The world of business is getting competitive as well as globalized more than ever. If a business has to stay ahead of the curve, it has to devise ways to reduce its overhead costs, improve efficiency, reduce lead time, and offer enhanced customer service. Contract logistics is one such area that allows business to outsource parts of the operations, especially when the operations is not the core part of the business, to a third party who knows the ins and outs of the trade.
But what actually is contract logistics, and what are some of its benefits? Read on as we discuss everything you need to know about contract logistics in the following paragraphs.
What is Contract Logistics?
Contract logistics is a type of working relationship between businesses where one business outsources some or all logistics processes to third-party providers. The third party is responsible for managing, optimizing, and bringing innovation to the entire supply chain process on behalf of its clients. It is often understood only in the context of transportation, but that is not only the only component of contract logistics. In reality, the relationship could extend to a wide range of services, which may include transportation, warehousing, distribution, and inventory management. It may also include other value-added services such as packaging, labeling, and quality control.
Unlike other logistics models such as in-house logistics, where companies manage their logistics operations internally, or third-party logistics (3PL), where companies hire third-party contractors to handle specific tasks or functions, contract logistics involves a comprehensive, end-to-end solution that encompasses the entire supply chain process. This means that contract logistics providers are not just service providers; they are strategic partners who work closely with their clients to understand their business needs, goals, and challenges and tailor their services accordingly.
An Overview of Contract Logistics in Germany
Contract logistics is a robust and growing industry in Germany, reflecting the country’s strong industrial base, economic strength, state-of-the-art infrastructure, and strategic location at the heart of Europe. It is a key contributor in driving the global market share, the biggest in Europe. Globally, the contract logistics market size is expected to be worth $519.21 billion by 2032, growing at a registered CAGR of 6.99% over the forecast period 2023 to 2032.
Specifically, in Germany, the market size currently stands at around $20 billion and is expected to show a CAGR of over 3% during the forecast period of 2020-2025. This growth is driven by several factors, including the increasing complexity of supply chains, the rising demand for e-commerce and omnichannel retailing, and the need for cost-effective and sustainable logistics solutions. Contract logistics providers in Germany are responding to these trends by investing in advanced technology, automation, and digitalization and expanding their geographic reach and service offerings.
While the market may grow, what is in there for your business? Below, we have listed some of the benefits that drive the market growth of contract logistics.
Benefits of Contract Logistics
By opting for contract logistics, businesses stand to gain the following advantages:
- Cost reduction - by outsourcing their logistics functions to contract logistics providers, companies can avoid capital investment in logistics infrastructure, equipment, and technology and instead pay for logistics services on a variable basis.
- Improved service quality - contract logistics providers have the knowledge, networks, experience, and necessary resources to meet the client’s diverse demands. Companies can benefit from the latest technology, equipment, and processes that contract logistics providers implement to improve service quality and efficiency. Providers can also offer customized logistics solutions based on the client’s unique supply chain processes, goals, business size, and product characteristics.
- Focus on the company’s core activity - this is the essential advantage of contract logistics. For many businesses, logistics is not their core activity. Why waste resources on that? By outsourcing logistics functions to experts, companies can dedicate their capital and human resources to core activities of the business, such as manufacturing and production. They can also benefit from value-added services that can help them improve their supply chain processes, reduce lead times, and improve delivery performance.
- Greater flexibility and scalability - By partnering with a contract logistics provider, companies can have greater flexibility and scalability in their operations. Are the market conditions changing? Is your business face seasonal demand fluctuations or possibly other supply chain disruptions? You do not have to worry about that, as that’s what your partner handles for you. Additionally, companies can avoid the fixed costs associated with logistics operations and instead pay for logistics services on a variable basis.
- Improved visibility and control - Finally, contract logistics providers can offer companies greater visibility and control over their supply chain processes. They can offer advanced technology solutions such as real-time tracking, analytics, and reporting that can help companies gain greater visibility and control over their supply chain processes. Companies can benefit from the expertise of contract logistics providers who can identify potential bottlenecks or inefficiencies in their supply chain processes and offer solutions to address them.