Forwarders have to decide between old, well-known paths or break new ground
- Friday, 13 February 2009
To simplify your business, to get "back to basics," or to take the opposite tack by changing and diversifying your services to the customer is a critical dilemma facing Australian & New Zealand forwarders of every size, type and description in these perilous times.
Solving this dilemma could mean the difference between future success or failure for hundreds of forwarders now struggling to remain viable while experiencing the sharpest decline in the transportation business for the past sixty years.
To keep existing business and harness new customers, I believe the forwarder now faces three choices; each seemingly conflicting with the others.
One is to return to the "stone age" of forwarding. To go back to the nuts and bolts of running a forwarding business. To offer the customer a superior combination that consists of the "basics" of our business. These basics include competitive pricing, delivery of goods on time and when promised, accurate transmission of information from forwarder to customer and transshipment of goods from loading dock to final destination. To conduct the forwarder's own operation in a leaner and meaner manner than at any time in the past when he opened his doors with nothing more than a telephone, typewriter and teletype machine.
A second alternative is to reinvent yourself. To become less of a "delivery merchant" and more of a management and business consultant. To become embedded in your customers entire logistics system; Inventory management, supply requirements, current and future production volume and outsourcing. By offering these value added services, the forwarder heightens his role from "just" a transportation agent to an involved and integral part of his customer's business. In this scenario, the forwarder's creed becomes, "I must know my customer's business even better than my own."
A third choice is to become a niche player and become a specialist in handling certain types of cargo like electronics or apparel and/or concentrating on certain lane segments.
The niche forwarder who specialises in certain types of business certainly may have long term potential earnings, but he must position himself correctly in those markets and offer top line service to his customers if he is to succeed.
Be mindful, however, of the pitfalls in each of these three choices.
Basics: To many customers, back to basics means back to even lower rates. This is a false assumption. Moving a shipment swiftly and expeditiously whether to a nearby city or a distant continent requires a combination of skilled personnel and high quality technology. Neither comes cheaply. Impress upon the customer this blend of superior personal service and advanced technology is an integral part of his entire distribution system.
The forwarder also must be careful in assessing his own, internal operation. In providing a no frills approach, the forwarder may feel he can venture into a widespread cutting spree, reducing staff and facilities to dangerous levels. In his zealousness to reduce overhead, he may well cut into the muscle of his operation--lowering the quality of service his customers expect.
Diversifying: The forwarder who chooses to add a number of services in addition to his primary task of moving freight, faces a number of financial, personnel and organisational obstacles. Unlike the Clint Eastwood film, "for a few dollars more," costs to diversify your operation will be substantial. Funds will flow outwards at a prodigious rate.
Personnel who are genuinely skilled in modern management systems and who know the logistics business are rare and expensive. Grafting a new division onto your existing operation inevitably will cause stress and strain among your current employees. Your principal problem in this new endeavour, however, will be gaining the support of existing and potential customers. Will they be willing to pay the additional costs of your new, value-added services?
Will they be willing to try your new service when they already have an existing carrier or forwarder who in their eyes is performing adequately? Perhaps a more prudent and far less costly strategy in these circumstances would be to align your forwarding operation with an existing business management or business consulting firm that knows the logistics business.
Niche forwarding: Becoming a specialist in certain types of commodities involves a good deal of guesswork. The forwarder is gambling to a large extent on choosing those markets with long term growth potential. Also, the consolidator must have the mental stamina and financial resources to ride out the inevitable short term declines in demand for his specialised services. Becoming a niche player minimises the forwarder's ability to "break out" of the image he is creating for himself while building his reputation in the particular niche he chooses. Even when the guesswork is correct, a change in the market can disrupt your niche, destroying your model.
Whatever your decision today, it will be critical to your success or failure tomorrow. It should be made only after careful consideration of the benefits and the costs. It is not an easy decision to make amidst the complexity and uncertainty of today's forbidding economic climate. It is also a decision which will have an enormous effect not only on yourself, but your loyal employees. It is not to be made lightly.
Do you genuinely have to make a change? Perhaps not. You may be in fine shape if you have done a good job in the past positioning yourself to customers and carriers.
Perhaps you can ride out the economic storm, but remember no one, from Warren Buffet to your local banker, foresaw the severity of the current downturn and no one truly knowns when it will end. Following the same path in these very perilous times may be disastrous to your business if the projected rewards do not match your efforts over the long term.
The services of a forwarder are important, but the role is evolving. The path each owner chooses to take will impact his business for years to come.
