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NEWS ANALySIS


The future of freight will not be business as usual


Only one thing can be said with certainty about the freight industry in years to come – it will look different from the present says Professor Alan Braithwaite. The leading logistics academic and chairman of specialist supply chain consultancy LCP says that business people tend to be preoccupied with the here and now and often find it difficult to take a long, hard strategic look at where they are heading. When they do, it’s often too late. As US investor and industrialist


Warren Buffett (and Samuel Johnson before him) was fond of saying, “The chains of habit are too light to be felt until they are too heavy to be broken.” In other words, think of the direction your business is taking before it’s decided for you by circumstances outside your control. Many people have been confidently predicting the demise of the freight forwarder ever since the internal borders were removed in Europe in 1992. Professor Alan Braithwaite was one of them – at any rate he predicted that large numbers of them would go out of business when the need for intra- European customs clearance was removed. “I was wrong then,” he is


happy to admit. “I absolutely didn’t forecast the huge surge in global trade that happened in the late 1990s. The trend was to some extent already evident in the mid 1990s in areas like engineering and car components, and then in the high tech sector, but the surge in consumer goods didn’t come until the late 1990s and early 2000s. - and then the volumes grew exponentially.” Today, globalisation is part of most successful firms’ business model and it’s unlikely to go away.


However, globalisation will probably evolve further and the freight industry will have to change too. “A question I’m often asked is whether there will be reduced dependence on Asia. I can say that we are seeing companies trying to regionalise their supply chains so there probably will be some rebalancing. Engineering firms are looking to East Europe, garment producers to the Mediterranean rim, for example. Also, companies are becoming very sensitised to supply chain risks - whether that’s ash clouds, accidents in Indian ports, slow steaming, lack of boxes - or lack


Professor Alan Braithwaite


of visibility. The list is endless.” Many firms have actually brought forward their Christmas sourcing for precisely this reason, he says. Some firms may well go


back to making goods in the country of consumption, or at least somewhere very close by. “If you can automate the more labour intensive processes, it can be viable. For instance, we’re looking at a project on healthcare products in the Czech Republic, for which the next step could well be production back in the UK. I think sometimes people have been a little bit deceived by the process of globablisation.” It doesn’t always yield the hoped for cost savings. All this may be depressing news


for a freight industry looking forward to resumed growth in UK imports, but future trends are not all bad news. “There are big potential export markets in China and India – I think we have all forgotten a bit about selling exports.” In fact, despite all the hand- wringing over the demise of British manufacturing, even at the height of the consumer import boom, the UK’s imports didn’t outweigh exports to the extent that might be supposed, adds Professor Braithwaite. “There are perhaps 50-60% more imports than exports, but from the way people talk you would think the UK no longer makes anything. But only the other day, I was talking to someone with an engineering business who makes fastenings and clips, and sells them all over the world.” A lot of these firms are small businesses and their freight forwarder is a crucial part of their global supply chain. They don’t have the manpower, the resources or the time to do the job themselves and they are heavily dependent on their freight service providers.


But do they always get the service they deserve? Some of Professor Braithwaite’s views might make for uncomfortable reading. Many of the freight industry’s customers are not, he believes. “In fact, many are getting poor visibility, unreliable transit times and extremely high prices.” For companies paying perhaps £4-5 million a year, is it really acceptable that consignments are lost in transit sheds for up to six weeks at a time, he asks. Another characteristic of


the freight industry is that it is still “massively fragmented”- despite the activities of a few multinationals in buying up freight companies around the world. “They don’t have the same quality of representation in every place.” One of the fundamental ways in which the industry will change, then, is that there will, inevitably, be more consolidation, he believes. Another


important


development, he continues, is that “the bigger customers will look for their forwarders to cross over into broader logistics. We’ve seen it with Kuehne & Nagel, we’ve seen it with Schenkers to some extent.” Those forwarders that succeed,


he also believes, are those that respond “with a greater level of transparency. It’s extraordinary how difficult it can be to discover what a good rate for the job is. Some forwarders have tried to turn freight into a black art – but I think they need to find a position in which they can add value.” Professor Braithwaite commends Expeditors’ ‘traffic light’ approach to improving visibility and informing customers in a manageable way how shipments are progressing, and he points out that a lot of the more sophisticated management technology is getting more affordable now. “The question is, will it permeate into the rest of the industry?” It’s important not to


underestimate the complexity of the modern logistics professional’s


task in


managing perhaps hundreds of international container movements every week. He agrees with Andrew Traill of the Shipper’s Voice (see FBJ 2, page 10 – Time to bring back the shipping manager?) that the disappearance of the traditional shipping manager in many firms is to be regretted. “I am constantly surprised at the


relatively immature capability you find in a lot of companies in this area, and in areas like warehousing and stock control. The problem is – where do you get the training from? I’m not sure if there’s any place where you can learn all these skills.” So what might the freight industry of the future look like? No doubt technology will make further advances, including web portals and maybe even low cost airline-style web ordering of capacity. But freight companies will also


have to get better at improving their global coverage, while at the same time ensuring that the various dots on the world map work effectively with each other.


Some – though by no means


all – of the big international accountancy firms might provide a useful pointer. “Here you have a network of independent offices, but they service each others’ businesses and there’s a clearly defined model, common charging and branding. They’re actually motivated to work together. They’ve learned that they can get more value out of the brand, not necessarily each individual transaction, taking a more long-term view.” This isn’t always the case in


the freight industry, even where local offices are fully owned by the parent corporation. Professor Braithwaite has come across cases where two offices belonging to the same organisation are barely on speaking terms with each other. Sometimes individual offices stack margins to protect their own profitability, leading to unacceptably high prices. Professor Braithwaite recalls


helping a large technology firm that set up what was arguably the world’s first global logistics contract a few years ago. “They wanted to reach anywhere in the world within 48 hours, and at the time there was only one freight provider that could satisfy that, as it operated point to point services with its own planes rather than relying on scheduled carriers.” LCP went through a big implementation process and awaited results. The first consignment wasn’t collected. “The local office of the freight company complained that they weren’t being paid enough. In fairness, the problem was fixed very quickly but it does illustrate the sorts of problems that the industry has to solve.”


ISSUE 3 2010 LCP Consulting


LCP is a specialist supply chain logistics consultancy. It helps companies realise the value in their supply chains and has worked for retailers, manufacturers and freight service providers. It does about 40% of its business outside the UK, in 28 different countries including China, Australasia, India, Russia and throughout Europe. LCP chairman Professor Alan Braithwaite is also a visiting professor at the University of Cranfield and has been associated with the Bedfordshire institution since 1987. He says that the academic insights gained is a key part of LCP’s offering, allowing the consultants to take a ‘back to first principles’ approach. A chemical engineer originally, Professor Braithwaite’s first taste of supply chain (or ‘distribution’ as it was then known) consulting was in 1979 when he carried out some research for Rolls Royce Engines. He went on to set up LCP in 1985.


Make a PESTEL of yourself


More freight firms should carry out a PESTEL analysis of their businesses, says Professor Braithwaite. PESTEL stands for “Political, Economic, Social, and Technological, Environmental and Legal analysis and is a common framework used to analyse all the factors that can or might affect a firm’s business. Some people use the slightly more concise PEST analysis while if you’re really keen you can extend the PESTEL analysis to include educational (STEEPLE) and demographic factors (STEEPLED). You don’t have to engage an expensive team of external management analysts to do this – just consider what all the factors are that could affect the business in the future. It’s easy to be cynical about management school jargon, but


a few minutes spent with colleagues going through all the different factors that could affect your business could throw up some interesting pointers. Here are just a few examples of the sort of factors that might be considered under each heading.


Political factors US Government anti-corruption laws, which have, paradoxically, made doing business in other parts of the world where corruption is endemic problematical for forwarders that also have US links or do business with the US government. Another example: Will doing business with Iran become too hot politically for most companies?


Economic We’ve been through the best of times and the worst of times in the past two years. Are we out of the woods yet- or heading for a double dip recession? And what about exchange rates?


Social China may be flavour of the month at the moment, but will increasing demands for higher wages upset the applecart? There are probably similar factors to consider in most parts of the world in which forwarders do business, particularly the less developed countries.


Technological We probably haven’t yet seen everything the Internet can do in tracking and tracing or automating the freighting process, and it’s both an opportunity and a threat to forwarders. Or, will we see different shapes and sizes of shipping containers? After all, it wasn’t so many years ago that we were being told that 45’ long boxes or 9’ 6” high ones would never catch on.


Environmental There’s no getting away from the fact that ships and planes burn fuel and emit greenhouse gases. Sure, there are things that can be done to mitigate the problem, but at what cost – and who’s going to pay for it?


Legal The law influences every aspect of business life. Examples of new legislation that affect the freight business might U include new airfreight regulations for dangerous goods in theS, AEOs in Europe, container scanning, conditions of carriage...the list is endless.


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