Future-of-the-logistics-industry

www.pwc.com/transport

Shifting

patterns

PwC’s future

in sight series

The future of

the logistics

industry

2 Shifting patterns

The trick to seeing the future…

is knowing where to look for it.

PwC’s future in sight series brings

together our insights and perspectives

on the disruptive forces we believe

will have a transformative impact

on the future.

www.pwc.com/futureinsight

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

The future of the logistics industry 3

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

Customer expectations are increasing

greatly. Both individuals and businesses

expect to get goods faster, more flexibly,

and – in the case of consumers – at low

or no delivery cost. Manufacturing is

becoming more and more customised,

which is good for customers but hard

work for the logistics industry. Add it

all up and the sector is under acute and

growing pressure to deliver a better

service at an ever lower cost.

It can only hope to do this by making

maximum and intelligent use of

technology, from data analytics, to

automation, to the ‘Physical Internet’.

This promises lower costs, improved

efficiency, and the opportunity to make

genuine breakthroughs in the way the

industry works. But ‘digital fitness’

is a challenge for the sector, which is

currently lagging many of its customers

in this respect. Attracting the right skills

is one issue, but developing the right

strategy is even more crucial.

An increasingly competitive

environment is another big factor in the

mix. Some of the sector’s own customers

are starting up logistics operations of

their own, and new entrants to the

industry are finding ways to carve out

the more lucrative elements of the value

chain by exploiting digital technology or

new ‘sharing’ business models, and they

don’t have asset-heavy balance sheets or

cumbersome existing systems weighing

them down.

‘Sharing’ is a big story for logistics

now – from Uber-style approaches

to last-mile delivery, to more formal

JVs and partnerships at corporate

level, the whole sector is redefining

collaboration. But much of this

is hampered by inconsistencies

in everything like shipment sizes,

processes or IT systems. The Physical

Internet promises great things for the

sector, coming along with increased

standardisation in logistics operations.

Possible futures

What will the logistics marketplace look

like in five to ten years? That’s still a

very open question. We took a closer

look at how some of the key disruptions

facing the industry may interact. The

future scenarios we explore involve

combinations of these four factors,

weighted according to how important

specific trends become:

Sharing the PI(e): the dominant

theme in this scenario is the growth of

collaborative working, which allows the

current market leaders to retain their

dominance. This could for example see

a greater use of ‘Physical Internet’ (or

‘PI’) solutions, based on a move towards

more standardised shipment sizes,

labelling and systems.

Start-up, shake up: in this scenario

new entrants in the form of start-

ups make a bigger impact. The most

challenging and costly last mile of

delivery, in particular, becomes more

fragmented, exploiting new technologies

like platform and crowd-sharing

solutions. These start-ups collaborate

with incumbents and complement their

service offers.

Complex competition: here the

competitive set evolves in a different

direction, as large industrial or retail

customers and suppliers become players

in the logistics market themselves, not

just managing their own logistics but

turning that expertise into a profitable

business model.

Scale matters: and finally, in this

scenario, the current market leaders

compete for a dominant market position

by acquiring smaller players, achieving

scale through consolidation, and

innovation through the acquisition of

smaller entrepreneurial start-ups.

We hope this paper will help you assess

the trends and developments most likely

to affect your own business, and start to

develop a strategy to ensure continued

profitability through this time of intense

change.

4 Shifting patterns

Introduction

Logistics companies are facing an era of unprecedented change

as digitisation takes hold and customer expectations evolve. New

technologies are enabling greater efficiency and more collaborative

operating models; they’re also re-shaping the marketplace in ways that

are only just beginning to become apparent. New entrants, whether they

be start-ups or the industry’s own customers and suppliers, are also

shaking up the sector.

The race is on to define the industry’s

future. And with an estimated US$4.6

trillion1 of revenues at stake, companies

can’t afford to sit back and watch; they

need to adapt to changing markets

proactively.

We’ve developed a transformation

framework to describe how megatrends2

affect a given industry, taking into

account the key disrupting forces

that create uncertainties for every

organisation in the sector. Based on

these uncertainties, we outline distinct

scenarios to explore possible futures

for the sector. This framework will help

you plan for this uncertain and volatile

future.3

For the logistics industry, we start

by taking a closer look at some of

the key disrupting factors: changing

customer expectations, technological

breakthroughs, new entrants to the

industry, and new ways to compete

or collaborate. These disruptions

have very different implications for

individual companies, depending on

which segments they operate in, their

type of ownership, and where they

are located. They also don’t exist in a

vacuum: in each case, the interactions

between them are equally, if not more,

important. Government intervention

and trade flows between regions and

territories are influencing the industry

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).

Our four logistics scenarios for the

future of the industry are based

Together these logistics scenarios map

out a range of possibilities for the

• Complex competition: here the

competitive set evolves in a different

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.

Segment Business

Model

Customer

B2B

LSP Freight forwarders, 3rd and 4th party

logistics service providers

Manufacturers,

wholesalers, and retailers

Carriers Trucking, rail freight, sea freight and

air freight companies

LSPs

CEP Courier / Express / Parcel companies Retailers, manufacturers,

and other companies

B2C CEP Courier / Express / Parcel companies Private consumers