The Supply Chain Matters blog continues its series of unveiling 2019 Predictions for Industry and Global Supply Chains. In this Part Eight posting, we highlight Prediction Seven, our belief for added converging forces of disruption impacting the global logistics and transportation industry in the coming year.

On an annual basis, the Ferrari Consulting and Research Group provides a series of supply chain management focused predictions for the coming year.  These predictions are provided to our clients and readers of this Supply Chain Matters blog in the spirit of advising line-of-business, multi-industry cross-functional supply chain management and supporting IT teams a sensing of meaningful initiatives, programs or capabilities we feel will be of importance.  The predictions further serve as our continued research and client advisory agenda in the coming year.

The context of these predictions includes a broad cross-functional umbrella of what today is supply chain management, and includes areas of supply chain leadership and strategy, product management, strategic sourcing and procurement, planning and execution, manufacturing, transportation and logistics, online fulfillment.

We initiated this series in a blog that summarized themes and insights included in all ten of our predictions.

Part One of the series highlighted what industry and global supply chain management teams should expect from a global economic outlook perspective.

Part Two highlighted our prediction of alarming talent needs among all functional and technical support areas of supply chain management.

Part Three of the series addressed unprecedented levels of global supply network challenges that can be expected in the coming year.

Part Four highlighted a continuing prediction that the threat of cyber-attacks involving supply chain management processes are inevitable.

Part Five addressed areas of supply chain management digital transformation and the need for strategic and tactical business cases.

Part Six highlighted our carry-over prediction related to various multi-industry supply chain transitions toward Digitally-Enabled Response Networks.

Part Seven addressed our belief of the expected business prioritization attached for various supply chain management focused advanced technology investment areas in the coming year.

 

2019 Prediction Eight: Global Logistics, Transportation and Third-Party Logistics Entities Confront Converging Forces of Industry Model Disruptors.

In the coming year, global logistics, transportation and third-party logistics entities will begin to finally  confront the converging forces of industry business model disruption with a lot of process, technology and stakeholder implications.

Significantly increased annualized logistics and transportation costs across global regions are unsustainable for individual shippers and consignees, with the industry model ripe for disruption and new thinking enabled by more modern and advanced technology applied to specific network challenges.

 

Background

For four consecutive years, we have elected to include a prediction focused specifically on global and regional logistics and transportation capabilities, and their changing industry dynamics. This is an industry segment that remains fragmented and disjointed to accomplishing seamless, efficient and transparent global, regional and local movement of goods and services for industry supply and demand networks.

Our prior predictions stemmed from both growth in global trade flows and an ocean container shipping industry that continually struggles to manage fleet overcapacity while remaining insular to shipper needs for more responsive service levels and information technology capabilities.

Today’s prevailing global shipping consortiums serve to optimize industry efficiency needs at the expense of shipper needs. Now, there is intent by some such as industry leader Maersk to broaden services capabilities into multi-modal transport and last-mile delivery needs. There are also high-profile industry initiatives to deploy advanced technologies such as Blockchain to address long-standing tendering and transactional needs while providing deeper visibility for sensitive shipments such as food and hazardous cargos.

Predictions migrated to surface carriers, trucking companies and third-party logistics (3PL) providers initially resisting the immutable wave of online commerce adoption, and then the unmistakable presence of Amazon becoming an industry disruptor in executing its own customer logistics, air transport and now last-mile delivery capabilities that stun the industry in both service levels and efficiencies garnered.  In early December 2018, Morgan Stanley issued an investment report on the parcel transport segment, and specifically UPS stock. The general opinion expressed was that major existing carriers will be impacted by Amazon’s air and customer logistics automation capabilities. The report estimated that Amazon’ air movement capabilities will impact 2 percent of UPS revenues while increased cost efficiencies could erode 10 percent of both FedEx and UPS revenues by 2025.

China-based online providers such as Alibaba and JD.com have also invested billions in domestic and international parcel delivery capabilities leveraging today’s more advanced technologies such as AI, robotics and advanced analytics. Such capabilities are increasingly being expanded across other Asian based regions.

Major global parcel carriers such as DHL, FedEx and UPS stubbornly clung to their network hub and spoke transportation routings only to then discover that major hubs became their singular bottlenecks. Now there are efforts to once again invest huge sums of money in material handling, logistics and network automation, funded by a strategy that extracts higher annual rates to pay for such investments.

Indeed, an overall industry known for inward thinking and a continuous tendency to pass along rate increases to fund needed business expansion initiatives reached a circumspect point in 2018.

Many businesses large and small had their financial performance outcomes negatively impacted by significantly higher increases in logistics and transportation costs. CFO’s had to explain to investors what actions would be taken to save costs, and industry supply chain management teams were tasked with senior to investigate means and methods to reduce the cycle of significantly higher transportation costs.

 

Some Moderation in Rates for 2019

With global manufacturing and supply chain activity levels expecting to moderate in 2019, the industry will be faced with previously augmented capacity meeting what will likely be reduced demand.

With significant amounts of global trade supported by ocean shipping, this will be one segment that will experience meaningful impacts in reduced volume and higher resistance to prevailing freight rates. With increasingly higher amounts of the current global fleet being in the mega-ship category, the industry will again be challenged by overall overcapacity. There is current speculation that after the Lunar New Year occurs in February 2019 when global shipping traditionally slows, that both Europe and U.S. bound segments could continue to be laggard.

For the U.S., trucking demand is expected to moderate as manufacturing momentum begins to slow. Acquisitions of new Class 8 trucks will begin to make their presence in carrier fleets adding to supply and demand imbalances.

According to ISM data, transport and warehousing reported the largest year-on-year capital investment rates in 2018. Heading into 2019, trucking firms will strive to maintain market rate leverage while also striving to lock-in more businesses with longer-term services contracts.  Such efforts will invariably meet needs by businesses to garner significantly lower transportation costs.

Forces Converge in 2019

Now, all industry stakeholders want to participate in the implications of a permanent shift to online retail, and all that this requires in a far different logistics and last-mile fulfillment business model.

This has to involve removing major cost constraints in global-wide shipping, conforming to new environment mandates, and provider industry supply chains more meaningful options in near real-time visibility and actions related to products in-motion.

Some participants will continue to utilize legacy thinking and business practices to do so. The same participants are attempting to converge with current industry segments such as online tendering of shipments, transportation brokerage, higher levels of online network visibility and transportation contracting. The most visible example of this business strategy in the U.S. is that of XPO Logistics, now considered to be one of the largest logistics providers in North America with over $15 billion in annual revenues from a number of business lines. The provider has a goal to invest an additional $8 billion on more acquisitions.

We predict that 2019 will be a year of significant transition, one where legacy business, information capture and real-time end-to-end visibility are challenged by industry disruptors on an international scale. Instead of constantly challenging regulatory mandates, disruptors will leverage information toward dynamically managing more efficient or optimized routing.

Needs for increased mobility in information access and capture will be leveraged by the emergence of REST Web service API’s that can either tap information from older legacy applications or a variety of Cloud-based systems. This capability has become especially important in the area of logistics and transportation, providing warehouse, logistics, transportation, or customer fulfillment workers with added, more-timely information. This is a red-hot area of development interest.

As noted in Prediction Seven, another hot area of interest and proof-of-concept activity will be the emergence of advanced robotics leveraged by AI/machine learning applied to actual picking and packing processes. Amazon is believed to be working on this technology as is a number of innovative start-ups.

Similar to 2018, advanced technology investment monies related to artificial intelligence, advanced analytics, IoT and Blockchain will be very prevalent in this industry sector given the robust Capex budgets and industry stakes.

 

Industry Mergers and Acquisitions

In 2018, U.S. and international trucking, logistics and warehousing firms discovered that acquisitions bring a more difficult set of challenges related to scale which require additional investments in process, talent and advanced technology. Accounting issues relative to the valuation of assets remains a gnawing issue. Trucking firms have rapidly expanded acquisition of new, more fuel-efficient and technology laden trucks, and to some degree, were successful in recruiting additional drivers. The overall challenge deepens in 2019, especially in embracing, adopting and leveraging of advanced technology focused on cargo in movement.

In spite of the above, we predict added acquisitions and added industry moves by players to position themselves with shippers, manufacturers and retailers as provider-of-choice. We further predict fallout from these efforts.

 

Business Outward Looking

From the shipper and consignee side, traditional applications such as warehouse or transportation management (WMS/TMS) were designed prior to today’s online economy of multiple smaller scale shipments. Many of these applications reference static transportation routing tables not linked to actual market constraints or segment opportunities.  Users struggle to modify such applications to manage product configuration postponement strategies conducted at a point in the logistics or distribution network. Many are not truly Cloud-based in architecture and in open integrations.

As one example, one of the fastest growing technology providers in the area of transportation management is SwanLeap, recently ranked as the fastest growing private company in the U.S. by Inc. CEO Brad Hollister flatly indicated to us in his observation that nobody in the industry truly understands how to optimize both inbound and outbound transportation management needs because of a fragmented industry and business use applications not addressing the real problems of timely and informed decision-making. SwanLeap applies artificial intelligence and machine-learning techniques to leverage real-time data and analytics to compare information relative to on-time carrier performance, tendering response and billing error rates occurring across a variety of carriers. The technology further allows businesses to analyze and compare real-time spot-market transportation rates with prevailing contract rates.

The continued discovery of such shortfalls is where many industry disrupters and/or legacy players will attempt to leverage in the coming year.

Fresh Food and Grocery Sector

We predict a continuing attraction by consumers to food and grocery online ordering which will, in-turn, lead to more explosive growth of local delivery services either courier, regional of national in-scope. Some retailers such as Amazon and Target own portions of their own delivery networks and tracking capabilities.

We predict that Amazon will once again serve as a nation-wide disruptor in this segment since many firms have not as yet mastered scale, efficiency and profitability. Likewise, internationally-based providers will likely crack the code for food delivery efficiencies, particularly in China and other Asian nations.

 

Longer Term

In the three to five-year window we foresee efforts in managing dynamic networks, networks that peak and ebb with retail shopping events, unplanned events in the economy or natural disasters causing network disruptions. When network capacity levels peak or ebb, the challenge turns to optimizing any and all lanes and movements of that network. Real-time end-to-end network visibility is paramount not only for accommodating customer shipping needs but in identifying load opportunities from a variety of networks.

Our belief that multi-industry and global supply chains will eventually witness the creation of Network of Networks as business strategies and advanced technology that aligns to future levels of capability. Such scenarios begin to apply to logistics fulfillment platforms with branded names. Consider online customers being offered choices such as same-day or next-hour virtual courier, FedEx, UPS, national postal carrier, each with a cost and service bid offered to the customer. Consider existing online retailer platforms offering the similar choices with contracted carriers as capacity opportunities make themselves available in online tendering. We may will see discernable signs of such strategies being percolated in the 2019-2020 period.

 

This concludes our highlights of Part Eight of our 2019 Predictions for Industry and Global Supply Chains.

In the next posting in this series, we focus on the positioning for global online retail presence meeting the realities of geo-political forces.

In the meantime, we welcome reader feedback on predictions along with submissions of added predictions in specific industry settings.

if your organization requires assistance in preparing for challenges in the upcoming year, please get in contact with us for added information on any of these predictions.

 

Bob Ferrari

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