Three-fourths of global logistics companies are unable to get the prices they deserve for their services, according to the findings of the Global Pricing Study 2012
, conducted by strategy and marketing consultancy Simon-Kucher & Partners.
The causes, managers say, are a price-aggressive competitive environment and a prevalence of standardized products. The study incorporated responses from 151 people in the transportation and logistics sectors throughout Europe, Asia, North America, and South America.
The study suggested logistics companies “are often the source of their own misery.”
“After all, successful companies, regardless of industry, have ‘pricing power’ – the ability to charge prices that reflect the value of their products and services,” the study said. “Still, its importance in the logistics sector, where margins are considerably lower compared to other sectors, should not be underestimated. Logistics companies with strong pricing power achieve on average 17 percent higher margins than their competitors."
Philipp Biermann, a partner at Simon-Kucher, said strong market positioning and selling premium products greatly improve a company's pricing power.
The report found that logistics pricing pressure is rising in all regions, “as customers continue to demand discounts and over-capacities in several sectors drive prices down. What's more, almost two-thirds of the responding transportation and logistics firms from a wide variety of countries are in the midst of a price war.”
Of the 77 percent of international respondents that tried to raise prices in 2011, 20 percent failed completely. Of those that did succeed in raising prices, only two-thirds managed to improve their margins.
"What we are seeing here are only price adjustments,” Biermann said. “In other words, they are simply passing on higher costs. These aren’t true price increases that will lead to higher profits."
The study also found the transportation and logistics sectors underperform when it comes to implementing price increases in the market.
More than two-thirds of the respondents failed to implement more than 60 percent of their planned price increases. Compared to the cross-industry average, price implementation in the logistics sector was lower.
"When so many logistics firms are failing so often to implement prices, it means that their price increases are just in theory, and not for practice," Biermann said. - Eric Johnson