Logistics: Finding The Unrealized Potential

Intermodal Business, May 1998

By THOMAS CRAIG
President LTD Management
www.ltdmgmt.com
Intermodal marketing companies and intermodal transportation companies work hard to provide a transportation service that meets the needs of customers. They're prudent with prices, recognizing competition from other IMC's and from truckload carriers. But they're missing out on a real opportunity: logistics. Transportation companies that have expanded into logistics have seen profits increase significantly. Going from 5% margins on freight to 25% on the logistics service isn't unusual.

Driven by the Supply Chain Management paradigm, logistics is now crucial to the success of manufacturers, retailers, wholesalers, distributors and others. Logistics is a process which controls the movement of materials and goods from suppliers door through delivery of the finished product to the customer's doors. Keys to logistics success are the movement of the product, movement of information, time/service, cost, and integration, both within the company and outside.

Put simply, intermodal companies have two choices. They can position themselves merely as movers of goods, or they can position themselves as a provider of logistics services. What's meant by that? Say here what the IMC might provide special services with trailer spotting. This permits the customer to load or unload the trailer at his convenience. This is a "value- added" freight service, not a logistics service. It adds to the IMC's costs, not to profits. The intermodal company is still functioning as a mere freight handler of the customer's freight. You are positioning yourself as a freight service provider, a casual participant in your customer's operations. You stay outside of your customer and do not become a real participant in his operations. Your role is relegated to showing up at his dock with the trailer to pick up freight or deliver it.

The Logic Of Logistics Transportation is vital to logistics and supply chain success. Yet by defining yourself solely as a freight company, you're essentially defining yourself as a commodity service. And with a commodity, the only way to distinguish one company from another is price. That can be a dangerous, myopic alternative.

As a logistics service provider, you expand what you offer the customer. You may provide a warehousing service, for example. But it is not a separate, discrete service. It is integrated in with your transportation. You may integrate with your customer's systems to work with him to manage the movement of products to meet production or customer requirements.

When mulling the pros and cons of a move towards logistics, consider the following:

  • As a commodity service, you're vulnerable and can be replaced by your customers. As a logistics provider, you're integrated into your supplier. Replacing you isn't so easy.
  • Many customers issue bid requests and select largely on price. Some readily drop carriers over rates.
  • Career advancement in your customers' logistics departments requires a rounded experience of responsibilities and promotions. Often the way to accomplish this is to change companies. This turnover of logistics decision makers can create a dangerous situation for incumbent carriers. The new executive wants to be a success and may bring his own set of preferred carriers with him.
  • Logistics departments aren't staffed as they once were. They're looking for service providers who can do more and make their job easier.

    Of course, providing a logistics service means more than putting the word "logistics" in your company name. It means offering truly integrated services. One that is tailored to meet the specific needs of each customer, a customized service rather than an homogenized service.

    Developing that service can be difficult. Intermodal companies aren't used to thinking in terms of tailored and integrated service. This is true whether you're looking at how to sell it, how to design it or how to implement and operate it. You may need to call in outside consultants to work with you and your customer. But if done properly, the effort will be worth it to your bottom line.

    One last hint, and this applies whether you explore logistics as a separate third-party company or as opportunities arise with customers: look at the small and medium-sized businesses. Everyone chases the major corporations, yet small businesses comprise by far the majority of companies in the U.S. The next time you're making your pitch at some corporate HQ, think about all the small businesses you drove by on the way in.

  • Top of Page small businesses you drove by on the way in.