The business landscape is altering at a pace that’s simply unprecedented in history. The reasons for these unmatched upheavals are many. Change is in the air like never before and is sweeping unsuspecting businesses, aided by weak economies across the globe and a flatter world, which has magnanimously added to the already fierce competition pervading every business arena. Technology has given up its “enabler” avatar and is keen on playing the “disruptive” role across business verticals, which is adding to the self-inflicted chaos for many un(der)prepared businesses.
With every other player stretching to grab a bigger piece of the pie, CEOs are finding it challenging to seek ways of keeping their respective ships afloat and navigating them towards the islands of profitability. CEOs of third-party logistics (3PL) companies in Asia—in particular—have been at an even bitter receiving end of the “change juggernaut.” They literally can be said to be currently occupying the “hot seat” in their companies, which is not only getting hotter with every passing day, but is also shaking and swinging at a pace and amplitude that demand—to stabilize and calm them—a much newer and innovative approach of running 3PL businesses from the current and future incumbents. For 3PL CEOs, the tremors have been induced by multiple reasons that require a complete shift in approach, focus, and strategy.
Macro deliberation on why these CEOs are losing their sleep yields multiple interconnected factors: the fear of losing business, fear of losing out to newer and innovation-driven competition (which seems to have gathered momentum in these turbulent times), the anxiety of managing costs and expenses due to dwindling profits, and the father of them all – shutting shop in the face of adversity due to redundancy of the business model.
To the persistent optimist amongst us who might shrug off these as highly exaggerated claims and that this phase is yet to touch the Asian 3PL shores, this might help: nothing can be further from the imminent truth! 3PL businesses are at the crossroads where they can either change to remain relevant, or remain adamant and continue to eventually perish!
On a micro level, here’s what ails the 3PL sector and what CEOs can do to get hold of the compass that’ll help them steer their ships toward safer shores.
3PL players are under tremendous pressure from clients to deliver more in less. While logistics is an essential component of the supply chain, it is not always seen to be adding value to a product. As a matter of fact exacerbation, according to the 2016 Third-Party Logistics Study, four out of 10 business contracts in the 3PL space are for the tactical needs of shippers, and such contracts tend to be transactional in nature. Also, with client CEOs mandating CFOs to cut costs and rein in expenses, CFOs are trying to wriggle out the most from logistics players in terms of cost, risk, and quality, which further add to the woes of a 3PL.
To successfully steer clear of these frugality waves and emerge out unscathed, 3PLs must find ways to add value to their customers so that they get inclined to loosen their purse strings. 3PLs must elevate themselves to the role of strategic partners, and not just remain labeled as commoditized service providers.
Strategic Collaborations with Customers
As a good sign, many 3PLs are investing to improve customer relationship management and support and to tighten the integration of work processes and tools, but such initiatives are mere reactionary measures in more cases than less. They need to focus on more areas rather than just trying to retain contracts from current customers through the aforementioned tactics. This is because there’s tremendous room for more, and a seasoned 3PL seafarer must locate and grab it.
As a start, 3PL CEOs must go the extra mile and align their outlook with their customers’ aspirations. They must hook opportunities by trying to fathom their customers’ pain points and providing value-adds that swiftly alleviate their pain. They need to better understand their customers’ businesses to provide suitable solutions that work best and help in defeating the win-lose and creating the win-win.
This is easier said than done, though. On this path, 3PL CEOs will be up against archaic technology, processes, systems, and workforce. They will have to brace themselves against all these by investing in newer technologies and a fresher workforce that will have the right skill sets.
Ride On The Wave of Industry Disruption
In recent years, among industries facing a paradigm shift in the way they operate, logistics has been one of the most impacted businesses the world over. Technology found 3PL businesses virgin territory for disruption and unleashed a reign of change on them. 3PL CEOs will do good to take a closer look at the following that are playing a crucial role in changing the very face of their industry:
- Customized solutions
- Disruptive e-commerce and technology wave
- Competition from startups
- Platforms coming to power
- Serious lack of know-how
Start-ups are frighteningly agile and customize their solutions to satiate the demands of the changing industry. Start-ups like GoGoVan and Carpal, for example, offer logistics services on a smaller scale that suit the purposes of customers just fine. Customers find such newer players equally reliable as bigger 3PL players.
On the contrary, asset-heavy 3PL players find it difficult to adapt and get investors in time to make it a viable effort to change tracks. Clients always race against time and are inclined to award contracts to players offering a quick-fix solution to their problems. In such a scenario, the best a 3PL CEO can do is to keep a hawk’s eye on market trends and metamorphose their solutions to get the first-mover advantage. Also, they need to play to their strengths and utilize economies of scale to compete in terms of cost and reach.
Disruptive e-commerce and technology wave
E-commerce players like AliExpress and Delhivery offer unified delivery services, which is a huge change to which traditional 3PL players will have to adapt to remain relevant in the industry. This will be a monumental task for them but the opportunities that the Indian e-commerce scene presents are too lucrative to overlook. ASSOCHAM India estimated consumer spend during the 2016 festive season to the tune of INR 25,000 crore, a promising number by any standard.
It will not be out of place to mention the famous graphic that depicted how over 50 companies are disrupting the time-tested FedEx model. 3PL CEOs need to accept that they are now in competition with asset-light, technology driven platforms that are actively courting their core customers.
Platforms coming to power
The fact that 4PL has had an impact on 3PLs is not new. Still, these popular platforms have gone beyond providing management services. For instance, FlexPort offers tips on selecting a 3PL provider, and can even liaise on a customer’s behalf. Thus, it is important for 3PL CEOs to network and form relationships with 4PL platforms to leverage their strengths.
Serious lack of know-how
Another nagging problem that 3PL players face is the scarcity of the right talent with the requisite technical know-how and expertise. These professionals can help companies transform and hence are in great demand. Governments, on the other hand, are encouraging innovation-based disruption to enable the end customer to pick and choose from the best available provider. In this backdrop, traditional players must reinvent themselves to stay competitive.
It is undoubtedly clear that the weather will be rough for 3PL players in the days to come. But, by staying close to the needs of the market and putting in place transformative strategies, 3PL business leaders can ensure their continued relevance to the new generation of customers. Challenges there will be many, but bold steps and apt radical decisions will surely navigate them to greener pastures.