Are these good times or bad times for the transportation and logistics (T&L) industry? The industry has grown significantly since the turn of the millennium, and most segments emerged from the 2008 financial crisis with strong growth prospects. Despite sound revenue growth, however, only a few T&L companies have managed to enjoy higher profits.
The Boston Consulting Group analyzed the revenues and margins (calculated using earnings before interest and taxes, or EBIT) of approximately 500 T&L companies worldwide. We found that revenues and average EBIT margins grew at nearly the same rate from 2005 through 2007. Then, a small gap between the two increasingly widened. By the end of 2014, revenues had grown by 22%, while EBIT margins had grown by only 2%. (See Exhibit 1.)
Challenging market conditions only partially explain why profits did not keep pace with revenue growth. For many T&L players, organic growth strategies aimed at gaining market share in new regions and in new business segments failed to deliver profitability in terms of return on sales (ROS) and return on assets (ROA). In some instances, companies accelerated revenue growth through acquisitions, but these inorganic strategies also failed to realize the anticipated profit growth—often because the companies did not adequately integrate the acquired businesses into their operations and networks.
However, some T&L companies succeeded in achieving strong growth in both revenues and profits. The top ten companies in each of 16 market segments were able to increase revenues by 37% from 2007 through 2014, and their EBIT margins grew by 18% during the same period. To determine how, we conducted an industry-level analysis of critical performance metrics and complemented it with detailed analyses of business segments and individual companies. We found that the top-performing companies set themselves apart in two ways: they understand the success factors and related best practices that are critical to maximizing their profits in the market today, and they proactively position themselves to capture opportunities arising from the megatrends reshaping the global economy—such as urbanization and digitization—so as to maintain their competitive advantage.
To capitalize on opportunities in industry segments that are attractive in terms of both growth and returns, company executives need to refine their current business models, keeping in mind the factors that promote success in the near term and the megatrends that will affect these segments in the long term. For many T&L companies, joining the ranks of the top performers will require a fundamental paradigm shift—from pursuing growth for its own sake to finding avenues for growth that generate high returns in an increasingly complex and competitive business environment.