Logistics sector losing the price war

A large section of the logistics sector is losing the battle to implement planned price increases, coupled with an extremely low success rate when introducing new products and services.
These are the results of the most recent Global Pricing Study*, based on responses from approximately 1,600 managers, conducted by the global strategy consulting firm Simon-Kucher & Partners.
According to the results, logistics firms succeed with only 40% of their planned price increases. And almost 80% of the companies are experiencing higher price pressure compared to last year.
Logistics providers blame these poor results on “fierce competition” and on customers having more negotiating power. As a result, the percentage of logistics companies that only compete on price is twice as high as in other industries.
Dimitris Hiotis, partner at the London office of Simon-Kucher, comments: “The intense competition in the market has led logistics companies to focus negotiations on price; thus self-fulfilling a prophecy of low prices, which further intensifies competition.
“However, focusing instead on value and differentiating the product offering accordingly will allow logistics companies to trade-off value versus price and get the right price for the right product to the right customer."
Hiotis adds: “When a logistics company clearly differentiates their services and products, customers are able to trade off the price they are willing to pay against the level of service they value. This can be a win-win situation for both the logistics company and the customer.” 
Blame is quickly placed on the competitors, although the inability to raise prices is generally self-inflicted, says Philipp Biermann, partner at the Cologne office of Simon-Kucher: "Logistics firms often lack confidence and negotiation tactics.
“They are frequently at the mercy of their customers’ professional purchasing departments. Recognising the value of your services, developing a negotiation strategy and turning this into an implementable price – logistics managers must get this into their heads”
The combination of external pressure and low confidence in their own performance has caused almost two-thirds of the respondents, to “suffer from price wars” says Simon-Kucher.
All of them, however, say that it was the competition who started it.
Explains Kornelia Reifenberg, senior director at the Bonn office of Simon-Kucher: "The phenomenon that companies make concessions to their customers in the heat of the moment that they actually cannot justify is very widespread in the logistics industry.
“In the process, they often don’t see the signals that their dumping prices give to the competition. They don’t grasp that these ‘isolated cases’ ultimately have a negative impact on the market price level."
When it comes to launching new products and services, the logistics industry has also been struggling: Only 18% of all new products achieve their profit targets, which is the lowest rate ever recorded  – with a benchmark of 28% in other industries.
* Approximately 1,600 participants, of which 39% are C-levels, from companies of all industries and over 40 countries across Asia-Pacific, the Americas and Europe, took part in summer 2014 in an online study conducted by Simon-Kucher.

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Established in 1983, Air Cargo News is the leading source of news, information, interviews, analyses and reports to the global airfreight industry. Our leading portfolio includes print, digital and events that give businesses in the airfreight industry the ability to connect with decision-makers in this sector.