Transport & Logistics
Overview
One Minute Read
Transportation is responsible for 25% of CO2 emissions worldwide (28% in UK) and serious technology & behaviour shifts will be required to meet targets. The industry is also reacting to fast-evolving digital transformarion which is influencing how transportation is planned, operated and consumed. This combination of strict environmental regulation and digital will affect every part of transport & logistics as it evolves into a sustainable Physical-Digital Logistics Ecosystems. COVID-19 has exposed the challenge of complex global supply chains but also driven higher demand especially due to e-commerce. With the market stabilising post pandemic, the concern is that a likely recession will limit the ability to recover and invest at a time that the industry needs to transform.
Industry Description
Transport & Logistics refers to the process of planning, coordinating, managing, and organizing resources from the point of origin to the point of consumption. It also includes production, packaging, warehousing, material handling, security, integration of information, supply/demand planning of third-party providers, and inbound and outbound transportation.
Supply chains rely on a complex set of interconnected hubs and transportation modes. This leads to many players being involved in the shipment of one consignment and can result in a lack of visibility, reliability and efficiency.
Freight Transport & Logistics accounts for 5% of worldwide GDP, the market reached $ 5.2 trillion in 2020 (IMARC Group) and is projected to reach $ 6.9 trillion by 2026, expanding at a CAGR of 4.60% during the forecast period (2021-2026).
The segments relies on the four modes of transport; automotive, aerospace, marine and rail.
Drivers
Shaped by the global megatrends and now the pandemic, the industry is being shaped by five major drivers:
Demand - Global freight demand will triple between 2015 and 2050 as global GDP and population grows. Demand has been significantly impacted by the pandemic and especially in the growth of e-commerce. Disruption in road, air, and ocean transport continues to cause challenges.
Customer Expectations – Digital consumers and rising delivery expectations (driven by the likes of Amazon) are raising expectations for customers, both for business and the end consumers. Consumer goods and retail make up almost half of the logistics market, and the rise of e-commerce has driven up demand for omnichannel distribution & e-commerce fulfilment.
Resilience – Reliability, safety and security are key issues. The pandemic delivered the biggest value chain shock in recent memory, but forty weather disasters in 2019 caused damages exceeding $1 billion each. Just-in-Time production, global networks and lean inventory make the supply chain vulnerable to disruption. In addition risks of theft, terrorism or organised crime are serious and growing problems faced by the industry.
Sustainability – Transportation is responsible for 25% of CO2 emissions worldwide (28% in UK). Pressure will come from customers (seeking to reduce their footprint), investors and government through net-zero commitments, especially in last mile delivery, local travel and aviation.
Profitability – Despite growing demand, many firms are suffering from eroding margins. EBIT margins range from -1% to 8%. Capital and fixed operating costs are high, and companies are struggling to differentiate. With the deterioration in the global economic market there will be continued profitability challenges and the need to balance cost with investment.
Transformation
The industry will experience a decade of transformation that will create a Physical-Digital Logistics Ecosystem.
Transformation will require a shift to the design & development of:
Digital Engagement,
Sustainable Transportation,
Automation,
Internet of Things,
and ultimately shifting business models to participate in Mobility as a Service offerings.
These changes will impact into the wider transportation market, smart cities and energy industry.
Digital Technology
Digital transformation will drive needs for Business Applications to help connect the different players in the ecosystem and help improve utilisation, capacity, visibility and efficiency. Data Management will enable the physical world to be measured, monitored and controlled, and Artificial Intelligence will optimise capacity, utilisation, efficiency and automation.
Cloud computing is required to support innovation, flexibility and customer experience, Internet of Things to connect vehicles, transport infrastructure, assets and goods, a Digital Workplace to enable an agile workforce, whether at home, in the office, in the vehicle or on-site at a hub or warehouse, and Networking & Communications to deliver a consistent and reliable experience.
Security, Compliance & Data Privacy is also critical as transportation is a critical infrastructure targeted by terrorist and criminals. Remote working, connected vehicles, IoT, cloud and APIs all open up new attack surfaces and potential for security breaches.
Finally, IT Governance & Management will be essential to manage the change and ensure value for money.