I’m honored to be able to speak with many logistics business owners and leaders. And the most common things that I hear today are related to cargo shortages and decreased prices. The situation here is not extraordinary, as we had a growth period, and now we will have a downturn. However, the depth of it is still not apparent, as it will depend on the monetary policies and other things that businesses can’t control and impact. But of course, there were things that logistics business leaders were able to impact, which could help them overcome today’s issues. And those companies who did the needed homework will live through this downturn period more efficiently and set up the stage for future growth.
In this article, we will talk about homework that those lucky companies did and provide advice on what to do next.
Homework that needed to be done to better prepare for the downturn in the market
First, we will identify the most critical things struggling companies haven’t done in the booming market already.
1. Those companies haven’t paid attention to new business development
The sales cycle in the logistics sector is quite long. Depending on the size of the client, it can take a year or more (we are talking about long-term contracts, which everyone wants now). In other words, if sales representatives ignored new business developement in 2022 or haven’t done this without consistency and only began selling more actively in 2023, new customers, particularly with exceptions, will appear only in 2024.
So now, when existing customers’ volumes and freight prices are decreasing, and if there is no replenishment, the income falls faster than those companies that spent enough time and effort to find new customers already in the year 2022.
2. Those companies have over-speculated the spot market
The SPOT market has been fantastic for the last two years, talking from the perspective of freight prices. And everyone in the market wanted to benefit as much as possible. But, of course, there were some exceptions. For example, this situation was tragic for some expedition companies with fixed contracts before the spot peak. But generally speaking, many logistics businesses (sea, air, land carriers, and intermediaries, you name it) wanted to carve out more and more of this market, abandoning contractual customers.
The theory is simple: when we have a carrier market, one can earn more on SPOT, while long-term direct contracts are more beneficial during regular and recessionary times. Therefore, companies must correctly choose the balance between SPOT and the contract market to ensure risk management. And those companies who had chosen the right balance are now better of than those who haven’t.
3. Those companies haven’t invested in diversification and services width
We believe that a narrow range of services and a small circle of customers is a risky venture not only during a recession but generally within the changing logistics landscape (a.k.a. logistics market concentration and other logistics market trends).
Talking about our topic, those companies that have diversified their customer base, delivery locations, and services are better hedged during a market downturn because there will always be customer segments, services, or lanes that will grow even in a falling market.
For example, companies can look for opportunities in Turkey if Germany’s manufacturing is decreasing. Or if volumes within the furniture segment are decreasing, the solar panel market is oppositely growing. Or if FTL loads market is falling, LTL loads may increase because shippers are now paying attention to their cash flow. Stories about declining and growing services can be found in each logistics niche (air, sea, land, 3PL, etc.) and market (USA, Europe, Asia, etc.).
4. Those companies have tolerated lousy customer service
Many companies during the last two years, which were hectic in terms of disruptions, have sacrificed customer service. This situation is if of course, understandable. But there were many situations when logistics companies became arrogant. We talk about stories like: take it or leave it; we have plenty of inquiries, we do not need new customers; miscommunication; using the situation to earn extra profits; etc.
Some cases were also related to the incompetence of LSPS, which couldn’t control the disruptions in the market and made mistakes that caused extra expenditures for the shippers. In such cases, shippers left incompetent companies or are currently looking for substitutes.
We could go on and on about other pitfalls, but those three reasons are the core. The more of the above points are valid for a particular business, the bigger the losses are.
What do to next?
First, we emphasize that the best time to make improvements is before the market conditions change (a.k.a the 2022 year or earlier). But the second-best time is to improve when one notices something isn’t working immediately. Any delays will only make things worse.
Second, logistics companies must perform a total sales and marketing audit to find all the issues preventing them from entering new markets, adding new services, getting new customers, and choosing the right spot/contract balance. New short-term and long-term plans and strategies must be created afterward. Most importantly, do not look for short-term gains; oppositely, paying attention to the long run is critical.
Third, perform a customer service audit to understand the temperature of your existing business and make all needed improvements. This advice fits both good and bad times and must be done constantly.
And lastly, look for outside help. We understand that this looks like a promotion of our services. Still, we are sure that outside help can help your organization make the right decision faster and avoid mistakes.
In conclusion, it’s important to mention that the logistics industry is changing fast, and the market concentration and other tendencies force logistics businesses to choose the right path. The best approach now is to look for ways to get new customers quickly.
Let’s contact us if your organization wants to improve sales, marketing, and customer relationships departments; we have some solutions. Please feel free to reach out to us by pressing the link below and booking a time slot.
We want to find ways to build NINJA SALES and MARKETING organizations.
About the author:
Thomas Ananjevas is a supply chain professional with 15 years of experience purchasing and selling Logistic services and building supply chains from scratch. He founded a consulting, training, and marketing company that works exclusively with the logistics industry. Thomas is helping logistics companies implement the necessary changes to ensure business growth and continuity. You can schedule a time to talk with Thomas about possible synergies by clicking here.
