Chapter 2: Global Logistics Industry Flashcards
Please describe in brief the three main developing stages of the global logistics industry in the last decades!
- Stage 1 (1970-80’s) - large discrete market players with separate functions for road-, warehouse, air or sea services
- Stage 2 (1990’s and early 2000s): M&A phase with expanding from national to global markets - the main drivers were the deregulation of the postal and retail markets in Europe.
- Stage 3 (2000 - today): Clearance of the market since the recession in 2008/9. Focus on specific USPs in the different market segments; the trend to the “One Stop Mega Carrier” is stopped.
Today, DHL is the largest Logistics Service Provider in the world. The company size was driven mainly by global M&A activities in the 1990s and at the beginning of the new century.
What do you think are the main challenges for DHL in correspondence with such large acquisition and merger processes?
The main challenges of DHL are driven by the strategic and operational integration of the new subsidiaries. These challenges are:
- The integration of different IT-technology-levels in hard- and software
- The integration of different company cultures providing a standardized service level all around the world
- The integration of new, company-wide SOPs in already existing, country-specific Order-to-Payment Processes
- The monitoring and controlling of the new standards and cultures
What is the World Logistics Performance Index?
The World Bank LPI is a multidimensional assessment of logistics performance for a country, rated on a scale from one (worst) to five (best)
It uses more than 6,000 individual country assessments made by approx. 1,000 multinational freight forwarders and CEPs to compare the trade logistics profiles of 155 countries
Which key areas are captured and benchmarked by the World Logistics Performance Index?
- The efficiency of the customs clearance process
- Quality of trade and transport related infrastructure
- Ease of arranging competitive shipm. prices
- Competence and quality of logistics services
- Ability to track and trace consignments
- The frequency of transports to the destination
How would you measure each benchmarking areas of the World Logistics Performance Index?
- The efficiency of the customs clearance process measured by the import/export times into/from a country
- Quality of trade and transport related infrastructure measured by the average speed on different road types
- Ease of arranging competitive shipm. prices measured with price benchmarking for comparable relations
- Competence and quality of logistics services measured by average delivery time for specific shipments
- Ability to track and trace consignments measured by the number of LSP in a country which offer such a service
- The frequency of transports to the destination measured by a “test buy” from different service providers → how high is the frequency for a specific relation offered?
Please name three top-performing countries out of the World Logistics Performance Index (Issue 2018)!
What do these countries have in common?
Top performers are: Germany, Sweden, Belgium
What do they have in common?
Top performers are “World Class Traders” with a high trade expansion and a significantly better own border management (reduction of complexity in transport regulation and improvement of import/export lead time!)
Top performers have a strong export orientation and diversification, they invest significantly in trade-related infrastructure; often they have a geographical central position (e.g. the “German-Hub”)
Top performers are able to attract foreign direct investments and economic growth
Top performers have a high level of service for their Logistics Service Providers
Please name three low-performing countries out of the World Logistics Performance Index (Issue 2018)!
What do these countries have in common?
Low performers are: Somalia, Liberia, Sudan
What do they have in common?
Low Performers tend to have higher average times to import or export
Landlocked poor performers (Africa!) are in a disadvantage because they cannot control shipping conditions outside their borders (+ 1 week longer import time in comparison to their coastal neighbors)
Poor performers have a low reliability and predictability of the supply chain. In consequence importers and exporters need to increase the inventory levels and protective capabilities (e.g. for inspection) -> higher costs!
What are the main reasons that countries have different national development of their logistics transport-markets?
The three main reasons for different developments in national logistics transport markets are:
- De-regulation of the transport markets. Free price building drives the innovation and process capacities and capabilities of service providers.
- Openness and trade. The pre-requisite for a strong logistics service provider base is a strong, reliable and constant trade (import and export)
- Retail development. One of the key drivers for logistics transport activities is the degree of consolidation in the retail sector. A high degree of concentration is helpful to gain Economies of Scale in transportation and establish successful 3/4PL-partnerships.
We discussed the increased “object complexity” when doing global trade and logistics.
What are drivers of this “object complexity”?
Driving factors of an increased “object complexity” in international logistics activities are:
- fluctuations in currency values of objects over time and different economical power
- different technical standards (e.g. voltage) and measurement systems (metric vs. anglo - American measurements)
- different preferences and needs of customers
International logistics activities have a more complex transaction and transformation process than the domestic business.
What are drivers for this increased transaction and transformation complexity?
- Differences in the Demand:
- Different seasons (northern hemisphere vs. southern
hemisphere) - Different personal preferences, expected service levels
- Differences in the Business Environment:
- different legal aspects from country to country (liability?)
- different tariffs and customs procedures
- different currencies and payment terms
- different languages
- Differences in Costs:
- additional payments for (multimodal) transport and
tariffs (+20%) - often higher costs for risk protection (insurance,
package, stocks)
What are the reasons for an increased complexity in institutions and information in international supply chains?
The complexity of institutions and information is increased by larger transport/supply chains with complex infrastructures. This means
- a more complex planning, coordination and controlling process
- an increased importance of standardized communication and information
What are possible service areas for a global logistics service operator in the internal SC of an industrial company?
Possible areas are:
- In the demand flow:
- Processing of customer orders
- integration on demand planning
- Coordination of inventory levels /suppliers for optimal production
- In the fulfillment flow:
- managing international warehouse structures
- transportation management for opt. vehicle utilization (e.g. T&T)
- In the payment flow:
- integration of payment flow from and to the customer
What are possible service areas for a global logistics service provider in the external SC of an industrial company?
Possible service in the external SC are:
- Order picking Order Picking: Arranging and protecting international export (direct) shipments according to customs law;
- Customs Management: Reduce direct costs (duties), compliance costs of import restrictions and opportunity costs (wrong customs regimes)
- Quality Control: Control of product / package quality on arrival, arranging, re-labeling and re-packing - if required.
- Security: Storage, hsipment and handling of goods according to international security restrictions
- ERP-systems integration: between customer purchase and order system, financial and distribution system
What are options/strategies of growth for global logistics service providers?
There are four main strategies:
- Organic growth as a safe way - based on market research and the understanding of own USP
- Alliances as a quick and easy way to offer clients enhanced services - but it makes only sense in stable, more conservative markets
- Joint Ventures when both companies have to offer complementary services or the legal requirement for a foreign company is to work with a local partner (China!)
- Piggybacking as a strategy to “grow with your clients” - very common in the internationalization of manufacturing and retailing
If you compare the domestic business with the international business from the logistics perspective - what are the main differences?
The key characteristics of international business are in comparison to the domestic market:
- Longer transit times in transport - with a more complex transport structure (packaging, customs, availability of loading units, etc.)
- Intermodality of the transport in different geographical areas and different legal contexts (cabotage!)
- The need to work and collaborate in different languages, unique national accommodations, documents and trade habits
- The need for IT-integration on different standards and global planning systems
- Often - the need to join strategic alliances with international contracts - combined with a lot of additional risks (currency fluctuations, culture etc.)
