Freight and logistics might not be the most glamorous market, but from the point of view of the marketer it is one of the more interesting. All those lorries on motorways and motorbikes in cities added up to a market worth £23.1 billion in 2003, according to Analytiqa Research. While a few large players increasingly dominate the market, it is still growing fast enough that there is room for new entrants and smaller niche firms. However, this consolidation means that companies in all parts of this large and diverse sector are finding it ever more difficult to differentiate themselves from each other and to develop strong brands.
The market is broad, and blurred at the edges, but broadly ranges from parcel couriers such as UPS, TNT, FedEx, DHL, Parceline, and Lynx, through to large scale freight contractors. Whilst Exel and Wincanton are the only companies to make more than £1 billion a year from UK contract logistics operations, Christian Salvesen, TNT Logistics, TDG, DHL Freight and Gist, each earn more than £200 million a year. The market is forecast to reach £25.6 billion in 2006. It is achieving this growth despite external pressures such as the Working Time Directive, rising fuel prices, growing congestion and driver shortages.
Ever decreasing circles
The market has responded to those pressures with an attempt to leverage economies of scale through a series of high profile mergers and takeovers. Andy Myring, director of brand experience at agency The Brewery, describes the result: “Similarly-matched logistics providers are offering essentially the same services, at broadly comparable prices. The margins are thin and smaller providers are losing out to their larger competitors.”
It is generally the second rank of company in this sector that is having its margins squeezed so tightly that it either goes out of business or is absorbed into one of the major players. Beneath that level, a third layer of highly specialised companies continues to prosper, as Brian Barrett, CEO of B2B marketing agency Wyatt International, points out: “Smaller players tend to go for niche or local type work. A good example is one of our clients, Nightfreight, which – following a management buy-out in 2001 – created the irregular dimension and weight freight niche. It exploited this area successfully and is now the market leader.”
In general, large companies claim to offer economies of scale and geographical reach, and smaller players focus on their ability to offer flexible and rapid responses to individual customer requests. However, a growing number of companies – both large and small – are beginning to highlight their quality of staff as the key point of difference in this highly competitive, but increasingly homogenised and commoditised, sector.
People, people, people
Brian Gaunt, MD of Christian Salvesen, used to be buyer of logistics services at Asda, so he is familiar with the problem that his clients face. “As a purchaser it’s difficult to differentiate between suppliers when all you’re buying is people. This is why human resources, development and culture are such big issues in our industry today.” While the company is well established in the frozen storage and automotive freight markets, it is still building a brand in the retail sector having bought Swift in 1997.
Michelle Mervin, communications director at Gist, takes a similar view: “Our point of difference is our people. We don’t just offer the same solution to every customer.
“We take an intelligent and innovative approach to each relationship and only a certain type of person is able to do that,” he adds.
Even in the courier market, the emphasis is increasingly on the quality of employees. Michael Dent, general manager of marketing for DHL Express – a courier which gains around 85 per cent of its business in the B2B market – claims that the sector is suffering from chronic over-capacity. In the short term, he believes he needs to ensure that his customers are impressed by the level of service they receive from individual DHL staff.
Getting the brand out
While companies in this sector are beginning to recognise the importance of brand values, they are still doing relatively little to convey them to their customers. It is remarkable that 20 per cent of Salvesen’s fleet still carries the Swift insignia. Gaunt explains that this is because changing it would require a seven figure investment. Advertising spend is virtually non-existent, apart from among the larger couriers, and even they are focussing ever more on below-the-line activity.
Gaunt explains, “Our customers by and large know who we are, so there’s no need for us to spend money on full page ads. Instead we aim to develop positions of leadership on industry issues. We bring our existing customers together with potential ones in discussion groups of 10-15 carefully selected individuals. We do a lot of corporate hospitality. Our agency Citigate Smart does our PR, and we also do quite a lot of telemarketing.”
At Gist, they are similarly sceptical about the power of advertising. “Our message is complex,” says Michelle Mervin. “So, we prefer to convey it through one-to-one contact.” The company attends many exhibitions, welcomes speaker platforms, is a heavy user of direct mail, and is about to launch a new website. Mervin adds: “We try to convey our brand and build connections through the way we relate to our customers. So, rather than sending out on generic image, we would use different language, tone, and physical appearance for, say, a fashion client than an automotive one.”
Integration is the key for Dent at DHL. He has 15 very different products to market at any one time, so – rather than spreading resources thinly across all of them – he prefers to focus on one at a time, through campaigns that are integrated across media and location. He explains how this works: “We recently used the Two Ronnies for some radio ads that talked about delivering jumpers to Cardigan, brackets to Bolton, flour to Baker Street, books to Reading and so on. We developed outdoor advertising and direct mail packs that built on those themes in those specific locations.”
The freight and logistics market faces a promising but challenging future. On the one hand the delivery of existing services looks set to become ever more consolidated within a handful of large companies which all offer similar services and significant economies of scale. On the other hand, the take-up of e-retail is gathering pace, particularly amongst business purchasers, and this will provide enormous opportunities for the freight and logistics companies that are ready to take advantage of it.
However, it seems as though the successful companies in both new and existing markets will be those that have built strong brands around the quality of their staff, and – crucially – have managed to convey that brand to their potential customers.
Supplemental: case study
In 2003, FedEx brought in B2B database marketing specialist Information Arts to help sort out its business data. Joint MD, Simon Lawrence recalls that: “Fedex has significant budgets for marketing in Europe but until we came on board, almost no way of planning the outcomes of any of its activity.” So Information Arts modelled some of FedEx’s data, showing the likely income from marketing activity in specific locations. This fairly complex piece of work used detailed customer data stretching back two years. FedEx was impressed and applied the data modelling approach to its telemarketing team in August 2003. The challenge for that team was to find prospects that might have a need for FedEx services. Before the data was modelled, one in 10 prospects had a potential need. Afterwards, this leapt to seven in 10. “The cost and time savings were phenomenal,” says Lawrence. “The speed-to-sale increased by 700 per cent and the salespeople were converting more of them, because they had greater confidence in the data.” Information Arts is still working with FedEx, refining the model and rolling it out to Ireland.
