The Logistics Tail That Wags the Supply Chain Dog

By David Gonzalez | January 11, 2022 | 0 Comments

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Logistics leaders will be eager to close the curtain on 2021 and consign a year of endless constraints and crisis to history. Dealing with disruption is a very familiar concept to most, if not all, logistics professionals. But 2021 felt relentlessly challenging. As we enter 2022, companies are bracing for another year of service interruptions, capacity constraints and rising costs.

In 2021, many CSCOs and even CEOs were directly engaged in operational activities and seeing for themselves the daily upheaval experienced by their logistics colleagues. This front-line view has helped them better understand, and subsequently act upon, much-needed investments in people, processes and technology to manage an environment of ongoing constraints. Business leaders are making logistics-led decisions. Whether it’s where to place manufacturing locations, how to deliver sustainability targets or what fulfilment services to promise customers and consumers, logistics not only has a seat at the head of the table, but it’s also become the loudest voice. Logistics leaders must leverage attention from CSCOs as they prepare to cope with what´s in store for them in 2022.

The Logistics Outsourcing Sector is Booming

Consider this curious conundrum: these unprecedented levels of logistics disruption occurred during one of the industry’s most financially lucrative periods ever. Admittedly not all logistics companies have made monetary hay while the capacity shortage sun has shone. However, companies such as leading global provider DHL expect to post record revenues for 2021. As Figure 1 suggests, the outlook for 2022 is buoyant. Subject to the staccato effects of the pandemic, the IMF expects the global economy to grow by more than 5%. Demand for logistics services and capacity will remain high.

Forget 5PL, Companies Are Reverting to 1PL

The fear of not being able to source sufficient capacity to move goods last year resulted in some companies, particularly retailers, taking extreme actions. Home Depot and their much-publicized chartering of ships signalled an increase in companies seeking to directly control capacity. And 2021 also saw other retailers such as American Eagle Outfitters, Ashley Furniture and Costco acquire asset-based transport companies to secure some of their capacity needs. Businesses with transport subsidiaries are not new concepts, but this uptick in asset ownership does signal an ongoing trend for 2022.

Shipping Lines Will Drive More M&A in 2022

For many years shipping lines hemorrhaged money at an alarming rate. In 2016, this highly commoditized sector of the logistics industry experienced its biggest bankruptcy. At the time, Hanjin, the world’s 7th largest shipping line, went bankrupt with debt of more than $5 billion. Fast forward a mere five years and, as if to underline the shift in fortunes, AP Moller Maersk, the world´s biggest shipping line, expects 2021 gross revenues to be between $22 and $23 billion compared to just over $8 billion in 2020. As Figure 2 details, fewer and fewer companies are controlling more and more of the available capacity. As 2021 ended, Maersk, CMA CGM and MSC respectively announced further acquisitions to expand their end-to-end logistics services.

Logistics professionals must continue to leverage their newly found influence and lead their supply chain colleagues through this period of transition. These are three things that logistics leaders must do to succeed in 2022:

  • Forecast, forecast again and then forecast some more – The traditional approach to forecasting transport capacity has never been an exact science and little more than “what we shipped last year plus 10%.” That is no longer good enough. Logistics leaders must work with other functions such as supply chain planning to improve accuracy.
  • Be a good customer and invest in partnerships – Some companies demonstrate great partnership behaviors, which are reciprocated by their 3PL partners. Nearly two-thirds (63%) of respondents in Gartner’s recent logistics outsourcing survey said 3PL service providers had a positive/extremely positive effect on their competitiveness.
  • Remember bimodal? Apply it now more than ever – Companies are restructuring their logistics functions, enabling greater regional and local autonomy. Companies must scale digitalization and deploy both traditional functional expertise and develop new skills and competencies that deliver consistent, cost-effective and reliable logistics infrastructure.

David Gonzalez
VP Analyst
Gartner Supply Chain
David.Gonzalez@gartner.com

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