Logistics: How Smart Pricing Strategies Can Mitigate the Impact of Crises Caused by Coronavirus

February 14, 2020

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The coronavirus outbreak has caused major disruption for logistics, with tens of thousands of containers currently stuck in Chinese ports. Hopefully, the health crisis will soon be over, but the economic effects will continue if backlogged goods have to be moved under high time pressure and at additional cost. What strategies can logistics providers use to help them prepare?

The outbreak of the coronavirus means many thousands of containers are currently sitting at Chinese ports, waiting to be transported. As the Deutsche Verkehrs-Zeitung reports, analysts expect that the Chinese government’s decision to extend the New Year holiday period until February 10 will result in a 0.7 percent decline in global container throughput.

Significant damage during and after the crisis

The damage will be enormous for players in the logistics supply chain, and this is yet another reason why the global economy hopes the coronavirus crisis will end soon. However, it remains to be seen whether companies have made preparations that would compensate them, at least partially, for these losses. In any case, it is clear that as soon as the critical health situation eases, logistics providers will face more challenges. The masses of backlogged products will have to be transported as quickly as possible, with logistics providers operating at their limits.

Price increases won’t make up for additional expenses

Carriers will certainly use this opportunity to raise their freight rates, but they will also have to work much harder to process the additional workload in time. The logistics industry could lose out twice, not only during the outbreak, but also afterward when the costs for the additional effort can’t be sufficiently offset.

Intelligent price strategies to soften the impact of the crisis

It is precisely situations like this that logistics companies need to prepare for by developing detailed, long-term pricing strategies that compensate for periods of high capacity. However, in order to implement uniform price increases per TEU for all customers, the competition must do the same. Fortunately, there are several significantly more promising steps providers can take:

  1. Differentiate prices for different service levels: Different services should be reflected in offer prices. Anyone who needs their goods particularly quickly will pay a higher price. Cost-conscious customers can save money by being flexible on time. 
  2. Implement surcharges rather than higher base prices: Instead of increasing base prices to pay for the additional shifts, logistics providers should calculate surcharges that are easy for their customers to understand. Experience has demonstrated that the price elasticity for surcharges is significantly lower than for base rates.
  3. Bill for no shows: No-show customers are a particular problem in logistics, especially at significant peak times, so companies should approach it in a systematic way. If a customer books logistical capacity, they must pay for it in full, even if they don’t use it.

For years, the logistics industry has failed to optimize many important pricing levers. Not addressing these factors can result in serious problems, particularly during crises. Therefore, it is strongly recommended that providers put time aside now to develop intelligent pricing strategies in preparation for future challenges.