How did SCS surpass the scale and capability of the billion dollar multinationals that traditionally dominated the 3PL market?


toppled_giant_400_clr_6006Now NZ largest specialist 3PL provider, find out why SCS has surpassed most of the Multinational Providers that traditionally dominated this market

A key difference between SCS and most of our competitors is that our core business is 3pl (Contract Warehousing). Our competitors core business is almost always freight (local transport or international freight forwarding).

Q. Why are 3PL providers normally freight companies?

A. Because the overheads to run a 3PL are significant, this barrier to entry is only affordable to large transport companies (unless you take risks like we had too), 3PLs only make money by leveraging scale. A 3pl is a bit like a motel, motels need to be at around 55% occupancy to break even, after that they make money, in 3PL the occupancy is much higher, for SCS its around 75% in our large format facilities where our racking is 11m tall (the tallest in our industry).

For traditional ‘high stud’ facilities the racking only goes to around 8M so the break even is between 85 and 90% occupancy. In a 10,000 sqm facility, traditional ‘high stud’ (9.5M to the underside of the knee portal) the break even cost is around 3.00 per pallet at full occupancy! I always laugh (cry) when I see competitors sell below this – customers invariably fall for it and it invariably ends in tears. SCS needed industry leading high stud (13.5M to the underside of the knee portal – we were the first 3PL in NZ to go to this height) and we needed 15000 pallets under management before we even broke even.

A 10,000 pallet facility in traditional high stud costs + 100k/month in rent and capex alone – the only logistics companies that can afford that are  freight companies which is why they typically dominate the 3PL market. Within this market they are generally billion dollar turnover multinationals who can afford to loose 100k/month if the facility is not full, they don’t like it but they can afford it.

Q. How did SCS rise through the rankings?
A. We moved, a lot, in our first 7 years of operation we moved 7 times, each time getting bigger as we took a risk on a slightly larger facility. We didn’t make money for 8 years.

Q. How can SCS compete financially against the multinationals
A. SCS doesn’t have a corporate overhead in Singapore or Hong Kong or Australia, this is one of our biggest advantages, multinational freight companies always have to support corporate overhead normally around 15% of their income, straight away we get this advantage and the benefit for the local economy if you use SCS is that this money stays in NZ. We’ve picked up a number of accounts off huge multinational, German based freight companies in the last two  years, one account we saved 250k/annum (in fact we guaranteed it), another around 100k/annum. This money used to end up in the corporate coffers overseas. Now the local companies save this money and most of these profits now go straight back into the NZ economy.

Key takeaways

1)      3PLs under 10,000 pallets can’t make money, if they are they are, they are overcharging somewhere else – normally freight or labour, do you want to be with a provider that is overchargins or loosing money on your business?

2)      3PL is so expensive to run that normally only profitable freight companies can afford the rent bill, but their core competency is freight so 3PL is usually the poorer cousin, they usually get into 3PL because they think they can make money but find out they cant so they settle for offering the service because it feeds the freight network. Do you want your complex fulfilment requirements managed by a company whose core competency is simple freight movements?

3)      A 3PL who’s core business is freight always feeds the 3PL freight business into their network, this is always good for them but not always good for the client, this is where SCS differs, we have no mandate to support a freight network, our mandate is to support the customer and get them the best deal, our scale is now sufficiently large that often our freight offering is better than a 3PL provider that has their own freight network.

Drop me a line now to understand how SCS can lift your business to new levels (founding director)


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