Professional Documents
Culture Documents
patterns
The future of
the logistics
industry
PwCs future
in sight series
www.pwc.com/transport
Contents
Executive summary 2
Introduction 3
Disruption and uncertainty 5
Changing customer expectations 5
Technological breakthroughs 6
New entrants to the industry 8
Redefining collaboration 9
Logistics scenarios 11
1. Sharing the PI(e) 12
2. Start-up, shake-up 13
3. Complex competition 14
4. Scale matters 15
Leading through uncertainty 16
Learn more 17
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2 Shifting patterns
Executive summary
Like most other industries, transportation and logistics (T&L) is
currently confronting immense change; and like all change, this brings
both risk and opportunity. New technology, new market entrants, new
customer expectations, and new business models. There are many ways
the sector could develop to meet these challenges, some evolutionary,
others more revolutionary. In this paper we discuss four key areas of
disruption logistics companies need to focus on now, and explore some
possible futures of the industry.
Four areas of disruption Sharing is a big story for logistics Start-up, shake up: in this scenario
now from Uber-style approaches new entrants in the form of start-
Customer expectations are increasing to last-mile delivery, to more formal ups make a bigger impact. The most
greatly. Both individuals and businesses JVs and partnerships at corporate challenging and costly last mile of
expect to get goods faster, more flexibly, level, the whole sector is redefining delivery, in particular, becomes more
and in the case of consumers at low collaboration. But much of this fragmented, exploiting new technologies
or no delivery cost. Manufacturing is is hampered by inconsistencies like platform and crowd-sharing
becoming more and more customised, in everything like shipment sizes, solutions. These start-ups collaborate
which is good for customers but hard processes or IT systems. The Physical with incumbents and complement their
work for the logistics industry. Add it Internet promises great things for the service offers.
all up and the sector is under acute and sector, coming along with increased
growing pressure to deliver a better standardisation in logistics operations. Complex competition: here the
service at an ever lower cost. competitive set evolves in a different
Possible futures direction, as large industrial or retail
It can only hope to do this by making customers and suppliers become players
maximum and intelligent use of What will the logistics marketplace look in the logistics market themselves, not
technology, from data analytics, to like in five to ten years? Thats still a just managing their own logistics but
automation, to the Physical Internet. very open question. We took a closer turning that expertise into a profitable
This promises lower costs, improved look at how some of the key disruptions business model.
efficiency, and the opportunity to make facing the industry may interact. The
genuine breakthroughs in the way the future scenarios we explore involve Scale matters: and finally, in this
industry works. But digital fitness combinations of these four factors, scenario, the current market leaders
is a challenge for the sector, which is weighted according to how important compete for a dominant market position
currently lagging many of its customers specific trends become: by acquiring smaller players, achieving
in this respect. Attracting the right skills scale through consolidation, and
is one issue, but developing the right Sharing the PI(e): the dominant innovation through the acquisition of
strategy is even more crucial. theme in this scenario is the growth of smaller entrepreneurial start-ups.
collaborative working, which allows the
An increasingly competitive current market leaders to retain their We hope this paper will help you assess
environment is another big factor in the dominance. This could for example see the trends and developments most likely
mix. Some of the sectors own customers a greater use of Physical Internet (or to affect your own business, and start to
are starting up logistics operations of PI) solutions, based on a move towards develop a strategy to ensure continued
their own, and new entrants to the more standardised shipment sizes, profitability through this time of intense
industry are finding ways to carve out labelling and systems. change.
the more lucrative elements of the value
chain by exploiting digital technology or
new sharing business models, and they
dont have asset-heavy balance sheets or
cumbersome existing systems weighing
them down.
The race is on to define the industrys For the logistics industry, we start
future. And with an estimated US$4.6 by taking a closer look at some of
trillion1 of revenues at stake, companies the key disrupting factors: changing
cant afford to sit back and watch; they customer expectations, technological
need to adapt to changing markets breakthroughs, new entrants to the
proactively. industry, and new ways to compete
or collaborate. These disruptions
Weve developed a transformation have very different implications for
framework to describe how megatrends2 individual companies, depending on
affect a given industry, taking into which segments they operate in, their
account the key disrupting forces type of ownership, and where they
that create uncertainties for every are located. They also dont exist in a
organisation in the sector. Based on vacuum: in each case, the interactions
these uncertainties, we outline distinct between them are equally, if not more,
scenarios to explore possible futures important. Government intervention
for the sector. This framework will help and trade flows between regions and
you plan for this uncertain and volatile territories are influencing the industry
future.3 too, but very much depend on national
politics and geography.
1 https://www.plunkettresearch.com/industries/transportation-supply-chain-logistics-industry-market-research/
Note: various estimates available, high variance, distinct approaches, difficult to measure given insourced and outsourced portions of the total market
2 https://www.pwc.com/us/en/faculty-resource/assets/symposium/2014-megatrends-overview.pdf
3 At PwC, we are analysing potential futures for various industry sectors and some papers are already published (see list on page 20).
4 Shifting patterns
Defining Logistics for this paper
There are a number of distinct business models in the industry, although they can
overlap, and individual companies may operate under more than one model. In this
paper, we consider logistics service providers (LSP), carriers, and courier / express /
parcel (CEP) companies. Postal operators, too, are relevant players in the context of
logistics and CEP.
Not only business models but profitability and margins differ considerably. In
contrast with other industries, profits in logistics are relatively low. Yet, within this
sector, EBIT margins generally range from -1% to 8%. While carriers find themselves
close to zero profit, sometimes even in the red, the large CEP companies end up
being the most profitable group, sometimes reaching double-digit profit margins.4
Customers in the logistics industry comprise of both B2B and B2C segments. The
major part of the total market can be linked to B2B transactions, with LSPs and
carriers accounting for the biggest portion of industry revenue. CEP represents a
smaller, but faster growing segment; and just about a third of CEP revenues can be
attributed to B2C.
Our four logistics scenarios for the Complex competition: here the Together these logistics scenarios map
future of the industry are based competitive set evolves in a different out a range of possibilities for the
primarily on the different ways direction, as large industrial or retail context in which every company will
collaboration and competition could customers and suppliers become need to compete in the future. That
evolve within the sector: players in the logistics market in turn provides a basis for evaluating
themselves, not just managing how resilient and fit for growth current
Sharing the PI(e): the dominant their own logistics but turning that strategies and plans are.
theme in this scenario is the growth expertise into a profitable business
of collaborative working, which model. Regardless of whether one logistics
allows the current market leaders to scenario comes closest to the truth
retain their dominance. This could Scale matters: and finally, in for your segment of logistics and
for example see a greater use of this scenario, the current market geographical environment, or whether
Physical Internet (or PI)5 solutions, leaders compete for a dominant your future combines elements from
based on a move towards more market position by acquiring smaller several, each company will need to
standardised shipment sizes, labelling players, achieving scale through adapt their current strategy to cope.
and systems. consolidation, and innovation That may mean reassessing business
through the acquisition of smaller models, the operating model and
Start-up, shake up: in this scenario entrepreneurial start-ups. capabilities, HR strategies, financial
new entrants in the form of start- performance, and the organisations
ups make a bigger impact. The most purpose. We suggest some possible
challenging and costly last mile directions in our final chapter. More
of delivery, in particular, becomes detailed views on particular regions,
more fragmented, exploiting new segments and capabilities are still to
technologies like cloud platforms come in later articles.
and crowd-sharing. These start-ups
collaborate with incumbents and
complement their service offers.
4 Strategy& analysis (peer groups of listed companies in each segment; average EBIT margins of the past 5 financial years)
5 The term PI(e) is here built into the phrase Sharing the pie, but also alludes to the Physical Internet, often referred to as PI; for more detail see page 9
6 http://www.pwc.com/totalretail
7 PwC, Connected Retail: Reshaping tomorrows operating model and metrics, 2015
6 Shifting patterns
Technological Cloud technology can enable platform
solutions, which in turns makes it
themselves as advanced on digitisation
was just 28%. Some of the industrys
breakthroughs possible to use new business models, customers are already well ahead of
such as virtual freight forwarding. this 41% of automotive companies and
Technology is changing It can also provide flexibility and 45% of electronics companies already
every aspect of how logistics scalability, as well as standardised see themselves as advanced. The lack of
companies operate. Digital and harmonised processes across the a digital culture and training is thus the
fitness will be a prerequisite whole organisation. Thats especially biggest challenge for transportation and
for success: the winners will important for those LSPs or carriers who logistics companies. T&L firms are in
have grown through acquisitions, and line with other industries in planning to
be those who understand how currently rely on a patchwork of legacy invest 5%9 of their revenues per annum
to exploit a whole range of systems. until 2020, but the next few years will
new technologies, from data be critical: companies that dont start
analytics to automation and The potential is huge, but the industry soon risk being left behind permanently.
platform solutions. Those who has thus far been slow to seize it. In
our recent Industry 4.0 study, the
dont, risk obsolescence. But percentage of T&L companies that rated
with so many technologies
competing for management
attention and investment,
defining a clear digital
strategy thats integrated
Figure 1: L
ack of digital culture and training is the biggest
into business strategy will be challenge facing transportation and logistics companies
critical.
Digital is still a challenge for the
sector
cs as core
alyti
There is no other industry where so &
An
ion and i
cap
ab
il
ta isat and h ntegra
many industry experts ascribe a high Da
git l o
Di ertica e cha rizon ti
ity
v valu ins t
on l
1.
importance to data and analytics in of
a
m od . D i d cus
e offerings
the next five years than transportation
2
e ls a n
se i o n o f
and logistics 90% in T&L compared
g it a to
50% r vic
d tis a t
lb m
si
to an average of 83%.8 The sector has n Di
u
gi
er e s s 3. t an
acc c
ess pro du
never had access to more data. There ta
Da
it y
l
& bi
An pa
alyt ca
ic s a s c ore
are vast opportunities here to improve
performance and serve customers better,
Lack of digital culture and training
and LSPs who are part of a digitally
integrated value chain can benefit from
Unresolved questions around data security and data
significantly improved forecasting to privacy in connection with the use of external data
38%
scale capacity up or down and plan
High financial investment requirements 38%
routes. Adding machine learning and
artificial intelligence techniques to data Lack of a clear digital operations vision and
33%
support / leadership from top management
analytics can deliver truly dynamic
routing. Insufficient talent 26%
Q: Where are the biggest challenges or inhibitors for building digital operations
capabilities in your company?
Source: http://www.pwc.com/gx/en/transportation-logistics/pdf/transportation-logistics-
key-findings.pdf
8 https://www.pwc.com/gx/en/industries/industries-4.0/landing-page/industry-4.0-building-your-digital-enterprise-april-2016.pdf
9 Ibid.
Lower transportation demand Speed, scale, and scope of uptake by customer industries
3-d printing
Transported goods would mostly be raw materials still unclear
8 Shifting patterns
New entrants to the approach and helps people to get
things transported within their city
The industrys own customers may
also become significant new entrants.
industry by connecting them with registered Amazon is an obvious example: its
drivers.13 Norwegian start-up Nimber looking to expand its in-house expertise
Platform technology has given matches commuters and travellers with in warehousing as well as develop its
rise to new business models, consumers looking to ship something, own delivery capabilities. Hence its
often driven by start-ups that whether it be a piano across the country acquisition of a warehouse automation
enter the logistics industry. or a skateboard or document across specialist, now part of its Amazon
New sharing business models town.14 Robotics business unit. The company has
leased 20 aircrafts to handle more of its
could have as much of an How are traditional logistics companies own shipments15, and is piloting a Prime
impact on the sector as new countering these developments? They Air 30-minute delivery offering using
technology. And the industrys know they need to explore opportunities drones.16 Bloomberg has also reported
current customers and for new products and services a field that Amazon has plans to launch its own
suppliers may end up being the where start-ups have a clear advantage logistics offerings, a project, allegedly
given their freedom from outmoded referred to as Dragon Boat.
biggest new entrants. processes and hierarchical structures.
Yet investments by traditional LSPs in In Asia, Alibaba is trying to improve
Start-ups drive new business digital logistics start-ups only constitute delivery services for its sellers by
models around 6% of overall venture capital setting up Cainiao, a JV with several
Most of the new entrants to the flows. logistics companies, a department store,
logistics sector are start-ups, and an investment firm and a company
many of these are looking to use new Start-ups arent the only new with port logistics operations.17 The
technology to enter the industry. To entrants main advantage for network members
date most of these are in asset light constitutes the access to a logistics
Major players from other industries may data platform, which helps them to
parts of the value chain; for example,
have even more potential to shake up achieve efficiencies in order fulfilment
virtual freight forwarders. These asset-
the industrys competitive dynamics. by leveraging their capacity and
less or asset-light businesses exploit
Autonomous vehicles are one possible capabilities at a large scale.18 And the
digital technology to offer interactive
example: technology players, or company is trying out new ideas too,
benchmarking of freight rates, or match
technology-automotive collaborations like an app that allows consumers to
shippers with available capacity.
may enter the industry, especially request a pick-up of a return or package
with ideas like self-driving lockers, or from delivery personnel in the area.19
Many of the new entrants in freight
machine-to-machine parcel-station
forwarding are basing their offering
loading for last-mile delivery. Crowd-
on more agile pricing. Some enable
sharing platforms may also emerge from
carriers to bid on loads, allowing them
autonomous vehicle development, or
to lower their bids in order to fill up
independently. As car-sharing increases,
capacity. Theyre also providing quotes
so may the use of the storage space
more quickly and increasing price
available in these vehicles as a flexible
transparency for example, by linking
way to expand capacity.
via API directly to a large number of
carriers, and providing customers with
their negotiated rates for each of the Figure 2: Venture capital flows into digital logistics startups
carriers they use so they can compare since 2011*
directly.
11 http://techcrunch.com/2015/01/08/uber-cargo/
12 https://rush.uber.com/how-it-works/
13 http://chicagoinno.streetwise.co/2014/08/13/chicago-startup-dolly-is-the-uber-for-moving-your-stuff/
14 https://www.nimber.com/
15 http://www.reuters.com/article/us-air-transport-sr-amazon-com-idUSKCN0WB1LA
16 http://www.amazon.com/b?ie=UTF8&node=8037720011
17 http://technode.com/2013/05/28/alibaba-officially-launches-the-csn-logistics-program/
18 http://hsprod.investis.com/ir/alibaba/2016_Alibaba_20-F.pdf
19 Ibid.
The future of the logistics industry 9
Redefining Collaboration and
standardisation would increase
Other new types of collaboration
collaboration efficiency
There are many other less radical ways
for logistics companies to use assets
Horizontal collaboration is For many industries, the standard more efficiently by collaborating.
already happening, especially assumption is that a larger number of For example, by sharing fleets and
competitors is beneficial for customers. networks, and establishing agreements
in last-mile delivery, but its similar to the airlift purchased by postal
However, in certain logistics sectors,
hampered by inconsistencies. there are substantial benefits in having agencies from commercial couriers, or
Higher levels of efficiency more consolidation, not less. According the code-sharing used by airlines. DB
could be achieved by more to one estimate, a 10% to 30% increase Schenker, for example, recently signed a
consistent standards, defined in efficiency in the EU logistics sector five-year contract with the online freight
through the Physical Internet would translate into 100-300 billion exchange provider uShip, to develop a
in cost savings for European industry.20 platform to connect truck drivers and
and increased collaboration, shipments more efficiently.21
The Physical Internet could help address
whether in the form of this grand challenge by drastically
alliances, joint ventures or increasing co-operation between Many companies in the sector are
M&A. companies and across transport modes also turning to M&A, joint ventures,
through greater standardisation (see and alliances as a way to achieve
Building on last-mile partnerships info box From manifesto to reality). collaboration. In 2015, M&A deal value
nearly doubled compared to 2014,
There are already notable examples of For the Physical Internet to work in with much of this activity driven by
market players operating collaboratively. practice, though, companies would need large players looking to expand their
Companies like FedEx and DHL have to be willing to collaborate far more international operations and service
been partnering with national postal extensively than they do today. Most of offerings. But with disruption on the
companies and small local players for the 535,000 distribution centres in the horizon, there may be opportunities to
many years. But with the advent of new US are standalone operations owned use deals to enhance capabilities in key
technology, collaboration can become by different companies; imagine the areas too; digital is a good example.
much more dynamic. savings if they were all connected, and
physical workflows were standardised
However, fragmentation, accountability, for maximum efficiency.
and a lack of consistency make
collaboration more difficult. For
example, each company has its own
labelling system, and some companies
are wary of farming out the crucial
last mile of the journey to an operator
that may not reflect its own brand and
service levels. And aside from the last
From manifesto to reality: defining the
mile, partnering agreements are the Physical Internet
exception, rather than the rule. Take
freight forwarding. While containers are The term Physical Internet (PI or ); was first
a standard size, the packages that go coined by Professor Benoit Montreuil of the
into them arent. Nor are the forms and Georgia Technology Institute in 2011. Its based
digital entries used to clear customs. on the idea that physical objects can be more
Contract logistics companies co-operate efficiently moved around if they become more
extensively with shippers, but often standardised and share common channels,
dont share resources with competitors. like data packets on the internet. That requires
modularisation and standard interfaces and
protocols. In addition, hubs and networks
across transport modes will need to be better
synchronised, and IT applications and networks
will also need to operate together. Montreuils
manifesto proposes containers in standard
dimensions that can be efficiently stacked together,
potentially with sensors if appropriate, and sealable
for security purposes. To make the most of these,
movers and loading systems will need to be
developed too, as well as more efficient transport
models.
20 http://ec.europa.eu/research/transport/news/items/alice_lauch_en.htm
21 http://www.wsj.com/articles/db-schenker-signs-on-with-uship-online-freight-platform-1467235737
10 Shifting patterns
Logistics scenarios
What will the logistics marketplace look like in five to ten years? Thats
still an open question. In this chapter we take a closer look at how some of
the key disruptions facing the industry may interact. We have done this
by describing four logistics scenarios. In each of these, technology plays
a key role, but affects the market in different ways. In two of the models,
new entrants are the primary drivers of change, while incumbents retain
a dominant position in the other two. The nature of market dynamics,
especially the level of collaboration versus competition, also varies
between the scenarios.
2. Start-up, shake-up
Blockchain
IT
standards Logistics
scenarios
Robotics and
3-d automation
printing
4. Scale matters
Incumbents increase efficiency 3. Complex competition
by streamlining their operations Autonomous Big retail players expand their
and taking full advantage of new Drones logistics offerings to fill their own
vehicles
technology. They fund promising needs and beyond, effectively moving
new technologies with venture from customers to competitors. They
capital cash, and attract new staff purchase small logistics players
with critical skills and expertise in to help cover major markets, and
competition to create a dominant draw on their deep understanding
market position. Major players merge of customer behaviour to optimise
to extend their geographical scale and supply chains. Technology firms who
enhance their cross-modal coverage. used to be suppliers to the industry
Access to capital to fund these enter the logistics arena too, offering
investments becomes increasingly logistics services and turning into
important. competitors.
12 Shifting patterns
1. Sharing the PI(e)
Incumbents increase their efficiency and reduce their
environmental impact by collaborating more, and developing
newbusiness models, such as sharing networks. Research
around the Physical Internet (PI) leads to shared standards for
shipment sizes, greater modal connectivity and IT requirements
across carriers.
22 http://www.etp-logistics.eu/?page_id=79
What are the implications for its trustless peer-to-peer network, costs as well as lower service levels,
logistics companies? thereby reducing delays, human error, though the idea is more likely to be
and transaction costs for interactions accepted by B2C than B2B customers.
Forwarding becomes more fragmented, between supply chain partners Consumers who participate in crowd-
as newly emerging hub specialists begin for example, in the processing of sharing solutions earn extra cash for
to dominate specific legs of trade routes. international trade documents. trips they take anyway. They have a high
In the contract logistics space, start-ups flexibility in how they can contribute to
(including 4PL start-ups) complement platform-based logistics solutions with
What are the implications for
and enhance the services provided by opportunities from a temporary part-
3PLs, focusing on their most profitable customers?
time role all the way to a full-time job.
customer segments. Operators in Industrial customers benefit from Supply chains become more transparent,
CEP have to compete with start-ups advanced logistics services based on with blockchain-backed services offering
which may have a clear cost advantage high-end technology, provided by easy authentication of shipments.
if their people are independent collaborating incumbent 3PLs and start-
contractors rather than employees. ups. Retail customers enjoy greater
Transportation and logistics is among choice of last-mile providers, and
the top industries to replace labour lower delivery costs as a result. At the
with automation but the time frames same time, service offers based on the
for implementation vary. Sortation and sharing economy might result in lower
picking, for example, will be automated
much quicker than last-mile delivery.
Blockchain technology also fosters
automation and efficiency through
14 Shifting patterns
3. Complex competition
Big retail players expand their logistics offerings to fill their
own needs and beyond, effectively moving from customers
to competitors. They purchase small logistics players to help
cover major markets, and draw on their deep understanding
of customer behaviour to optimise supply chains. Technology
firms who used to be suppliers to the industry enter the
logistics arena too, offering logistics services and turning into
competitors.
16 Shifting patterns
Leading through
uncertainty
The basis for competitive advantage
in the logistics industry is changing
fundamentally. An established network
may become a hindrance rather than
an advantage. New technologies will
change the industrys cost model and
call existing business models into
question. And there may well be new Change in the competitive environment
approaches to dynamic pricing that puts a companys culture to the test
take capacity utilisation more fully into especially in a mature industry like
account. logistics, where it can be tough to
change, even when traditional ways to
Although the core needs of most play are being fundamentally changed
customers have changed very little, or even replaced. T&L companies need
customer expectations are increasing to be ready for this change, and the
greatly, whether those customers successful companies will be those with
are consumers shipping packages or agile and flexible cultures that make it
OEMs partnering with an LSP on the easier for people to work together across
production line. internal boundaries. You need to put
your culture to work.
In the futures we have described, can
a logistics company meet the growing Logistics companies also need to bring
expectations of customers, remain costs down; but not only for the sake
profitable and generate growth? The of efficiency. They also need to prune
short answer is yes. But its not going to what doesnt matter and thus free up
be simple or easy. resources for the key areas of focus
such as digitisation, asset productivity,
Whatever industry segment a T&L and innovation and invest more to
company operates in, it will be crucial support the companys key capabilities
to commit to an identity and develop and value propositions. So, cutting
a clear strategy to fulfil this, focusing costs to grow stronger should be seen
only on markets where they believe they as something closely related to strategy.
have a right to win. Companies need
to ask themselves whether they have Finally, with more disruption ahead,
the distinctive capabilities they need companies need to anticipate how their
to compete. If not, can they develop capabilities will need to evolve. The
these capabilities, use collaboration to best will develop services and solutions
succeed, or should they withdraw from that will create demand instead of just
certain elements of their business? following it. To do this, T&L companies
need to establish strong relationships
Logistics companies will need to focus with key customers, have an ear on the
on digital fitness, cost efficiency, asset markets they target, and actively shape
productivity, and innovation if they the future.
want to meet changing expectations.
Building and refining these and other The above describes our concept of five
capabilities, and then bringing them to key acts of unconventional leadership
scale across the enterprise, will be key that drive success by aligning distinctive
as they translate the strategic into the capabilities with business strategy,
everyday. and applying them consistently. This
approach, defined in our recent book,
Strategy that Works, spans the entire
business, from developing the business
model through to daily operations.
18 Shifting patterns
When we look into the future, we see
disruption, we see collisions, we see
transformation, but most of all we see
opportunities.
What do you see when you look to the
future?
Global automotive
www.pwc.com/futureinsight
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