Jessica: Hello and welcome to the WNS business insights podcast series. I am Jessica Harrington, your host for this podcast and joining me today is Jaison Augustine, Vice President at WNS, a leading global business process outsourcing company. In today’s episode we’ll discuss with Jaison the impact of the global recession on shipping and logistics companies, what are the lessons learnt and how can shipping and logistics companies prepare themselves for such an economic downturn should it reoccur. Hello Jaison and thank you for joining us today.
Jaison: Hello Jessica and I look forward to our conversation today.
Jessica: Great! So Jaison, why don’t we start by talking about what has been the impact of recession on shipping and logistics companies?
Jaison: Sure. Jessica, as everybody knows this has been the worst recession that shipping and logistics companies have seen in the last 30 years. According to the consulting firm Delcan, U.S. business logistics companies saw revenues decline by a whopping $244 billion in 2009 alone, and almost $300 billion during the entire recession. Let’s look at some additional metrics. Business logistics costs fell to 7.7 percent of U.S. Gross Domestic Product (GDP) in 2009, as compared to 9.3 percent the previous year. Transportation costs were down by 20.2 percent as compared to 2008 levels, with all modes of transportation being negatively affected, providers of all modes of transportation suffered heavy losses in 2009 with revenues declining 20-30 per cent compared to the prior years. Carriers significantly brought down their capacity, but this too did not arrest the slide in rates, which hit its lowest levels in 30 years. It wasn’t until the last fall, the onset of the peak shipping season in the trans-Pacific trades that freight rates began to stabilize a little bit. The downturn in particular impacted the ocean carriers, who suddenly found it difficult to finance building of new vessels due to the credit crunch. At the same time, they were forced to reexamine their ship-deployment strategies. They had to reconfigure their vessel-sharing agreements with partner carriers, cut out some sailings and rearranged others to minimize their overheads.
Jessica: So what are some of the major lessons learned by shipping and logistics companies from the recession?
Jaison: Jessica, I think there are several lessons that companies have learned from the recession. I can think of four or five of them at this point in time.
One, prepare for bad times ahead of time: For shipping and logistics companies it always means focusing on reducing waste, removing inefficiencies, optimizing networks and cost structures even when the economy is not facing a downturn. Two, focus on your clients: Having loyal customers is the only route to survival during a recession. Companies today have realized the importance of having loyal happy customers who remain with you during difficult times and this is indeed one of the biggest requisite for survival.
The third one is to know your strengths, forge partnerships where it makes sense: For example, Sharing vessel deployments, having partnerships with agents in new markets, outsourcing non-core processes are all examples of good partnerships that could have softened the hard blow of recession. Several Shipping and Logistics companies have realized that apart from client acquisition and physical cargo operations, all other activities can be managed more efficiently through an outsourced partner. Fourth lesson learned is variabalize your cost base: Having a huge fixed cost base proved to be the undoing of several companies during the recent recession. A significant component of this is staff and office costs. Companies cannot always respond timely to the ebb and flow of business volume and adjust their operating costs quickly enough. Having a variable cost structure in place ahead of time would have certainly helped when the volumes and revenues fell between 20-40 percent in 2009. These are the top five lessons that come to my mind Jessica and I believe that the companies who follow these and learn from these in the future will be much better prepared
Jessica: Then how would you recommend companies be prepared for such economic downturns in the future? Jaison: Jessica, that’s a million dollar question. Let’s look at this logically. Salaries and benefits of staff in some cases constitute up to 50% of the overall operating costs of companies in the shipping and logistics industry. 25-40% of overall staff in such companies perform what can be classified as “back-office” functions. While it is very difficult to predict the environment and the economy, companies can certainly take charge of their operating costs by moving these portions offshore. Business Process Outsourcing is clearly a proven tool that can help companies in this industry reduce their operating cost structure by over 50% and also variablize them. Jessica: How can one assure these companies that such cost saving measures will not be received at the cost of quality, service or performance?
Jaison: Jessica, that is a very natural and seemingly logical question to ask. I must say that this question was quite relevant 5-7 years ago when there were no credible companies with domain knowledge of the shipping and logistics industry. In the last 5 odd years or so, the offshore outsourcing industry has matured and companies such as WNS have established a very credible practice focusing on the shipping and logistics business. With leading global companies among their client list, companies such as WNS have proven that this model works even for the most demanding companies in this industry. WNS undoubtedly has enhanced capabilities to deliver processes such as documentation, finance and accounting, operations support, research and analytics without any degradation of service levels or customer experience. There are numerous examples that prove that shipping and logistics companies are not only saving cost but also enhancing efficiency and effectiveness by partnering with third party Business Process Outsourcing companies such as WNS.
Jessica: Okay, you just mentioned examples; can you share an example of how WNS has helped improved efficiencies while reducing cost of business processes for a shipping & logistics company?
Jaison: Absolutely! I’d be happy to do that Jessica. Let me give you two examples. For a Fortune 100 shipping and logistics company, WNS consolidated and standardized the client's regional finance and accounting processes leading to increased process efficiencies. For them, WNS manages over 11 million airway bills per annum with an accuracy of over 99.7 percent. We have improved the turnaround time for billing of consignments from four days to now under 48 hours; we reduced unapplied cash from over 8 percent to consistently lower than 2 percent and reduced the cost of finance operations by over 60 percent as compared to the client's base line costs. That was the first one. Let me share with you another example. We migrated finance and accounting processes from a Fortune 500 LTL company. One of the baseline measures was related to the month end closing and the volume and value of unprocessed invoices. Prior to the transfer to WNS, they averaged around 2000 unprocessed invoices amounting to roughly 65,000-100,000 USD at month end close. Within just the second month of transfer to WNS, we accomplished a zero outstanding balance at month end which had never been accomplished ever before giving the client a much better control over his resources and accurate accruals and obviously much enhanced management reporting.
Jessica: Thank you Jaison for a very insightful conversation and for taking the time to speak with us today
Jaison: Thanks Jessica, it was a pleasure speaking with you
Jessica: Great thanks! For more information on how you can leverage outsourcing for improving the efficiency of your business processes while dramatically reducing cost of your operations, please visit www.wns.com.