The transformation of logistics markets across the world has not been predictable. Indeed, growth has appeared in some very unexpected areas. For example, the emergence of food delivery services has been explosive over the past ten years. In the latest development, the German based food delivery company ‘Delivery Hero’ has paid $4bn for the South Korean company ‘Woowa Brothers’.
The largest company of its type in South Korea, Woowa Brothers has faced competition financed by capital flooding in from Japan and elsewhere keen to get in early on a growth opportunity. The South Korean market for food delivered from restaurants is estimated to be worth around $6bn, having doubled in size in five years. With a population with a very high level of mobile phone usage backed up with strong data communication technology and a vibrant food culture, South Korea appears ideal for such businesses.
Such markets cannot be dismissed as unimportant. In economies with established food delivery sectors, such as the US and the UK, something as apparently trivial as delivering food from restaurants has created markets worth tens of billions of dollars, as well as having transformed the restaurant sector. They are now important logistics sub-sectors served by companies with capitalisations greater than that of most large logistics service providers.
At first, food delivery companies may not appear to be logistics companies at all, however they display several key characteristics of the contemporary logistics market. Notably they interface with customers through mobile phone applications. This gives them the ability to have an immediate relationship with customers and be able to grab data on customer demand in real-time. They share this characteristic with e-retail providers such as Amazon, however their response time is even more compressed.
The other characteristic is focus on ‘last-mile’ transport. Such companies have tackled the problem of short delivery distances in urban locations with very small delivery sizes, by using cyclists. In the short run this does appear to have worked apart from the hazard to traffic that it creates. However, how sustainable it is for large operations to rely on such methods in the long term is unclear, especially as these companies do not seem to have overly stable workforces.
For the wider logistics sector, the emergence of the food delivery business demonstrates several points about the contemporary economy. The market now emphasises speed of response, something which is measured in minutes not days. This is enabled by access to data through an immediate digital relationship with customers. In turn this means areas such as scheduling, which for years has been central to logistics operations, has been transformed beyond recognition. It also results in very small batch sizes.
How many conventional logistics service providers are able to absorb and adapt to such changes is rather unclear.
Source: Transport Intelligence, December 17, 2019
Author: Thomas Cullen