette, is facing a 20 % decline.
USA railway deliveries, according to statistics, have decreased within all commodities groups varying from -1% to -88%, the most affected commodity is motor vehicles and the least affected grains.
Short term future is vague. Nevertheless, extended-term tendencies prefer rail deliveries, as this is one of the cheapest and environmentally friendly delivery means.
Air
Air cargo freight prices have increased sharply together with the border lockdowns and decreased everyday availability.
The short term prices should stay at more or less the same level, and the long term prices should reach the usual standards.
Logistics platforms and technologies
This sector was booming for the last ten years. A lot of new possibilities have emerged, which stipulated the growth and competition.
Lots of new solutions were introduced until today, and we know a few which will be presented during this year.
COVID-19 has even increased expectations for this sector. All major companies are thinking about investments in all types of technologies.
Nevertheless, we need to be cautious as there will be many losers as in all sectors. It’s the fastest-growing sector in which not all companies will cope up with this immense growth.
Technology providers need to be proactive by generating solutions with concrete value propositions.From other side technology, buyers need to evaluate all possible solutions to find the best fitting for their business.
Concluding Logistics industry figures
The situation in the most significant business segments is awful. Sectors with the biggest impact on GDP are in turmoil. Only the parcel delivery and warehousing sectors are increasing.
Looking at the economic forecasts and the recession in other major sectors, the upcoming 1-2 years for the logistics sector will be hard. Not all companies will survive.
What can companies do today to better prepare for the recession? And how to model fast recovery to grow the business? We will find out in the next section.
When crises arrive, we usually start to blame our self’s. As Nasib Taleb, in his famous book, the Black Swan said, elephant poo in Africa could cause a hurricane in Europe. And this is true in business, so there is no time for self-destruction and pity, as no one knows what will happen. The best thing to do now is to equip ad hoc thinking.
As we have underlined in the paper, we will face difficult situations in the upcoming year or two. It will not be easy for most of the companies to survive, but as the famous Japanese tale is saying: after a storm comes sunshine. It means that for companies that will change quickly and find new ways of doing business, there will be plenty of opportunities when the economy starts to grow.
Is it even possible?
There were a lot of recessions during the lifetime, but we have companies 200, 500, 1000 years old, it means that everything is possible.
Most of the Companies are already taking massive action; we from our side will provide a process, which you can use in full or part within your operations.
Liquidity
The number one priority is to deal with today’s situation. Most companies face the following issues: decreased turnover, uncertainty for the future; upcoming recession; possible second COVID-19 wave. To survive, companies will need to have cash on hand.
Most of the companies are relying on the government stimulus. As we already know from the 2008 recession, not everyone will be saved (as not all banks were cared for by the government). Moreover, it will take some time until the funds reach organizations. And most importantly, we do not know the methodology of how those funds will be distributed and how the companies will be chosen.
The best possible advice is to start cutting expenditures now.
Our advice:
- Change the procurement model to the budget to pay. You need to look carefully at every expenditure and cut all the not important ones. It cannot be accomplished without an extra tier of a filter. You need to strengthen the financial responsibility, and the budget to pay method will perform the best.
- Slash every budget line. It is the best time to overlook every expenditure through a liquidity perspective. If the spending doesn’t help to generate value, or it can be bought cheaper from other service providers, you need to take action. Please have in mind; we do not recommend to change strategic partners to save funds. Strategic partnerships are essential, as never before.
- Look through your inventory. Usually, there are plenty of funds saving possibilities there. Look at the inventory turnover, possible reductions, procurement cycles, etc.
- OPEX management. And finally, you need to look at total Operational expenditures, decide which are necessary, which not. Maybe you will be able to safe by outsourcing. Do not forget that any unnecessary fixed, variable costs or overheads are hazardous during such immense times. As you can calculate the price’s for one volume and turnover, but it can change already next month. Make it as Lean as possible.
- Renegotiate your contract terms with suppliers. As you have already noticed, shippers started to renegotiate price terms with Logistics service providers (if they have the upper hand), you need to do the same with your suppliers.
If you would like to learn how to save funds by outsourcing, we can share our knowledge. Please email us info@scsbureau.com so we could follow up with you.
Labor efficiency
Almost all companies have increased their workforce during the period of growth. And we need to be sincere with each other, not all employees were required. Furthermore, not all our personnel perform at the best levels.
It is the best time to double-check your labor and link it with efficiency and future growth. In most of the Logistics businesses, the number one budget line is employees’ salaries; there are many saving possibilities here.
We recommend implementing the following steps:
- Salary cut. Initially, we would not recommend doing this, as we all know how hard it is to find good employees who can walk the extra mile. But if you have no other choice, than you need to implement such measures. If you decided to implement price cuts, I would recommend cut wages to all employees at once to avoid chaos in the organizational structure.
- Increased efficiency. This step is more favorable than a salary cut. If you can add more job for the same salary, do it.
- If you have implemented efficiency measures and you know that you have employees who do not perform well, it’s the best time to say goodbye to them. We recommend doing this with employees who aren’t necessary for your operations as well. If you are thinking about business continuity, please pay those you lay off correctly to avoid horrible feedback, which could hurt the future of your operations.
- Outsource possibilities. There are substantial saving possibilities related to outsourcing. Furthermore, in most cases, outsourcing provides process efficiency. You need to look through all options here. There will be a lot of uncertainty for the upcoming years; no one will know for sure when the market will start growing and how stable the growth will be. The best way to mitigate this risk is labor rent and outsourcing.
- Best in class. During a crisis, you need to have the best in class employees serving your customers, as the cost of error can be very high. If you have possibilities to headhunt, do this. Otherwise, do not forget to train your personnel.
AT SUPPLY CHAIN SERVICES BUREAU, we can help Logistics companies to save up to 50% on total labor costs. We know how to leverage possibilities to lower the cost and add value.
Investments
We have only two pieces of advice. First, put aside all unnecessary investments.
Second, all future investments should be linked to sustainable growth. The last piece of advice is the most important one as all significant issues begin when companies invest in development without knowing why they are doing this and how they will fuel this growth.
All growth initiatives must be covered with strategies and concrete execution ideas.
Plan for future growth
Turmoil creates massive possibilities. We draw your attention to significant tendencies that are shaping the industry. Of course, today’s number one priority is liquidity. It is hard to predict how bad it will be and for how long it will last, but Companies thinking about growth need to develop growth tactics right away.
And the two most essential growth accelerators within organizations is Sales & Marketing.
Only strong teams will be able to use future possibilities and thrive.
And we have excellent news for you; most Logistics service providers do not have a well-established sales and marketing process. You can create and competitive advantage by creating those processes at your organization.
Steps to apply:
- Create a reactive sales and marketing process. Logistics leaders need to create a transparent process with concrete steps, which need to be seen in the CRM. Train your team to follow this process. Look at the part’s where your team is lagging and improve them. Moreover, organizations need to create guidelines for each function so that everyone knew their tasks and responsibilities.
- Multi-channel selling. It’s not enough to use one channel to sell your services anymore. Companies need to use all possibilities available: email, phone, blog, social, internet. Create a communication plan for each channel. If you do not know where to start, hire professionals to help you.
- Who works in the logistics sector knows that it’s a highly competitive environment. Unfortunately, many organizations do not understand they’re strengths and try to sell everything to everyone. And this is the wrong path, as someone that fit’s all doesn’t perform at all. Companies need to have an explicit specialization to know their ideal customer’s persona and market their strengths to the perfect customer. Specialty is the direct path for growth. Ask yourself: What is our main advantage? What customers can we serve best? What are the characteristics of our ideal customer? How can we help those customers in the best possible way? How can we reach our ideal customer? What value do we create for our ideal customer? Wherefrom do our most customers come? Where do we struggle most? Answering those questions will help you to narrow your services and market.
- According to the hub spot, companies that invest in training are increasing closing rates by 20%. If you provide your team with logistics sales or professional training, you will increase your closing rates enormously. Furthermore, your customers want to deal with professional service providers; When asked of the number one issue why shippers don’t buy, the answer was unprofessional service providers. Logistics leaders need to narrow the unprofessionalism gap; coaching activities do this.
- Sales development. The usual practice when the same manager is taking care of prospecting, nurturing, customer relationships, issue solving, and more doesn’t perform in this world. To get a customer, your team needs to make an averagely thirty-two touching point with the prospect. Unfortunately, one manager can’t correctly accomplish this. To cope with the changing environment, companies need to create a sales development structure in the company, which will be responsible solely for prospecting and nurturing leads.
- Content marketing. The central marketing thesis is saying that men are boing with emotions and rationalize the decision with logic. Unfortunately, it doesn’t work in logistics; you need to create something tangible. Logistic service providers need to invest money in creating professional content for they’re prospects. To be seen as trustworthy advisors, it’s crucial. Unfortunately, most of the Logistics companies are doing it wrongly, as they create content about themselves and the services which they provide. It is an entirely wrong approach, as you need to create content for your ideal customer persona, not yourself.
- Alignment of strategies. The first step is to create sales, marketing, and customer relationship strategies, and the second step is to align them to create value for your company and your customer.
- Customer experience. The authority moved to the customer, days when service providers have had the upper hand has passed. Positive customer experience is an essential thing for companies thinking about growth. Firms need to Implement roadmaps of the customer journey, understand the most critical parts, and create benchmarks.
SUPPLY CHAIN SERVICES BUREAU can help establish a winning sales development process for your company.
Please press the link below and arrange a call with us: Arrange a follow-up call with the supply chain services bureau.
Or email us directly at info@scsbureau.com
We fully understand that change management is very hard, especially when related to employees and cost cuts. For SME’s it’s even harder, as they have strong bonds with, they’re employees.
We encourage you not to delay the changes needed.
Dealing with this unknown situation requires thinking out of the box and implementing new solutions. And one of the solutions fitting today’s situation best is screening your companies’ chart and looking for outsourcing or labor rent possibilities.
In this paper, we tried to emphasize the possibilities which will be found during this recession. They are real, and you need to use it.
We also emphasized the importance of liquidity. Yet it’s imperative to cut the fat and not the muscle.
Thank you for reading.
If you need a second opinion, please do not hesitate to get in touch with us.
You can do this by emailing us at info@scsbureau.com
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