The last two years were fantastic for the Logistics industry. Ocean carriers made enormous profits. The year was also good for logistics intermediaries. ECU Worldwide surveyed 800+ freight forwarders worldwide and found that the considerable majority of freight forwarders grew their revenue between 33-48%. Major growth drivers were related to increased freight price and new customer acquisition.
The market was also great for other niches. Road transportation was doing great; the spot market was booming in Europe and the USA. Warehouses in many regions were full as well. Air logistics boomed all over the world, same was seen with rail.
So this was the good part, but the bad part is that the music is starting to stop, and the needle slowly moves back to the shippers. Therefore it’s worth analyzing how sustainable the growth was related to the pandemics and finding answers if companies can sustain the same levels of revenue and profitability.
To get the answers, we need to answer a few essential questions.
Will the newly generated customers leave your company when the capacity normalizes?
The first and most important question that will reflect your company’s revenue in the future is related to your newly generated customers. If they stay and do business with you in the upcoming years, revenue growth will remain with your organization.
Will new generated customers stay with your organization will depend on many factors. Like how well your service levels were, have you charged your customers adequately or used the capacity situation to get extra margins, and what was their experience with other partners they worked with? If you did great, haven’t ripped them off with freight price, and if they had a previous bad experience with other logistics partners, then there are good chances they will stay with your organization. If not, then it can work out either way.
I believe sustaining the same revenue level or even achieving growth is possible. Still, it will be a tough cookie for most market players, as organizations must implement many sales development and account management activities to sustain the same growth levels.
Will your organization retain the same level of profitability?
The second part of your company’s being is related to the profit your organization makes. I believe that the high-profit period is over for most of the industry in the year 2023 (maybe except for ocean carriers). Because fuel prices are high, consumption levels are decreasing, and competition is increasing.
If no more unexpected things related to global supply chains will happen (like new streams of covid, further war escalation), the freight prices will not reach the same heights, which means lesser profit for most of the players.
What to do next?
Below, you will see a few pieces of advice that logistics organizations need to consider to grow revenues and profitability.
#1 Make sure to retain new customers
It’s common sense that logistics organizations must retain during pandemics generated customers to maintain revenue levels. So put your account management team fully aware that they must ensure this happens. In the case of abandoned accounts, get a clear answer why they are leaving and what can be done to change their decision.
Here I want to draw your attention to the fact that everyone in the industry will start fighting for the customers, including ocean carriers; therefore, your organization needs to go the extra mile to create an extraordinary service experience for your customers. To create a great customer experience, your organization needs to think out of the box, understand market trends, and do research. You can find more insights on how to create extraordinary logistics services here.
#2 Speed up new business development
And of course, you need not forget that to retain the same or more significant revenue, your organization needs to consider the lower freight rates factor. Moreover, as the consumption levels are shrinking between 10%-20% (it can shrink even more, starting from autumn), retaining new generated customers may not be enough. Therefore, you will have to get more new customers or shipments from existing customers to get the same revenue level.
Therefore, speeding up new business development may be the second best option after retaining newly generated shippers. You can find more insights about the best way to generate new customers here and here.
#3 Widen your services
Investing in new service offerings is another way to increase revenues and profitability. Having in mind all the changes that are happening in the market (You can read more about 7 trends that are changing the logistics market here.), adding new service offerings can be one of the best ideas. It’s not only a great way to get more revenues faster (as it’s x10 times easier to sell more services to existing customers than finding new ones), but shippers are also looking for partners that could provide more services from one hand. In other words, with broader service offerings, your organization can better adjust to changing shippers’ needs.
Moreover, logistics organizations should consider implementing more managed services into their offerings (not only new transportation means) by taking more control of shippers’ supply chains. Such a value-added service approach creates more value for your shippers, and organizations can hedge themselves from the competition, as it’s not easy to change a partner that puts more skin in the game than others.
#4 Make your operations leaner
By leaner, I do not think that firing existing employees is a good option because nevertheless the short-term recession we could face, the long-term trend of employee shortage will stay.
I’m urging logistics companies to create more innovative processes by investing in digital solutions here. First, look for solutions to automate repetitive tasks (like quoting, bookings, etc.). Next, invest in solutions that will make your sales or account teams more efficient (like power dials, CRMs, freight data analysis tools, etc.). Finally, create customer-centric processes that would benefit your organization in the future (create a customer relationship management process, map out those processes in your CRM, etc.).
In conclusion, I want to add, nevertheless the great two years, its super important not to sit and wait for what’s to happen. Investing the extra earned profits into your organization’s future is a far better option. The upcoming five years will be super important for the logistics industry, as everyone in the industry is spending their extra earned profits to strengthen future positions. At this investment pace, the winners and losers will emerge soon (within 3-5 years). I wish my readers to situate on the winner’s side.