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Firms look to outsource their logistics

Growing trend in Slovakia mirrors past patterns in western Europe.

Manufacturing companies can highly benefit from outsourcing their logistics.(Source: Sme)

FOLLOWING trends in IT and HR, major companies are looking to outsource logistics and cut costs, with Slovak freight and logistics (F&L) firms looking set to benefit.

“Due to the economic crisis in Europe also the competition has sharpened in supply and demand of logistics services,” Jaroslav Horečný, expert from LogistickyMonitor.sk, told The Slovak Spectator. “It is the party ordering services who are setting the conditions, and it’s not services that are the deciding factor, but lower prices.”

Horečný added that some companies have decided to skip forwarding agents and order transport services directly at a carrier, while others make use of dumping offers of large logistics companies. Small carriers, in efforts to survive, adapt to pressure to lower prices.

Peter Drábik from the Faculty of Commerce at the University of Economics in Bratislava pointed out that while specialisation of companies and thus outsourcing especially in logistics is a trend, companies in Slovakia also outsource their own activities.

“Transportation and shipping services are some kind of a driving force from the viewpoint of outsourcing activities,” Drábik told The Slovak Spectator.

According to freight and logistics (F&L) service providers, cooperation with reliable, financially strong and multinational specialists in this field allow companies to increase performance with savings associated with transport or logistics services.

“The current aim is to cut internal freight costs by outsourcing these activities,” René Stranz, head of logistic solutions in Gebrüder Weiss, told The Slovak Spectator, “as the transport and logistics are one of the fields with high-cost potential.”

In addition to potential costs savings, by outsourcing logistics, companies are freed up to focus on their core operations.

“Slovakia confirms the focus on the core business – the trend of the rest of Europe,” Dietmar Schmickl, managing director of DB Schenker in Slovakia, told The Slovak Spectator.

Tomáš Horváth, commerce and marketing manager in GEFCO Slovakia, says that growth in Slovakia follows trends in western Europe where about half of all logistics work is outsourced.

“Leaving these activities to specialists capable of optimising the transport flows and storage services reduces the total logistic cost,” Horváth said.

Like Slovakia, where about one-third of logistics work is outsourced, Hungary and Poland are following a similar trend.

Who needs it?

In terms of sectors, especially manufacturing companies in the automotive industry, machine engineering, chemical and pharmaceutical industry and retail chains are the most active in outsourcing of transport and logistics activities, according to Róbert Rehák from the Faculty of Commerce at the University of Economics in Bratislava.

Horečný of LogistickyMonitor.sk says outsourcing could help new firms reach profitability faster.

“In principle, it is enough for you if you manage knowledge,” Horečný told The Slovak Spectator, “everything else you can secure from sub-contractors if you stay in at competitive prices.”

F&L activities could be outsourced profitably in all types of companies. But in general, according to DB Schenker, logistics outsourcing is highly beneficial in cases of outsourcing of the complete supply chains in an entire industry. This applies to both domestic and foreign companies, said Schmickl.

GEFCO Slovakia is of the opinion that Slovak logistics outsourcing is primarily used by big firms with branched supply chains and distribution channels. Besides transportation, these companies have an interest in the eliminating stockpiling supplies and ensuring the flexibility of storage. Thus, third party logistics relates primarily to automotive and electronic industries.

Today’s market

“Companies, which offer logistics services of especially transport, shipment and storing, provide to their partners increasingly sophisticated solutions and also carry out tailor-made projects,” said Drábik. “The trend also is to create some packages of logistics services while the provider does not need to be only one company, but it can have also other sub-contractors and thus cover for the client in a complex way - logistics within a supply chain. But one company takes responsibility for proposing the solution.”

As outsourcing logistics has gained pace globally, it has made in roads on the Slovak market. According to Gebrüder Weiss, the trend line includes mainly the development of IT infrastructure and real-time information channels, shorter contract terms instead of long-term partnership, more environmental awareness and sustainability pressure.

“A potential client wants to know in advance where the possibilities for improvement and potential savings are,” Schmickl said.

Horváth points out that it is essential for an F&L company to offer innovative solutions for the whole process of logistics.

“Comprehensive logistics companies can offer also sophisticated products based on managing all logistics activities from one place and by one communication centre,” said Horváth.

At present, a number of sophisticated products have appeared on the market including so-called Control Tower, Lead Logistic Provider or 3PL/4PL.

Future trends

“It is possible to assume that we will witness an increase in outsourcing of logistics services by companies active in Slovakia,” Rehák said.

F&L companies see developments connected to new foreign manufacturing investors in this region.

“At present, some potential investors out of the automotive industry are interested in placing their plants in Slovakia,” said Stranz.

Horváth anticipates further growth as more modern logistics parks are constructed. The number of F&L services providers, however, will not increase and the market will be controlled by companies with an international background and proven record, he said.

According to DB Schenker, the next step in third party logistics relates to individual companies, as most now seek to optimise logistics processes in terms of quality. Companies will measure and optimise the logistics costs with creating the KPI (performance indicator) models bringing better overview and control over both quality and costs, said Schmickl.

Horečný sees the future development in dependency on overcoming the crisis, as stronger companies will remain on the market and conditions for cooperation including prices and length of contracts grow.

“We are witnessing a concentration of capital in the sector,” Horečný told The Slovak Spectator.

Topic: Transport


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