Innovation is the Key to Service Differentiation
By Brian Sullivan, Development Director UK & Ireland, TT Club
Providers of what are increasingly called supply chain management services, which now include freight forwarders, logistics operators, 3PLs, distribution, warehousing and haulage companies are constantly widening their service portfolios. Either their customers demand this increased functionality or, in an ever more competitive environment, they are striving to expand their services to sustain or increase profitability.
In seeking to provide the most relevant insurance cover for this type of transport operator, we at TT Club are constantly monitoring the sort of services our customers are contracting to undertake. We need to ensure that the Club’s products continue to meet the needs of its customers and the market in general and also to assess the nature of the changing risks and liabilities that these operators are open to when providing new services. We are intensely interested, therefore in innovation and the exciting trends that exist in our industry.
Late last year I attended the Eye for Transport 3PL Summit in Antwerp, the experience fuelled this interest in industry trends and the ways in which operators are seeking to serve their customers better.
In recent years, the freight transport industry as a whole has tended to bemoan the fact that its services are becoming commoditised. Many commentators have concluded that pressure on rates from customers has shorn the operator of his ability to deliver the added-value that distinguishes services from the plain vanilla, A to B transportation of freight. I would contest that this is not entirely true.
Advances in technology, particularly in the form of internet-enabled communication, have allowed small and medium-sized freight forwarders, especially, to compete with the big boys. Regional or national operators with one or just a few offices can network easily with partners throughout the world. Associate companies at the other end of the supply chain (and/or at key points along it) can be employed via almost instantaneous electronic communication. Complex documentation can be shared without laborious and potentially error-strewn re-keying. Perhaps most importantly, state-of-the-art track and trace systems can be offered on a transactional basis.
The ability to monitor the progress of, and more importantly be alerted to any delay in shipments moving through the supply chain has raised the level of the smaller operator’s competitiveness. Through internet application the sophisticated tracking of goods can be offered to shippers without cumbersome, expensive and at times prohibitive in-house IT systems.
Through the use of modern technology smaller operators can maintain close, hands-on personal relationships with their customers at a local level, while still providing them with the same standard of service as that offered by larger organisations with their own global network of offices.
So we are finding that even when larger multi-national shippers go out to tender for their global supply chain management requirements, medium-sized, regional forwarders and logistics operators are not precluded from bidding. Modern technology allows them to provide a worldwide service. In these cases we advise operators to examine carefully the contracts such multi-nationals demand they sign, if successful with their bid. There is a real danger of smaller operators over-stretching their resources in terms of increased liability.
Innovation is, of course not limited to technology, which – as a function of its universal availability –can add to the tendency towards commoditisation. Transport operators across the whole size range are seeking to differentiate themselves through long-term relationship building with customers. These might include: growing new markets for their customers by designing radical new supply chain arrangements that make previously unprofitable products successful; developing more efficient processes within the supply chain by applying management techniques such as Lean and Six Sigma; taking a lead logistics (sometimes called 4PL) role that controls other operators on behalf of the customer.
These are all devices with which a transport operator can increase his revenue, expand his customer base and make his value to the customer more difficult to do without. Of course, through innovative service and involvement in a customer’s business comes increased responsibility and liability. This can often be arduous for smaller companies with limited resource, or any size company that agrees to responsibilities while unaware of the consequences.
Inventory costs are a typical example of this sometimes hidden responsibility. Warehousing, packaging and redistribution are common functions taken on by some operators that have traditionally been solely involved in the international forwarding of goods. The liability, should these goods be lost or damaged while in store, will rest with the forwarder, who in the past was responsible only while the goods were in transit, when such liability was often limited by the terms of an international convention. This is a simple example of unwitting responsibility leading potentially to uninsured loss.
While TT Club would urge some caution in taking such expansionary steps, it has valuable experience and is able to highlight issues to consider, alongside tailoring appropriate insurance terms. Appropriately thorough consideration of the risks involved provides necessary underpinning for successful ventures. TT Club was born of innovation; the mutual was set-up to deal with the changing face of freight transport risk with the advent of the container. Since that time the nature of global supply chains and the function of those companies whose services manage them has been constantly changing. As innovation brings cost-savings and efficiencies, we at TT Club continue to monitor the changes, applaud the inventiveness of those that drive them, and offer our experience and keen awareness of the evolving risk environment.