Letter to shareholders

As I wandered through the 2013 annual statements of our leading logistics companies in search of financial insight, my curiosity turned for some reason to the letter to shareholders that often seems to kick such documents off.

Having spent my fair share of time drafting mission statements, vision statements and chairman’s statements explaining why the last year really wasn’t as bad as the numbers suggest, I was interested to see how industry leaders set the scene for the dry facts that follow.

Often, quoted companies seem constrained by the regulatory restrictions imposed on them; others limit themselves by choice.  Ceva‘s report dives straight into the meat, explaining that on 2 May 2013 CEVA completed a major financial recapitalisation. CEVA Holdings LLC (a company incorporated in the Republic of the Marshall Islands, of all places) became the new parent company of CEVA Group Plc and its subsidiaries.  In the circumstances I suppose one has to respect their fact-based approach.

Of the others I looked at the principal common theme was the essentially bland and frankly meaningless, sometimes almost cut-and-paste management-speak that too often pervades such documents – challenges, focus, efficiency and the like.  Here’s the earth-shattering contribution from the CEO of the industry’s leader, Deutsche Post DHL:

In today’s age, tailored logistics services are a key to success for companies in many industries. We are proficient in this business and are determined to offer every customer precisely the service they need to be successful. Doing this means facing a wide range of challenges,

I have no idea how many man-hours went into this prose but do they think anyone actually reads something like that?

K+N‘s chairman used an interview format to lead with:

With net earnings of CHF 607 million, Kuehne + Nagel’s result for 2013 marks a new milestone. It shows that our company has returned to its former strength. Our measures to enhance efficiency have proved effective, and I am particularly pleased that we have achieved such a positive result in a year that was challenging and characterised by uncertainty both from a macroeconomic viewpoint and from the internal perspective of the company.

I need to dig a little more into that ‘uncertainty… from the internal perspective of the company‘.

Panalpina took a very matter-of-fact approach:

In 2013, we were able to improve our result by CHF 80 million.  Whilst this is a positive improvement over last year, we still have much to do to reach the targets we have set ourselves. We are therefore focusing our organization into converting more of our considerable gross profit into net profit, in which our shareholders participate.

Good to see the acknowledgement that shareholders participate in net profit.  Of course, improving the result by CHF 80 million isn’t the same as making CHF 80 million.

But my personal award goes to Expeditors for their refreshing and very human statement:

2013 was a decent year, but not a great one.

Well done them!

Local custom and practice

Screw local custom and practice, I know what works for me...
Screw local custom and practice, I know what works for me…

Few industries have been as affected by globalisation as has that of logistics, and the expansion of the European Union in 2004, 2007 and 2013 has led to movement of people, generally but not exclusively, from East to West.

Sometimes the visitors struggle to adapt to local custom and practice or, perhaps, just need familiar surroundings to ease their loneliness.

A fine example of this, the unfamiliarity of East European migrant labour with West European warehouse lavatorial standards, and the practical response of an enlightened employer can be found here.

4PL – what’s that smell?

Avro RJ100

Can there be a logistics topic that is surround by more confusion and contradictions than that of fourth-party logistics?  If you think there’s any clarity or consistency out there take a look at this hilarious discussion on LinkedIn.

Try finding some wheat in that chaff.  Of course the first description came from those nice people at Andersen Consulting (now Accenture) back in 1996.  It is often quoted as:

A 4PL is an Integrator that assembles the resources, capabilities and technology of its own organisation and other organisations to design, build and run comprehensive supply chain solutions.’

Now I can’t find the original Accenture document but in Gower Handbook of Supply Chain Management, Bedeman and Gattorna (both authors now ex-Accenture, by the way) extend the definition thus:

‘… and which have the cultural sensitivity, political and communication skills, and the commercial acumen, not only to find value, but to create motivating and sustainable deals that offer incentives to all the parties involved.’

I don’t know if that was included in the original Accenture characterisation but I suspect it was; it has the whiff of consultant-speak all over it and neatly sums up how Accenture seeks to differentiate itself from the competition.  That is not to deride the importance of the added terms; they are actually an essential part of what is needed to establish a 4PL in the first place and anyone that quotes the first part without the second (as most seem to do) is taking a very mechanistic view of the concept.  In fact, they’re almost entirely missing the point.

But even that extended definition isn’t adequate.  Bedeman and Gattorna go on to discuss other essential characteristics of a 4PL structure like IT, capabilities and again leap into consultant jargon: ‘… culture of innovation… extract value… world-class project management… extraordinary capabilities to construct value-sharing deals… value creation and sharing mechanisms…’ and so on.  Or, to put it another way, the only organisation that can do all this is a sophisticated change management and IT organisation, like Accenture!

One final point on Bedeman and Gattorna’s discussion.  the final attribute they mention is ‘relationships at or above supply chain director level.’  This is fundamental.  I have seen many 4PL (or LLP, but we’ll come back to that some other time) initiatives flounder because the people involved would be the proverbial turkeys voting for Christmas, and many of the real benefits of a 4PL solution come in areas like headcount and working capital reductions which are more appreciated by the CFO than the transport manager.

So who’s doing 4PL?

For all the hype it’s difficult to get to the bottom of what’s actually happening in the market place.  Other mainstream or IT consultancies leapt on the bandwagon (IBM is the example that first springs to mind) but did they actually implement much?

Well Badema and Gattorna (they were writing in 2002) identified a couple of early Accenture examples; New Holland (which doesn’t sound much like a 4PL) and Thames Water but it’s difficult to find out much about them.  A quick and quite unscientific trawl of Accenture’s web site revealed just one meaningful example – some work they have done with Unilever – and a mention of 4PL in a business process outsourcing paper.  That might be considered a little surprising; Accenture is not known for hiding its light under a bushel.

As for IBM, I can’t find a single example of its 4PL activities and searching its site only throws up systems for 4PL operators.  In fact they sold their supply chain operations to Geodis in 2008.  For a splendidly biting discussion of the success of their approach take a look at this commentary.

The reality is that the players that have built significant 4PL capabilities and operations are the third-party logistics operators, and it’s the monsters (DHL and Kuehne + Nagel) that have greatest scale.  Of course even within 3PLs there’s still a lot of conflict and confusion.  Quick clue for freight forwarders:  just because you have a control tower that doesn’t mean you’re a 4PL.