The need for establishing third party logistics companies: An important factor in making logistic services competitive

With the globalization of trade in recent years and the shorter lifespan of products, companies are more widely involved in providing the resources they need, as well as in selling and distributing products. One of the most important steps in achieving this goal is to outsource operations and focus on mission activities in which the company has a competitive advantage. One of the priorities of outsourcing is logistics and transportation operations. Third party logistics companies are companies having expertise in the field of logistics and are able to represent all logistic services and operations from origin to destination, including transportation, transit, customs operations at origin and destination customs, maintenance to delivery and distribution of goods on behalf of traders and parties to the transaction (seller and buyer). These operations include actions that the parties do not want to take or cannot manage well. According to studies carried out up to the present, the average share of total logistics costs in the total price of products (in the whole product supply network) in Iran is up to 85% higher than the global average, putting a burden on consumers. One of the most important ways to reduce this gap is to pay attention to the performance of other countries in the development and operation of capable logistics companies. It seems that the lack of sufficient development of these companies in Iran is one of the most important issues that needs to be addressed. The missing link is the improvement of productivity in the field of transportation and logistics. Compared to traditional companies, these companies provide higher quality, more customized, more flexible and more diverse services, which in addition to reducing costs, leads to the satisfaction of both parties. Examining the situation of Iran in the field of logistics shows the existence of problems and challenges in the field of logistics, and especially the lack of formation of third party logistics companies. Ranked 96th in the world among 160 countries in 2016 in the Logistics Performance Index (LPI), lack of a coherent system of supply and distribution of goods as well as problems, such as the  adverse influence of dealers, lack of relevant clauses in Fifth Development Plan of the country, non-implementation of tasks and programs developed in the responsible agencies, high average age of the country's road transport fleet (16.4 years in 2016) and the reduction of the role of road transport companies to mere dealing between the driver and the owner of the car is one of the most important reasons for the shrinkage of Iran's commercial logistics capacity compared to other countries in the region, which makes strategic planning difficult in this area.

Key Points

Reasons for welcoming 3PL companies include: specializing in logistics business (compared to manufacturing companies), providing a portfolio of diverse services based on customer needs (which leads to customer satisfaction), economies of scale in capacity (which results in a significant reduction in logistics costs) and that they use up-to-date knowledge, methods and techniques;

Based on the studies of the Institute for Trade Studies and Research, a series of challenges in the field of logistics in Iran was identified. According to experts and important actors' views in this field, these challenges have been prioritized as follows:

  1. Legal loopholes and lack of optimal coordination between the relevant government agencies in the field of logistics and transportation (for example, lack of legal mechanisms for the establishment and operation of third-party logistics companies);
  2. The high number of transport companies (especially in the road sector) and the small scale of the activists;
  3. Lack of a comprehensive strategic plan in the field of logistics and transportation or non-implementation of current approved plans;
  4. Failure to adopt new technologies and modern knowledge in the country's transportation industry;
  5. Lack of optimal development of the country's logistical infrastructure;

Other problems, such as the age of the transport fleet and the industry's impact on energy pricing and its spread to other sectors, have lower priority. According to the above priorities, the following solutions are proposed:

  1. speeding up the completion and implementation of large-scale programs under development, including the plans for identifying logistics companies (in the field of economic and commercial affairs of the Ministry of Industry, Mines and Trade) as well as the comprehensive logistics program of the country (approved by the High Council for Transportation Coordination of the Ministry of Roads and Urban Development) where the establishment mechanisms and activities of these companies will be provided with the joint efforts and cooperation of the two ministries and a research arm.
  2. Creating the necessary legal infrastructure for the integration of domestic transport companies and joint ventures with the world's top 3PL companies. III. Expediting the development of infrastructure in order to turn Iran into a regional hub that requires the effective cooperation of responsible agencies and, according to experts, benefits the country more than oil revenues.
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