Although there has been considerable focus on innovative and disruptive trends likely to impact the logistics industry in the years ahead, most companies in the sector face more pressing challenges. Speaking at the Credit Suisse Investors Conference on the Future of Global Logistics in London, Ti’s CEO, John Manners-Bell, prefaced the panel discussion by highlighting some of the key issues impacting upon logistics operators.
There is no doubt that the industry will undergo a period of transformation in the coming decade and we are already starting to experience changes in the structure of the sector. However, the operational challenges presently faced by logistics managers are far removed from the world of autonomous vehicles, delivery robots and drones.
Let me quickly run through some of the key issues which are being highlighted by our clients.
Driver shortages. The road freight and trucking industry throughout Europe and North America is struggling to recruit enough drivers. This is playing out in higher input costs and threatens the longer term stability of the market. With a growing economy, workers have many options which provide a more attractive lifestyle – and better pay – than entering the logistics sector.
e-commerce. Not only are many companies struggling to cope with the volatility resulting from the e-commerce promotions, such as the likes of Black Friday and Cyber Monday, but the level of returns is spiralling. This may be viewed by some as an enormous waste, but for others, such as the postal operators, as a major opportunity. However, for all operators in the Last Mile sector, flexing cost structures to cope with spikes in volume will be key to success.
Fuel costs. Of course, this is a perennial risk of doing business in the logistics industry. However, the last year has seen significant rises in the cost of fuel, which has squeezed margins for those operators unprepared.
Low sulphur fuel. In 2020, new fuel regulations will be imposed on the shipping industry which will mean, if implemented, significant hikes in shipping rates. One shipping line, CMA CGM, has said it will mean an increase of, on average, $160. This could result in a migration of shipping volumes to air, sea or rail and changing patterns such as greater use of China’s Belt and Road and the US West Coast Ports instead of Panama canal.
US-China trade wars. So far the impact of tariffs has been softened by the strength of the US dollar but the longer this issue remains unresolved, the greater a headwind it will provide to global growth. Already supply chains are morphing with Chinese suppliers looking to find customers outside of the US benefiting intra-regional flows of goods.
Consolidation/acquisition. The development of innovative technologies is leading to a two tier market of the technology ‘haves’ and ‘have nots’. Many medium-sized companies which miss out will find themselves pressured by larger and smaller (lower overhead) competitors. You have to ask where these companies fit in the marketplace and what would make them attractive to acquisition?
Brexit. The biggest challenge facing the UK at the moment is Brexit, of course. What will happen to cross channel volumes? Are there alternatives actively being developed by logistics operators such as changing to unaccompanied trailers via non-Dover routes? What will the squeeze on UK warehousing property mean for shippers and logistics operators? These are important questions, but unfortunately there are still few answers even though the leaving date is now only a few months away.
So, what are the solutions for these challenges? Obviously, some of these problems have been created by government policy, whilst some are as a result of changing demand and supply-side dynamics. There is no doubt that some of the technologies being developed will have a very important role in addressing these risks. For example, freight platforms can increase the efficiency of the sector by increasing truck utilization. Network planning, presently a labour intensive function, can be improved by Artificial Intelligence. Digitization can provide more visibility throughout the supply chain which will enable companies to be much more responsive to the changing and volatile market environment. Whilst the industry in ten years’ time may be unrecognisable, the stand out logistics companies are using technologies available now to cope with – and thrive – in today’s complex market.
