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ENTREPRENEURSHIP OPPORTUNITIES IN LOGISTICS.
Mazalan Haji Daud
[email protected]
Abdul Aziz Bin Ismail Effendi
[email protected]
Introduction
According to The Star Maritime dated 2nd April, 2007, the Malaysian Logistics
Council (MLC) has established a task force on human resource development to woo
more professionals to join the logistics industry. Besides the lack of interest in the
workforce, the other challenges faced by the industry are the country’s dependence on
foreign transportation and logistics services among others. In 1996 the deficit in the
Balance of Payment in the services account was RM6.5 billion. This figure increased
to RM15.7 billion in 2005. The figures show that there is a need to form and upgrade
our own logistics industry. From the perspective of professionalism, The Chartered
Institute of Logistics and Transport (UK) 12th September, 2007 reported that the
demand for logistics professionals outstrips the supply, there are excellent
opportunities for rapid career progression for those with drive to succeed.
In this paper I will explore the availability in entrepreneurship opportunities in
transportation, warehousing, freight forwarders and e logistics. As mention earlier
logistics encompasses a wide spectrum of activities, but I will only cover the above
important issues only. The methodology is based on my past working experience in
the logistics industry and references are made from materials from website and
logistics textbooks.
Logistics: an introduction
Logistics is a component of Supply Chain Management. The main activities of
logistics include inbound logistics, outbound logistics, warehousing, freight
forwarding and transportation, to name a few. Logistics involves the integration of
information, transportation, inventory, warehousing, material handling and packaging.
In business, logistics may have either internal focus (inbound logistics), or external
focus (outbound logistics) that covers the flow and storage of materials from point of
origin to point of consumption.
Logistics covers a very wide scope and provides plenty of business opportunities for
entrepreneur. Under the Third Industrial Master Plan (IMP3 – 2006 to 2020), the
logistics industry is targeted to grow 8.6% and projected to contribute 12.1% to the
country’s gross domestic product by 2020. In addition, the volume of total cargo
handled by ports is expected to increase by more than three fold, from 252.6 million
tonnes in 2005 to 751 million tonnes in 2020. The volume of air cargo trade is
projected to increase by more than twofold, from 1 million tonnes in 2005 to 2.4
million tonnes in 2020. Rail cargo volume is expected to increase almost five fold,
from 4 million tonnes in 2005 to 18.6 million tonnes in 2020. Taking cognizance of
the importance of the logistics industry to the overall development of the country’s
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economy, the Malaysian Government is offering attractive incentives to eligible
companies undertaking integrated logistics services, that cover the entire supply
chain, which includes the procurement of software and hardware; warehousing;
distribution (transportation and freight services); packaging activities and customs
clearance. Some of the more common logistics businesses include transport operators,
warehouse operators, third party operators, and forwarders.
Today most of the logistics activities are outsourced to the third party providers. Due
to rising customer service expectations, increased attention to costs, widespread
application of the marketing orientation and increasing international competition have
all increased the pressure on business to perform. These factors have spurred the
growth in outsourcing. Firm outsource so they can focus on their core business and
redirect limited financial resources away from expensive transportation assets. This
business model opens up the logistics opportunities to many logistics entrepreneurs.
Marketing:
From the marketing perspective, there are four basic market structures namely, pure
competition, monopolistic competition, oligopoly and monopoly.
A purely competitive market consists of many sellers offering identical products or
services and many buyers, with no buyer or seller able to influence the market. Pure
competitive markets hardly exist today, certainly not in transportation.
Many buyers and many sellers characterize monopolistic competition, but sellers offer
products and services that differ slightly from one another. The market offerings
substitute readily for one another, but are not identical. Motor carriers operate in an
environment of monopolistic competition.
There are only a handful of sellers in an oligopoly, but a very large number of buyers.
Sellers are interdependent and greatly influence price, often following one price
leader. Oligopolies foster the battle for market share. Airlines operate in oligopolies.
Monopoly is the simplest market structure. It has one seller with many buyers. The
seller decides on the price to charge. There are no close substitutes for the product or
services. The product or services is essential.
Transportation:
One of the key components of logistics is transportation. Transportation is the
movement of people and goods from one place to another. Industries which have the
business of providing transport equipment, transport services are important in the
country’s economies. Transportation links the various integrated logistics activities.
Without transportation, the integrated logistics breaks down. Some view
transportation as the glue that holds the entire system together. Without the
transportation links, raw materials cannot flow into the warehouses and plants, nor
can the finished product flow out of the plant to field warehouses and finally to the
customers. Transportation system forms the backbone of a sound economy.
Transportation has played a key role in the development of every industrialized
nation. Transportation also provides some nations with comparative and absolute
trading advantages. Without an effective transportation system, domestic and
international economic growth would be impossible. Transportation plays a key role
in economic success by allowing for the safe and efficient distribution of goods and
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services throughout the supply chain. Briefly, there are two types of regulations,
namely economic regulation and the non economic regulation. Economic regulation
focuses on the prevention of monopolies, the development of fair competition and the
financial performance of the transportation industry. The non economic regulation
focuses primarily on safety.
Carriers can be classified as either private or for hire. A private carrier typically
transports goods for the company that owns it. The services of the private carrier are
not for hire. Firms using private fleets usually transport enough volume to achieve
economies of scale and can operate a fleet for less than it costs to hire the service. For
hire carriers can be classified as common, contract, or exempt. Common carrier serves
the general public. Contract carriers are also for hire. Contract carriers serve a limited
number of shippers that have contracted with the carrier to provide specific
transportation services. They offer shippers special services like customized pickup
and delivery and specialized transportation equipment. The terms of the contract
between the shipper and the carrier determine the terms and conditions of the
agreement. Buyers and sellers can negotiate rates, liability limits, type of services, on
time requirements, and payment terms. Contract carriers offer the advantage of
obtaining customized services without having to incur the large initial investment
required for a private fleet. Contract carriage usually offers the shipper more control
than common carriage, but less control than private carriage.
The main modes of transportation for goods include air transport, rail transport, road
transport, and ship transport. In transportation, entrepreneurs can provide inbound and
outbound logistics services to manufacturing houses, distribution centre and other
business organization that requires movement of goods.
The transportation services provided to the customers include door to door movement
of goods; back to back cargo movement and cross border movement of goods.
The primitive methods of back to back transfer of goods involve two trucks
positioning back to back and goods are being placed on the ground during the
transfer. This method involves labour intensive, delays and damaged to cargo. The
alternative method is by consolidating these loose goods in a container and thereafter
transported on a single trailer. Cross docking is the common technique used to
implement this approach.
The door to door method in international logistics means the movement of a cargo
from its point of origin to its destination. For movement of goods within a single
country, door to door normally refers to a single movement of cargo on one mode of
transport and without any interim storage.
Four basic costs are associated with transportation, they are: fixed cost (railway
tracks, airplane, lorry); variable costs (fuel cost, wages, maintenance cost); joint costs
(returning loads); and common costs (directly associated with a product or activity).
90% of motor carrier industry’s costs are variable.
A good and efficient fleet of road vehicles and reliable services are the main criteria
for this service. With e – logistics using GPS will further enhance the management of
these fleets.
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In Malaysia, road transportation account for 96% of the total passenger and goods
transport in the country. In 2006, Malaysia has a road network infrastructure of
90,129 km of which 79% were paved roads. The highways operation total 1890 km
comprising mostly of interurban highways. Under the 9th Malaysia Plan (2006 – 2010)
a budget of RM17.5 b had been allocated for road and bridges program.
Warehousing:
A warehouse smoothes out market supply and demand fluctuations. When demand
exceeds supply, the warehouse can speed product movement to the customer by
performing additional services like marking prices, packaging product or final subassembly. Warehousing can link the production facility and the consumer, or
suppliers and production facilities. The purpose of a warehouse is to store products
until customers require them. Warehouse also buffers supply and demand. The role of
warehousing includes; serves as a transportation consolidation facility; warehousing
also acts as a reservoir for production overflow also known as stockpiling; acts as
product mixing sites; facilitates production; acts as safety valves in plant strikes,
supplier stockouts, transportation delays, smooth out production runs, and finally to
provide customer service by filling customer order faster. The basic components of a
warehouse are space, equipment and people. Space allows for storage of goods when
demand and supply are unequal. Warehouse equipment includes material handling
devices, storage racks, docks, conveying equipment and information processing
systems. The equipment helps in product movement, storage and tracking. The type of
equipment depended on the type of goods handled. People are the critical component
of a warehouse. Space and equipment means nothing without competent people.
Establishing a warehouse is to improve customer service level. This often requires
individual attention to special customer requests like specialized packaging or price
marking etc. People play the critical role in every part of the supply chain and
warehousing is no exception. In warehousing, entrepreneur can utilize this facility to
store or distribute goods belonging to a third party. Warehouse can also serve as a
distribution centre for customers’ goods. The customers do not require to build their
own warehouse and thus outsource the storage to these warehouses. Warehousing
with goods facilities requires huge capital.
Freight Forwarders:
Another area of business opportunities in logistics is to be a cargo agent or sometime
known as freight forwarders. This is a mainly a third party provider. There are two
types of freight forwarders, namely surface and air freight forwarders. They can be a
domestic freight forwarders or international freight forwarders. This business is
lucrative but requires good knowledge of formalities and high capital. The primary
purpose of a surface freight forwarder is to consolidate small shipments, move them
as large shipments, and then disperse them at their destination. In return for their
services, forwarders can receive a commission, receive a fixed payment, keep the
difference between the less than and full load rates, or agree on some combination
thereof. The advantages of forwarders include speed, expertise, and reduced paper
work. A freight forwarder normally offers services in advising on product packing;
booking transportation space; selecting routes; negotiating rates; expediting; and most
importantly preparing necessary shipping documentation. Freight forwarders acts on
behalf of exporters and importers in arranging services like booking cargo space;
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customs clearance; transportation; door to door delivery and pickup; obtain payment
on customer’s behalf etc. Freight forwarders assists exporters provides price
quotations by advising customers on freight costs, port charges, documentation
charges, insurance costs, and any other handling fees. They also advise customers on
packaging methods and can arrange packing at the port or have them containerized.
Carrier selection is important decision for freight forwarders or logistics manager.
Carrier selection logically follows mode selection. Having chosen a mode of
transportation, the logistics manager must decide which carrier(s) to use. Carriers are
chosen on the basis of price, accessibility, responsiveness, claims record, and
reliability. Many logistics managers prefer core carrier concept rather than using
every carrier that might make equipment available.
E-Logistics Processes
In the context of the seminar today (re: business opportunities for entrepreneurs),
when it comes to logistics, the challenge remains on how to deliver products to
customers as quickly and safely as possible. Logistics is concerned with the flow of
materials in the supply chain, from the source through the industrial process to
customer, and then on to re-use, re-cycle or disposal. By coordinating all resources,
logistics have to ensure that service level agreements with customers are honored.
Efficient logistics can result in cost savings, which can be passed on to the
customers, often resulting in increased business.
In a more defined form, e-logistics is the mechanism of automating the logistics
processes and providing an integrated, end-to-end fulfillment and supply chain
management service to the players of logistics processes. Those logistics processes
that are automated by e-logistics provide supply chain visibility and can be part of
existing e-commerce or workflow system in an enterprise.
The typical e-logistics include broader processes of Request for Quotes (RFQ),
Shipping, and Tracking. From an opportunity perspective these stretches from the
whole array of enablers from systems to hardware or infrastructure either in
physical or the electronic form. The e-systems as enablers and physical services coexist as a business solution.
As more corporate houses and companies increasingly realize the importance of
logistics in moving their products across the country or globally, new business
opportunities are emerging for providers of e-Logistics services.
For an existing service provider or a new entrant alike, e-process enablement or
continuous enhancement of the same opens new opportunities in every steps of the
end-to-end process. Providing e-Logistics encompasses researched product
introduction, continuous systems enhancement in software, hardware or other
support infrastructure and continuous support in maintenance and data storage
provision.
In the context of the seminar, these are elements that can be interpreted into
entrepreneurial opportunities.
Vehicle tracking systems (through GPS)
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Currently, the number of vehicles equipped with such tracking devices and the
usage of such devices are still relatively new and few. The numbers of companies
that provide such solutions are also not many in numbers. But, industry experts
feel, the scene is set to change, as more companies would jump on to the
bandwagon and new and more tracking devices fill the logistics market.
In recognition of the increasing importance of globalization and the resulting need for
greater, faster, and more flexible communications, a framework is required to allow
any company to establish itself in no time or make optimum use of their legacy
applications and run efficiently with minimal cost input.
In the last couple of years, various on-line shipping tools have been developed for ecommerce application developers. However we have only seen only few common
services interface to allow users to easily hook up with existing tools.
Different shipping carriers may require distinctive implementations and could have
proprietary platforms and their own constraints.
In order to expedite the shipping process and minimize costs, the shipping solutions
provided by a value-added service provider specializing in the transportation industry
must empower the customers and suppliers with the ability to rate, ship, and track
shipments.
In a more granular view, a business process manager invokes the Request for
Quotations (RFQ) process to get the basic services such as obtaining the quotes in an
e-logistics process. Whenever a response is obtained, the purchase order (PO) will be
updated. The shipping process is also invoked by the business process manager and
will update the corresponding PO upon completion. Along with the shipment of
goods, a tracking number will be given to the customer and that tracking number will
be bound to the PO number in the processing e-commerce system. Customers can
track their shipment with the help of that number.
Reliability and predictability are a shipper's most important criteria for freight
transportation in an era of tightly integrated operations, limited inventory, and just-intime manufacturing and retailing.
Over the past two decades, freight operations have expanded and improved across all
modes as a result of several factors, including deregulation, increased vehicle
capacity, globalization of the economy, and collaborative logistics. Economic
deregulation has also resulted in massive restructuring and reorganization of the
freight industry and huge gains in productivity.
As a result, emphasis is now being placed on better management of public facilities
and the use of intelligent transportation system (ITS) technologies. These will be
particularly important in the new environment of increased emphasis on security and
safety and the push for increased information and visibility in the transportation
process.
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In the railroad industry, new technologies, such as positive train control, have shown
promise in improving rail operations. To increase the efficient utilization of assets,
railroads are also pursuing equipment sharing agreements and pooling arrangements.
Again in the maritime industry, operational improvements have come from the
introduction of technologies, such as terminal management systems that can locate all
terminal equipment and containers.
Clearly, this need for more efficient operations are essential to optimizing logistics
performance and expanding system capacity that calls for a need for able players and
providers.
Conclusion:
The above are some of the common logistics activities for entrepreneurship. As one
expand his businesses and improve its services, there are more areas of activities than
one can expand. The formation of new economic regions within Malaysia requires
wide services in logistics. Thus the future opportunities for this business are very
encouraging for those who want to venture into this field. One needs to upgrade
professionally in this industry by being a member of the logistics and transportation
professional body and keep in tandem with the development of this industry.
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REFERENCES:
Adapted from The Star, - Maritime, 2 April, 2007
www. ciltuk.org.uk/pages/careerlog dated 12th September, 2007
Logistics – Wikipedia, the free encyclopedia dated 24th March, 2008
Adapted from Business Times, 29 Jan. 2007 and MIDA website
Adopted from Status Paper on financing highway infrastructure in Malaysia by
Highway Planning Unit, Ministry of Work Malaysia.
Adopted from Logistics, David J. Bloomberg, Stephen Lemay & Joe B. Hanna ,
Prentice Hall 2002
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