If you would ask a multinational company, what if your logistics would fall away? You would get raised eyebrows, it can’t, we’re dependent on it to get our products to customers! Then why, I wonder, do so many companies invest so little in their outsourced carriers and logistics service providers (LSPs) and find that they can let go of contracts with a drop of a hat?
To give you an idea, this is the reality that many road freight carriers face: one-year contracts with a major multinational or LSP, each time accompanied with negotiations that take months, and where carriers are played off against each other, driving the price to rock bottom. Consequence: a carrier is left with profit margin of merely 1-2%, meaning the annual profit is made between Christmas and New Year only. No money for investment. No buffer. The business risks of being a carrier are huge.
The underlying cause is that for a long time this has been a buyers-market due to a surplus of trucks and drivers, especially during the financial crisis of 2008. In Europe this has been amplified by Eastern European truck drivers entering the pool of drivers since borders have opened up. In China, ‘seasonal drivers’ are pulled in around Chinese New Year, Alibaba’s Singles Day (last year generating a whopping $18 billion in sales) and other major holidays, and these drivers then find themselves scrambling for work for the rest of the year.
But there are signs that the pool of well-qualified drivers is shrinking, such as the US and Australia. In fact, for a while in New Zealand, truck drivers were accepted as immigrants to deal with this shortage. Just like with farmers, the average age of truck drivers in western society is 55+ and rising. Drivers often entered the profession because of their love of trucking and the sense of freedom that being on the road brings. Young people much less want to be a truck driver because of the long and irregular hours and poor and unreliable pay compared to other jobs. There is excitement about driver-less trucks, but it will take years before widespread deployment is a reality.
Now that the economy is picking up again, I see evidence every day that multinationals are becoming even more aware how vulnerable they really are in terms of their logistics supply chain. More companies are short of trucks to take goods to customers. Multinationals that have taken their carriers for granted for so long, they risk getting the question: why would we stay loyal to you now?
Investing in a longer-term relationship with carriers is no longer an option, it is in the business interest of multinationals. The beauty is that it also creates opportunities to collaborate on making logistics supply chains more cost efficient and sustainable…. (read about this in my next blog :)
4 October 2017
Sophie Punte, Executive Director SFC
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