COST STRUCTURE AND FINANCING OF LOGISTICS COMPANIES: PRESENT AND FUTURE RESEARCH DIRECTIONS

Abstract

Cost management and financing are among the most significant competitive fac-tors in the logistics industry, just as in different sectors. Logistics companies, or logistics service providers (LSPs), are in quest of dissimilar ways for achieving the target of reducing their costs and raising their profits in order to step forward among others in this ever-increasing intensive competitive environment. Since LSPs take part in multiple stages of a supply chain, this target does not become advantageous only for them, but also for other parties exist in a supply chain. However, it is observed that there is little research on LSPs and cost management in the literature. More particularly, existing studies show that cost structure analysis of LSPs, in a systematic and comprehensive way, remained insufficient in the logistics field. From this point of view, in this on-going research, studies focusing on cost structure and financing of logistics companies are investigated. As a result of this research, missing points remained in previous studies are scru-tinised, research gaps revealed from these studies are highlighted, and alterna-tive research areas for future studies are suggested.

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PLEASE READ AND CITE THE ORIGINAL DOCUMENT
PUBLISHED IN THE PROCEEDINGS OF INTERNATIONAL
CONGRESS ON ECONOMIC RESEARCHES AND FINANCIAL
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Kucukaltan, B., Sonmezler, G. and Gunduz, O. (2017). Cost Structure and Financing of
Logistics Companies: Present and Future Research Directions. INTERNATIONAL
CONGRESS ON ECONOMIC RESEARCHES AND FINANCIAL MARKETS, pp. 1-
8, Edirne, 12-13 May 2017, ISBN: 978-605-9440-72-1.
COST STRUCTURE AND FINANCING OF LOGISTICS COMPANIES:
PRESENT AND FUTURE RESEARCH DIRECTIONS
Berk Kucukaltana, Gokhan Sonmezler a, Orcun Gunduz a,*
aTrakya University, 22030, Edirne, Turkey
Abstract
Cost management and financing are among the most significant competitive factors in the
logistics industry, just as in different sectors. Logistics companies, or logistics service providers
(LSPs), are in quest of dissimilar ways for achieving the target of reducing their costs and raising
their profits in order to step forward among others in this ever-increasing intensive competitive
environment. Since LSPs take part in multiple stages of a supply chain, this target does not
become advantageous only for them, but also for other parties exist in a supply chain. However,
it is observed that there is little research on LSPs and cost management in the literature. More
particularly, existing studies show that cost structure analysis of LSPs, in a systematic and
comprehensive way, remained insufficient in the logistics field. From this point of view, in this
on-going research, studies focusing on cost structure and financing of logistics companies are
investigated. As a result of this research, missing points remained in previous studies are
scrutinised, research gaps revealed from these studies are highlighted, and alternative research
areas for future studies are suggested.
Keywords: Logistics industry, cost management, financing, logistics service providers
1. INTRODUCTION
Logistics have become an important supply chain component due to the ever-increasing
intense competition across the globe (Ramanathan et al., 2014). As a result of this competition
and globalisation, companies seek to minimise their costliest element, which is usually
transportation or logistics operations (Daim et al., 2013). To minimise the logistics costs,
transportation operations need to be improved at first. Such improvement also enables the
expansion of the network which holds the potential of influencing global flows of people and
goods (Negrey et al., 2011). This being the case, companies consider the outsourcing option by
making collaborations with logistics service providers (LSPs) in order to reduce their logistics
costs. Accordingly, the demand on LSPs rises the importance of logistics companies and makes
the competition in the logistics industry fiercer.
On the other hand, due to this increasing competition in the logistics industry (Yang et
al., 2016), LSPs are in pursuit of finding dissimilar ways to differentiate themselves from their
competitors. To differentiate, LSPs should meet their customer expectations from different
aspects and increase customer satisfaction while focusing on the reduction of their costs. In the
logistics literature, existing studies mainly discusses on service package of LSPs in relation to
outsourcing activities (Hofmann, 2009) while the operational improvements for logistics
* Corresponding author. Address: Trakya University, School of Applied Sciences, 22030, Edirne/Turkey
E-mail addresses of the authors: berkkucukaltan@trakya.edu.tr (B.Kucukaltan), gokhansonmezler@trakya.edu.tr
(G.Sonmezler), orcungunduz@trakya.edu.tr (O.Gunduz).

companies has received limited attention by researchers. Similarly, as Wallenburg (2009) pointed
out, the preferability of the focus either on cost or on performance improvements remains unclear
for LSPs. Furthermore, in addition to the insufficient body of research on logistics financing, the
articles continue to exist rather journalistic in nature by mainly disregarding the perspective of
LSPs (Hofmann, 2009). What is more, since cost is regarded as a competitive factor for logistics
companies (Karaa and Geyikçi, 2015) and new strategies needed to be developed by LSPs to
reduce their costs during their operation planning (Yang et al., 2016), it is imperative to study on
cost of LSPs. Consequently, in this paper, we focus on cost structure and financing of LSPs, as a
way of differentiation strategy, by highlighting the present and future research directions in the
logistics field.
The structure of the current paper is organised as follows. In Section 2, the research
methodology is summarised whereas the application of this methodology and the findings from
the literature are presented in Section 3. Finally, the conclusions drawing from this research are
discussed in Section 4.
2. METHODOLOGY
The current on-going research seeks to explore the existing studies in the intersection
of two main fields, which are: logistics and finance. In order to accomplish this purpose, a
literature review was conducted systematically by means of three databases and some relevant
keywords. In addition, several keyword pairs were also conducted in Google Scholar in order not
to miss any paper in the Turkish logistics context. Subsequently, the final list of studies was
formed after examining the concepts of the revealed research from these searches. At the end of
these stages, studies included in the final list were reviewed to present the current status of the
focused research area and to indicate the future research directions.
3. APPLICATION AND LITERATURE FINDINGS
In order to reveal the existing studies in the research area, the conducted steps
throughout the literature search process are listed as follows:
Step 1: Deciding on the keyword pairs and databases
In this step, appropriate keyword pairs and databases were selected in accordance with
the purpose of this research.
Step 2: Searching existing studies in the research area
Following the first step, previously decided keywords were used in three databases,
namely Wiley Online Library, ScienceDirect, and Scopus. The keywords, databases, and number
of studies revealed from these searches are presented in Fig.1.
Fig.1. Number of studies revealed from database searches
Throughout these searches, different phases were applied to each of these databases due
to their different infrastructures. The changes between these phases, in terms of the number of
studies, were separated by the star sign in Fig.1. For instance, in Wiley Online Library, the search
was initially carried out in the abstracts and the search was then limited to journals only whereas
abstracts, titles, and keywords were explored in the one-phase search within ScienceDirect
investigation. Concerning Scopus, four phases were fulfilled. In the first phase, abstracts, titles,
and keywords were checked, followed by exclusion of the papers studied in different areas (e.g.
‘medicine’), choosing of a suitable language (e.g. English) to make papers understandable, and
setting a limitation to explore articles and articles in press only by excluding several academic
studies (e.g. dissertations). All in all, 13 papers, as shown in the total column in Fig.1., were
determined as the initial list of studies to be examined in this research after eliminating duplicates.
Step 3: Further search in Google Scholar
Subsequent to these two steps, several keyword pairs, written in Turkish, were also used
in Google Scholar in order not to miss any relevant article from the literature. Fig.2. depicts the

number of studies found in this search. Yet, it is worth noting that, although two studies were
initially found in the first search, solely one of them is included in our evaluation due to our set
limit to the articles only. Fig.2. Number of studies found in Google Scholar
Step 4: Including/excluding some studies to form the final list of studies
After all these processes, 14 studies formed the latter list in this research. However,
among these 14 articles, some were not accessible due to the university database system
restrictions, while some were decided to be excluded after reading the titles and abstracts. As a
consequence, eight studies were found relevant in accordance with the scope of this research and
these articles formed the final list of studies, as shown in Table 1, to be examined in this research.
Table 1. The final list of studies examined in this research
Authors
Titles of the Articles
Wallenburg (2009)
Innovation in logistics outsourcing relationships: proactive improvement by logistics
service providers as a driver of customer loyalty
Cigolini et al. (2013)
Using simulation to optimize transhipment systems: Applications in field
Yang et al. (2016)
Collaborative distribution between two logistics service providers
Hofmann (2009)
Inventory financing in supply chains: A logistics service provider-approach
Giuliano et al. (2009)
Financial services offered by a multidisciplinary B2B network
Einbock (2006)
Effects of the Austrian road toll system on companies
Negrey et al. (2011)
One Package at a Time: The Distributive World City
Karaa and Geyikçi
(2015)
Determination of the weights and logistics cost drivers in logistics sector by analytic
network process (Analitik ağ süreci ile lojistik sektöründe lojistik maliyet unsurları ve
ağrılıklarının belirlenmesi)
Among these eight papers, six are mainly related to the scope of this research in terms
of focusing on LSPs and considering the logistics industry or logistics as well as delivery
operations. For instance, Karaa and Geyikçi (2015) aimed at determining prioritisation of cost
elements existing in the logistics industry in order to reduce these costs for logistics companies.
Thus, they categorised five main cost criteria and conducted the Analytic Network Process (ANP)
method to prioritise both these five criteria and 23 sub-criteria by considering interrelationships
in the network structure. Their results exhibited that transportation costs are the most significant
cost element in the logistics sector. More particularly, in their study, the criterion of fees and rent
prices of freight vehicles has the highest score while fuel costs criterion is the second highest
within the transportation cost category. Yet, as a limitation, the categorisation of costs remained
limited to some extent since there are various other logistics operations and value-added activities
that LSPs serve. In addition, financing cost was considered by the authors as a sub-criterion rather
than being evaluated more broadly in the logistics operations.
In another study, Yang et al. (2016) showed the impacts of collaborative distribution
between two LSPs on delivery cost and delivery time. They used some assumptions and proposed
several findings, such as a collaborative distribution is conditionally profitable for LSPs, and the
total profit conditionally grows when one LSP alters its equilibrium price. However, in their
paper, they mainly focused on the horizontal cooperation. As a result of this, they took into
consideration only delivery cost and neglected different types of costs that are independent of
horizontal cooperation, such as inventory costs, and administrative costs. Regarding the
importance of inventory financing, possibly conducted by LSPs, Hofmann (2009) pointed out that
there is a need for improvement in the inventory financing within the supply chain, especially by
implementing the “network perspective” and, therefore, it was noted by the author that LSPs
should not be only responsible for operational activities, such as transport, storage, handling, but
also for the inventory financing function. Although the author emphasised that the additional
financing activities may open up new opportunities and enable competitive advantages for the
LSPs, the methodological approach of the paper remained conceptual in nature. In other words,
the proposed approach did not transcend the explorative approach that contains the discussion of
existing models. Furthermore, the cost structure was not assessed comprehensively by the author.

Moreover, Wallenburg (2009) focused on understanding the effect of proactive
improvement (cost versus performance) on customer loyalty (represented by retention, extention,
referral by the customer). The author conducted a web-based survey and used the structural
equation modeling technique to analyse the answers of 298 managers, working at different
German companies in different industries by taking responsibility of logistics operations. The
main results of the paper showed that proactive cost improvement and proactive performance
improvement have nearly equal importance in terms of producing customer loyalty. More
specifically, according to the results, when the outsourced services are simple and the contracting
period is short, cost improvement is the main driver of customer loyalty whereas performance
improvement becomes the primary driver for customer loyalty when the outsourced services are
complex and the contracting period turns into the long-term. However, in the paper, as the author
highlighted, reactive improvements are prevalent in practice while proactive improvements are
much less common. In this regard, the research has a shortfall in terms of representing the reality.
Furthermore, regarding the cost improvement, cost reduction was predominantly emphasised
throughout the paper and this caused a slight evaluation of cost performance for the logistics
concept, particularly from the LSPs’ perspective.
In addition, our literature review revealed that specific logistics or delivery operations
were discussed in two studies. In the former one, Cigolini et al. (2013) proposed both a simulation-
based meta model to assist LSPs in sizing transhipment systems and a methodology that can be
quickly used for building simulation models of transhipment systems in real-life conditions. They
also presented two case studies that the suggested methodological approach was successfully
implemented to size transhipment systems. In the paper, under favour of the simulation meta-
model, they emphasised that an effective cost analysis can be performed by considering the
anticipated effects on revenues and investments. However, despite the inclusion of some
operational cost types, their paper has a deficiency of showing different costs within the cost
structure of LSPs. In addition, their focus was remained largely limited to the maritime logistics
domain. In the latter study, Negrey et al. (2011) implemented a case study involving UPS Airlines,
and a US city, Louisville, in order to show how local economic development endeavors, together
with the extension of air-cargo delivery services, affect a city to transform it into a distributive
world city. Their analysis indicated that logistics replaced some of job losts (e.g. manufacturing
and trade jobs), as well as professional employment arise, although it still performed a much
slower pace than nationally. In their paper, however, the main context remained limited to a
distributive world city case study irrespective of cost structure and financing of a LSP.
On the other hand, LSPs or logistics operations were discussed to some extent in some
papers, although the focal points of these studies were different than these notions. For instance,
Giuliano et al. (2009) studied particularly on the FLUID-WIN research project which is a platform
that focuses on business-to-business (B2B) manufacturing networks and their interactions with
the logistics and financial service providers. They emphasised that the FLUID-WIN enables the
combination of logistics-related information with financial services. Yet, their paper lacks
presenting the cost structure and financing of LSPs and remained too specific to the FLUID-WIN
research project. In another paper, studied by Einbock (2006), the consequences of the new (back
then) Austrian road pricing system on companies were presented by discussing the effects from
different aspects and conducting a survey to the companies operating in Austria. The sample was
constituted by industrial enterprises, trading companies, and LSPs. According to the results, toll
costs serve as an incentive for reorganising transport and logistics as well as intensified
cooperation with other LSPs. Moreover, LSPs expect a very strong rise in sales-price originating
from the increased road prices. Although LSPs can see this situation as an occasion, the results
showed that they do not see such a strong effect on their competitiveness compared to industrial
companies. As a limitation of the paper, the main focus of the paper was not about the evaluation
of the cost structure of LSPs and, also, the author described the effects on costs in terms of five
management sub-systems, which are planning system, monitoring system, information system,
organisation system, and human resources management system.
As a consequence, the reviewed literature in this research showed that several studies
exist in the intersection of the logistics and finance research domains. In this regard, more
particularly, majority of the eight papers discussed in this section revealed that there is a growing
importance on the subject of evaluation of cost structure and financing of LSPs in the literature;

however, it is worth to note that there are still some research gaps to be explored in the logistics
field regarding these subjects.
4. CONCLUSIONS
Logistics companies have faced with various challanges during their operations and, in
order to remain competitive in the industry, they initally need to look for different ways of
reducing their costs. In addition to the cost reduction achievements, financing policies and
activities are also significant competitive drivers that need to be considered carefully by logistics
companies. Thus, cost structure analysis and financing turns out to be an important subject to be
focused in the logistics field. However, our literature review demonstrated that, notwithstanding
the relevance of several articles, there is a shortage of targeted research on cost structure and
financing of logistics companies.
Based on the existing research, this research has highlighted and presented several
research gaps that can be used as a research motivation for other researchers in future studies.
First, various types of costs need to be investigated and categorised both comprehensively and
systematically in the logistics industry, particularly by considering the LSPs’ perspective. Second,
in addition to the cost structure analysis, financing policies and activities need to be carefully
examined and discussed for logistics companies. Third, an empirical analysis regarding cost
structure and financing of logistics companies can be conducted with different techniques (e.g.
survey) and/or through various multi-criteria decision making techniques, after implementing a
comprehensively developed conceptual model.
On the other hand, there are several limitations of this research. First, more and/or
different keywords as well as databases could be used by the researchers while examining the
existing studies. Second, due to the subjectivity, some articles could be removed at the early stage
of review whilst some could be included in the final stage. Thus, the final list of studies could be
formed with a less/more amount of papers.
REFERENCES:
Cigolini, R., Pero, M., Rossi, T. and Sianesi, A. (2013). “Using Simulation to Optimize Transhipment
Systems: Applications in Field”, Maritime Economics & Logistics, 15(3), pp. 332-348.
Daim, T. U., Udbye, A. and Balasubramanian, A. (2013). “Use of Analytic Hierarchy Process (AHP) for
Selection of 3PL Providers”, Journal of Manufacturing Technology Management, 24(1), pp. 28-51.
Einbock, M. (2006). “Effects of the Austrian Road Toll System on Companies”, International Journal of
Physical Distribution & Logistics Management, 36(2), pp. 153-169.
Giuliano, A., Mihók, P., Moksony, R., Vejacka, M. and Vincová, K. (2009). “Financial Services Offered
by a Multidisciplinary B2B Network”, E+ M Ekonomie a Management, (1), pp. 77-87.
Hofmann, E. (2009). “Inventory Financing in Supply Chains: A Logistics Service Provider-Approach”,
International Journal of Physical Distribution & Logistics Management, 39(9), pp. 716-740.
Karaa, İ. E. and Geyikçi, U. B. (2015). “Analitik Ağ Süreci ile Lojistik Sektöründe Lojistik Maliyet
Unsurları ve Ağırlıklarının Belirlenmesi/ Determination of the Weights and Logistics Cost Drivers in
Logistics Sector by Analytic Network Process”, Suleyman Demirel University-The Journal of Faculty of
Economics and Administrative Sciences, 20(1), pp. 101-113.
Negrey, C., Osgood, J. L. and Goetzke, F. (2011). “One Package at a Time: The Distributive World City”,
International Journal of Urban and Regional Research, 35(4), pp. 812-831.
Ramanathan, R., Ramanathan, U. and Ko, L. W. L. (2014). “Adoption of RFID Technologies in UK
Logistics: Moderating Roles of Size, Barcode Experience and Government Support”, Expert Systems with
Applications, 41(1), pp. 230-236.
Wallenburg, C. (2009). “Innovation in Logistics Outsourcing Relationships: Proactive Improvement by
Logistics Service Providers as a Driver of Customer Loyalty”, Journal of Supply Chain Management, 45(2),
pp. 75-93.

Yang, F., Yang, M., Xia, Q. and Liang, L. (2016). “Collaborative Distribution between Two Logistics
Service Providers”, International Transactions in Operational Research., 23, pp. 1025-1050.