Price wars in the logistics industry

Logistics, Pricing Wars and a Lack of Innovation…

The Logistics industry is lagging far behind in both innovation and price innovation a new report has said.

Price wars in the logistics industry

Simon-Kucher & Partners – a global strategy consulting firm, has published its latest Global Pricing Study. In it, it found that logistics firms succeed with only 40 per cent of their planned price increases. And almost 80 per cent of the companies are experiencing higher price pressure compared to last year. Logistics providers say these poor results are due to fierce competition and the fact that customers have more negotiating power now. As a result, the percentage of logistics companies that only compete on price is twice as high as in other industries.

Dr. Philipp Biermann – Partner, Simon-Kucher laments  that blame is quickly placed on the competitors, although the inability to raise prices is generally self-inflicted: “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 price isn’t right

Kornelia Reifenberg – Senior Director, Simon-Kucher, comments that 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: “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.” 

Top of the flops

The study also provides some colour when it comes to charting the success of new products and services. Stating that only 18 per cent of all new products achieve their profit targets, which is the lowest rate that has ever been recorded (considering that in all industries, it’s 28 per cent). And 35 per cent of logistics companies haven’t even been able to reach the anticipated profit targets for any of their new products (compared to the overall percentage of 24 per cent), although these new products and services could well be used to shift the focus of negotiations away from the price and towards value, Reifenberg says.

The results contained in the study were based on responses from approximately 1,600 managers (of which C-levels made up 39 per cent), from over 40 countries across Asia-Pacific, the Americas and Europe.