Navigating another new paradigm

posted on 14th September 2023
Navigating another new paradigm

Forwarders and cargo-owners are yet to see a full return to ‘normal’ conditions following the Covid pandemic, with customers more wary of potential disruptions and keener to talk about resilience, partnership, and contingency planning, according to European logistics multinational Geodis

Freight forwarding and logistics firms and their cargo-owner customers are yet to see a full return to ‘normal’ conditions following the Covid pandemic, with customers more wary about potential disruptions and keener to engage in conversations about resilience, partnership and contingency planning, according to specialists at European freight and logistics multinational Geodis.
And although freight pricing and capacity has eased massively since the extreme disruptions and capacity shortages of the core pandemic months, there has remained a mismatch this year between many customers’ expectations on pricing and what is currently available, particularly for air freight and freighter capacity, says Johann Peter Reimer, director for air freight at Geodis Freight Forwarding.
For example, Geodis has been in talks about getting more own-controlled capacity, to support some of its customers’ specific needs. “But the costs of full freighters are still pretty high,” he notes, not just for the aircraft but also higher “fuel costs, staffing costs, airport handling costs, and inflation in a lot of areas around the world”.
On the ocean freight side, pricing has fallen dramatically compared with the unprecedented levels lines were demanding in 2021 and early 2022, “making ocean freight more attractive again to certain customers that were using air freight on that trade. So we see a small shift from air freight customers on the Far East westbound trade. At the same time, for us and our customer base, we see steady organic growth. We have a very diversified customer base, and a lot of our customers are in verticals with strong demand.”

Highly competitive market
But it is a highly competitive and uncertain market that sometimes requires a degree of risk-taking to win business. For example, some customers have been tendering since mid-2023 for 6- or 12-month contacts in 2024. “So, we’re trying to look into the future – which the last three years have shown is not always possible!” Reimer says. “It’s positively challenging.
But the backing of a single financially strong shareholder, SNCF, “puts us in a position to take quick decisions when demand is there and solutions are needed”. That may mean decisions to access capacity, or to agree pricing with customers. “It’s mainly to bring the right solution to the customer at the right pricing,” he notes.

M&A brings opportunities
This ownership stability also brings benefits in a changing competitive landscape among major international freight forwarders.
Further mergers, such as “our main Danish competitor being very aggressive, in acquiring additional businesses”, and a “potential German merger on the horizon”, plus Ceva buying Bolloré, “reduces the number of potential logistics service providers (LSPs) in the market, to a certain customer base,” Reimer notes.
“Customers are looking to diversify their risk – not putting all their eggs in one basket. This is opening up new opportunities for us, with customers that were not always talking to Geodis in the past. And there is new and additional demand that we didn’t cater to the past.”
This includes Geodis meeting the needs of customers seeking access to freighter capacity, which is why the company is looking at expanding its own-controlled freighter network at a time when overall demand is down and there is more capacity coming into the market, at least on the belly cargo side.
Certain customers may need capacity “in areas where there’s not a lot of competition; for example, to the US West Coast, there are not many freighters being operated. So, there’s a customer demand, someone saying: ‘Wouldn’t that be an opportunity for you as well’?” Reimer explains.

Return to seasonality
Another factor is a return “to a more regular summer-winter schedule scenario”, including high levels of summer passenger air capacity. “The belly capacity won’t be there in that size during the winter schedule. So I think we’re going back to the regular seasonality. And we want to be flexible with our plane and where we put our own capacity, and have that control.”
Something else keeping Reimer and his colleagues busy is “talking with customers about their future strategy of sourcing – for example, nearshoring and how they’re going to change their supply chains.” Key to these conversations is to come up with solutions before any actual change happens, and to present customers with options. Reimer says a lot of trust has been built up with existing customers that means these decisions are certainly not all based on price.
“There’s a good understanding from experienced procurement people that low cost – or extremely low cost – comes at a certain risk. And I think the sensitivity of the customer base for diversifying risk has been increased massively, through the Covid pandemic situation.”

Partnership perspective
During the most difficult phases of the pandemic, Geodis not only chartered its own aircraft, “but our own container vessels as well. There was a lot of support from our side, putting solutions into place for our customers, that they obviously appreciated.
“That increased the sense (among customers) that ‘we need to look at certain things more from a partnership perspective’, rather than squeezing out the last penny,” Reimer observes.
That has changed the dynamics of working with some customers.

More solution design in RFQs
“I think there’s a lot more discussion and solution design going on around an RFQ, rather than just benchmarking the market, and then maybe changing because ‘I saw something cheaper’, and then showing the board ‘I made a saving on logistics of €1m’,” he explains.
“The preparation in the RFQ phase is much more intense; there’s much more talks going on before RFQs. And then during the awarding process, there’s a lot more comparing quality of the offered services, rather than just looking at numbers.”

Redesigning supply chains
Much has been said in the last four or five years about customers wanting to redesign their supply chains, for example regionalising or nearshoring sourcing and supply of products, as a result of international logistics disruptions and global geopolitical tensions – notably between China and the US. Some recent statistics indicates a significant drop in Chinese freight traffic to the US, but to Europe it looks more stable.
Reimer agrees that China traffic to Europe is more stable, although he notes that “we’re seeing a certain shift from China towards the Indian subcontinent. Obviously, this is to mitigate geopolitical risk, the China-Taiwan situation, and so on. India could be a good place to produce, but the raw materials for the production is mainly still coming from China. So, I’m not sure if that’s 100% a solid solution. But India is, from our perspective, going very strong. And nearshoring into Europe, we see customers considering that, but we don’t see huge shifts yet.”

Entrenched sourcing patterns
Reimer adds: “Obviously, with the situation in Europe right now, inflation and salaries, it comes at a high cost.” By nearshoring or decentralising production, companies may also lose production synergies or advantages of being close to certain markets. For example, with a major global electronics company producing 95% of its products in China, “if you want to put part of it into Europe, part into the US, part into Brazil, you’re losing the synergies of having everything under one roof. So, I think it’s extremely difficult for customers to make the right calls on that,” Reimer says.
“They’re playing with a lot of scenarios.”
Restructuring supply chains also comes with costs, complexity, and the challenge of change. “Bureaucracy as well,” Reimer notes. “You know, within Europe, how difficult it is to get all the necessary licenses to build a new production plant for, say, lithium batteries. So it’s going to be extremely interesting.”

Modelling geopolitical scenarios
Nevertheless, customers are asking their freight forwarding and logistics partners to model potential geopolitical scenarios and the logistics and supply chain implications of those – such as a China-Taiwan conflict. “And we will do that anyway, even without customers asking us for it, because we need to be able to react and have something in the drawer… in case,” Reimer says.
The experience of Covid forced companies to prepare for other potentially disruptive scenarios, although crises are seldom the same. Reimer believes China invading Taiwan “would be a completely different animal”, with potential sanctions towards China and other ramifications “that would have a massive impact on the industry” and how it currently operates.
“We’re thinking about scenarios like that, and how we could react,” reamer notes. Part of the task involves “getting a sense of what customers are seeing, what they are asked by their boards to look for in the market”.

Challenges are on a different scale
Reimer reflects: “It has always been an interesting and never boring industry. But the challenges we are sometimes looking at in the last few years and forthcoming years are on a different scale, I would say.”
And customers expect forwarders to handle these kinds of major disruptions, as they did in response to the pandemic and the war in Ukraine, but also expect or hope they will get consultancy services about other potential future disruptions – such as cyber attacks, other wars, or a recession, says Stefan Winckelmann, director for Pharma & Health Care at Geodis.
He says the pharma industry is highly fragmented and therefore very vulnerable to these disruptions. “So, this is now part in the yearly talks we have with our customers. They very often ask me: ‘What do you see? Is there something on the horizon? And then they want to mitigate that.” This means planning for lots of different scenarios; and not just Plan A, B and C, “but B1, B2, B3”.

Agility and resilience planning
Reimer adds: “What is essential is staying very agile, so we are able to react quickly; that we are resilient in our setup. So, for Europe, for example, we’re using several gateways; we are not putting everything into one airport. And let’s say the airport needs to shut down, we adapt. We are very easily able to send everybody home, keep operations going. This is what Covid taught us as well.”
Flat hierarchies within the organisation “allows us to be very quick in the decision-making process and supporting customers. When the Russia-Ukraine war started, from day one we had a daily update call with the global CEO, global product heads, all major country product heads, on where do we put our plane, and how do we cope with demand the next day, and so on… Everybody was involved; there was a lot of information being exchanged, a lot of communication going on. And this really enables us to be there for our customers.”
Those sorts of daily conversations took place during various phases of the Covid pandemic, and then during the the first 10 weeks of the Ukraine war. “Then we toned it down, when things were running more stably again. That exchange was extremely valuable.”

A cost of doing business
This kind of resilience planning with customers is now just part of the cost of doing business. “We’re not charging extra, but we’re getting paid by our customers through the trust they put into us,” says Reimer. “This is a changing way of doing business in a changing environment. It’s a necessity that we are happily offering to Geodis customers.”
And the reward is winning or retaining the business, conversations are more open and partnership-based, and the relationships are ‘more sticky’ than they might otherwise be, which brings a commercial benefit. “Expanding business, growing together with customers, is one of the huge benefits,” Reimer says.
Winckelmann says he was once asked by a big pharmaceutical company if he could spend a day talking with the company’s C-level management, ‘because you have much more in-depth information than the consulting companies’, and being asked ‘how much do you charge for that’?
“We don’t charge for it. But it was interesting to get the question,” he notes.

Appreciating supply chains
It’s an indication of how much value some companies now place on that kind of knowledge and advice – and good supply chains. “I think pre-Covid, supply chain was a maybe not-so-much-liked necessity,” says Reimer. “During Covid, the value of proper supply chains came out extremely.”
Companies that had their supply chains in order, and the right partners, thrived, while others struggled. And that mentality lives on, especially because customers can see the risks of major disruption recurring due to the geopolitical volatility.

‘Asset right’ strategy
On the air freight operations side, priorities for Geodis include “not looking only at operational quality and cost control, but sustainability is becoming more and more important as well”, Reimer says. “We are working on global projects, and quality topics on a local level with suppliers, with air freight carriers, trucking companies.
“We are investing in our own warehousing structure, and in a global ‘asset right’ strategy rather than ‘asset light’. And we try to have a good bottom-up process as well, to see what is locally needed in the market and what can we achieve locally. And then best-practice sharing with that.”

E-commerce logistics opportunities
A common recent challenge for logistics and air freight companies has been how to manage and maximise the obvious opportunities presented by e-commerce logistics – and to what extent that needs to be treated differently operationally, especially in the air freight environment.
“It is a different approach than, say, pharma,” Reimer says. “And the acquisition of trans-o-flex in Germany, the acquisition of ‘Need It Now Delivers’ (a logistics, trucking and express company in the US), our own product ‘MyParcel’ (a B2C cross-border small-parcel shipping service from the USA to 26 European continental countries, the UK and Canada), and the development of that, is helping us in the e-commerce vertical market.”
Reimer adds: “The e-commerce vertical market will stay strong and continue to come with its own challenges of time sensitivity, and so on. It’s something that we’re monitoring, (and) where we are investing into increasing our footprint, increasing our product portfolio.”
Whether that e-commerce logistics offering includes B2C delivery depends on the market.
“Countries like the US, or now in Germany as well with trans-o-flex, where we can easily offer B2C through our own network, we do that,” Reimer says. “There is no urgent need for us to develop B2C in every country around the world. There is very stiff competition, and we are more focusing on the vertical markets like healthcare and pharma, and where we really bring a different sort of solution to the table.”