Transport & Logistics
Drivers
All industries are being shaped by the global Megatends of Globalisation, changing Demographics, Climate change and Technology innovation. Shaped by the these trends and now the pandemic, the industry is being shaped by five major drivers:
Demand
Population growth and increasing wealth (GDP will double by 2050) will create demand for goods and services.
The global logistics market reached a value of $4.92 trillion in 2021, according to data and statistics consultancy, Research and Markets. Global freight demand will triple between 2015 and 2050 based on the current demand pathway. 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. The global supply chain is highly dependent on China. More than three‑quarters of all global freight will continue to be carried by ships. However, the trucking industry now represents 43% of total logistics costs globally, with a total value of $4.1 trillion—projected to reach $5.5 trillion by 2027.
Demand has been buoyant in the past year, although tempered by capacity constrains and port delays. Brexit impacts also continue. Concern is now shifting to the declining economic situation worldwide and a likely recession that may hit demand.
Customer Expectations
Digital consumers and rising delivery expectations (driven by the like of Amazon) is raising expectations for customer both business and consumer.
Forecasting, visibility, reaction capability and system integration are the largest issues for the retail supply chain which is placing increasing digital demands on transport providers. Complicating their efforts is an acute shortage of digital talent – a chronic concern in the industry.
The pandemic has caused considerable impact on transportation experience with longer shipping times.
Sustainability
Transportation is responsible for 25% of CO2 emissions worldwide, road transport accounted for 74% of this. Worldwide transport CO2 emissions are projected to grow by 60% by 2050.
This growth is driven by increased demand for freight projected to grow 225% by 2050. Eight supply chains account for more than 50% of global emissions; Food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight. Cities are responsible for 70% of global emissions, to which delivery vehicles add disproportionately high amounts compared to passenger cars.
Pressure will come from customers (seeking to reduce their footprint), investors and government especially in last mile delivery and aviation. Accelerated electrification (and/or hydrogen or SAF) will be required to meet further proposed emission reductions and the banning of combustion engine sales in 2030. UK companies will have to disclose sustainability performance under the Task Force on Climate-related Financial Disclosures (TCFD) regulation starting in 2023.
At the COP26 climate conference a number of announcements were made on commitments to Net-Zero:
- Road Transport - 24 governments (including the UK), 11 automakers & 39 cities pledged to go zero emissions for new car & van sales by 2040. The UK also committed that all HGVs to be zero emission by 2040.
- Shipping - 14 nations (including the UK) issued the “Declaration on Zero Emission Shipping by 2050” and 22 nation committed to create zero-emissions shipping "corridors." Ports have a goal to be zero-emission by 2040.
Security & Resilience
Reliability, safety and security are key issues in transport. Reliability is impacted by road congestion and air/rail systems aging infrastructure and limited capacity. Security of air and transit systems is also a major issue. The complexity of transportation systems means that technology can play a significant part in controlling risks and improving reliability.
The pandemic has delivered the biggest value chain shock in recent memory. But it is the latest in a long series of disruptions. Forty weather disasters in 2019 caused damages exceeding $1 billion each. Just-in-Time production, global networks and lean inventory make the global supply chain vulnerable to disruption. The new multipolar world is creating more trade disputes, higher tariffs, and broader geopolitical uncertainty. Over half (58%) of Uk organisations think their supply chain needs a lot/ significant improvement. In response, 84% are planning to move from the 50-year-old ‘just in time’ model, which prioritised costs, to a ‘just in case’ approach. These have underlined the urgent need for customs and all supply chain stakeholders to digitize procedures and apply technology to achieve more efficient connectivity and collaboration. In addition, risks of theft, terrorism or organised crime are serious and growing problems faced by the industry. In 2018 the average value of goods stolen per incident in Europe was $63,996.
Regulatory standards play a crucial role in transportation planning safety, emissions, data privacy, working conditions and border/import/export controls.
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. They are challenged by high labour costs (50-60% of the total overhead cost), low automation, low utilisation (30% of road goods vehicles are empty, and the rest are carrying an average of 60% of potential capacity) and rising last mile costs (53% of the overall shipping cost). Up till now there’s always been a trade-off between service levels and costs. However, a mix of lean optimization, second-wave automation, and product redesign can significantly cut operating costs and increase productivity. McKinsey Global estimates that the transportation-and-warehousing industry has the third-highest automation potential of any sector.
The pandemic has fuelled profit for logistics and freight companies but the likely global recession will cause profitability challenges and the need to balance cost with investment.