I interviewed Blake Shumate who discussed Predictions on Commoditization.
Good day everyone, I am Blake Shumate and I have been in the shipping industry closing in on 17 years now. Currently, I am the General Manager for American Global Logistics. My role is to buffer the services between our customers, sales, operations, and IT staff. Ten years ago, my job focused solely on customer service and operations. Today, I am overwhelmingly on the IT side of the business. That may sound a bit strange, but that is also in line with I wanted to talk about today - which is commoditization of our industry.
Through the late 90’s and early 2000’s, customer service was a big component of the logistics market. Landing accounts and finding good long-term partnerships was the focus. The pricing provided by NVO’s was based on service levels. Over the last five years, we have seen this market change dramatically. Now, more importers/exporters are less concerned about service and more concerned about the pricing.
The driving factors behind these elements are pretty simple. The cost for shipping has increased and in order to sustain competitive pricing the importer/exporter must cut out as much overhead as possible. For a client whose inventory is heavily supported by imports or exports, logistics is likely to be one of the top (if not the top) expenditure - ergo we are seeing the mentality of “find the lowest cost because anyone can move freight."
How does this mentality shape our future? The reality is that we are only going to see our industry become more and more commoditized over the next five to 10 years. We have seen carriers consolidate global offices into single points of contact. Now, we are seeing carriers merge and work to streamline their vessel strings. This is basically a sign that major carriers are supporting this outlook.
Therefore, to change this bleak future, we need to do one of two things:
1. Consolidate our own organization and become as “pass-through” as possible. This helps to ensure that labor costs are down and margins are sustainable. Use the new technology to automate as many things (or everything) possible!!!
1. I will say this philosophy is more like giving up in my book… Which is why I like option 2
2. Option 2, we can differentiate. What do I mean by this? Well, customer service may not be a focus, but it is still a requirement. The streamlining and cutting down of the carriers means there is a growing gap between importers/exporters and customer service. This is why one of my focuses is on understanding those gaps and developing technology that is customized to 1) fill the gap and 2) restore customer service as a priority. The target is to be a solution provider instead of a commodity based carrier.
Any way you look at it, logistics is a staple of organizations ability to compete in any given market place. We either play no part and drive down costs or create a role that impacts clients in more ways than the bottom line.
About Blake Shumate
General Manager at American Global Logistics, LLC