Increasing the Profitability of Logistics

There are several reasons. An important one is that providers are not working as a network but rather as independently operated subsidiaries. Traditional mindsets with a focus on “silo” thinking are still very typical and prevent companies from realizing scale effects. Even profit and loss are usually measured at the local subsidiary. As a consequence, every subsidiary strives to optimize itself at the expense of the others. This practice prevents companies from realizing scale effects, professionalizing their core functions, subcontracting appropriately, and optimizing their networks. What’s more, complex matrix structures, which complicate decision-making, as well as the duplication of functions and responsibilities, will increase these effects. Other important reasons can be found around a lack of standardization and professionalization of processes.

In recent years, the logistics industry has optimized existing business models down to the smallest cost lever. As a result, in road transportation, logistics services providers have been increasingly using route optimization systems, relocating truck fleets to regions with lower labor costs, prioritizing network-compatible shipments, implementing the latest technological innovations, and increasing their truck capacity utilization rates. There’s a little room left in terms of the potential of traditional cost levers - such as implementing lightweight construction, improving aerodynamics, and increasing the efficiency of engines - but not much. The situation in other logistics segments is more or less the same. Achieving profitable growth in the future will require logistic service providers to undertake a thorough overhaul of their traditional business designs.

To become profitable, logistics services providers have to fundamentally rethink their future business designs. This includes standardizing and streamlining structures and processes, developing industry oriented and innovative solutions, thinking and acting in terms of networks, as well as professionalizing core functions like tender management. The traditional “local entrepreneur” culture, i.e., of focusing on transactions and making “gut decisions,” will no longer suffice to produce profitable growth. While an entrepreneurial orientation of the subsidiary still is important, there also must be an overall perspective on the business, greater systematization, and a stronger team orientation. Last but not least, it is important for logistics companies to align their individual employees’ values and targets with this perspective.