The challenges facing the transport and logistics industry
The transport and logistics industry is a fundamental sector that acts as the backbone to a country’s economy, and plays an essential role underpinning other core sectors such as manufacturing and retail. Challenges and opportunities facing the transport and logistics industry are also closely tracked and influenced by national and local governments, who are often responsible for investments in supporting transport infrastructure (e.g. roads, rail networks etc.).
As the movement of people and goods across the world increases, the industry is evolving to meet these demands. However, it faces challenges in doing so. The logistics industry has been under significant pressure for some time. Capital and fixed operating costs are high, and companies are struggling to differentiate. Despite growing demand, many firms are suffering from eroding margins. The UK market exemplifies these issues, with revenue growth across the industry low or negative. The COVID-19 pandemic has exacerbated these issues and thrown up unforeseen challenges, with the airline industry being particularly badly hit.
UK top 100 hauliers reported operating margin
Source: FTA Logistics Report 2019
Although the rise in online retail and growing international trade have helped to stimulate the industry, there are still pain-points that are hindering growth. These include volatile diesel prices, driver shortages, and increasing pressure from governments and the general public to be more environmentally friendly.
The focus for the majority of the industry is therefore on cost-cutting and improving operating efficiency. For many companies, investing in new technologies provides an opportunity to transform their operations and drive efficiencies. There is significant scope to do this since the industry as a whole is generally not as digitised as other verticals, and because there is room to make improvements to currently under-utilised assets. For example, in the UK, 30% of goods vehicles on roads are running completely empty, and the freight vehicles that are carrying goods carry an average of 60% of their potential capacity.
UK logistics industry focus is cost-cutting and efficiency
Source: FTA Logistics Report 2019
As well as looking to improve efficiencies, safety and environmental impact are key areas of focus for the transport and logistics industry and government stakeholders:
- Safety: enhancing safety of transport, particularly road transport, which is the most widely used, is an ongoing goal for the industry. Doing so benefits society as a whole, with fewer casualties due to road traffic accidents, for example, but also directly benefits transport and logistics companies through a positive impact on their branding and a decrease in insurance premiums. The industry is adopting new innovations and technologies such as ‘black box’ driver monitoring and/or alerts to improve safety.
- Environmental impact: the drive to become greener is increasingly paramount. The industry is currently responsible for almost a quarter of the world’s CO2 emissions , and 14% of overall emissions. Road vehicles are responsible for the majority of this, contributing to nearly three-quarters of global transport emissions. As the population becomes more environmentally conscious, governments are passing regulations and setting sustainability targets to try to reduce emissions and consumption of non-renewable energy sources. For example, the United Nations has adopted 17 Sustainable Development Goals (SDGs) that aim to reduce inequality while tackling climate change. The industry must adapt to these regulations, and large players are taking steps to improve their practices. Logistics heavyweight DHL has committed to zero emissions by 2050 and in the shipping industry, the International Maritime Organisation (IMO) have declared they will halve carbon emissions in this time period.
The role of technology in driving efficiency
For the industry to address these challenges and achieve efficiencies, it will need to adopt new technologies.
The catalyst for digital transformation will be data – in particular the generation of richer and more comprehensive data and the analysis of this data to produce insights to better inform decision making. The figure below shows the four pillars of technology that will drive improvements in efficiency.
The four pillars of technology that will help in driving efficiency
Source: STL Partners
Digital transformation: Transport and logistics lags behind
The need to digitise is not only driven by internal ambitions for greater efficiency in operations, but also by external pressures as customer expectations change. Requirements for last mile experiences in particular are evolving, as customers become accustomed to shorter and more flexible delivery times and greater visibility of the delivery process. Their cost expectations are also changing, with these improvements being expected for a smaller fee or even for free.
Despite the impetus to transform, the logistics industry lags behind other industries when it comes to digital transformation. There are two core reasons for this:
- The degree of automation is limited
- There is a reluctance to share information
The role of 5G networks in digital transformation
5G especially holds the potential to help drive digitalisation and address some of these challenges, both through enabling new and improved use cases and in its role in helping to catalyse the digital transformation journey. As 5G is rolled out, it could have a significant effect on supply chains, the wider transport industry and society more generally. This report explores the benefit of 5G to the industry and consider the actions that need to be taken by the industry, by governments, and by telecoms operators to reap the benefits.
Report findings are based on extensive research into the impact of 5G on the transport and logistics industry, including 10 interviews with enterprises and telco executives and an industry survey with more than 100 participants in both developed and developing markets.