Strategic Planning Freight Forwarder (B2B Focused Air Logistics) – Case Study

Executive Summary
 

• Concentric Diversification Strategy within the cross-border e-commerce logistics of high-value, small-scale manufactured items with a shift from a nearly exclusive focus of air freight into land freight and ‘final mile’ delivery to retail customers as opposed to B2B transactions. 

 

• The shift to land freight and ‘final mile’ delivery provides its own difficulties and learning curve due to the differences between B2B and B2C shipping, but its product is within the well-developed specialization of high-value, small-scale manufactured items and an available strategic option for growth.

 

• Capital Planning is ongoing and relative to the debt capacity for the company due to the current decline in share price impacted by both the state of the difficulties of integration of the most recent acquisition and projected economic state for global shipping. 

Company and Background:
 
Freight Forwarder is a company that transport goods using ocean, air, and land freight options.  Some operate globally, some regionally. The key consideration is that they do not own or operate any of the actual means of transport.  The business model operates through the leasing of capacity and therefore has limited capital investment.
 
This company has focused air freight logistics for small-scale, high-value machine and electronics parts direct from manufacturers, the primary customer base.
 
Mission Statement: Be the provider of choice for companies that depend on fast, reliable shipments of small-scale, high-value manufactured goods.
 
Current strategy:
Focused B2B, Air Freight for high-value, small-scale manufactured goods.
               Growth - Continual Equity funded, Horizontal Acquisitions of same focus.
               No Partnerships
Corporate Governance highly centralized
               Competitive advantage based on diversification and expertise in global SCM
 
Identification:
 
The CEO and the Board having disagreements of the direction of the company are having an impact on overall company morale and share price.  The issue is the short-term v long-term viability of the business model relative to the impacts of the current environment of industry competition given political, economic, technological, and environmental considerations.
 
The near exclusive focus on air logistics for high-value, small-scale machine and electronics goods has been beneficial for growth until recently.  A large acquisition’s integration isn’t progressing as forecasted and the global shipping industry is feeling the impact of economic stagnation dropping the company share price.  Air freight costs are increasing due to fuel and the pushback from ESG initiatives.  Global trade is feeling the political pressures from protectionists and product segment is starting to see the rise of 3D printing, enabling manufacturers to print required parts at their factory locations instead of having to use shipping services.  Due to the logistics landscape competition has increased in all product segments from global suppliers offering services in all three freight options, air, land, and sea transport.
 
A current evaluation of debt capacity and ability to raise new debt would be beneficial to further considerations of strategic formulation since it is unlikely that equity options will be available to fund strategic initiatives.
 
 
Analysis and Evaluation:
 
*Strengths
 

• Managing vast global supply chains with a particular focus on air freight
• Strong, respected brand reputation
• Horizontal Acquisition Integration and change management
• Key position in customer’s logistics process, integrated in some cases

 
*Weaknesses
 

• Avoided partnerships with other forwarders in lieu of takeovers/acquisitions
• Avoided freight forwarding for other goods such as bulk manufactured, food, commodities
• No diversification makes it sensitive to any parallel industry changes (airlines)
• Further equity acquisitions at risk due to share price troubles

 
*Opportunities
 

• Growing volume of cross-border e-commerce for retail
  • small-scale, high-value manufactured items
  • land freight instead of air
  • B2C instead of B2B

 
*Threats
 

• Current acquisition integration difficulties, high costs, stock suffering
• Stagnation in focused market segment
• Air freight
  • increasing costs
  • global warming

• Globalization v protectionism in global supply chain
• 3D printing equipment eliminates need for shipping services
• Increased shipping competition, especially those offering air, land and sea alternatives

Market Analysis – Forecasted growth rates

Competitive Benchmarks

The company has been able to benefit from the economies of scale that it has created in air freight and its integration into logistics for several of its current business customer base.  While this has given the company well-developed specialties in air freight logistics for high-value, small-scale items B2B, these segments of product and logistics are not expected to experience growth.  It appears that these respective segments have both been slowing and the growth achieved by the company was primarily due to its acquisition strategy and any organic growth was due to its economies of scale within the logistics space and strong reputation for quality.  Since the share price has suffered from the poor integration of the current acquisition, and is unlikely to rebound given the economic outlook, the continued strategy of growth through equity funded acquisitions will not continue.  Because logistics is a highly developed specialty, the company would best be served by attempting a concentric diversification, although this will not be without its difficulties.
 
The Cross-border e-commerce segment consists of high-value, small-scale manufactured items for retail customers involving primarily land freight and delivery to customers, not businesses.  However, the company has two competencies, air freight and high-value, small-scale manufactured items.  Air freight is expected to continue to see decreasing usage and rising costs which leaves high-value, small-scale items as the core competency which may be strategically leveraged for growth.  The company currently has some contacts withing the land freight space but the delivery of ‘final mile’ to retail customers versus delivery of B2B is not necessarily serviced by the same companies and it is unlikely that the same economies of scale would be found in the land freight space as are available in the air freight space.
 
 
Recommendations:
 
 
 
   1.  Finalize the integration of the recent acquisition into current processes.
 
   2.  Strategic Management Layout
 
 
        A.     Strategic Formulation Basis
 
               Diversification into cross-border e-commerce retail items
                              * Developing marketing and pricing strategies to enter space
                              * IT and applications that can be leveraged within this space
                              * Support structures that can function for scale

               Development of land freight resources and capabilities
                              * Middle mile logistics
                              * Final mile logistics

               Leverage air freight where economies of scale make it economically viable
               Leverage supply chain management expertise into land freight space    
               Consider degree of autonomous governance of land freight operations, B2C
               Planning, Budgeting and Financing yet to be determined relative to debt capacity
 
        B.      Strategic Implementation Basis
 
               Company should structure organization by product segment
                               * Cross-border e-commerce retail logistics
                               * High-value, small-scale manufacturer B2B supply chain

               Work with current land freight connections to assess capabilities
               Sourcing of new land freight companies to fill the gaps
               Start with initiatory contracts to map processes and issues that arise
              
        C.     Performance Measurement Layout
 
Balance Scorecard well represents the areas relative to critical success factors for a company that relies on leasing capacity from freight companies.  If we are looking at, specifically, a new e-commerce retail logistics segment then we would need to see continual improvement over the areas covered by the Balance Scorecard.
 
               Customer
                              New Customer Tracking
                              Total Customer Orders                         
                              Customer Satisfaction Ratings
 
               Internal Processes
                              Delivery On-Time vs Delayed
                              Damaged Products
                              Route tracking through stages of Delivery
                                   * First Mile
                                   * Middle mile
                                   * Final mile
                              New Land Freight Company Contracts
 
               Financial
                              Share Price, EPS
                              Total Order Revenue
                              Segment Contribution Margin
                              ROIC
                             
               Employee Learning and Growth
                                             Training Hours
                                                            New Processes
                                                            New applications
                                             Employee Surveys and Morale
                             
   3.  Special notes and Critical Success Factors
 
          Resources and Capabilities!
 
The business model is the leasing of capacity.  The brand reputation that has been developed is due to the air freight companies that have also maintained high quality standards.  Even though there were no official partnerships, the growth of the company and its selection of air freight transport grew together.
 
Long-time relationships and sizable contracts within the air freight space in addition to highly centralized governance enabled cost advantages, but also high-quality freight service due to the leverage the company wields within that space and how it had integrated itself in manufacturing supply chains.  This will not exist initially in the new e-commerce segment nor the relationships with land freight companies. 
 
Although there are some current relationships with land freight companies, the fact is that many of the land freight companies that currently lease space for the high-value, small-scale items for B2B transport may not offer B2C, last mile transport services.
 
It is critical to assess land freight services that offer middle mile and final mile transport.  To maintain brand reputation, selection of land freight services that also maintain a high standard is essential and will likely come at cost. 
 
           Brand Recognition!
 
It would be naïve to believe that recognition in a highly focused space will translate to another product segment and space.  This rarely happens, which is why acquisition into a new segment space is the most common entry method.  This venture entails both new product segments and logistics methods and another acquisition may not be an option unless financing options using a debt facility are available.
 
Considerable effort should be put into a marketing and sales study evaluating brand recognition within the new product segment and within the land freight services space to plan how best to develop a strategic marketing and pricing plan.  This will further assist with the capital planning and forecasting for the new endeavor.
 
            Expertise Translation and Transition!
 
Does the air freight, B2B, high-value, small-scale logistics expertise translate to the B2C e-commerce retail space and, if they do, can these competencies transition?
 
This must be asked and answered to completion.  There is a reason logistics companies often specialize in one area of the air, land, and sea transport services.  Cross-border    services will be different for each, from the processes to cross borders, to the IT applications utilized. 
 
An analysis into new IT applications and new processes required to transition from air to land and from B2B to B2C services is essential for setting up the potential for success and empowering workers with training.  Further, any applications and processes that could be leveraged, and save costs on support services, would be invaluable to this company endeavor that will be lacking those economies of scale developed in the air freight space.