LOGISTICS ENVIRONMENT

By: Genevev Pillado - Intro to EF: Economic and Political

Ramona Neilsen Catro - EF: Environmental, Technological, and Market
Erra Mombille - IF and Conclusion

CONTENT
I. Introduction
II. External Factors
A. Economic
B. Political
C. Safety and Environmental
D. Technological
E. Market
III. Internal Factors
IV. Conclusion
V. References

Good afternoon every one and good afternoon Doc. Actually I love the intro of
Captain Don Henesing napagod ba kayo sa first flight nyo ? I hope you enjoy it
and learn something new, by the way we are cabin crew 2 nd flight I am Genevev
pillado at your service, with me is Ms. Ramona Castro and Ms. Erra Mombille, our
flight now is about to start going to Logistics Environment

I. Introduction: Logistics Environment

Refers to the external and internal factors that affect logistics operations and can impact
the efficiency and effectiveness of supply chain management. These factors can include
economic, political, environmental, technological, and market conditions, as well as the
company’s internal resources, capabilities, and processes. The logistics environment is
constantly evolving, and organizations must be prepared to adapt to changing
conditions in order to remain competitive and efficient. Understanding the key factors
that impact the logistics environment is critical to developing and implementing effective
logistics strategies.

II. EXTERNAL FACTORS:

A. ECONOMIC:

1. Interest Rates:
 The interest rate is the amount lenders charge borrowers and is a percentage of
the principal. It can affect the cost of financing for logistics operations and the
overall economy, which can impact on demand for goods and services.

The reality is that costs never go down in the long term. Short-term costs will
certainly fluctuate. And year over year cost comparisons will likely show a lower
rate of inflation between 2023 and 2022, as compared to 2022 versus 2021. But
Supply Chain companies will need to deal with the reality of these interest rate
increases, either by taking steps to improve productivity, lower other costs,
improve cash flow, lower inventory, or take the commensurate pricing action to
pass costs on to customers.

Interest rates can have an impact on inflation in several ways. Generally, an

increase in interest rates will tend to reduce inflation, while a decrease in interest
rates will tend to increase inflation, but sometimes, it can tend to go in same way
as an increase in interest can increase the inflation when most of the businesses
depend on Loans so higher interest rate can increase the cost of production
which can increase the inflation.

2. Inflation:

Inflation is the rate of rising prices in an economy. Inflation can harm society by
increasing the cost of necessities such as food. It also causes a decrease in the
purchasing power of consumers. When inflation is high, each peso you have will
buy fewer goods and services. High inflation can also lead to economic instability,
disrupting supply chains and delays in shipping goods. Inflation can have a
significant impact on shipping and logistics. However, understanding how it works
and taking steps to mitigate its effects can help protect the business from the
potential disruptions it can cause.
 Types of inflation:

● Demand-pull inflation

This happens when there’s more money chasing after limited goods and
services. It occurs when people earn more money and want to spend it on
available goods, bidding up prices.

● Cost-push inflation

This happens when the cost of making a product goes up. For example, if crude
oil prices rise, gas prices rise, and transportation costs increase. This can lead to
higher prices for many items in the store.
● Structural inflation

An imbalance in the economy causes this. For example, it can happen when
there’s a high demand for workers in a particular field, leading to wage
increases.
3. Exchange Rates:
Exchange rates can affect the cost of imported goods and services, which can
impact the cost of logistics operations and the competitiveness of local products in
the global market.

The currency exchange rate refers to how much each currency is needed to be
exchanged with one another. The US Dollars has always been the standard for
currency exchange rates and holds the most daily shares with more than 88%.
Currency rates are always considered floating as various factors affect them daily,
including economic activity, GDP, and the supply and demand for different
products.

Some factors that lead to currency fluctuations are economic conditions, market
sentiment, and political situations. The continuous fluctuation of Currency rates
across the globe can result in shipping surcharges for companies. This makes
freight forwarding invoices complicated for organizations to handle. Currency
exchange rates affect various factors in how freight costs are calculated, and
companies must know how to manage them to avoid massive financial losses in
the long run.

 Mitigating Currency Exchange Risks

 The risks of currency fluctuations when it comes to shipping prices are not a new
thing. Many organizations have already implemented different techniques that allow
them to reduce the impact of fluctuating currency rates when shipping their products.

1. Use Forward Contracts

One of the most straightforward solutions to decrease the complexities of
shipping costs is to use forward contracts. This means that the merchant and
buyer will agree to a fixed exchange rate that they can use for future
transactions. This will allow both parties to know exactly how much the
payment would be without worrying about changes in the currency rate.

2. Understand the Currency Adjustment Factor (CAF)

The concept of CAF is mainly used by freight forwarders, enabling them to
mitigate the risk of currency fluctuations, especially for long-term contracts.
Here, the shipper will have a flat percentage surcharge on the invoices sent
to their clients, and this usually is based on the currency where the freight
will depart and arrive. Exporters must know this concept to help them plan
out their finances in the long run.

3. Currency Options
Apart from forward contracts, it will also help if companies consider currency
options strategies when exporting their products. Many enterprises have
used this risk management technique to protect themselves against currency
fluctuations.

B. POLITICAL:
1. Regulations:

Governments can impose regulations that affect logistics operations, such as

restrictions on the movement of goods across borders or environmental
regulations that impact transportation.

Supply chains are the backbone of our economy, and government regulations can
help ensure that they run efficiently and legally. Regulatory compliance refers to
adhering to the laws, regulations, and standards set forth by governmental bodies
and industry organizations.

In the context of logistics, compliance encompasses a wide array of regulations

that vary from country to country, encompassing areas such as customs,
transportation, safety, environmental concerns, and trade agreements. Failure to
 comply with these regulations can result in significant financial penalties, shipment
delays, and reputational damage for logistics companies. The Logistics company
must be updated on government regulatory changes through consistent
monitoring of industry news and official government communications and
prepared to adjust operations promptly.

2. Political stability:

Political stability is a significant factor that can influence a business's operations,

profitability, and overall success. It is crucial for businesses to monitor political
stability in their operational regions to manage potential risks effectively. Political
instability, such as changes in government, policy shifts, or civil unrest, can lead
to unpredictable business environments. These changes can affect regulations,
taxation, and trade policies, which can directly impact a business's operations and
profitability. Political instability can affect global supply chains with varying
degrees of damage to organizations and the economy. The shift to leaner, more
efficient, last-minute global sourcing strategies means delivery delays and re-
routed resources when political unrest occurs. Organizations must proactively
prepare for adverse conditions around the world.

For example, recent political events in North Africa, the Middle East and Ukraine
threaten global supply chains and cause concern among organizations that have any
portion of their supply chain in those areas. Other recent developments reflecting the
varying effects of political instability include:

● Companies with operations or suppliers in Crimea, Ukraine, have reevaluated

their current circumstances and, in some cases, initialized emergency plans due
to strong political unrest.
● Nestlé with 4,500 employees and three factories in Ukraine on alert.
● Astras, a Swiss logistics provider in Ukraine, reported a 20% employee turnover
rate recently.
● Government assistance to farmers in Ukraine has nearly disappeared.
● Although there are 620 German companies in Ukraine that employ more than
300,000, Deutsche Post has stopped package delivery to that area.

Clearly, continued unrest in Ukraine poses a global sourcing threat that senior
leaders must take seriously.

3. Trade Agreements:

Trade agreements are vital for encouraging international cooperation and driving
economic growth. They allow companies to expand their business and remain
competitive in new markets, while also benefiting from the elimination of barriers,
reduced tariffs, and standardized regulations.
 ● Trade Agreement’s Impact on Logistics

Trade agreements create a need for global supply chains by providing

incentives for countries to export more goods. When countries encourage trade,
the parties involved have seen growth in Gross Domestic Product (GDP) and
citizens of those countries have greater access to goods. The reduction of trade
barriers results in more affordable products for end-consumers.

● Challenges

One of the biggest challenges for any trade agreement is for the countries
involved to meet compliance and regulation. The rules usually include
requirements for sourcing materials, the cost of materials, and sometimes the
hourly wages of the workers that make the goods. Hourly wage regulations
discourage businesses from moving business operations to other countries.
Providing the documentation for these guidelines can be a long and complicated
process.

C. ENVIRONMENTAL:
Environmental regulation will play the role of survival of the fittest, eliminating the
logistics enterprises that are not environmentally friendly or economically viable,
reallocating resources to efficient enterprises, and ultimately driving overall
industry efficiency to achieve high-quality.
Environmental regulation refers to the imposition of limitations or responsibilities
on individuals, corporations, and other entities for the purpose of preventing
environmental damage or improving degraded environments. The term refers to
both the use of legislation through parliaments and the regulations established by
organizations mandated to protect the environment.
The advantages and disadvantages of environmental regulation are common to
many sectors where regulation has been adopted. These advantages and
disadvantages have meant that while many people support environmental
regulation, there are also groups lobbying to reduce the amount of environmental
regulation and to change the character of environmental regulation.
More recently, it has been recognized that higher environmental standards may
enable a country to develop beneficial domestic industries and achieve economic
growth through export production or provide the clean-up technology that can be
exported to other countries that have degraded their environment.
Despite logistics not being known for a high level of sustainability as an industry,
green logistics aim to gauge the carbon footprint of logistics operations, lower air,
soil, sound, and water pollution, and use raw materials sensibly.
 Client’s value and have a positive impression of companies that implement green
practices; however, it is extremely difficult to measure the environmental impact
of the logistics processes and the carbon footprint of products.
Reaching the level of green logistics demands not only the money of companies,
but also the participation of governments – via environmental incentives – and
the culture of clients.
Republic Act 9003 Ecological Solid Waste Management Act 2000
In partnership with stakeholders, the law aims to adopt a systematic, comprehensive, and
ecological solid waste management program that shall ensure the protection of public
health and environment. The law ensures proper segregation, collection, storage,
treatment, and disposal of solid waste through the formulation and adaptation of
best eco-waste products.
Republic Act 9275 Philippine Clean Water Act of 2004
The law aims to protect the country's water bodies from pollution from land-based
sources (industries and commercial establishments, agriculture and
community/household activities). It provides a comprehensive and integrated
strategy to prevent and minimize pollution through a multi-sectoral and
participatory approach involving all the stakeholders.
Republic Act 8749 Philippine Clean Air Act of 1999
The law aims to achieve and maintain clean air that meets the National Air
Quality guideline values for criteria pollutants, throughout the Philippines, while
minimizing the possible associated impacts to the economy.
Republic Act 6969 Toxic Substances, Hazardous and Nuclear Waste
Control Act of 1900
The law aims to regulate, restrict, or prohibit the importation, manufacture,
processing, sale, distribution, use and disposal of chemical substances and
mixtures that present unreasonable risk to human health. It likewise prohibits the
entry, even in transit, of hazardous and nuclear wastes and their disposal into the
Philippine territorial limits for whatever purpose; and to provide advancement and
facilitate research and studies on toxic chemicals.

D. TECHNOLOGICAL:
Advances in technology and the rate of change will only increase. New industries
will be born, others will wither and die. Similarly new supply chains will adapt and
will require new suppliers, new structures, new policies and so forth.
Furthermore, new technologies will totally disrupt existing sectors and supply
chains.
 1. Automation and Robotics: Automation involves the use of advanced
technologies to perform tasks with minimal human intervention. The use of
automation and robotics operations can improve efficiency and reduce costs
but may also require significant investment in new technologies. The goal is
to increase flows of goods, maximize product safety and enhance your
warehouse’s performance. Robots and automated systems can handle
repetitive and time-consuming tasks, such as picking, packing, and sorting,
with unparalleled precision and speed. This reduces the likelihood of errors
and minimizes delays in order fulfillment.

2. Big Data and Analytics: In today’s fast-moving world, companies are turning
to smart solutions to keep up with the demand for quick and effective supply
chains. The use of big data and analytics in logistics operations can provide
valuable insights into demand patterns, inventory levels, and transportations
routes, which can help optimize logistics operations. A streamlined supply
chain is the heart of any successful logistics operation. By applying data
analytics, companies can refine inventory management, demand forecasting,
and order fulfillment processes. This ensures timely deliveries and elevates
customer satisfaction by responding promptly to their needs.

3. New vehicle technologies: Due to bigger climate changes and increased

awareness of environmental pollution, vehicles that are better for the
environment are developed. Energy efficient vehicles are developed in order
to decrease the usage of energy, CO2 and other pollutants, and vehicles with
implemented SCR (Selective Catalytic Reduction) technologies in diesel
motors. In order to decrease pollution of the air some hybrid diesel electric
motors are developed.

E. MARKET:
The effect of green logistics in e-commerce on consumer purchasing behavior is
examined. Companies that have adopted green logistics are thought to be
effective on consumer’s product preferences. Businesses are sensitive to
changing environmental conditions and changing consumer behavior and that
they adopt green logistics in line with their development goals is a factor that can
affect the purchasing behavior of consumers. Therefore, ‘adoption of the green
principle’ becomes a social and global phenomenon.
When consumers evaluate a product or service, they look at not only product
performance and quality, but also the environmental impact of the product.
1. Consumer Demand: Consumer demand for goods and services can impact
the volume of logistics operations and the mix of products being transported.
Consumers always demand goods and services on time and most importantly in
 a cost-effective way. Green brand awareness has increased in consumers. The
use of technology in commerce has expanded e-commerce and has become a
part of life. According to the findings of the research about the effect of green
logistics practices on the buying behavior of firms, it is determined that the
environmental awareness and demands of the consumers are highly effective in
the adoption of green logistics and that the green logistics practices in e-
commerce affect the purchasing behavior of the consumers.
2. Competition: Competition in the market can impact on the cost of logistics
operations and the need for differentiation in the supply chain. In this dynamic
landscape, numerous companies have proactively adopted innovative green
practices to maintain a competitive edge amidst strict policies. End consumers
seek environmentally conscious companies, while businesses look for logistics
partners aligned with their sustainability goals (Baah et al., 2020). Companies
addressing these demands stand to improve environmental, financial, and
marketing performance. Notably, businesses focusing on environmental issues
gain a competitive edge, prompting many to adopt corporate-wide environmental
strategies and products from global markets. Many companies have already
adopted innovative green practices to stay competitive. To thrive, businesses
must continually innovate their core operations (Schaltegger, 2012).

III. INTERNAL FACTORS:

1. Resources: The ability of resources, such as financial, human, and
technological resources, can impact the ability of an organization to
implement and sustain effective logistics operations.

1.1 IT INFRASTRUCTURE AND TECHNOLOGY – play a crucial role in

managing logistics operations efficiently. The availability and implementation of
technology such as transportation management systems, warehouse
management systems and supply chain management systems affect the logistics
strategy.

1.2 HUMAN RESOURCE MANAGEMENT – practices and policies of an

organization impact the logistics strategy. This is where the employees are
recruited, trained, and managed that affects the efficiency and productivity of the
logistics operations.
1.3 FINANCE – The finance factor of the internal environment is crucial for the
overall functioning of the organization.

2. Processes: The efficiency and effectiveness of logistics processes, such as

order fulfillment, transportation management, and inventory management, can
impact the overall efficiency and effectiveness of logistics operations.
 2.1 ORGANIZATIONAL STRUCTURE: it impacts the way logistics operations are
managed and executed. The structure of an organization affects the flow of
communication and decision-making.
2.2 BUSINESS OBJECTIVE AND GOALS: the business objectives and goals of
an organization drive the logistics strategy. The goals may be related costs,
improving customer service, increasing efficiency, or expanding into new
markets.

3. Culture: The Culture of an organization can impact the ability to implement

and sustain effective logistics operations, as well as the level of collaboration
and communication within the supply chain.
3.1 COMPANY CULTURE AND VALUES: play an important role in shaping the
logistics strategy of an organization. The culture and values determine the
working style, decision -making approach, and level of collaboration between
different departments.

IV. CONCLUSION
The logistics environment is a dynamic and multifaceted space influenced by a
combination of external and internal factors. Economic factors of External
Environment of Logistics plays a crucial role in shaping the landscape in which logistics
operations function. Political factors are important to be considered by logistics
companies as it defines labor laws, taxation, legislations, trade-related policies,
restrictions and official custom duties and charges/tariffs. Technological
advancements are to make the company's operations more efficient and effective.
Environmental Regulations will serve as the catalyst of the logistics industry
eliminating inefficient and environmentally unfriendly enterprises while reallocating
resources to more efficient companies. On the other hand, Markets influence the
volume and nature of logistics operations, necessitating adaptability and differentiation
within the supply chain.

Internally, an organization's resources, processes, and culture play significant roles in

determining its ability to implement and sustain effective logistics operations. Financial,
human, and technological resources, as well as efficient logistics processes and a
collaborative organizational culture, contribute to overall logistics efficiency and
effectiveness.

In essence, a comprehensive understanding of both external and internal factors is vital

for organizations to develop and implement effective logistics strategies. The ability to
adapt to changing conditions, leverage technology, and foster a supportive internal
environment positions organizations to remain competitive and efficient in the evolving
logistics landscape.
V. REFERENCES
1. https://theintactone.com/2023/02/02/logistics-environment/#:~:text=The
%20logistics%20environment%20refers%20to,effectiveness%20of%20supply
%20chain%20management.
2. https://theintactone.com/2023/02/02/internal-and-external-factors-for-logistics-
strategy/
3. https://www.emerald.com/insight/content/doi/10.1108/S1569-
375920200000103021/full/html?
fbclid=IwAR2tXOucnMLE59FYQyhfPKixXSnfoYkgX0rideJxtwww26hb1UuuGsu
OXp8
4. https://www.evansdist.com/the-role-of-trade-agreements-in-strengthening-
global-supply-chains/
5. https://online.kettering.edu/news/impact-political-instability-global-supply-
chain
6. https://www.wns.com/industries/shipping-logistics/trucking-compliance-and-
logistics-safety-management-services
7. https://freepestelanalysis.com/pestel-analysis-of-logistics-industry/