Transform your freight forwarding business into a 3rd Party Logistics Provider

You are the CEO of a good performing freight forwarding business. You are well aware of the need to grow the business further however before considering takeovers, acquisitions or mergers you want to see what if there are other ways available to you. The market is saturated with freight forwarding services are you are cutting deep into margin to differentiate yourself from you competitors on price because operationally and service delivery wise the industry is quite uniform.

You know that taking away business from your competitors is proving to be too costly and you are looking for a way to grow the market rather than only competing for existing market. Becoming a 3^rd party logistics provider is the answer you are looking for. While freight forwarding services are readily available the same cannot be said for 3^rd party logistics providers and this is your opportunity for organic growth.

As a CEO you want to be across your company’s organic growth as it represents the true growth for the core of your company. It is a good indicator of how well management has used its internal resources to expand profits. Organic growth also identifies whether managers have used their skills to improve the business.

The main difference between a freight forwarder and a 3PL is that the freight forwarder does not actually touch the freight. A freight forwarder is in essence a non asset based service provider while a 3PL is an asset based service provider.

Now to why 3PL is the way forward. Many companies are today choosing to focus on their core activities and to outsource non core activities. For many businesses, warehousing and distribution is non core and if they find a reliable partner, they are keen to outsource the activity. Let’s say I own a manufacturing business in Australia that produces powdered milk. I want to export onto the Mauritian market due to the booming consumption of this product. I however neither want to go through a distributor because the cost of doing so will render my product uncompetitive nor do I want to setup an office in Mauritius. I just want to deal with a company to which I will send my goods to in Mauritius. That company will stock and distribute the stock on my instructions. I will hold most of the functions in Australia with the warehousing and distribution part completely outsourced. The same could be said for a Mauritian company exporting its products overseas. Millions of businesses want to be able to focus on their core activities today which is why there is unprecedented demand for 3PL service providers.

An important strategy to transform your freight forwarding business into an asset based 3PL is to ensure it is approached in phases.

Phase 1 – Get the basics right

Þ    Offer the most basic service which is storage and distribution of goods while still offering freight forwarding services

Þ    You can choose between leasing or buying a warehouse and trucks with leasing being by far the better option.

Þ    Excel in doing this before contemplating phase 2

Phase 2 – Start offering value adding services

Þ    Start offering value adding services such as packaging and product transformation

Þ    Provide real logistics expertise in procurement, inventory management, order management and demand planning and forecasting options

Þ    Provide cost containment strategies. You where the inefficiencies of you client lies and proactively recommend corrective actions.

Phase 3 – Become a partner in business to your client

Þ    Provide consultancy services

Þ    Provide system support

Þ    Share proven best practices

Þ    Provide actionable business intelligence

Becoming a 3PL is one of the best ways to grow your market rather than fight for the saturated existing market. Align your business to the concept of making Mauritius a logistics hub for trade between Africa and Asia. In 20 years China will be too expensive for mass production and next in line for competitive labour is Africa. Africa will at some point become the manufacturing base of the world and when that happens, given Mauritius’s natural hub position between Africa and Asia, many businesses trading between the two continents will use Mauritius as the hub for consolidation and expedition of products. Even today South East Asian countries and India have identified Africa as an untapped market with whom trade must be increased. Being a 3PL can certainly be attractive to those Asian manufacturers looking at entering the African market. Please share your thoughts