The year 2020, despite all of its challenges, presented new opportunities for logistics companies. Reactions to COVID drove shoppers online, employees out of the office, and in some cases, displaced workers to start their own business. All of these changes required adapting or even re-inventing the supply chain to meet the needs of customers. This also meant organic growth for the logistics sector in the small & medium business (SMB) segment, as 87% of SMBs reported maintaining or increasing their logistics budget during the pandemic.
The above statistic is from the February 2021 study of over 2,000 small & medium businesses in North America, conducted by Phase 5 in partnership with B2SB (Business to Small Business) agency Cargo. Our research explored drivers of SMB purchase and loyalty behavior, and investigated what they currently fear, forecast, want, and need from enterprise brands. This article is the fourth in a series that highlights the study’s key findings by industry vertical, and is focused on what enterprise providers of logistics services (e.g. shipping) need to know.
In addition to the sector’s new opportunities noted above, our study suggests that there is also opportunity to take share from the competition. In fact, 30% of SMBs stated they are “open to new logistics partners”. With that in mind, read on to learn more about the top 3 challenges faced by SMBs when it comes to their current logistics vendors. Consider how your enterprise is performing on these elements and whether there is opportunity to further leverage an existing competitive advantage, or fill a gap where you may risk losing business.
#1 High Prices for Shipping Costs
According to an April 2021 article on Bloomberg.com, “Higher shipping costs have been sparked by…soaring demand, saturated ports, and too few ships, dockworkers, and truckers.” Furthermore, the CEO of the New York Shipping Exchange suggested that while “larger businesses can often secure better shipping rates thanks to the size of their orders…smaller ones are at the mercy of spot rates and price increases.” Hence the #1 challenge faced by SMBs regarding their logistics vendors: high prices.
It seems that while trying to keep their small business afloat in today’s constantly changing environment, owners and operators are simultaneously feeling the squeeze when it comes to shipping. That may help explain why less than half (44%) are loyal to only one shipping vendor, and why 30% would consider a new logistics partner.
Separately but obviously related, when asked how logistics vendors could best support them, the top answer (selected by 51% of SMBs) was “Exclusive Discounts on Shipping”. Given the size and impact of the small business segment (98%+ of North American businesses1), the enterprise that can innovate to improve pricing models for SMBs stands to win significant business overall.
#2 Difficulty Tracking Shipments
26% of SMB respondents rated “difficulty tracking shipments” as a top challenge experienced with their current logistics partners. With increased reliance on shipping, the weight assigned to this element isn’t surprising. A poor user experience anywhere along the customer journey can make or break a small business, particularly if it generates negative online reviews.
During the pandemic, small businesses pivoted to serve customers in a contactless, remote fashion (some for the first time), so confidence in the shipping process has become more important than ever before. In fact, in larger SMBs (>50 employees), the owners themselves are top influencers in logistics vendor decisions 86% of the time; that’s how important it is to get logistics right. Furthermore, when we asked about the most important considerations in selecting a logistics vendor, 79% of SMBs chose “provides relevant/timely info on shipments”.
If you are a logistics enterprise serving the small business segment, consider an audit of your current user experience. Even if you are delivering on time 99.9% of the time, SMBs clearly want reassurance along the away that everything is on track. If your mid-journey communication is lacking, unclear, or difficult to access, you may be losing customers and/or opportunities.
#3 Damaged or Lost Shipments
In the third spot for challenges faced by SMBs with respect to logistics vendors is “damaged or lost shipments”, with 22% selecting it as a top concern. This factor strikes at the heart of the logistics value proposition: delivering the goods as promised. While it ought to be a slam dunk, unfortunately 14% of SMB respondents rated their latest experience with their shipping vendor as negative, raising questions about what may have gone wrong. Furthermore, the overall NPS rating for logistics vendors sits at -13, indicating room for improvement in general2.
One can understand the potential frustration of a small business owner who is paying higher prices than its larger competitors, but not getting 100% reliable service, OR not getting reassurance about the service along the way. Going back to our question about how logistics vendors can best support SMBs, the #2 answer was “resources for how to improve the shipping process” (at 50% of respondents). This result suggests that many SMBs see an opportunity to tighten up logistics, but lack support from their vendors to discuss options and drive the necessary changes.
It’s a good time to be in the logistics business. Demand is high and opportunities abound. However, it’s clear from our study of the small & medium business segment that no logistics enterprise should rest on its laurels. The critical SMB segment is attuned to the price/value equation and is ready to try new shipping vendors to get the job done right at the best price. They’ve also voiced the need for a better, perhaps more transparent shipping process, creating potential opportunity for innovation and competitive advantage in the sector.
Contact Phase 5 to discuss how your logistics enterprise can better define its specific competitive opportunities, service gaps, and/or design a better user experience for its SMB customers. Don’t miss the opportunity to serve and support this essential, growing part of the North American economy in the post-pandemic world.
1Over 99 percent of America's 28.7 million firms are small businesses. (https://www.jpmorganchase.com/institute/research/small-business)
1As of December 2019, the Canadian economy totaled 1.23 million employer businesses. Of these, 1.2 million (97.9 percent) were small businesses (https://www.ic.gc.ca/eic/site/061.nsf/eng/h_03126.html)
2An NPS below zero indicates more detractors than promoters.