Does game theory explain why 3PLs and parcel carriers are facing an increasingly tough time with ever decreasing margins?
Taking on a high volume of contracts at a price level that undermines the ability to deliver quality has caused the collapse of many established companies in recent years. This can be caused by a lack of synergies between the sales and operational teams but more often than not it is bullish behaviour.
Whilst I am not exhorting the benefits of oligopolies or collusive practice; the industry would be better positioned if competition for contracts was driven by quality of service at a ‘standard’ price rather than the practice of undercutting one another to build a portfolio of high volume, low quality and unprofitable business. Longer term relationships allow for operational development and trust to be formed which in turn leads to a higher level of service and satisfaction.
A recent study by Simon-Kucher & Partners suggests that logistics firms are coming under increasing price pressure and struggle to pass additional costs on further down the supply chain. This has driven down operating margins constricting organic growth and the ability to innovate effectively. Increased operational efficiency is a positive effect of this behaviour but really these gains should be rewarded with improved margins not just survival.
Businesses that take a firm stance on price and provide a quality offering are the ones leading innovation and change whilst their market share comes under threat from providers who promise more than they can deliver. This disruptive behaviour does not benefit anyone in the long run; especially the traditional family businesses who cannot achieve the efficiency gains required to compete against the industry big boys.
There is no instant solution to this challenge but in any industry businesses who provide a high quality of service whilst continuing to innovate and evolve are the real success stories; not the ones who undercut the competition and re-invent themselves every 2 years and successive failings.
We are a solutions focussed business and would welcome the opportunity to understand your operation to see where we can potentially add value through the range of services we offer. Likewise please share your experiences in using third party logistics companies below because if service levels increase everyone will benefit.
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