MK&C: Getting the price right in logistics

McKinsey & Company reports:

Reimagining the pricing cycle can be the most impactful lever for profitability in the logistics sector, and five steps to reform the entire pricing cycle can maximize the value.

Pricing strategies in logistics have been less mature than in other sectors. Fragmentation and a historically low degree of digitization have been challenges in developing more complex approaches. However, recent investments in data infrastructure have now opened a window for more comprehensive pricing transformation.

Logistics companies that transform their pricing could increase revenue by 2 to 4 percent, translating to as much as a 30 to 60 percent increase in operating profit. However, achieving this upside requires a strategy that tackles the entire pricing cycle. Here, we make the case for reforming pricing and outline a five-step process to achieve it.

Time to reap the full reward of data infrastructure investments

Digitization in logistics has historically been low. In addition, fragmentation in the sector, the complexity in different goods, and the absence of a strong global industry association to lead standardization and pricing transparency have led most companies to consider themselves price-takers.¹ Companies have traditionally taken a “cost plus” approach to pricing.

However, logistics companies have recently made significant investments in technology and data infrastructure. We observe leaders upgrading legacy systems (for instance, to best-in-class integrated transportation management systems), streamlining digital architecture, removing data silos (for instance, among their transport management, inventory management, and enterprise resource planning systems), and adding new business insight capabilities on top of legacy systems.

Logistics companies now face a well-timed starting point for more sophisticated pricing strategies (Exhibit 1). Disruptors are also active in the market: logistics technology has attracted significant investor interest, and the sector continues to be strong, despite the pandemic. An example of an industry disruptor is Freightos, whose application programming interfaces allow a variety of providers to share real-time pricing data, providing increased transparency to the market.

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