Kuehna & Nagel in the Asia-Pacific

Group-2 Balram Kumar Baigyanik Danish Raza Dhiraj Jha Dinman Pratap Narayan Girijanand Choudhary Ishu Kumar Nirala

Q1. What do you understand by freight forwarding? Explain the global environmental changes that affected the freight forwarding industry in 1990s.

Freight Forwarding
Evolved in Venice, Europe In the 13th century. Integral link between the movement of goods from suppliers to buyers. Intermediary between a consignor or consignee of goods and the transport carriers, wharfingers, custom authorities and other parties in customs brokerage, ship brokerage, and export car-loading. Acts as a receiving agent for the goods.

Freight Forwarding Cont.

FF paid the duty up front, later importer reimbursed the FF. Works like a financial institution. Major activities were Custom Clearance. Custom Brokerage. Frachter:- combination carrier and forwarding agent who transported a merchant and accompanying goods to a destination of sale.

Global environmental changes that affected the freight forwarding industry in 1990s.
The global integration of world market Advent Of WTO Single European Market Trade-Barrier Free Market In The EU The North American Free Trade Agreement The Association Of Southeast Asian Nations Free Trade Agreement Rapid Advancement Of Information Technology. Changed demand supply pattern. Emergence of new markets.

Q.2 How did the expectations from freight forwarding industry changed with the above environmental changes? What did freight forward do to meet these expectations?

Change in expectations from FF Industry

Focus shifted to supply chain management to shorten product cycle Detailed product flow information Superior information technology and system World wide reaching capability High level service capabilities and credible work force

To meet these expectations FFs

Added SERVICES PACKAGES and INTEGRATED SERVICES This was done by integrating some kind of SCM components together with traditional FF activities. Bottlenecks were identified through enhanced visibility of upstream and downstream processes.

Q.3 Explain the trends in freight forwarding industry in the Asia-Pacific region in 1990s. What were the difficulties faced by freight forwarders in trying to provide integrated SCM logistics capabilities in the region?

Trends in Freight Forwarding(FF) industry in AsiaPacific region in 1990s

Vast geographic expanse of the region coupled with diversity (countries, cultures & language, economic, political conditions) created both opportunities and challenges to FF industry Hong Kong: one of the largest & most efficient trade and transportation hub Physical goods distribution market: Underdeveloped physical goods distribution industries presented growth opportunities for FF providers

Categories of countries
Wealthy Democracies Trading Tigers Burgeoning Industrialists Future Powerhouses

Representative member countries

Japan, Australia, New Zealand

Singapore, Hong Kong

Taiwan, Korea, Malaysia, Thailand, Philippines Complex

China, India, Indonesia

Mature Custom processes Duty levels Low

Free

Informal

Zero

Medium

High

Logistics Infrastructure

Relatively advanced & mature

Mature

Dynamic & Immature

Emerging

Difficulties faced by FF providers in Asia-Pacific region

Huge size (in terms of both population and geographical distance) coupled with diversity made it tough to develop integrated SCM logistics capabilities Declining profit margins in FF Substantial volumes of FF business needed to achieve modest returns

Q4. What was the nature of competition in the Asia-Pacific region?

Nature of Competition in Asia-Pacific region

Freight Forwarding(FF) had both local as well as International players. Hong Kong had 700 FF providers; 20 MNCs & rest small operators. FF providers could be one of the following: I. Local FF providers: Little or no SCM capabilities, concentrated on lower end of physical distribution, competitive pricing. II. Integrators: Specialists in express carriage of documents, small parcels etc., own transportation fleets.

Nature of Competition in Asia-Pacific region Cont..

III.

IV.

V.

VI.

Third-party outsourcing agents: owed existence to outsourcing of SCM logistics functions by FMCG, chemical, computer, pharmaceutical industries in the late 1980s and early 1990s. IT-service providers: opportunities to integrate downstream by purchasing forwarding or distribution business. Consultants: Specialists in SCM combined with ITservice provider to acquire FF companies. Other FF competitors: Multi service solution provider based on one stop- shop concept.

Q5. Over the years Kuehne and Nagel has adapted its supply chain to maintain a strong position in all regions and across all core business activities. Explain.

 First to introduce modern Euro Logistics, one of the most important products in market of transportation First step towards building up the airfreight sector (own Far East operation) Recognition of opportunity in United Europe and created world wide network by expanding into Europe and the Americas

 First German forwarder to acquire an Electronic Data Processing (EDP) system Upgraded continuously electronic data interchange (EDI) services and offered electronic links between KN and customer sites Became a leading forwarder in project forwarding (increased shareholdings in the larger forwarding companies in Europe and set up industrial plants worldwide)

Cont.
Core business activities across all spheres of SCM ranging from ocean-freight to project forwarding services were expanded Project forwarding activities covering the delivery of shipments to port by rail, road or inland waterway, export packing, port handling, storage and FOB deliveries, in addition to a host of other services. KN also supplied some IT solutions to customers in continental Europe

 Airfreight services included maintaining a worldwide network, providing high-frequency services to key destinations, combined sea-air services, and the provision of aircraft and ship spare parts and charter services. across four key sectors logistic centre for competence were developed (consumer electronics and high-tech products; the automotive industry; chemical and industrial goods and consumer durables, and a range of logistics services)

Q. 6 Kuehne and Nagels Asia-Pacific operation was not comprehensive enough to give complete geographical coverage within the region. Do you agree with the statement? Explain.

Yes, because of the following reasons, Operation was limited to Sea and Airfreight distribution only i.e. Port to Port capabilities. Port-to-interior service was limited. Operation were limited by nature of physical FF service offered. Providing superficial services. Services beyond Ports was inadequate to meet growing demand from Multinational companies for full FF services.

Q.7 The future strategic direction of Kuehne and Nagels Asia-Pacific operation presented several problems and opportunities to Dodler. What do you think were these problems and opportunities.

Problems and Opportunities

Highly diversified market (Social and Cultural changes). Differences in legal and trading issues. Lack of basic infrastructure to take a market other than docks. Competition has been increased on a global level and hence in Asia-Pacific region also.

Problems and Opportunities

Entering into strategic alliance with DHL Growth of SCM Logistic services is expected to be high, as invasion of multinational national corporations. Limited services of Kuehne & Nagel were inadequate to meet growing demand from MNCs for full Freight Forwarding services.

Problems and Opportunities

Shift in Market
ASIA AND PACIFIC REGION
12% 10% 8% 6% 4% 2% 0%

10.70%
40% 35% 30% 25%

NORTH, MIDDLE AND SOUTH AMERICA

39%

19.18%
NORTH, MIDDLE AND SOUTH AMERICA

ASIA AND PACIFIC REGION

20% 15% 10% 5% 0%

1%

1990

1997

1990

1997

Kuehne and Nagel Regional revenue in Asia Pacific region which was contributing an insignificant portion now (1997) contributing 10 times more. It is forming 10% of the revenue.

Q8. What are the possible alternative strategies that can be adopted by Dolder? What strategy would you recommend him to adopt?

Possible Alternative strategies for KN

Strategic Alliance with effective & efficient 3rd party integrators for providing complete SCM logistics services to the clients.

Development of one-stop-shop logistics services by using ocean freight, project forwarding, rail, road & airfreight.
Providing region specific Supply chain solutions

Our recommendation

Strategy 2 & strategy 3 (Mix of both)

Reasons Ease of control and flexibility For maximum utilization of opportunities in Asia Pacific market.