Peter Jones, Founder and Managing Director of Prological, discusses how and why Australian transport offerings within supply chain have shrunk in previous decades – and what might be done about it.
“The depth and breadth of transport options in supply chain isn’t what it used to be,” says Peter Jones, Founder and Managing Director of Prological. “And while the following provides some insights and an overview of the macro issues – of course this subject is much more complex than this article can address. One day I’d like to write the book.
“If you look back over the last 20 years, there were so many transport companies that once held prime position within the industry that simply no longer exist,” he says. “Many of them went broke – closed the doors and vanished. And a great many others were acquired and rolled into much larger businesses. NQX, Concord Park, Kwikasair Express (Quick as air), Comet Express, Riteway, 1st Fleet, Wards Skyroad, Australian Air Express, even TNT is going as it becomes FedEx.”
Assessing this historical trend as an immensely experienced supply chain consultant, Peter believes this narrowing of the transport provision field has had deleterious consequences for the efficiency and efficacy of Australian supply chains. Moreover, the narrowing of transport options and capabilities is a problem more acute today than ever before. At just the moment that e-commerce, the pandemic, and geopolitical strife are disrupting inter- and intra-national flows of goods, now more than ever there is an urgent need for flexible and innovative transport solutions.
“30 or 40 years ago, a transport company could find its own niche in the market and thrive,” he says. “A small company – perhaps simply a man starting out with a truck – could do something for somebody that was a little bit unique and develop a nuanced approach to a niche in the market. Transport businesses could develop around a particular competency that arose organically out of unique on-the-ground challenges. Greg Poche started Star Track Express like this; originally ‘Multi-Group’, Allied Express under Colin McDowell started with a couple trucks and some friends; and Border Express started by Max Luff as a link between Albury, Sydney, and Melbourne. Even Toll had very humble beginnings with a man and a truck based in Newcastle. Each found a niche, which was expanded and evolved to become the large and successful businesses they are today.
A proliferation of second- and third-tier transport providers meant a great variety of niche capabilities were on offer, with only a few surviving the presented challenges across the decades.
“For supply chain consultants, this meant we could design genuinely bespoke freight solutions,” Peter says. “We were able to understand transport companies’ distinctive competencies, and how they were aligned to produce a service benefit for unique clients. Such pairings made for happy marriages: the clients got great outcomes from a distribution perspective, and transport companies could find and thrive within their own operational sweet spot.”
But it was not to last. As smaller companies were either vanquished by or absorbed within larger ones, their distinctive capabilities disappeared.
“The emergence of purchasing departments as a distinct process has also had a hand to play in the decreasing market breadth of transport options,” Peter says. “Purchasing departments became increasingly influential but don’t (can’t) have the decades of operational understanding necessary to make sense of complex transportation networks nor properly cost differentiate options.
“So, from a purchasing perspective, it can be very difficult to understand complex options. Purchasing teams aren’t afforded the opportunity to travel the country, gain firsthand knowledge of networks, facilities, culture, processes, and allow this knowledge to mature in their thinking over many years. The transport industry has then responded in language understood by the buyers – that is, purchasing teams. In turn, this new simplicity was codified by the transport company sales teams who then didn’t require the in-depth operational understanding that sales teams of yesterday once possessed. Purchasing teams lean into transport companies to provide knowledge and expertise, but at the same time, struggle to stay with that knowledge and understanding when it’s presented. So over time, everyone has defaulted to simple operational scenarios and price-based responses.”
Peter elaborates on this point.
“If somebody is paying $8.00 basic plus 25 cents per kilo for road express freight from Sydney to Melbourne at 250kg/m3, purchasing departments have then leant into the transport industry seeking, say, $7.50 and 23 cents a kilo – that means the purchaser has achieved an 8 per cent reduction in the kilo charge and a 6 per cent reduction in the basic charge,” he says. “This all seems well and good for the purchaser in terms of the bottom-line, but what has in fact happened is the purchaser has taken away profit out of the supplier, and nothing smart has happened long term. This has in turn eroded skills and capability in the transport sector, leading to standardised operational requirements and limiting the offering of niche and bespoke service offerings. Never mind that there may be a carrier who could move all the Melbourne consignments to Melbourne for 9c/kg at 165kg/m3 (actual cube to dead weight ratio in this instance is, say, 125kgs/m3) and hand it to another carrier who could do the last mile delivery for $14/m3. This process may afford later order cut off times while enabling earlier delivery. And the more complex solution may yield not 6-8 per cent reduction in cost, but 25-30 per cent reductions while enabling high profitability for the service providers. Today these options are near impossible to construct, whereas 20 years ago it was either the most cost effective or provided the best service offering, and sometimes it was both.
“So now, people come into the transport industry without the old pathways of knowledge development. They’re given generic rate cards to sell from and the operational options have also become quite generic, while the buyer market, without even realising it, has eroded industry options in the medium and longer term.”
A WAY OUT?
With these institutional factors baked in for so long, MHD asked Peter whether there was any kind of course-correction in sight – the possibility of a greater proliferation of smaller, more tailored capabilities re-emerging?
“Since COVID, there is a much higher degree of curiosity about how to make supply chains more effective,” he says. “And so, at Prological we’re finding companies much more open to innovative discussions at present. Another factor is that price is not as dominant a driver for good solutions that provide unique capabilities. That’s a big change in the past 12 to 18 months; again COVID-led. But finding transport companies who are prepared to innovate is more complex. We have an industry operating above capacity, that makes it hard to get networks which are already struggling to introduce innovation as well. However, the opportunities are there today for new and emerging transport providers to fill niches in all sorts of spaces.
“Businesses are starting to see their supply chain as a distinctive competency. Businesses are looking to turn their supply chain into an advantage, able to drive sales by being innovative, distinct, and provide a strong value proposition. A supply chain that increases sales and market share growth.”
At Prological, Peter and his team have their noses-to-the-ground to keep across the emergence of new innovative transport capability providers – in keeping with his passion to offer the best tailored solutions and strategies for Prological clients.
For more information on Prological Consulting, click here.