(Written by Nidhi Kapoor Khetarpal & Ankur Ghosh)
An orphaned polar bear cub; half a million bottles of vintage French wine; organs for life-saving transplant operations: the logistics industry transports almost anything you can imagine to almost anywhere on earth. Over the past two decades, as the Internet revolution swept the world, our day-to-day lives have become increasingly digital. With digital downloads even replacing physical products, one would have expected a devastating blow to the logistics industry. But in fact, more packages than ever before are now being shipped. On any single day, a staggering 85 million packages and documents are delivered around the world. While a large part of this has been driven by a slump in oil prices, one cannot undermine the role technology has played over the last few years.
As other industries with close links to logistics, such as manufacturing and retail, are revolutionized by digital technology, the chances of digital disruption engulfing the logistics industry have increased. The chart below shows the value chain of the logistics industry and what follows the chart is a description of how digital transformation is affecting the value chain, followed by trends that are likely to emerge in future.
While the logistics industry has been slow to adopt digital transformation as compared to other industries, it is slowly heading towards a complete turn-around across the value chain. Companies have already started improving their collection of data from all along their value chain and developing capabilities to analyze big data streams to derive insights that improve operational efficiency and enable the launch of new services, such as last-mile delivery.
The industry has seen many new entrants recently. Most of the new entrants to the logistics sector are start-ups, looking to use new technology to enter the industry. To date most of these are in ‘asset light’ parts of the value chain; for example, virtual freight forwarders. These asset-less or asset-light businesses exploit digital technology to offer interactive benchmarking of freight rates, or match shippers with available capacity.
Last-mile delivery has also seen a wave of start-ups in recent years. Some of these companies are using technology to tap into the ‘sharing economy’ by matching available capacity with delivery needs. Uber, for instance, uses the spare capacity of their cars and unrivaled knowledge of mapping to move parcels. A Norwegian start-up Nimber matches commuters and travelers with consumers looking to ship something, whether it be a piano across the country or a skateboard or document across town.
The industry’s own customers may also become significant new entrants. Amazon is an obvious example: it’s looking to expand its in-house expertise in warehousing as well as develop its own delivery capabilities. Hence its acquisition of a warehouse automation specialist, now part of its Amazon Robotics business unit. The company has leased 20 aircrafts to handle more of its own shipments, and is piloting a ‘Prime Air’ 30-minute delivery offering using drones.[1]
The World Economic Forum, has identified 5 key five themes that will be central to the digital transformation of the logistics industry over the next decade. [2]
Source: “Delivering change: digital transformation in logistics”, World Economic Forum.
Going a step further, PwC has recognized the key technologies that have the potential to disrupt the logistics industry. In its latest report on digitization of logistics, it also lays down the uncertainties associated with the adoption of these technologies across the value chain. These are presented in the table below.
Source: “Shifting patterns: The future of the logistics industry”. PwC’s future in sight series.
Not only is digitization expected to make the value chain more efficient, but with the logistics industry currently suffering from some very significant inefficiencies – for instance, 50% of trucks travel empty on their return journey after making a delivery – digital transformation can also bring important social and environmental benefits by increasing efficiency and cutting down energy consumption and emissions.
Analysis by World Economic Forum indicates that there is $1.5 trillion of value at stake for logistics players and a further $2.4 trillion worth of societal benefits as a result of digital transformation of the industry up until 2025.
The greatest impact from digital transformation in the logistics industry will come from societal benefits. These include lower carbon emissions, less traffic congestion, lives saved through reduction in accidents, increase in cross-border trade as a result of platforms simplifying trade, and discounts to customers on account of increased utilization levels. Digital alone has the opportunity to reduce emissions from logistics by as much as 10 to 12% by 2025. The estimated total benefits to customers and society add up to approximately $2.4 trillion expected to come primarily from three initiatives: crowdsourcing, digitally enhanced cross-border platforms, and shared warehouse agreements.
Thus, there is enormous potential, from the point of view of sustainability, that digital transformation can unlock in the logistics industry. (781 words).
[1] “Shifting patterns: The future of the logistics industry”. PwC’s future in sight series. http://www.pwc.com/sg/en/publications/assets/future-of-the-logistics-industry.pdf
[2] “Seven trends driving change in logistics”. http://reports.weforum.org/digital-transformation/digital-trends-in-logistics/
Well written article! Digitalisation will definitely make the logistics industry more efficient by rightly matching supply and demand. An interesting business model mentioned was the asset-less or asset-light businesses acting as a marketplace. We can expect that more and more startups will come into this space.
The innovations that are occurring in the logistics industry are fascinating and they pose a number of benefits for end-users, especially with regard to ease and speed of access. Some of the insights from developed markets will hopefully trickle down to emerging markets, as distribution to base of the pyramid communities is currently quite cost intensive. Companies in emerging markets are already exploring the possibilities of ride sharing to reduce costs, for example, though further business model innovation is certainly needed. One macro question I have is – what do you think will be the impact of these innovations on the health of the overall economy? The fact that Amazon, for example, is making big moves in markets from electronics to books to groceries is causing a scare in these industries, as it seems possible that they could become obsolete. Such an occurrence would have major implications for issues from employment to commercial real estate. In other words, what are the major risks associated with the rise of these innovations, and what do you think could be the response for addressing these challenges?