1. Defining the Market for Logistics Services <br />The fundamental starting point of an investigation of potential market power is the <br />definition of market parameters. This can be relatively simple where the product is easily <br />defined and has few substitutes; where producers and consumers of the product are easily <br />identified; and where the spatial and temporal characteristics are clear. But in the case of <br />service industries such as logistics, where it is difficult to even reach agreement on the <br />definition of logistics and supply chain services, defining market parameters presents a <br />significant first hurdle. <br />This report adopts the Australian Logistics Industry Strategy (ALIS) definition of logistics, <br />i.e., any activity involved in the movement, storage and handling of freight, including <br />through points of production, transformation and to the point of consumption or disposal <br />(ALIS 2002). <br />These activities are broad-ranging, complex, and often inter-dependent; many can be <br />undertaken either in-house as critical elements of a firm’s business case, or they can be <br />out-sourced to competing service providers. <br />Furthermore, not all logistics suppliers offer the same range of services. As well; customers <br />in the same industry can have multiple logistics service requirements per product, but at <br />the same time products from different customers and industries can utilise similar logistics <br />services. The range of logistics activities performed in Australia reflects the diversity of our <br />economy and the complex needs of the business community. <br />Even often used terms such as multi-modal, inter-modal, integrated and national are poorly <br />defined. For the purposes of this study we use the following conceptual definitions: <br />• National logistics services are those satisfying the national needs of a customer. It is <br />possible to deliver national logistics services using only one mode of transport. It is also <br />feasible to consider the provision of ICT logistics services to a customer on a national <br />basis as a national logistics service. <br />• Integrated logistics services are those services incorporating more than one logistics <br />service in an integrated fashion. It is possible to provide integrated services on a <br />regional or even local basis. Vertically integrated logistics services refer to the <br />integration of inter-modal services and usually imply the integration of non-transport <br />services such as ICT and storage. <br />• Inter-modal logistics services refer to the transfer of freight from one type of transport <br />to another form of transport, for example, from a truck to a train. Inter-modal can also <br />refer to the transfer of freight between different trucks via cross-docking facilities. <br />• Multi-modal logistics services are where a firm can offer alternative forms of <br />transportation for the same freight task, or where a firm operates in more than one <br />transport sector. Multi-modal services need not be integrated and it can be difficult to <br />determine to what degree a firm has truly integrated multiple transport services. <br />It possible for a large logistics company to provide national inter-modal services to one <br />client, regional multi-modal services to another client and locally integrated services for a <br />third client all at the same time. This demonstrates the difficulty in determining the market <br />power a particular logistics company might possess, particularly if one relies on the <br />standard measure of relative market share. <br />Given the diversity of logistics services that can be offered it is almost meaningless to <br />analyse market conditions based a single ‘national’ logistics market view point.<br />Instead, it is more useful to consider the national market as a spectrum of logistics submarkets that are based primarily on the physical product characteristics, overlaid with <br />spatial and temporal origin-destination dimensions. Ideally, such an analysis could then be Strategic design + Development <br />Market Power and Logistics Chains <br />An Integrated Logistics Network Discussion Paper <br />© Strategic design + Development Pty Ltd September 2004 Page 9 <br />used to further explore how these sub-markets intersect along individual supply chains and <br />affect the performance of the chain. <br />Unfortunately, data on logistics activities, either at the national level or in a disaggregated <br />sub-markets form, are not readily available to conduct market analyses. This situation is <br />not unique to Australia as governments and academic institutions through out the world <br />have only recently come to understand the importance of logistics (rather than freight <br />transport) as an economic activity. <br />Nevertheless, it is important to establish an estimate of the value of the Australian logistics <br />market in aggregate; at the very least to gain some context for future assessment of the <br />relative importance of the sub-markets. It also puts into perspective the relative value of <br />those logistics services currently out-sourced to the market compared to the value of those <br />logistics activities performed in-house.<br />