The logistics industry is living during a time of change. We will talk about trends that have been developing for more than a decade but have gained even more traction in the last two years. Moreover, the tipping point has been reached; therefore, everything will develop faster from now. The trends we will talk about create both possibilities and threats for logistics companies. Therefore it’s essential to know about them to be successful in the business for upcoming years, or opositelly pivoting to another direction or business. As usual, we have two opinions about the future of Logistics businesses. I believe that truth is someone in the Middle, and I will share my opinion on why I believe so. Furthermore, we will share some insights into what logistics companies need to implement to hedge future risks.
#1 Changing shipper’s needs.
The first trend we need to address as this is where everything starts, and it’s related to the changing shippers’ needs. Shippers want more and more services from one service provider. Moreover, they need a partner who provides logistics services and comes up with value-added services or insights. Furthermore, they are looking for a partner that understands the importance of sustainability. Then, of course, we need not forget that they are looking for exceptional service experience (personalization, fast, easy, etc.) and alignment between companies’ cultures.
Companies that will understand the changing customer’s needs and address them with inner corporate changes will be those who will win the competition. And those companies which will stick to the old transactional business model, which perfectly fits into one sentence: You have cargo, I have a truck/warehouse/ship/plane, let’s do business together, can go down in a few upcoming years.
Therefore logistics companies need to create all the needed systems to provide value for their customers. Moreover, they need to build an inner culture that can provide extraordinary services (you can find out more on this topic here).
Key Takeaways: Create an extraordinary service experience; pay attention to the changing customer needs; move away from the transactional business model.
#2 Strengthening global logistics players.
The other trend that is especially important is the strengthening of global logistics players. Many of you have noticed that each logistics company is becoming more prominent by acquiring new business (DSV, Maersk, CMA CGM, others). And, of course, you noticed that some of those previously one-way-oriented companies add more services and start declaring that they will eliminate intermediaries and take more significant portions of the pie. Of course, they are doing this firstly because of changing consumers’ needs. But, still, they also want to strengthen their positions to get more control in their hands and eliminate possible competition.
Those companies are now in the first phase of M&A, but no doubt, the second phase of aggressive expansion and aggressive fight for customers will start soon.
And this situation is worrying some logistics value chains participants. Of course, some are trying to deny this by saying that the market is big, those big companies will never go around the traditional intermediaries, and so on. But again, we all know that it can happen, as it happened with other industries (you can find more on this topic here).
Those companies are now in the first phase of M&A but do no doubt, the second phase of aggressive expansion and aggressive fight for customers will start soon.
And the other thing why I think those big companies will try to pull this off is because they have many funds (for example, combined container lines profits in 2021 were about 200BLN). In addition, technologies today allow them to take out some of the previous complexities.
How can SM logistics companies stop this situation? The answer is quite simple, companies either need to become more prominent or orient all of their activities where they can provide the most considerable value to shippers and differentiate themselves from the competition. And, of course, companies need not forget to pay attention to the #1 trend while crafting their sales and marketing strategy.
Key Takeaways: Accelerate growth, find a niche, or create an extraordinary service experience; pay attention to the changing customer needs.
The other significant trend is digitization. Each forward-thinking trading, manufacturing, and logistics organization invests in digital solutions. Those solutions help increase service levels, save labor costs through process automation, and decrease error rates. But the most critical part of digitization is related to the intensive analytic capabilities combined with artificial intelligence, which will allow organizations to make lesser mistakes and make smarter decisions in the future. Furthermore, a logistics company can create even more value for its customers with big data.
Therefore, companies thinking about the future need to invest in digital solutions. And no, it’s not a buzzword; for advanced prediction and automation to happen, at least two years of data is needed. And as the AI learns as it goes, the first companies who will start doing this will have a competitive advantage over those who will delay.
Key Takeaways: Invest funds into digitization; build easy-to-use services for your customers with the help of digitization; leverage data to create even more value for your customers.
#4 Digital Competition
Many discussions are within the logistics arena concerning digital freight forwarders and other kinds of solution providers. Each side accuses the other. The digital side says they will disrupt the logistics business, leaving no space for the traditional freight forwarders. The other side is confronting them with accusations that they haven’t invented anything new here.
My opinion is that every side is mistaken. The actual situation and market conditions will be somewhere in the Middle, as it was with other disrupting technologies and services. For example, uber hasn’t eliminated the taxi business; cryptocurrencies haven’t eliminated traditional banking. But of course, we had situations when industries were destroyed, like film rent and tape cameras, etc. But I’m pretty sure that logistics will have a pretty different story, as this industry is more complicated than the above cases.
My opinion is that every side is mistaken. The actual situation and market conditions will be somewhere in the Middle, as it was with other disrupting technologies and services.
Although to not get distinguished, companies need to take some action. Those actions are related to digitization, aligning your services to the changing customer journey, speeding up sales and marketing processes, and building extraordinary services.
Key Takeaways: Do not ignore digital competition; align your services to the changing customer journey; speed up business developement.
When the pandemics started, many companies talked about nearshoring (bringing back production nearer to their home market). Then, it was mainly related to increased freight prices, lead times, and other disruptions. However, the war in Ukraine has made it even more apparent that extended supply chains can go out of control.
Due to the nearshoring trend, we will see different import and export maps within five upcoming years. And this new situation will create a lot of headaches and opportunities for logistics businesses. Because of the supply networks, logistics networks will have to change accordingly. As a result, we most likely will see decreasing quantities on some trade lanes and increases within others (for example, decreasing China lane, increasing America’s trade Lanes). Moreover, we will most likely see an increased need for road transportation in Europe and USA.
It is good news for the logistics industry, but it will worsen the labor shortage issue seen in the logistics industry. Therefore companies need to look for ways to make their operations more efficient. Moreover, logistics companies need to look for ways to diversify their customer base, already from today. And create modern work culture to attract top talent.
Key Takeaways: We will see decreased volumes on some trade lanes and increased volumes on others; logistics businesses are advised to diversify their customer base.
#6 3D printing, hyperloop, and other science fiction.
The 3D printing was seen as science fiction, like hyperloop, freight services to space, etc. However, it happened. And those things can have a significant impact on the logistics industry in many unforeseeable ways. For example, if we can print out our merchandise or even teleport it (who knows what can happen), the need for traditional logistics services will fall drastically.
Is there any good advice to cope with those changes? I believe no, as no one knows how this will work out exactly. Although, there is one thing that companies can pay attention to. Logistics, first of all, is an information management business. Trucks, warehouses, and other operations come later. Therefore, if logistics businesses pay attention to this crucial thing and invest funds in building databases and creating tools to analyze it, the logistics industry can find completely new markets and services.
Key Takeaways: Future technologies can change the logistics market in unpredictable ways; the only viable advice is to invest in data management solutions. In the future, it can help to invent new services.
#7 Changing consumer journey
One other significant trend is related to the changing consumer journey. The internet and connectivity have changed the earlier famous linear consumer journey to a completely different one. Other industries are pretty familiar with that; they reach out to the customer in every possible way (social, direct email in person), create helpful content, and build a trusted community around their brand.
Although the shift is clear, a big part of the logistics industry still hesitates to accept this fact and create new strategies for customer acquisition, customer relationships, and brand advocacy. Or are you just doing some minor things?
Logistics, first of all, is an information management business. Trucks, warehouses, and other operations come later. Therefore, if logistics businesses pay attention to this crucial thing and invest funds in building databases and creating tools to analyze it, the logistics industry can find completely new markets and services.
Logistics businesses need to overlook all of their communication and customer-related processes and create all the needed touchpoints on various channels to cope with the changing customer journey. And make communication and other customer-related processes convenient and fast.
Key Takeaways: The typical customer journey map has changed; logistics businesses need to overlook their communication and service strategies to cope with this new reality.
The most recent trend, which is only starting or may start to develop, is the possibility of a recession. The inflation, which started gaining traction in 2020, has already threatened the world with recession for the past two years. But somehow, the money printing initiatives by governments have postponed this situation. Moreover, the conflict in Ukraine has put more firewood into the recession stew. It’s mostly related to the decreased consumption and even further increased energy prices.
Although the recession is not a long-term trend, it’s important to mention this new trend as logistics businesses can find themselves in entirely different situations for some time. First, let’s not forget that the last two years were perfect for many logistics companies. Business development was easy. Logistics companies just needed to have the capacity, and shippers flooded their business. In other words, a logistics business needed no aggressive business developement or marketing. Instead, companies focused on acquiring new capacity (trucks, warehouses). But we can have a pretty different situation if the consumption falls by 10% or more percent.
As new business development isn’t easy, we recommend businesses to speed up this process already from today to hedge the recession risk.
Key Takeaways: Look for ways to make your operations more efficient; pay more attention to new business developement.
Is everything lost for an SME logistics company?
There are few opinions in this field. Some say that small and medium companies will go out of business. And the other part is thinking that there’s nothing to worry about. So I would say that the answer is somewhere in the Middle.
If you looked at any disruptive technology: internet banking, e-commerce, uber, etc. You would see that disruptors usually do not obliterate the market. For example, if you look at e-commerce, you will notice that both kinds of businesses are viable, physical stores and e-stores; moreover, those companies that use Omni channels get better results. Of course, there are some exclusions, but in my opinion, it happened because they were lazy and didn’t pay attention to strategic marketing (you can read more on this here). Therefore, it’s essential not to ignore those new trends to lose significance.
If you want to determine how your organization stands out, measuring against those trends, please press arrange a call with us. We can check your current operations, provide a benchmark (how you rank with your competitors), and provide you with a change plan. Moreover, we will prioritize the change plan according to your size, market situation, and goals. This benchmark is helpful for all kinds of businesses (it doesn’t matter the size), as there are many solutions for each kind of organization.
About the author:
Tomas Ananjevas is a supply chain professional with 15 years of experience purchasing and selling Logistic’s services and building a supply chain from scratch. He founded a consulting, training, and staffing company that works exclusively with the logistics industry. Tomas is currently helping logistics companies implement the necessary changes that ensure business growth and continuity. You can arrange a time to talk with tomas by clicking here.