Changing business changes the need for LSP

Roger OakdenGlobal Logistics

Economies are changing.

Industries, or companies within them, can change how they operate depending on changes in markets, competition and supplies. This can affect a business’s contracts with its logistics service providers (LSPs).

For example, changes in the competitiveness of America is making it more attractive for some companies to ‘on-shore’, that is to once again manufacture in America. In doing this, contracts with LSP responsible for importing finished goods to America are no longer required. If sufficient companies do this, the business model of some LSP s will need to change.

Similarly, the business of mining iron ore and coking coal is changing. Following dramatic increases in demand from China, mining companies in Australia invested heavily in new mines. This phase of the mining cycle is ending and the volume production phase is commencing, as China continues to demand hard commodities. What changes could now occur in the services scene?

The emphasis on construction services and associated transport services requirements is reducing, so companies supplying these services are having to come to terms with the new scenario. To support the higher volumes of minerals, more capesize bulkships are required (ships too big to go through the Panama or Suez canals), but supply is not available so the price has increased. To satisfy demand is dependent on the rate of building new ships and scrapping the old.

When the focus was on construction, mining companies outsourced their production operations; now they are tending to bring operations in-house; the labour hire companies business is down, but other services are up. An example is that production jobs in iron ore are located in the remote north west of Australia, but a good proportion of capable people live in the populated south east of the country. This has increased the need for fly-in, fly-out (FIFO) services; one aircraft charter company provides more than 300 mining related flights per week with 70 seat aircraft.

Agile LSPs

For some years, articles and presentations about ‘agile’ manufacturing companies have appeared, but not much has been said about agile LSPs.

The threat to LSPs is that while busily executing a contract, little thought is given about the future, or there is an expectation that with superior performance, the contract will be extended. But the extent to how much LSPs are used can be governed by external events, as shown in the examples above.

As economies and industries change, so LSP must be prepared to fully understand their client’s business in terms of aims and objectives and position logistics services to assist in furthering the objectives.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...