DURING the PortCalls Cargo Economics Conference held last Thursday, we made a brief presentation on Flash Points in the Logistics Industry: What to Watch Out For in the Coming Year.
Below is a short discussion of our presentation.
The Changing Landscape. In the last few years, we have seen creeping developments in the logistics sector which we feel will greatly impact on the industry going forward.
For one, we have witnessed mergers and acquisitions of large global logistics companies such as DHL and Exel, Schenker and BaxGlobal, to name a few. Obviously, the main reason for the merger or acquisition is to maximize on the strengths of the merging units and to identify synergies for growing the business even more.
We have also seen the trend toward integrated supply chain services. The traditional logistics service typically involves just forwarding and customs clearance services. In recent years, there has been a rise in door-to-door type of service even for full container load (FCL) shipments, resulting in the growing use of the DDP and DDU (INCOTERM 2000) terms of trade. More than that, companies are partnering with logistics companies to address supply chain concerns and to provide additional services such as inventory and warehousing management, domestic distribution and other value-added services (e.g. kitting, consolidation and bundling).
Drivers to Change. What are the reasons for these creeping changes? These are brought about by a confluence of many factors.
We have seen big business change its mindset on how it derives profits from operations, which is basically to focus on cutting business cost and increasing market share. With increasing competition from both domestic products and imports, companies can no longer dictate their prices on consumers. In fact, consumers now dictate the prices based on what is available in the market, and business must produce and sell products based on prices acceptable to the intended market. There is less flexibility in how companies set their selling prices so that now, the way to increasing profit margin is to identify cost-saving measures, such as logistics costs, which typically constitutes 20-30% of the total purchase cost of a particular product.
Another development is the shift in the supply chain model for bringing goods to the market. For many companies, particularly those in the electronics and consumer goods sectors, products are now sold even before the same are produced. To illustrate, one can now buy laptops and other electronic products via the internet and the orders are normally delivered within 30 days. In such transactions, the particular item is only produced or manufactured once the order is placed and paid for via the internet. There is much emphasis on ensuring that goods are manufactured and delivered to the customer within the agreed timeline or, in other words, ‘just-in-time’.
International trade experts have estimated that related party transactions constitute at least 60% of international trade. This means that multinational companies drive global trade and, as such, the changes in how these companies conduct their business will likely impact significantly on the logistics industry. It is now typical for major multinational companies to source their supply of services and goods on a regional or global scale. These companies require suppliers of services and goods to have regional or global presence. Failing that, logistics companies are automatically disqualified from providing their services.
How Companies are Adopting. To adopt to increasing competition and to address the changing demands and requirements of big business, major logistics companies are either providing an additional array of services or providing custom-made supply chain solutions to specific customers. In addition to the typical end-to-end solutions such as integrated inbound logistics or door-to-door deliveries, logistics companies have ventured into providing additional value-added services not only to maintain their business but to create additional revenue streams at the same time address demands of particular clients. Among these value-added services are:
- Warehousing and inventory management
- Vendor hubs /supplier parks
- Customs and trade advisory services
- Transport management
- Kitting, packaging and bundling
Customs and Trade Developments. There have also been recent developments in the customs and trade front which we feel will likely impact on the logistics sector in the coming months and years.
As discussed in a previous article, the forthcoming implementation of the AsycudaWORLD will definitely change how logistics companies clear goods with customs. The new program basically allows online filing and releasing of import entries with customs, thereby reducing interface with customs personnel and minimizing processing costs and clearance time.
Similarly, the ongoing implementation of numerous free trade agreements will affect the regulatory environment for clearing goods coming from the country’s trading partners. This will particularly apply on importations that avail of lower import tariffs.
The author is an international trade and customs consultant, and a licensed customs broker. He is also a regular lecturer on logistics, indirect tax, customs and supply chain. Please contact email@example.com for your comments