SHIFTING PATTERNS THE FUTURE OF THE LOGISTICS INDUSTRY - PWC'S FUTURE IN SIGHT SERIES
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Shifting
patterns
The future of
the logistics
industry
PwC’s future
in sight series
www.pwc.com/transport
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 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
2 Shifting patterns
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 ‘Sharing’ is a big story for logistics Start-up, shake up: in this scenario
now – from Uber-style approaches new entrants in the form of start-
Customer expectations are increasing to last-mile delivery, to more formal ups make a bigger impact. The most
greatly. Both individuals and businesses JVs and partnerships at corporate challenging and costly last mile of
expect to get goods faster, more flexibly, level, the whole sector is redefining delivery, in particular, becomes more
and – in the case of consumers – at low collaboration. But much of this fragmented, exploiting new technologies
or no delivery cost. Manufacturing is is hampered by inconsistencies like platform and crowd-sharing
becoming more and more customised, in everything like shipment sizes, solutions. These start-ups collaborate
which is good for customers but hard processes or IT systems. The Physical with incumbents and complement their
work for the logistics industry. Add it Internet promises great things for the service offers.
all up and the sector is under acute and sector, coming along with increased
growing pressure to deliver a better standardisation in logistics operations. Complex competition: here the
service at an ever lower cost. competitive set evolves in a different
Possible futures direction, as large industrial or retail
It can only hope to do this by making customers and suppliers become players
maximum and intelligent use of What will the logistics marketplace look in the logistics market themselves, not
technology, from data analytics, to like in five to ten years? That’s still a just managing their own logistics but
automation, to the ‘Physical Internet’. very open question. We took a closer turning that expertise into a profitable
This promises lower costs, improved look at how some of the key disruptions business model.
efficiency, and the opportunity to make facing the industry may interact. The
genuine breakthroughs in the way the future scenarios we explore involve Scale matters: and finally, in this
industry works. But ‘digital fitness’ combinations of these four factors, scenario, the current market leaders
is a challenge for the sector, which is weighted according to how important compete for a dominant market position
currently lagging many of its customers specific trends become: by acquiring smaller players, achieving
in this respect. Attracting the right skills scale through consolidation, and
is one issue, but developing the right Sharing the PI(e): the dominant innovation through the acquisition of
strategy is even more crucial. theme in this scenario is the growth of smaller entrepreneurial start-ups.
collaborative working, which allows the
An increasingly competitive current market leaders to retain their We hope this paper will help you assess
environment is another big factor in the dominance. This could for example see the trends and developments most likely
mix. Some of the sector’s own customers a greater use of ‘Physical Internet’ (or to affect your own business, and start to
are starting up logistics operations of ‘PI’) solutions, based on a move towards develop a strategy to ensure continued
their own, and new entrants to the more standardised shipment sizes, profitability through this time of intense
industry are finding ways to carve out labelling and systems. change.
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.
The future of the logistics industry 3
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 For the logistics industry, we start
future. And with an estimated US$4.6 by taking a closer look at some of
trillion1 of revenues at stake, companies the key disrupting factors: changing
can’t afford to sit back and watch; they customer expectations, technological
need to adapt to changing markets breakthroughs, new entrants to the
proactively. industry, and new ways to compete
or collaborate. These disruptions
We’ve developed a transformation have very different implications for
framework to describe how megatrends2 individual companies, depending on
affect a given industry, taking into which segments they operate in, their
account the key disrupting forces type of ownership, and where they
that create uncertainties for every are located. They also don’t exist in a
organisation in the sector. Based on vacuum: in each case, the interactions
these uncertainties, we outline distinct between them are equally, if not more,
scenarios to explore possible futures important. Government intervention
for the sector. This framework will help and trade flows between regions and
you plan for this uncertain and volatile territories are influencing the industry
future.3 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).
4 Shifting patterns
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 Customer
Model
LSP Freight forwarders, 3rd and 4th party Manufacturers,
logistics service providers wholesalers, and retailers
Carriers Trucking, rail freight, sea freight and LSPs
B2B air freight companies
CEP Courier / Express / Parcel companies Retailers, manufacturers,
and other companies
B2C CEP Courier / Express / Parcel companies Private consumers
Our four logistics scenarios for the • Complex competition: here the Together these logistics scenarios map
future of the industry are based competitive set evolves in a different out a range of possibilities for the
primarily on the different ways direction, as large industrial or retail context in which every company will
collaboration and competition could customers and suppliers become need to compete in the future. That
evolve within the sector: players in the logistics market in turn provides a basis for evaluating
themselves, not just managing how resilient and ‘fit for growth’ current
• Sharing the PI(e): the dominant their own logistics but turning that strategies and plans are.
theme in this scenario is the growth expertise into a profitable business
of collaborative working, which model. Regardless of whether one logistics
allows the current market leaders to scenario comes closest to the truth
retain their dominance. This could • Scale matters: and finally, in for your segment of logistics and
for example see a greater use of this scenario, the current market geographical environment, or whether
‘Physical Internet’ (or ‘PI’)5 solutions, leaders compete for a dominant your future combines elements from
based on a move towards more market position by acquiring smaller several, each company will need to
standardised shipment sizes, labelling players, achieving scale through adapt their current strategy to cope.
and systems. consolidation, and innovation That may mean reassessing business
through the acquisition of smaller models, the operating model and
• Start-up, shake up: in this scenario entrepreneurial start-ups. capabilities, HR strategies, financial
new entrants in the form of start- performance, and the organisation’s
ups make a bigger impact. The most purpose. We suggest some possible
challenging and costly ‘last mile’ directions in our final chapter. More
of delivery, in particular, becomes detailed views on particular regions,
more fragmented, exploiting new segments and capabilities are still to
technologies like cloud platforms come in later articles.
and crowd-sharing. These start-ups
collaborate with incumbents and
complement their service offers.
4 Strategy& analysis (peer groups of listed companies in each segment; average EBIT margins of the past 5 financial years)
5 The term ‘PI(e)’ is here built into the phrase ‘Sharing the pie’, but also alludes to the Physical Internet, often referred to as ‘PI’; for more detail see page 9
The future of the logistics industry 5
Disruption and uncertainty
Changing customer All this has huge implications for
transportation and logistics. LSPs – in
Shippers aren’t generally part of a
branded retail experience. Most private
expectations particular 3PLs and 4PLs – need to end-consumers are what we call
integrate data analytics and social ‘shipper-agnostic’: they don’t care who
Like individual consumers, supply chains to provide much delivers their goods, as long as they
industrial customers now better traceability and predictability get them reliably, quickly and cheaply.
expect to get shipments faster, (not to mention lower costs); smart Many want more flexible delivery –
more flexibly, and with more warehousing solutions will become whether in terms of when or where
transparency at a lower price. essential. The implications are clear: they get their goods - and most aren’t
‘digital fitness’ is becoming a must for willing to pay for shipping: they expect
No surprise that across the every logistics company. it to be free, though they are prepared to
industry, both operating pay a premium for additional services,
models and profitability are B2C: New shopping patterns such as faster delivery for high-value
under strain. And the pace Many logistics companies also serve B2C
items. There’s also currently a low
of transformation for large acceptance of dynamic pricing for
customers. Consumers went digital long parcels; customers expect to pay the
manufacturing and retail before many of the retailers, and some same price for shipping regardless of
customers may turn out to be parts of the sector are still struggling seasonal capacity constraints faced by
even faster than for private to keep up. The leading players are their shipper, with the exception of
final consumers. adopting what we call ‘total retail’, surcharges for same day, overnight or
which is an operating model across expedited service.
bricks and mortar, online mobile and
B2B: Striving for efficiency and
other retail channels.6 Total retail is
transparency complemented by ‘connected retail’,
Manufacturing industries are facing far where retailers aim to create a seamless
greater expectations around efficiency brand experience for the customer
and performance than ever before. Their across personalised marketing, the
customers expect faster time-to-market, physical store, the digital experience,
reduced defect rates and customised and the payment options, all of it driven
products. Ultimately, the result may by a strong coherent brand.7 What
be a goal that was once impossible: a are the consequences for the logistics
‘lot size of one’, where each product is industry?
manufactured to the specifications of a
specific end-customer. The advent of the
industrial Internet of Things and what
other research refers to as ‘Industry 4.0’
is allowing manufacturing companies,
whether they make industrial
equipment, cars, planes, or consumer
goods, to redefine everything from the
way they interact with customers to how
they structure supply chains.
6 http://www.pwc.com/totalretail
7 PwC, Connected Retail: Reshaping tomorrow’s operating model and metrics, 2015
6 Shifting patterns
Technological Cloud technology can enable platform
solutions, which in turns makes it
themselves as ‘advanced’ on digitisation
was just 28%. Some of the industry’s
breakthroughs possible to use new business models, customers are already well ahead of
such as ‘virtual freight forwarding’. this – 41% of automotive companies and
Technology is changing It can also provide flexibility and 45% of electronics companies already
every aspect of how logistics scalability, as well as standardised see themselves as advanced. The lack of
companies operate. ‘Digital and harmonised processes across the a ‘digital culture’ and training is thus the
fitness’ will be a prerequisite whole organisation. That’s especially biggest challenge for transportation and
for success: the winners will important for those LSPs or carriers who logistics companies. T&L firms are in
have grown through acquisitions, and line with other industries in planning to
be those who understand how currently rely on a patchwork of legacy invest 5%9 of their revenues per annum
to exploit a whole range of systems. until 2020, but the next few years will
new technologies, from data be critical: companies that don’t start
analytics to automation and The potential is huge, but the industry soon risk being left behind permanently.
platform solutions. Those who has thus far been slow to seize it. In
our recent Industry 4.0 study, the
don’t, risk obsolescence. But percentage of T&L companies that rated
with so many technologies
competing for management
attention and investment,
defining a clear digital
strategy that’s integrated
Figure 1: L
ack of digital culture and training is the biggest
into business strategy will be challenge facing transportation and logistics companies
critical.
Digital is still a challenge for the
sector
cs as core
alyti
There is no other industry where so &
An
ion and i
cap
ab
il
ta isat and h ntegra
many industry experts ascribe a high Da
git l o
Di ertica e cha rizon ti
ity
v valu ins t
on l
1.
importance to data and analytics in of
a
m od . D i d cus
e offerings
the next five years than transportation
2
e ls a n
se i o n o f
and logistics – 90% in T&L compared
g it a to
50% r vic
d tis a t
lb m
si
to an average of 83%.8 The sector has n Di
u
gi
er e s s 3. t an
acc c
ess pro du
never had access to more data. There ta
Da
it y
l
& bi
An pa
alyt ca
ic s a s c ore
are vast opportunities here to improve
performance and serve customers better,
Lack of digital culture and training
and LSPs who are part of a digitally
integrated value chain can benefit from
Unresolved questions around data security and data
significantly improved forecasting to privacy in connection with the use of external data
38%
scale capacity up or down and plan
High financial investment requirements 38%
routes. Adding machine learning and
artificial intelligence techniques to data Lack of a clear digital operations vision and
33%
support / leadership from top management
analytics can deliver truly dynamic
routing. Insufficient talent 26%
Slow expansion of basic infrastructure technologies 23%
Business partners are not able to
collaborate around digital solutions 22%
Unclear economic benefit of digital investments 21%
Lack of digital standards, norms and certification 17%
Concerns around loss of control over your
company’s intellectual property 15%
Note: Included as one of three possible responses
Q: Where are the biggest challenges or inhibitors for building digital operations
capabilities in your company?
Source: http://www.pwc.com/gx/en/transportation-logistics/pdf/transportation-logistics-
key-findings.pdf
8 https://www.pwc.com/gx/en/industries/industries-4.0/landing-page/industry-4.0-building-your-digital-enterprise-april-2016.pdf
9 Ibid.
The future of the logistics industry 7Automation could reshape the processing and optics now allow tasks to We’ve mapped out some of the most
workforce be automated which were once thought important technologies in the table
too complex – like trailer loading and facing this page. The rate of adoption
Labour is a critical element of any offloading at acceptable speeds. of any of the technology opportunities
logistics operating model, and up till discussed here will not be limited by
now there’s always been a trade-off Package delivery could also make more technical advancement rate. Instead it
between service levels and costs. But use of automation, through innovations will be driven by the rates of regulatory
automation breaks down this equation, like autonomous vehicles or delivery and customer acceptance.
allowing firms to offer better service drones. Google has already started
and save money at the same time. working on self-driving lockers and
Some of the industry’s most labour- the trucking industry is partnering
intensive processes are on the way to with OEMs on partially automated
being fully or partially automated, from truck convoys. Even if more radical
warehousing to last-mile delivery. solutions are a long time coming, other
technologies which could make drivers
Automated solutions in the warehouse more efficient are in the offing too, like
are already being implemented and augmented reality solutions that give
their level of sophistication is increasing. drivers more information about their
For example, automated loading and environment and the packages still on
unloading systems are already available, board.
but in the future these are likely to be
able to bypass obstacles and adjust
routes automatically. Advances in data
The technology10 The impact The uncertainties
• Social expectations around data privacy and security may
• Improved supply chain transparency, safety and change
Physical Internet efficiency • Regulation around data security and privacy may increase
(based on the IoT) • Improved environmental sustainability (more efficient or be enforced more stringently
resource planning) • The sector’s willingness and ability to invest in collaboration
• Whether international bodies will drive standardisation
• Enabling collaboration horizontally • Companies’ willingness to adopt is uncertain due to data
IT standards
• More efficiency and transparency security concerns
• Rate of development of data processing capacity is unclear
• Improvements in customer experience and • Question marks around data security
operational efficiency in operations • Social expectations around data privacy and security may
Data analytics
• Greater inventory visibility and management change
• Improved ‘predictive maintenance’ • Regulation of data security and privacy may increase or be
enforced more stringently
• Development of costs unclear (once a certain scale is
• Enabling new platform-based business models and
Cloud reached physical data centres still tend to be cheaper)
increasing efficiency
• Uncertainties around data security
• Enhanced supply chain security (reduction of fraud)
• Reduction in bottlenecks (certification by 3rd parties) • Rate of adoption uncertain
Blockchain • Reduction of errors (no more paper-based • Unclear whether one or two dominant solutions will emerge
documentation) or multiple competing solutions
• Increased efficiency
• Reduction in human workforce and increased
Robotics & efficiency in delivery and warehousing (including
• Speed of technology development unclear
automation sorting and distribution centres)
• Lower costs
• Regulatory environments not currently in place in most
countries
Autonomous • Reduction in human workforce
• Liability issues not yet clear
vehicles • Increased efficiency in delivery processes
• Ethical questions remain especially in relation to emergency
situations
• Regulation in most countries not sufficient for commercial
• Increased cost efficiency (use cases: inventory,
use in public areas like delivery
UAVs / Drones surveillance, delivery)
• Safety and privacy concerns may hamper market
• Workforce reduction
acceptance
• Lower transportation demand • Speed, scale, and scope of uptake by customer industries
3-d printing
• Transported goods would mostly be raw materials still unclear
10 For a list of PwC publications on these technologies please refer to page 18
8 Shifting patternsNew entrants to the approach and helps people to get
things transported within their city
The industry’s own customers may
also become significant new entrants.
industry by connecting them with registered Amazon is an obvious example: it’s
drivers.13 Norwegian start-up Nimber looking to expand its in-house expertise
Platform technology has given matches commuters and travellers with in warehousing as well as develop its
rise to new business models, consumers looking to ship something, own delivery capabilities. Hence its
often driven by start-ups that whether it be a piano across the country acquisition of a warehouse automation
enter the logistics industry. or a skateboard or document across specialist, now part of its Amazon
New ‘sharing’ business models town.14 Robotics business unit. The company has
leased 20 aircrafts to handle more of its
could have as much of an How are traditional logistics companies own shipments15, and is piloting a ‘Prime
impact on the sector as new countering these developments? They Air’ 30-minute delivery offering using
technology. And the industry’s know they need to explore opportunities drones.16 Bloomberg has also reported
current customers and for new products and services – a field that Amazon has plans to launch its own
suppliers may end up being the where start-ups have a clear advantage logistics offerings, a project, allegedly
given their freedom from outmoded referred to as ‘Dragon Boat’.
biggest new entrants. processes and hierarchical structures.
Yet investments by traditional LSPs in In Asia, Alibaba is trying to improve
Start-ups drive new business digital logistics start-ups only constitute delivery services for its sellers by
models around 6% of overall venture capital setting up Cainiao, a JV with several
Most of the new entrants to the flows. logistics companies, a department store,
logistics sector are start-ups, and an investment firm and a company
many of these are looking to use new Start-ups aren’t the only new with port logistics operations.17 The
technology to enter the industry. To entrants main advantage for network members
date most of these are in ‘asset light’ constitutes the access to a logistics
Major players from other industries may data platform, which helps them to
parts of the value chain; for example,
have even more potential to shake up achieve efficiencies in order fulfilment
virtual freight forwarders. These asset-
the industry’s competitive dynamics. by leveraging their capacity and
less or asset-light businesses exploit
Autonomous vehicles are one possible capabilities at a large scale.18 And the
digital technology to offer interactive
example: technology players, or company is trying out new ideas too,
benchmarking of freight rates, or match
technology-automotive collaborations like an app that allows consumers to
shippers with available capacity.
may enter the industry, especially request a pick-up of a return or package
with ideas like self-driving lockers, or from delivery personnel in the area.19
Many of the new entrants in freight
machine-to-machine parcel-station
forwarding are basing their offering
loading for last-mile delivery. Crowd-
on more agile pricing. Some enable
sharing platforms may also emerge from
carriers to bid on loads, allowing them
autonomous vehicle development, or
to lower their bids in order to fill up
independently. As car-sharing increases,
capacity. They’re also providing quotes
so may the use of the storage space
more quickly and increasing price
available in these vehicles as a flexible
transparency – for example, by linking
way to expand capacity.
via API directly to a large number of
carriers, and providing customers with
their negotiated rates for each of the Figure 2: Venture capital flows into digital logistics startups
carriers they use so they can compare since 2011*
directly.
Last-mile delivery has also seen a wave Flows from
Private equity flows legacy logistics
of start-ups in recent years. Some of companies
these companies are using technology > US$150mRedefining Collaboration and
standardisation would increase
Other new types of collaboration
collaboration efficiency
There are many other less radical ways
for logistics companies to use assets
Horizontal collaboration is For many industries, the standard more efficiently by collaborating.
already happening, especially assumption is that a larger number of For example, by sharing fleets and
competitors is beneficial for customers. networks, and establishing agreements
in last-mile delivery, but it’s similar to the airlift purchased by postal
However, in certain logistics sectors,
hampered by inconsistencies. there are substantial benefits in having agencies from commercial couriers, or
Higher levels of efficiency more consolidation, not less. According the code-sharing used by airlines. DB
could be achieved by more to one estimate, a 10% to 30% increase Schenker, for example, recently signed a
consistent standards, defined in efficiency in the EU logistics sector five-year contract with the online freight
through the Physical Internet would translate into €100-300 billion exchange provider uShip, to develop a
in cost savings for European industry.20 platform to connect truck drivers and
and increased collaboration, shipments more efficiently.21
The Physical Internet could help address
whether in the form of this ‘grand challenge’ by drastically
alliances, joint ventures or increasing co-operation between Many companies in the sector are
M&A. companies and across transport modes also turning to M&A, joint ventures,
through greater standardisation (see and alliances as a way to achieve
Building on last-mile partnerships info box ‘From manifesto to reality’). collaboration. In 2015, M&A deal value
nearly doubled compared to 2014,
There are already notable examples of For the Physical Internet to work in with much of this activity driven by
market players operating collaboratively. practice, though, companies would need large players looking to expand their
Companies like FedEx and DHL have to be willing to collaborate far more international operations and service
been partnering with national postal extensively than they do today. Most of offerings. But with disruption on the
companies and small local players for the 535,000 distribution centres in the horizon, there may be opportunities to
many years. But with the advent of new US are standalone operations owned use deals to enhance capabilities in key
technology, collaboration can become by different companies; imagine the areas too; digital is a good example.
much more dynamic. savings if they were all connected, and
physical workflows were standardised
However, fragmentation, accountability, for maximum efficiency.
and a lack of consistency make
collaboration more difficult. For
example, each company has its own
labelling system, and some companies
are wary of farming out the crucial
last mile of the journey to an operator
that may not reflect its own brand and
service levels. And aside from the last
From manifesto to reality: defining the
mile, partnering agreements are the Physical Internet
exception, rather than the rule. Take
freight forwarding. While containers are The term ‘Physical Internet’ (PI or π); was first
a standard size, the packages that go coined by Professor Benoit Montreuil of the
into them aren’t. Nor are the forms and Georgia Technology Institute in 2011. It’s based
digital entries used to clear customs. on the idea that physical objects can be more
Contract logistics companies co-operate efficiently moved around if they become more
extensively with shippers, but often standardised and share common channels,
don’t share resources with competitors. like data packets on the internet. That requires
modularisation and standard interfaces and
protocols. In addition, hubs and networks
across transport modes will need to be better
synchronised, and IT applications and networks
will also need to operate together. Montreuil’s
manifesto proposes π containers in standard
dimensions that can be efficiently stacked together,
potentially with sensors if appropriate, and sealable
for security purposes. To make the most of these,
π movers and π loading systems will need to be
developed too, as well as more efficient transport
models.
20 http://ec.europa.eu/research/transport/news/items/alice_lauch_en.htm
21 http://www.wsj.com/articles/db-schenker-signs-on-with-uship-online-freight-platform-1467235737
10 Shifting patternsLogistics scenarios
What will the logistics marketplace look like in five to ten years? That’s
still an open question. In this chapter we take a closer look at how some of
the key disruptions facing the industry may interact. We have done this
by describing four logistics scenarios. In each of these, technology plays
a key role, but affects the market in different ways. In two of the models,
new entrants are the primary drivers of change, while incumbents retain
a dominant position in the other two. The nature of market dynamics,
especially the level of collaboration versus competition, also varies
between the scenarios.
2. Start-up, shake-up
1. Sharing the PI(e) New entrants become significant
players and take market share from
Incumbents increase their efficiency the incumbents through new business
and reduce their environmental models based on data analytics,
impact by collaborating more, and blockchain, or other technologies.
developing new business models, One or two become dominant in
such as sharing networks. Research specific segments. Last-mile delivery
around the ‘Physical Internet‘ becomes more fragmented, with
(PI) leads to shared standards crowd-delivery solutions gaining
for shipment sizes, greater modal ground. These start-ups collaborate
Data analytics
connectivity, and IT requirements with incumbents and complement
across carriers. their service offers.
Physical Internet
Cloud
standards
Logistics
Blockchain
IT
standards Logistics
scenarios
Robotics and
3-d automation
printing
4. Scale matters
Incumbents increase efficiency 3. Complex competition
by streamlining their operations Autonomous Big retail players expand their
and taking full advantage of new Drones logistics offerings to fill their own
vehicles
technology. They fund promising needs and beyond, effectively moving
new technologies with venture from customers to competitors. They
capital cash, and attract new staff purchase small logistics players
with critical skills and expertise in to help cover major markets, and
competition to create a dominant draw on their deep understanding
market position. Major players merge of customer behaviour to optimise
to extend their geographical scale and supply chains. Technology firms who
enhance their cross-modal coverage. used to be suppliers to the industry
Access to capital to fund these enter the logistics arena too, offering
investments becomes increasingly logistics services and turning into
important. competitors.
12 Shifting patterns1. Sharing the PI(e)
Incumbents increase their efficiency and reduce their
environmental impact by collaborating more, and developing
newbusiness models, such as sharing networks. Research
around the ‘Physical Internet’ (PI) leads to shared standards for
shipment sizes, greater modal connectivity and IT requirements
across carriers.
What’s driving this scenario?
Several forces converge in this
scenario. With customers demanding ‘Sharing the PI(e)’
cheap, green and fast supply chains,
the incumbent logistics companies Customer expectations New entrants
look for ways to create unique value • More sustainable • Incumbents play a
propositions. Some major industrial supply chains dominant role in directing
customers still want the comfort of • Willingness to explore and using shared
dealing with one logistics partner, yet new kinds of collaboration networks
they look at new ways of partnering. with their LSP • Minor role of new entrants
At the same time, new physical
Technology Collaboration vs. competition
and digital standards emerge, most
significantly in relation to the ‘Physical • ‘PI’ standards lead to new • Increase in collaboration,
solutions for loading and based on consistent
Internet’, making it easier for companies
packing physical standards
to share space within one container and
• Consistent, shared • Incumbents focus on
to connect across transport networks. communications standards defining unique value
This is supported by more consistent and data exchange propositions
standards for communication and data
exchange. Governments also encourage
greater vertical collaboration across
the industry and fund initiatives such
as EU-driven programmes to increase
‘synchromodality’ (connectivity between ownership of some fleet assets. Sea B2B customers may consider investing
shipping modes and across shippers).22 freight and trucking companies are in transportation assets, and thereby
likely to benefit the most from the secure superior service and rates from
What are the implications for new ‘PI’ standards, which make it a trusted long-term partnership with
logistics companies? easier to fully use their capacity, and their LSP. Usually, service levels and
increased profitability is likely to reduce efficiency are higher in urban areas.
As networks become more fully the pressure for consolidation in this Isolated rural communities are often
shared, CEP companies will focus sector. Warehousing will benefit from served only by national posts with
their competitive edge on customer cost efficiencies too, as automated universal service obligations. The
expectations. Companies which can loading and picking systems based regional focus of CEP providers will
build on a strong brand profit from on ‘PI’ standards are implemented. enhance the service level for customers,
improved margins, by partnering with Cybersecurity will be a crucial issue especially in isolated areas along less
other firms to cover less profitable for companies that shift to new data profitable routes.
delivery routes. National posts, on the standards and greater data sharing.
other hand, may struggle as they are
forced to cover these routes and lose
What are the implications for
volume in more profitable regions.
customers?
3PLs, 4PLs and freight forwarders begin Increased efficiency leads to lower costs
to establish collaborative partnerships for LSPs, and they have to decide how
with major customers, who take over much of this benefit gets passed to their
customers.
22 http://www.etp-logistics.eu/?page_id=79
The future of the logistics industry 132. Start-up, shake-up
New entrants become significant players and take market
share from the incumbents through new business models based
on data analytics, blockchain, or other technologies. One or
two become dominant in specific segments. Last-mile delivery
becomes more fragmented, with crowd-delivery solutions
gaining ground. These start-ups collaborate with incumbents
and complement their service offers.
What’s driving this scenario?
Technological innovation and changing
customer behaviour are key here. In ‘Start-up, shake-up’
the CEP space, start-ups take advantage
of consumers’ growing interest in the Customer expectations New entrants
sharing economy to develop new crowd- • Low-cost personalised • Start-ups drive technology
sharing solutions, sometimes linked service with real-time visibility development and
with car-sharing. E-marketplaces for • Choice of delivery channels innovation
transportation and logistics services • Participation in sharing • App developers become
emerge, targeting specific industry economy full-on integrators
sectors with great success. Start-ups
which began by offering individual apps
Technology Collaboration vs. competition
in the freight, parcel or last-mile space
also expand to become independent • Crowd-sharing platforms • Collaboration between
increase start-ups and incumbents
platforms, aggregating access to
• Blockchain technology • Start-ups complement
shippers and carriers. Logistics solutions gains ground and facilitates incumbents’ service offers,
based on blockchain technology collaboration particularly around
are developed by start-ups and gain last-mile delivery and
momentum in areas such as digitised supporting functions
trade documents, chain of custody,
customs clearance, and trade finance.
What are the implications for its trustless peer-to-peer network, costs as well as lower service levels,
logistics companies? thereby reducing delays, human error, though the idea is more likely to be
and transaction costs for interactions accepted by B2C than B2B customers.
Forwarding becomes more fragmented, between supply chain partners – Consumers who participate in crowd-
as newly emerging ‘hub specialists’ begin for example, in the processing of sharing solutions earn extra cash for
to dominate specific legs of trade routes. international trade documents. trips they take anyway. They have a high
In the contract logistics space, start-ups flexibility in how they can contribute to
(including 4PL start-ups) complement platform-based logistics solutions – with
What are the implications for
and enhance the services provided by opportunities from a temporary part-
3PLs, focusing on their most profitable customers?
time role all the way to a full-time job.
customer segments. Operators in Industrial customers benefit from Supply chains become more transparent,
CEP have to compete with start-ups advanced logistics services based on with blockchain-backed services offering
which may have a clear cost advantage high-end technology, provided by easy authentication of shipments.
if their people are independent collaborating incumbent 3PLs and start-
contractors rather than employees. ups. Retail customers enjoy greater
Transportation and logistics is among choice of last-mile providers, and
the top industries to replace labour lower delivery costs as a result. At the
with automation – but the time frames same time, service offers based on the
for implementation vary. Sortation and sharing economy might result in lower
picking, for example, will be automated
much quicker than last-mile delivery.
Blockchain technology also fosters
automation and efficiency through
14 Shifting patterns3. Complex competition
Big retail players expand their logistics offerings to fill their
own needs and beyond, effectively moving from customers
to competitors. They purchase small logistics players to help
cover major markets, and draw on their deep understanding
of customer behaviour to optimise supply chains. Technology
firms who used to be suppliers to the industry enter the
logistics arena too, offering logistics services and turning into
competitors.
What’s driving this scenario?
The competitive landscape changes
markedly here. Online retailers expand ‘Complex competition’
their own logistics offerings. In some
cases, this reduces their use of external Customer expectations New entrants
providers, but doesn’t replace it entirely. • Customers rapidly digitise • New entrants are
Others use their own sophisticated supply chains predominantly major
analysis of customer data to increase • Autonomous vehicles players from online retail,
logistics efficiency substantially. In become accepted by and technology-based
order to fully use their capacity, players customers industries
like the large grocery chains and big-
box retailers begin offering their own
Technology Collaboration vs. competition
logistics services, and look to combine
their bricks-and-mortar and online • Warehouse robotic • Major retail and logistics
solutions increase in platforms compete for
supply chains.
sophistication dominance
• Autonomous vehicles • Retailers initially develop
Suppliers to the industry may also enter achieve market maturity logistics capability to support
the business of logistics operations. • 3-d printing-based own operations, but gradually
If warehousing solutions – using manufacturing gains scale move into 3rd party provision
advanced robotics, drones and self-
driving repositories – become more
sophisticated, logistics service providers
may no longer be able to provide staff
with the right skills to operate these What are the implications for What are the implications for
assets. Technology suppliers may offer logistics companies? customers?
logistics services based on their own CEP companies face decreasing volumes, Online retailers that start their own
particular expertise. making it more difficult to fully use logistics operations reduce their
capacity. They also struggle to keep dependence on LSPs, and gain a
Manufacturing based on 3-d printing up with rapid advances from industry competitive edge over retailers that
gains momentum and lowers the ‘disruptors’ operating primarily in the don’t manage to do this. Further
overall demand for transportation. To last mile. 3PLs may need to consider improvements in warehouse robotics
compensate, LSPs experiment with new partnering with robotics companies and automation drive down logistics
business models, like developing 3-d to improve warehouse services. Some costs for industrial customers. Fierce
printing hubs, 3-d printing capabilities carriers shift from working with current competition among incumbents and new
at customers’ sites, or offering platforms incumbent CEP companies to emerging entrants drive down costs. Consumers
with 3-d blueprints. LSPs will thus new competitors, but the net impact is will benefit by getting a better service
become competitors to some of their essentially neutral. from big online retailers who integrate
customers. their logistics activities.
The future of the logistics industry 154. Scale matters
Incumbents increase efficiency by streamlining their
operations and taking full advantage of new technology.
They fund promising new technologies with venture capital
cash, and attract new staff with critical skills and expertise
in competition to create a dominant market position. Major
players merge to extend their geographical scale and enhance
their cross-modal coverage. Access to capital to fund these
investments becomes increasingly important.
What’s driving this scenario?
Technology continues to improve,
but its development is dominated ‘Scale matters’
by incumbents’ own research and
their acquisitions of new entrants in Customer expectations New entrants
specific technology areas. Network • Customers expect • New entrants are acquired
size and efficiency continue to be key efficiency, speed, and by incumbents as soon as
sources of competitive advantage, and digital fitness they develop promising
consolidation accelerates. The key to • They want higher levels of technologies or business
success in this model is buying the right user friendliness and models
start-ups at the right time: too early and comfort
they will be too speculative, too late and
Technology Collaboration vs. competition
the price will be too high.
• Technologies such as data • Competition heats up
analytics enhance between incumbents,
What are the implications for efficiency in large logistics putting pressure on margins
logistics companies? networks • Scale is a necessary
• Corporate-led incubators condition to achieve the
Access to capital becomes a key and venture arms drive efficiency to remain
differentiating factor, both to drive technology development competitive
in-house R&D and to fund efficiency-
enhancing technologies such as data
analytics, blockchain, and automation.
Carriers look to establish dominant
positions, accelerating M&A in the
trucking and sea freight segments. CEP
companies increase efficiency in the last
mile by introducing new technologies
like drones (for remote markets) serving
both their B2B and B2C customers,
striving for unique selling points in a
highly competitive market.
What are the implications for
customers?
Customers benefit from the growing
network size of LSPs, and gain better
delivery speeds and efficiency,
supported by new and more
sophisticated technologies in delivery
and customer interaction, thereby
enhancing their user-friendliness and
level of comfort.
16 Shifting patternsLeading through
uncertainty
The basis for competitive advantage
in the logistics industry is changing
fundamentally. An established network
may become a hindrance rather than
an advantage. New technologies will
change the industry’s cost model and
call existing business models into
question. And there may well be new Change in the competitive environment
approaches to dynamic pricing that puts a company’s culture to the test
take capacity utilisation more fully into – especially in a mature industry like
account. logistics, where it can be tough to
change, even when traditional ‘ways to
Although the core needs of most play’ are being fundamentally changed
customers have changed very little, or even replaced. T&L companies need
customer expectations are increasing to be ready for this change, and the
greatly, whether those customers successful companies will be those with
are consumers shipping packages or agile and flexible cultures that make it
OEMs partnering with an LSP on the easier for people to work together across
production line. internal boundaries. You need to put
your culture to work.
In the futures we have described, can
a logistics company meet the growing Logistics companies also need to bring
expectations of customers, remain costs down; but not only for the sake
profitable and generate growth? The of efficiency. They also need to prune
short answer is yes. But it’s not going to what doesn’t matter and thus free up
be simple or easy. resources for the key areas of focus –
such as digitisation, asset productivity,
Whatever industry segment a T&L and innovation – and invest more to
company operates in, it will be crucial support the company’s key capabilities
to commit to an identity and develop and value propositions. So, ’cutting
a clear strategy to fulfil this, focusing costs to grow stronger’ should be seen
only on markets where they believe they as something closely related to strategy.
have a ‘right to win’. Companies need
to ask themselves whether they have Finally, with more disruption ahead,
the distinctive capabilities they need companies need to anticipate how their
to compete. If not, can they develop capabilities will need to evolve. The
these capabilities, use collaboration to best will develop services and solutions
succeed, or should they withdraw from that will create demand instead of just
certain elements of their business? following it. To do this, T&L companies
need to establish strong relationships
Logistics companies will need to focus with key customers, have an ear on the
on ‘digital fitness’, cost efficiency, asset markets they target, and actively shape
productivity, and innovation if they the future.
want to meet changing expectations.
Building and refining these and other The above describes our concept of ‘five
capabilities, and then bringing them to key acts of unconventional leadership’
scale across the enterprise, will be key that drive success by aligning distinctive
as they translate the strategic into the capabilities with business strategy,
everyday. and applying them consistently. This
approach, defined in our recent book,
Strategy that Works, spans the entire
business, from developing the business
model through to daily operations.
In this paper we’ve taken a broad
perspective. It gives hints on some
ways the industry might develop, but
you will want to consider the detailed
implications for your specific business
and operating model. Going forward,
we will reflect further on how these
scenarios may play out differently
around the world as well as up, down
and across the value chain, and
supplement this broad overview with
deep-dive perspectives in specific areas.
The future of the logistics industry 17Learn more
Authors Further reading on the transportation and
logistics sector
Andrew Tipping, Strategy& US
andrew.tipping@strategyand.pwc.com 2016 Commercial Transportation Trends – Strategies
freight carriers can use to defeat disruptors
Peter Kauschke, PwC Germany
peter.kauschke@de.pwc.com 19th Annual Global CEO Survey: Transportation and
logistics industry key findings
Contributors Industry 4.0: Building the Digital Enterprise –
Andrew Schmahl, Strategy& US Transportation and logistics key findings
andrew.schmahl@strategyand.pwc.com Intersections: Quarterly analysis of M&A in the global
Dietmar Prümm, PwC Germany transportation & logistics industry
dietmar.pruemm@de.pwc.com Transformation & logistics 2030 – A series of Delphi
Dominik Baumeister, Strategy& Australia/Asia studies
dominik.baumeister@strategyand.pwc.com
Further reading on industry transformation
Euan Cameron, PwC UK
euan.cameron@uk.pwc.com Strategy that works – How winning companies close
the strategy-to-execution gap?
Jan Willem Velthuijsen, PwC Netherlands
jan.willem.velthuijsen@nl.pwc.com New energy futures: perspectives on the
transformation of the oil and gas sector
Julian Smith, PwC Indonesia
julian.smith@id.pwc.com The road ahead: gaining momentum from energy
transformation
Marc Engel, PwC Netherlands
marc.engel@nl.pwc.com Re-inventing the wheel: scenarios for the
transformation of the automotive industry
Michal Mazur, PwC Central and Eastern Europe
michal.mazur@pl.pwc.com Glimpsing the future(s): Transformation in the
chemicals industry
Nigel Cinnamon, PwC UK
nigel.cinnamon@uk.pwc.com
Further reading on technologies
Stefan Stroh, Strategy& Germany
stefan.stroh@stragegyand.pwc.com Clarity from above – PwC global report on the
commercial applications of drone technology
Ulrich Koegler, Strategy& United Arab Emirates
ulrich.koegler@strategyand.pwc.com PwC’s Global Data and Analytics Survey 2016:
Big Decisions
Editorial and research team Navigating cloud management
Anita Hagen, PwC Netherlands Organize your future with robotics process
anita.hagen@nl.pwc.com automation
Elizabeth Montgomery, PwC Germany Blockchain and smart contract automation: Why are
elizabeth.montgomery@de.pwc.com blockchains important?
Hendrik Lemke, PwC Germany 2015 Commercial Transportation Trends – Things are
hendrik.lemke@de.pwc.com going so well for freight firms that it’s time to start
worrying about the next real danger to the industry:
3D printing.
Connected Car Study 2015: Racing ahead with
autonomous cars and digital innovation
18 Shifting patternsWhen we look into the future, we see
disruption, we see collisions, we see
transformation, but most of all we see
opportunities.
What do you see when you look to the
future?
Global automotive
Re-inventing PwC global chemicals
the wheel Glimpsing the
Scenarios for the
future(s):
transformation of the
Transformation in the Tech breakthroughs megatrend:
how to prepare for its impact
automotive industry
chem
Other titles available in the future indu
icalsseries
in sight stry
Global megatrends and disruptions
are shaking up nearly every aspect of
the automotive industry. This paper
addresses possible impacts of two of the
industry’s key uncertainties.
The future of personal mobility is
no longer clear – will individual use
or shared mobility shape the future
automotive market?
Regulation and politics could have
a profound impact on the industry’s
direction – but which way will it go?
Customer needs drive a
new innovation age
where chemical supply chains
and materials respond to
downstream developments
Feedstock playing fields
level out, and regional
production hubs proliferate
How to prepare for the technological
Re-inventing the wheel Glimpsing the future(s) Tech breakthroughs
www.pwc.com/chemicals breakthroughs megatrend, and the
eight technologies to start with
Scenarios for the Transformation in the megatrend
transformation of the chemicals industry
www.pwc.com/auto How to prepare for
automotive industry the technological www.pwc.com/techmegatrend
breakthroughs megatrend,
and the eight technologies
to start with
www.pwc.com/futureinsightThis publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2016 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc. com/structure for further details.
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