The combination of volatile economic conditions, overcapacity in transportation and low fuel costs have fostered a tough environment for logistics service providers (LSPs), as their clients held back signing contracts to take advantage of fierce pricing competition, but the EFT 2016 Global Logistics Report indicates that shippers are looking to develop closer ties with their logistics partners.

“Customers are looking to gain more value from their LSPs and, in fact, want to engage with their LSPs more strategically than before,” said Todd Johnson, chief customer officer of JDA Software Group, which sponsored the report.

The report was drawn on input from 471 companies that responded to the questions put out by EFT. Of these, 40% were LSPs, 33% shippers and 27% from other sectors, such as technology providers, consultants and financial services firms.

Many shippers want to engage with their LSPs on more than warehousing and transportation, the report found. Beyond these core functions, they are looking for a number of other services, including network optimization, inventory optimization and order management. Over 15% of respondents want their logistics provider to help manage their online e-commerce portal.

In part, this reflects shippers’ perspective on consolidation in the logistics providers arena, which has led to the emergence of more full service providers. The study’s authors found that offering a full range of services is not the most important factor in LSP selection but that there is “a significant expectation” in that direction.

Notwithstanding fierce price haggling and a propensity to renew contracts every one or two years, shippers tend to view their dealings with LSPs as something of a longer horizon than short-term rate gains. Of the shippers surveyed, 43% regarded LSPs as strategic partners, and 39.8% have a mid-term focus in this relationship. Only 16.9% stated a short-term focus with the emphasis on cost.

The report shows that most shippers view value for money as the biggest element for benchmarking LSP performance, followed by reliability.

Input from LSPs suggests that they have sought to boost their business first and foremost through outbidding competitors, with 33% of LSP respondents naming this as the chief vehicle to gain business last year. Innovation was cited by 27%, and 17% said that they grew mainly through working with existing customers to generate new business.

Few seem to think that this pattern will hold in the coming year. Nearly 15% named commoditization as the biggest threat to their growth going forward. Of the primary way to gain business, outbidding rivals has slipped into third place, named by 14.2% as the main avenue to growth, whereas 15.6% see the key in working with customers and 46.1% regard innovation as the vehicle for growth.

“In addition to the maturation of cutting-edge technologies, major shifts in supply chain verticals create significant opportunity for innovative logistics providers,” the study’s author wrote.

Ironically, 47.5% of shippers found that innovation is the sector where LSPs most often come up short.

According to the study, many logistics providers are either implementing predictive analytics or are planning to deploy such capability in the near future. On the shipper side, 21% said they expect their LSPs to do this.

Not surprisingly, e-commerce is viewed as a particularly fertile field, both in terms of innovation and growth potential. Over one-third (34.8%) of the respondents identified this as the vertical in which they see the most growth potential.

“Other verticals, including healthcare/life sciences/pharma and industrial, continue to show strong growth potential but e-commerce prompts logistics providers to help shippers redefine how they interact with their end-customers by becoming more responsive to their needs,” the study concludes.

Another study also paints a promising picture for e-commerce logistics. According to market research company Technavio, the e-commerce logistics market is expected to grow at 9.69% through 2020.

Technavio is particularly bullish on emerging markets, which have a strong appetite for foreign goods. China, above all, should do well. It predicts that the spending habits of China’s growing middle class will establish the country as the largest market for on-line shopping during the forecast period.

By Ian Putzger

Correspondent | Toronto