By Clifford F. Lynch
Although the supply chain industry represents the very essence of the global
economy, a surprising number of logistics service providers (LSPs) and their
clients seem to be having difficulty defining a clear global outsourcing
International trade is no longer something they can safely ignore. There is
little doubt that we are part of the global economy and will continue to be so.
U.S. international trade in goods and services has grown to 28 percent of GDP
(gross domestic product) in 2007 from 10.7 percent in 1970.
As the number of companies getting involved in global trade has soared, so
has demand for international expertise. Global trade requires a broad knowledge
of regulations, cultures, operations, and currencies that many managers do not
possess. The global LSPs often are in a much better position to manage
international supply chains than the clients themselves are.
In fact, the explosion in global trade has already caused a dramatic shift in
the logistics service industry. The nation’s strong domestic LSPs play a
valuable role in U.S. logistics and will continue to do so for some time to
come. But during the past five years, more and more shippers have suddenly found
themselves in need of a freight forwarder’s or customs broker’s services.
Because many of these shippers prefer to use a single provider for all their
needs, they’re turning to global players for both their domestic and
international requirements. As a result, the list of preferred provider
candidates is quite different from what it was just a few years ago. Of the
world’s top 20 global providers (by revenue) only four are based in the United
A number of these global players have their origins in freight forwarding,
and several – such as UTi and DHL – have strong contract logistics
capabilities as well. They have incorporated these capabilities into their
overall offerings and, thus, enhanced their service menus.
Lately, however, some confusion seems to be developing regarding the LSP
marketplace (particularly with the forwarding-based firms), resulting in some
unwarranted concerns. Several of the larger providers are publicly traded, and
it appears that in some cases, financial analysts have contributed to the
confusion. When evaluating the forwarders’ contract logistics operations, they’ve
looked at client turnover rates and sounded the alarm. What they apparently don’t
realize is that forwarding and contract logistics are two very different kinds
of businesses and cannot be judged by the same standards. In contract logistics,
it’s normal for clients to come and go. It’s also normal for clients to
change their own marketing and supply chain strategies from time to time, which
leads them to re-evaluate and, perhaps, modify their distribution networks. This
is the "nature of the beast;" it does not mean that the contract
logistics service provider has failed to perform satisfactorily.
At the same time, it appears that corporate restructurings by some of the
larger players have also given rise to misguided speculation. In order to
concentrate equally on both segments of their business, some of the providers
have recently split their forwarding and logistics units. Some industry pundits
have seized on that as a sign of trouble or even possible divestiture. Others
have publicly speculated that it will be more difficult for them to offer a
total solution when separate entities are involved.
I would suggest that just the opposite is true. By placing highly qualified
individuals in charge of the separate businesses, the freight forwarder-based
providers appear to be re-emphasizing their commitments to each segment. As one
well respected LSP executive has suggested: If you have two strong entities
working together with a strong bridge in between, you can have the best of both