Insight: Amid intense market competition, small and medium-sized logistics enterprises face six major challenges—how can they break the deadlock?

Shorter contract durations, extended payment cycles, cargo damage on every vehicle, competition among independent carriers, a decline in available freight, and the direct involvement of leading third-party logistics providers.

In today’s highly competitive logistics industry, small and medium-sized enterprises face unprecedented challenges, particularly those whose core business is road transportation.

Among the logistics company owners I know, some have resolutely decided to sell their fleet and shut down their businesses; others have chosen to stay in the logistics‑transportation sector while diversifying into side ventures; and still others, despite facing numerous challenges, remain committed to breaking even, striving to keep their operations afloat.

01   Six major hurdles, each one daunting.

As the market environment evolves and customer demands become increasingly diversified, small and medium-sized logistics enterprises must not only contend with intensifying external competition but also navigate multifaceted pressures related to internal management, cost control, and other areas.

I have summarized the predicaments faced by small and medium-sized logistics enterprises as follows: Six major challenges—see how many you’ve faced, and feel free to share your experiences in the comments below.

Level 1: Shorter contract cycles

Over the years I’ve been in the logistics industry, I’ve seen… Five-year contracts have evolved into 3+2 arrangements, and later to 3-year, 2-year, and even 1-year terms. In the past two years, one-year contracts have become increasingly rare; some clients have shortened their tender cycles to every six months, while others have gone as far as holding tenders quarterly.

For logistics companies, every bid entails facing price pressures from competitors: fail to lower prices, and you risk losing the contract; yet cutting prices means continually squeezing profit margins.

Level 2: Payment terms extended

In recent years, monthly freight settlements have been quite common; for example, In June, work is completed, and payment is due by the end of July. Today, however, payment terms have been extended to 60 days—or even 90 days—after final reconciliation, placing significant financial strain on logistics companies.

Moreover, some customers not only extend the payment terms but also switch from bank transfers to accepting trade acceptance bills upon payment, thereby further increasing the company’s liquidity risk.

Level 3: Every vehicle has cargo damage.

These days, customers’ outer packaging—especially the logistics‑grade packaging—is becoming increasingly thin. Even with robust protective measures during loading, a few damaged cartons inevitably turn up during unloading. If cargo gets wet due to rain leaking into the truck bed, it’s entirely reasonable for the carrier to assume liability.

Apart from water damage, cargo losses caused by other factors are not really closely linked to the transportation process. However, at present, any cargo damage discovered during unloading is invariably attributed to the carrier.

Level 4: Individual vehicles have no limits.

Ten years ago, trucking fleets were swamped with work. In recent years, I suspect many people have heard that hauling big trucks can be lucrative—though I’d wager that’s just the sales pitch peddled by those selling vehicles. As a result, countless others have rushed to buy trucks and jump into the logistics industry.

In the past, small and medium-sized logistics companies competed primarily with fleet operators; now they face another rival—individual truck drivers. Many of these drivers finance their vehicles through loans, and to ensure they can make their monthly payments, they often quote prices on the platform that are not just low—they’re even lower.

Level 5: Market supply dwindles.

Presumably due to the three-year pandemic, we had expected that once the crisis subsided, last year would mark a rebound from the bottom, with factories operating at full capacity. In reality, however, we’ve seen freight volumes steadily decline. Sometimes, drivers arrive at their unloading destinations and end up waiting for return loads for several days.

As cargo volumes decline, logistics companies’ monthly revenues have plummeted, yet their expenses do not fall in proportion. Vehicle depreciation and driver salaries must still be accounted for each month as usual.

Level 6: The three heads take the field.

In the past, in addition to manufacturing and distribution companies, small and medium-sized logistics firms served a sizable customer base: leading third-party logistics providers. After securing transportation contracts from shippers, these top-tier third-party logistics companies typically subcontract various route‑specific transport assignments to downstream small and medium-sized logistics firms, independent carrier fleets, and other entities.

Today, clients are continuously driving down prices through tendering, and even large third-party logistics providers can no longer withstand the pressure of rising costs. This forces leading third-party logistics firms to enter the operational front lines themselves, thereby cutting off revenue streams for many small and medium-sized logistics companies. For those SMEs that previously relied on top-tier third-party clients as their main customer base, the impact has been particularly severe.

02   The model is simple—how can we break the deadlock?

At this stage, small and medium-sized logistics enterprises—particularly those whose core business is road transportation—are under pressure from all fronts, truly embodying the saying: “Like a mute person swallowing bitter herbs, they suffer in silence.” However… Relentlessly slashing prices will ultimately leave you with no room for further cuts.

So, I can fully understand the approach taken by some logistics company owners: they’ve chosen to cut their losses and shut down, at least putting an end to month-after-month losses. As for the small and medium-sized logistics firms that are still in operation, in the face of fierce market competition, breaking the deadlock requires first identifying the root causes of their current difficulties.

Let’s start with the transportation model—transportation‑related business, It primarily involves three stages: pickup, transportation, and unloading. The model is remarkably straightforward, and precisely because the entry barrier is low, it has attracted a large influx of participants.

For example, an individual driver can start a transportation business simply by purchasing a vehicle; similarly, a married couple or two brothers can set up a dedicated less-than-truckload (LTL) shipping route. When the supply of transport services exceeds demand, price wars inevitably ensue—so what’s the solution?

In fact, beyond transportation, the logistics industry offers a wide range of additional services, such as warehousing and secondary packaging, among others.

If you’re familiar with supply chains, you know they comprise numerous nodes, many of which are warehouses—such as raw-material warehouses, work-in-progress warehouses, finished-goods warehouses, distribution-center warehouses, delivery-center warehouses, e‑commerce warehouses, forward‑stocking warehouses, and cross‑border e‑commerce warehouses. For those in the road‑transport industry, what they essentially handle is transportation between these warehouses.

Transportation is straightforward, but warehouse management is far from simple; therefore, not every logistics company has the capability to offer warehousing services. Individuals, couples, or even siblings simply lack the resources and expertise to manage a large-scale warehouse.

Warehousing services have a higher entry barrier than transportation, which is why the warehousing and logistics sector today is dominated by established enterprises. While transportation is highly commoditized and easily substitutable, warehousing remains a function that is far less susceptible to being replaced.

03   Leveraging warehousing and integrating transportation

Friends who know me well are aware that I used to work at Sinotrans. Back then, when we were developing new business lines, we typically started by offering warehouse management services. By identifying a key touchpoint and building trust with our clients, we could subsequently expand into upstream and downstream transportation services. For small and medium-sized logistics enterprises, this model is entirely replicable and worth considering.

Integrated warehousing and delivery is undoubtedly the trend. In the past, some clients would outsource warehousing and transportation to separate logistics providers. However, this trend is shifting, as bundling these two functions into a single outsourcing arrangement can reduce overall costs. For logistics companies, integrating these services also helps cut expenses, creating a win-win situation.

By focusing on the warehouse node within the supply chain, a wide range of additional services can be developed, such as secondary packaging, e‑commerce warehousing, inter‑warehouse transfers and transportation, and last‑mile delivery to downstream distributors.

Some peers argue that warehouse operations are both grueling and unprofitable—this is indeed the case. However, if you fail to take firm control of your warehouse, securing other logistics‑related business will become exceedingly difficult. As we just mentioned, when pursuing integrated warehousing and delivery, the key is to ensure overall profitability; there’s no need to obsess over whether the warehouse itself turns a profit, right?

Some friends also wonder, Why does bundling warehousing and transportation together after acquiring the warehousing business necessarily lead to cost savings? This brings us to supply chain collaboration, which can encompass coordination between warehouses and upstream production processes, internal warehouse operations, or downstream transportation. Warehouse‑delivery integration falls under the purview of downstream collaboration within the broader framework of supply chain coordination.

In the past, warehousing and transportation were managed by two separate entities: once the warehouse completed order preparation, the transport team would conduct an on-site inventory and handover. Under an integrated warehousing-and‑delivery model, however, the on‑site transport personnel can be eliminated. After the warehouse verifies the quantities, goods are loaded directly, sealed with lead seals, and shipped. Upon unloading, if the seals remain intact, any discrepancies in quantity or damage to the goods is borne by the shipping warehouse.

Additionally, under an integrated warehousing-and‑delivery model, we can explore collaborative innovation approaches—for example, adopting palletized transport. This would boost vehicle turnover rates and, at the same time, reduce the incidence of product damage caused by frequent loading and unloading.

04   Summary

Small and medium-sized logistics enterprises face six major challenges in the fiercely competitive market, including: Shorter contract durations, extended payment cycles, cargo damage on every vehicle, competition among independent carriers, a decline in available freight, and the direct involvement of leading third-party logistics providers.

These challenges compel small and medium-sized logistics enterprises to seek innovative solutions if they are to ensure their continued viability. Leveraging warehousing services, integrating with transportation operations, and achieving seamless warehouse‑to‑delivery integration have become pivotal strategies for the transformation of such businesses.

By participating in the operational management of warehouse nodes within the supply chain and expanding into secondary packaging, e‑commerce warehousing, and other related services, small and medium-sized logistics enterprises can not only reduce costs for their clients but also achieve cost efficiencies through supply chain collaboration, strengthen their business, and create a win‑win outcome.