Six step Covid-19 recovery plan for logistics companies in the GCC

Published: 4 June 2020 - 7:06 a.m.

The COVID-19 pandemic has halted most economic activity worldwide, and logistics service providers (LSPs) in the GCC must now contend with major supply-chain disruptions, unpredictable market dynamics, and a looming global recession. For the first three months of 2020, according to Thomson Reuters, the total shareholder return for leading global LSPs fell to -15%, and -25% for those within the GCC. To emerge from this crisis, LSPs in the region need a disciplined and tactical approach to stabilize their business amid the crisis, along with longer-term strategic measures to prepare for the coming recovery.

In the short term, LSP leadership teams need to become highly agile and nimble in their operations, enabling them to respond effectively to rapidly changing marketing conditions. For example, given increased volatility in freight rates, LSPs should look at real-time supply and demand to maximize revenue and margins. They should also agree new upfront and retroactive volume discounts with underutilized carriers.

Internally, LSPs need to drive costs down to the bare minimum—reducing discretionary spending, road haulage expenses, and deploying off-the-shelf technology solutions to improve business processes. Similarly, LSPs must be attuned to the viability of their customers and carriers alike—many of which could face significant financial challenges. The expression “cash is king” applies. Accordingly, LSPs should adjust their payment requirements, shortening terms and/or requiring cash for some customers, and choosing not to work with others.

Longer-term, LSPs will need to develop and execute new strategies in the post-COVID-19 world. Such strategies should contain six critical measures.

Grow beyond local operations. Many LSPs in the region operate as local agents, limited to handling the final stage of a shipment into the GCC. To capture more value, they need to expand and build capabilities to handle the entire process for global inbound transport, from departure to destination.

Seamless, best-in-class supply chain services internationally. Cross-border processes in the GCC often are still cumbersome and slow. LSPs, with their local knowledge and access, can differentiate themselves by how efficiently they can navigate these processes—and, consequently, how much they can reduce transit times. A key aspect of offering superlative service is building deep relationships with administrations in the GCC and ports of entry, to become the most trusted and renowned cross-border specialist actively requested by the shipping clientele.

Identify the most promising trade lanes and markets. LSPs should analyze shipping volumes to ensure they are operating in the trade lanes and origination markets that will diversify and increase the resilience of GCC supply chains. More specifically, LSPs need to become relevant players on these trade lanes to generate the best rates, upfront and retroactive discounts from carriers. This will be challenging given the scale of the Asia-Europe trade lane on which the GCC sits. To succeed, LSPs will need to build their presence at both ends of the trade lane.

Work with governments to improve supply chain resilience. During and after the crisis, LSPs should approach GCC governments proactively and offer their expertise in making supply chains significantly more resilient. In some cases, that applies to governments procuring their own critical supplies. In others, the goal is to support governments in reshaping processes and infrastructure to ensure that policymakers can fulfill societal missions such as ensuring a safe supply of food, medicine, and other important goods.

Strategize and identify M&A opportunities. As in the period following the financial crisis of 2008-9, there is likely to be a shake-out among LSPs globally and in the region, with a significant number of good assets and businesses for sale at distressed valuations. For strong, often cash-rich GCC players, this is the time to identify attractive acquisition targets to build up skills and capabilities, enter attractive target markets and trade lanes, increase volumes and scale, and create value.

Heavily invest in technology. GCC LSPs have a notoriously low level of automation and technology. It is high time for them to leap-frog and strategically defend their regional position, or risk becoming even more marginalized and commoditized. Successful technology-based firms, such Transporeon and FreightHub, have proven recently how to bring innovative approaches to the industry. Now is the time for GCC LSPs to apply such technology strategies and learn from such firms.

LSPs in the GCC region must focus their efforts on a set of measures to improve their market position, during and after the COVID-19 crisis. Strong LSPs that remain resolute and disciplined in their response will be best positioned to survive and thrive on the strong consumption fundamentals of the GCC.

Click here to add your comment

Please add your comment below
Name
Country
Email
Your email address will not be published
Captcha