The world is changing very fast and so is the world of logistic year after year.
Studies show the logistics industry is growing and maintaining a steady rate of improvement, but also is replacing human resources with machinery in their pursuit for a better and cheaper performance.
Everybody along the supply chain wants to get more and give less: the customers, the manufacturer, the supplier, the retailer; thanks to emerging technologies, companies involved in this sector will benefit from this changes correcting strategies in order to remain competitive.
The sector has evolved a lot during the last few years. One of the aspects that have lead to this development is the use of Big Data analyses, which are called to be one of the next big revolutions in logistics. This technology has been already applied with dramatic effect, significantly growing the business and reducing costs.
Many logistic companies have initiated different projects so as to tap this technology and few of them will be part of the daily routine soon. Some of the most important big data projects linked with the logistics sector are:
- Anticipatory logistics: it enables logistics suppliers to predict demand before a purchase order is even made. This reduces delivery times, increasing service quality and procedure efficiency.
- Volume analysis: forecast the volume of package on a particular date or day has always been an important issue for logistic companies, seeking to maximize resource distribution and budget. The Big data technology allows figuring out the patterns that help predict peak volumes.
- Transparency for end client: millions of parcels are delivered daily and to predict when they will arrive exactly is a challenging task for logistics suppliers. Timing depends on a wide range of variants: package´s number, traffic or vehicle status, etc. With this technology it is easier to predict when a product will reach a customer, resulting in a more efficient and transparent process.
Facts & Figures about Logistic and Transportation
Logistics and transportation covers a wide range of activities that can be split in these groups: Post (courier, express, parcel), Contract logistics, Shipping, Trucking, Rail, Air, and Freight forwarding. All of them dedicated to the physical movement of goods. They are also set up as network business, relying on transport infrastructure, dealing with a high share of fuel/energy cost and often providing time-critical and perishable services.
The chart below shows the structure of the world transport exports:
The global logistics market, in terms of revenue, is set to expand from US$8.1 trillion in 2015 to US$15.5 trillion by 2023, registering a CAGR of 7.5% from 2015 to 2024. By volume, the market is expected to grow in a 6.0% CAGR from 2016 to 2024.
Considering the data from past years we can see in the chart below how companies in the logistic sector recovered from the crisis in different ways. Both in Revenue and Ebita (apart of shipping that felt in EBIT from 6.3 to 5.2 in the period 2010-13 compared with 2008-2009).
Regarding the evolution of exports in the world we see an increase in general terms in the last ten years, but with a clear drop in 2009, where due to the global crisis they fall considerably in all countries, including the developing countries.
In the Logistic sector we can consider 7 trends that are affecting the market players
We could see them more in depth in the Porter´s analysis below.
From Porter’s Five Forces analysis some conclusions can be considered in terms of market structure, threats of entry, suppliers power, threat of substitutes, and rivalry among competitors.
Normally the Logistic and Transportation is a capital-intensive business, which means that most companies have to invest significant amounts just to stay in business so the threats of entries of small companies are very low. That capital requirement (level of coordination, facilities, storage, handling, equipment, transportation and borders controls for logistic at international level) makes new entry threats very low. Others factor to take into consideration is the connectivity of the country or city in question. Easy access to a wide range of places, or select a narrow market may decrease the capital requirements.
Logistic is very related with economies of scale. Small and local logistic companies are in a disadvantage with big companies especially for the approach they have to make to the market. This means if they decide to compete and only capture a small portion of the market they will have higher cost. Established companies may have invested in transportation equipment or others levels of the supply chain and also may have long time arrangements. This absolute cost advantages makes threat of entry low.
In this sector is very important to have a differentiated product as normally the service can be carried out in similar way by the competitors, which creates a high threat of entry. But normally big companies are in an advantage in access to distribution channels. A new entrant may find difficult to compete for a good deal in certain areas like distribution. If that industry is cover by enormous well-known companies that manage large amount of goods, it will be harder to get the attention of distributors.
Also another issue in the logistic sector is the legal and government barrier that gives normally an advantage to big companies in front of the small ones because they have better access to solutions in these matters.
Retaliation by established producers is sometimes expected, but the threat needs to be really high in order to sacrifice profits.
Related to the supplier’s power in logistic sector they are an important economic factor in the market because of the impact they can have on customer profits. Suppliers can determine the price and terms of supply.
This power is based on:
- Fuel prices cannot be negotiated. High power of suppliers in this aspect.
- Labor: It is considered as a supplier. Important degree of power in some situations. It is linked to the power of the unions.
- A group of suppliers is more powerful when:
- The market is dominated by few firms.
- Product differentiation. It is difficult for buyers to change from one supplier to another.
- The buyer is not an important customer for the supplier group.
- No competition with other substitute products.
- When one or more suppliers are a threat of forward integration into the buyer industry business.
- Purchasing new vehicles: In this case the suppliers have much less power. Depending on the company the volume of vehicles to be bought could be a large amount. In this case suppliers do not want to reject this company business and want to continue working for them in the future. Suppliers offer to the buyer company quantity discounts and favorable payment terms.
Another important point is the Threat of Substitutes
- Relative price performance of substitutes: Substitute service options for logistic express are common and it is easy to find alternatives at lower prices (air cargo companies as Iberia, small local competitors for shorter distances as local courier, freight companies with lower transit times and lower costs as groupage companies)
- Switching cost: Due to the large amount of competitors offering similar services of transport from point A to point B the cost for switching from one competitor to a substitute is relatively easy.
- Buyer propensity to substitute: There are many options in the logistic market with a clear visibility about prices and services to the customers. That´s why many of them take the decision of choosing one or another just considering factors like price, transit time, convenience delivery points.
- Share transportation:
- Crowd sourced delivery: In the last mile distribution the transport vehicle is shared with different customers.
- Capacity sharing trading: Online platforms that connect truck services that have free capacity in their routes to customers that need to send goods using the same routes.
In this analysis we also need to consider the rivalry among the existing competitors in a very mature sector with fierce competition among the companies. Only in the e-commerce and last mile distribution we can see higher growth rates.
Among the main competitors we can find this ranking for 2015:
|Rank||Company||Net Revenue Million $|
|1||UPS Supply Chain Solutions||3108|
|2||XPO Logistics Inc.||2841|
|3||J.B. Hunt Transport Services||2660|
|4||C.H. Robinson Worldwide||2268|
|5||Expeditors International of Washington||2188|
|6||Ryder Supply Chain Solutions||1925|
|7||DHL Supply Chain||1815|
|13||Kuehne + Nagel Inc.||1197|
|17||DB Schenker USA||898|
|19||Werner Global Logistics||826|
Attending to the classification of the logistic companies between Post (courier, express, parcel), Contract logistics, Shipping, Trucking, Rail, Air, and Freight forwarding, we need to clarify that many of them compete in different segments of the market, and also with different market shares depending on the country or area of the world.
The diversity of competitors makes the sector less profitable and rivalry price very intense. Depending on the segment the service offered by the competitors is very similar in the basic concept of transport one item from A to B in the shorter possible time. The only way to differentiate is through the tracking technology or the quality of service based lower rates of damages or lost goods. So it is very important to differentiate the service from the competitors.
The exit barriers are very high due to the high capitalization of the sector that increases de rivalry in the market.
Another point regarding the competitors is that the companies are trying to increase the brand loyalty, which normally is only possible for big customers once the logistic company has been able to integrate their service in the customer´s production cycle.
One last point is the Power of Buyers: Consumers can press on businesses to obtain from suppliers higher quality products, better service and lower prices.
The capacity of influence depends mostly on their size:
- Individual users possess little power.
- Larger companies that contract for shipping purposes have a great deal of bargain power due to the large volume of purchase they make. They are continually exerting pressures on prices and negotiating for higher quality and more services, which drives to a decrease of industry profitability. International logistics companies compete strongly in order to serve these companies and, since all offer the same general services, they must do so via price.
Another important aspect is the low switching cost that exists in this industry. Customers feel confident that they can always find an alternative service provider and that the change is not going to cost too much money or effort.
The future of logistic sector
The robots in the industry are already a reality. Multinationals and big companies are introducing this type of technology in their warehouses. This innovation has allowed the creation of companies dedicated to the development of robots that will be part of the daily activity in a factory or in a city.
What will be the characteristics of future robots? What are their benefits and disadvantages?
The robots used in the logistics sector are not as they appear in the movies and do not have human form. For example, Amazon uses simple square robots with wheels. Their weight is around 145 kilos and can rise up to 340 kilos. Their speed is 5, 5 km/h and connects wifi to receive orders from Amazon’s IT system.
Another type of robot is the proposal of Starship. This robot can deliver small packages in a range of 5 km between the point of loading and unloading without any driver support since it has an electrical engine. Its speed is 6 km/h and its load capacity is 9 kg.
Benefits and disadvantages:
Some of the benefits of using this technology are:
- Costs reduction.
- Increase of productivity.
- Skilled labor.
- Reduction of environmental impact.
And some disadvantages are:
- High costs of implementation.
- Safety: accidents at work because of ignorance of using this technology.
- Lack of training of those professionals who share labor space with robots.
- Unemployment of basic workers.
It is certain that the supply chain of tomorrow will be leaner and faster. Deliveries made by express couriers will be performed by drones and robots which will be able to execute different logistic functions at lower costs than human workers. New technologies will change the industry’s cost model and bring into question the current business models. If the companies are willing to keep the dominance in the market, they will have to change according to these new emerging trends.
Logistics covers several subsectors, which include transport (air, maritime, terrestrial) storage and handling of goods, freight forwarding (i.e. CH Robinson) packaging, 3PL, Temperature Controlled Logistics…
In this report we have tried to give an overview of the sector. We have analyzed the market size, competitors, entry barriers, clients, suppliers, substitutes, potential profit, and its future.
International logistics industry is highly competitive. In spite of a low threat of entry, mostly due to high cost, the bargain power of big suppliers and buyers is very high. This, together with the similarity of services and low switching costs, results in a significant pressure to compete within the sector. A small amount of companies participate in the market at a global level. These multinationals base their competition against the others mostly in prices, which leads to lower margins. For that reason logistics enterprises are seeking to differentiate themselves by offering a state of the art service, in which technology is becoming increasingly important. Therefore, the logistics sector will tend to be more automated, environmentally friendly and faster. The companies will have to recycle both technological and workforce level and invest in training to avoid the misuse of these new technologies. Moreover the logistics of the future will have to face up to the challenge of implementing new technologies to their processes without losing of efficiency during this transition period.