Throughout the logistics value chain, net operating profits angel from as low as 5% in air freight, to 15% in warehousing, to as high as 30% in sea freight. I Within this, it is estimated that the market for Fourth Party Logistics services may have the potential to be within the range of 0. 85% to 1. 8% of total logistics sector revenues by 2012, or between IIS$mum and IIS$381 m. Ii A significant number of factors are driving this growth and profitability.
In particular, the relative attraction of the ICC and proximate emerging markets of 2 billion people, offer the promise of growth to many product firms facing a further period of sluggish emend growth in many of the more developed regions, following the severe global recession of 2008-09. Meanwhile, with oil having stabilized at over $ball, huge petrodollars have continued to flow into the region, funding on-going infrastructure and economic developments, such as manufacturing, economics and logistics zones, all of which require logistics services.
In addition, rather than yielding a competitive market for logistics, the fragmentation of supply chain service providers, the multitude of logistical difficulties faced, and the yard other free market impediments in the ICC, have all conspired to cause a high cost, high profit industry, with no particular mechanism or incentive for any supplier to spark the process of competition.
Similarly, contracting models appear out-dated, with “all care, no responsibility’ being a common theme in the market, forcing the customer to take all the risk and cost of inefficiencies, errors, delays and problems, while the supplier enjoys all the rewards (hence the profit margins). The lack of developed IT capabilities throughout the chain is a further source of constant restoration to customers, with even larger-sized players having to deal with antiquated, paper-based processes. In many cases, customers have no access to real time supply chain data.
Combined with the opacity of costs and a lack of risk sharing with suppliers, there is a real sense of frustration amongst customers who know full well their supply chain costs are too high, but feel powerless to be able to identify where, and hence how to manage them. As one customer noted with evident exasperation: “l can’t control costs; I have no visibility – if I knew what was happening and where, I would be able to manage it! Iv significantly higher, by any measure, as compared to their operations in other more developed markets.
For price-sensitive consumer sectors, such as chilled and frozen foods, this is a significant impediment to sales, since logistics can account for 25% of the total shelf cost in the ICC, compared to as low as 10% in a more developed market. V Whilst some of this difference may be due to lower economies of scale – the populations are smaller and the distances between major cities longer than in many parts of Asia, Europe or North America – much of it is due to the multitude of inefficiencies and structural market features that exist in the ICC.