The transportation and logistics sector has experienced a unique set of challenges in adapting to the “new normal.” However, within these challenges lies a spectrum of opportunities waiting to be seized. JCT, your trusted freight brokerage partner, is here to guide transportation and logistics companies through the evolving landscape, offering insights and strategies to enhance economic profit. In this blog post, we delve into the intricacies of the sector, explore strategies for growth and profitability, and highlight how JCT can be your catalyst for success.
Unlocking Growth and Profitability in a Dynamic Sector:
In an era where change is constant, transportation and logistics companies are called to make strategic choices that are bolder and more astute than ever before. Despite the sector’s history of value creation challenges, lessons from successful players—both pre- and post-crisis—illuminate the path to profitability. JCT recognizes that these are transformative times, and we’re dedicated to helping companies capitalize on the megatrends that are reshaping the industry.
Key Findings from a Comprehensive Analysis:
McKinsey conducted an in-depth analysis of 264 listed transportation and logistics companies worldwide over a decade. The findings paint a comprehensive picture of the sector’s capital-market performance, providing insights into both its strengths and areas for improvement:
- Struggle to Meet Investor Expectations: Over the past ten years, companies in the sample achieved an average total return to shareholders (TRS) of 7.2 percent, falling short of the sector’s cost of capital (10.5 percent). This performance emphasizes the need for innovative strategies that not only generate revenue growth but also enhance return on invested capital (ROIC).
- Value Creation Amid Challenges: While the sector witnessed its fair share of challenges, companies in the bottom 60 percent of the sample faced value destruction that far exceeded the economic profit generated by the top 40 percent. However, success stories from each industry indicate that the path to economic profitability is achievable through bold strategic moves that increase margins and capital efficiency.
- Elevating Return on Invested Capital (ROIC): Addressing the challenge of lower ROIC is crucial for improving investor confidence and valuation. Transportation and logistics players need to prioritize strategies that enhance their ROIC, as it’s a pivotal element in shaping market expectations and driving valuation multiples.
Strategies for Success in a Rapidly Changing Landscape:
JCT recognizes the evolving dynamics and megatrends that will define the future of transportation and logistics. Our approach focuses on harnessing these trends to design strategies that propel companies forward:
- Leveraging Megatrends: As megacities emerge and shared transportation and disruptive technologies reshape the industry, companies have unprecedented opportunities to enter new markets and redefine their business models. JCT assists in identifying these opportunities and tailoring strategies to leverage them effectively.
- Agile Resource Allocation: Flexibility in resource allocation is essential for generating higher TRS. JCT recommends breaking free from conventional allocation approaches and embracing agility, as exemplified by successful cases like Singapore Post’s strategic reallocation for e-commerce logistics growth.
- Overcoming the Asset Dilemma: A strategic approach to asset management, including better timing for equipment purchases and asset pooling, can significantly enhance efficiency and performance, as demonstrated by companies like forward-thinking shipping lines.
- Successful Digital Transformation: Digital transformation is an imperative, and JCT advocates building a tailored digital strategy that enhances core processes, reinforces IT foundations, and explores new frontiers. By leveraging existing assets and strengths, companies can maximize the value of digitization.
- Strategic M&A and Cooperation: With ample resources for potential M&A and cooperation, transportation and logistics companies can benefit from adopting a programmatic capability that identifies, executes, and integrates acquisitions effectively. Collaborations and alliances are also valuable for accessing new markets and capabilities cost-effectively.
- Navigating Uncertainty: Managing risk and uncertainty is paramount. Companies must prudently explore new markets and experiences while rigorously mapping stakeholder landscapes and engaging stakeholders with well-informed strategies. External affairs capabilities and resources play a pivotal role in mitigating regulatory and geopolitical challenges.
“You miss one hundred percent of the shots you don’t take.”Wayne Gretzky
The “new normal” presents both challenges and opportunities for the transportation and logistics sector. JCT is your steadfast partner, providing strategic guidance to navigate this evolving landscape. By embracing key trends, implementing innovative strategies, and adopting a proactive approach to change, transportation and logistics companies can not only survive but thrive in this dynamic environment. Connect with JCT today to embark on a journey toward enhanced growth, profitability, and market outperformance.
This post was adapted from work completed by McKinsey