The fourth industrial revolution and rapid adoption of e-commerce, along with changes in business models and supply chains, are challenging logistics operators in Asia to adopt new technology and adapt to new customer expectations.
Gone are the days when individuals and businesses were content to wait for days or weeks for something to arrive. They want their goods and services faster, more flexibly, and in the case of consumers, with no delivery cost. “Express” delivery means within hours, not tomorrow or the day after.
According to a 2016 study by Dotcom Distribution, an American logistics and fulfilment firm, 87% of US online shoppers identified shipping speed as a key factor in deciding whether to shop with an e-commerce brand again. A survey this past February by Temando, an Australian multi-carrier shipping platform, said 49% of consumers are willing to pay extra for same-day delivery.
The speed of e-commerce and the emergence of customised manufacturing have put logistics players under more pressure than ever to deliver faster and at lower cost.
Among those applying the most pressure are consumers who can now order anything from anywhere, no matter way where they are. A few taps on a mobile phone can get a book from England, a dress from Italy or a bunch of bananas from your favourite local supermarket delivered to your door. Agility, a global supply chain solutions specialist, has forecast that 20.4% of retail sales in Asia Pacific will take place via e-commerce by 2019, almost double the current 10.4%.
SUPPLY CHAIN ADAPTATION
According to the PwC report “Shifting Patterns” released last year, logistics providers can meet higher customer expectations by making maximum use of technology, from data analytics to automation, to lower costs and improve efficiency.
Automated solutions are now mainstream in warehouses. They include “shelf-aware” loading and unloading systems in which every item has an RFID (radio frequency identification) tag and all movements are captured by the inventory management system. When the reorder point is reached, the system will automatically issue a replenishment purchase order to the supplier anywhere in the world. Such warehouses require about 55% fewer human workers than their conventional counterparts, the report said.
Applying cloud technology also provides flexibility and scalability to standardised processes across the whole organisation, according to PwC. It also enables new business models such as “virtual freight forwarding”, which gives customers more direct control over their consignments.
One of the pioneering ventures in this field is Twill Logistics, a startup launched by Damco, the Netherlands-based multinational freight forwarding and supply chain management group. Its customers can book, manage and monitor shipments online at the click of a button, focusing on key features which include instant quotations, the ability to obtain current “milestone” locations of goods at any time, and fully integrated document handling. The service, which was launched in April, is now available only to UK shippers and only for those importing cargo from China.
“The first movers toward industry 4.0 will be the ones that gain the most via additional revenue, lower costs and efficiency gains,” says Raymon Krishnan, director of corporate advisory at the Asian Trade Centre.
“There will be casualties along the way because not all of us will be successful in what we want to do, but those of us who adopt new technology today, here and now, are going to see the maximum benefit,” he said at the Logistics Symposium 2017 held in Bangkok earlier this year.
The PwC report revealed that 90% of global transport and logistics companies now see data and analytics as the key drivers in redefining the sector over the next five years while 50% acknowledge that the absence of a digital culture in their own organisations was the single biggest challenge they faced.
The Singapore-based Logistics and Supply Chain Management Society (LSCMS), of which Mr Krishnan is the president, conducted its own survey in May and obtained a nearly identical result, he said.
The digitised logistical world, he said, is upending conventional perceptions.
The traditional supply chain consists of a supplier placing an order to production, on to distribution, and then for delivery to a customer, but in the digitally enhanced world, this is no longer the case.
Logistics providers have to understand that the current supply chain is no longer linear but is an interconnected ecosystem that can encompass a supplier’s suppliers, the customers’ customers, and even the competition.
In other words, said Mr Krishnan, “there is no reason why McDonald’s and KFC cannot have the same supply chain at some point.”
A new sharing business model is redefining collaboration led by a greater use of “physical internet” or PI solutions with more standardised shipment sizes, labelling and systems.
The term PI was coined in 2011 by Prof Benoit Montreuil of Georgia Institute of Technology in the US to describe how physical objects can be more efficiently moved around if they become more standardised and share more common channels.
FedEx and DHL have been partnering with national postal companies for many years but new technology is making collaboration more dynamic. For PI to work, companies need to be willing to collaborate more extensively and this is happening now. For example, DB Schenker last year signed a five-year contract with uShip, an online freight exchange provider, to develop a platform to connect truck drivers and shipments more efficiently.
PwC notes that logistics companies have long used mergers and acquisitions (M&A) to achieve greater collaboration and save costs, and there has been a marked pickup in activity this year, with 71 transactions worth US$43.3 billion so far. The third quarter was the second best by volume and value in the last three years. Asia and Oceania is the largest geographic region in terms of deal volume and value.
Changes in the supply chain have given rise to new business models and new entrants, including startups in the “asset-light” part of the industry, such as virtual freight forwarders that use other people’s trucks and drivers to provide service at a lower operating cost. They offer flexibility via more agile pricing, enable carriers to bid on loads, and allow them to lower bids to fill up capacity.
New last-mile delivery specialists are also using technology to tap into the “sharing economy” by matching capacity with delivery needs, such as crowdsourced delivery — some call it the “Uberisation” of freight, so named for the breakthrough ride-hailing application.
Crowdsourced delivery startups such as InstaCart, Flexport, Roadie and Shipt are making a lot of noise in the logistics world by finding faster, cheaper ways to navigate the final stage of delivery to a customer’s door.
Essentially, crowdsourced delivery means you can arrange for one of your neighbours who happens to be out somewhere with a vehicle to bring your delivery to your home. It’s also cheaper than paying bike messengers, drone pilots, a postal service or other international carriers such as FedEx and UPS.
Uber has already established UberCARGO van service in Hong Kong, and UberRUSH is offering express services by targeting online retailers in the last-mile market. Other examples are US-based Dolly, which connects people with registered drivers to pick up their goods from stores, and Nimber of Norway, which matches commuters and travellers with consumers looking to ship something across the country or deliver a document across town.
Manufacturers are also getting in on the action, since splitting shipping costs with competitors to ensure trucks don’t go out half-filled makes great financial sense.
Flexport has already raised $110 million in funding for its web-based business model for freight forwarding. What CEO Ryan Petersen calls a “seamless web of commerce” is both a traditional freight forwarder and a data provider.
On the one hand, Flexport does what any other traditional freight forwarder does, which is arranging for your goods to be transported. But the difference is that the company also provides software that analyses and verifies manifest data about what’s being shipped, how much it’s worth and where it’s going. Manufacturers can then use this data to optimise routes and make sure they always have enough products in stores.
Flexport basically provides deeper visibility into what’s happening with freight. For example, if you produce a few tonnes of goods in China and need to deliver them to stores across the US, the company will book the trucks, ports, planes and boats you need to get them there while tracking all the data to optimise every route.
While shipping something from Shenzhen to Rotterdam to Los Angeles requires complex coordination, in many cases still requiring telephones, spreadsheets and fax machines, the web-based Flexport app offers more convenient real-time visibility.
In an interview with TechCrunch, Mr Petersen said Flexport was now moving 7,000 shipping containers a month for an average of $2,000 each while taking around a 15% cut, earning it roughly $2.1 million per month from ocean freight alone. The company has moved $1 billion worth of in merchandise this year and those goods would be worth $2.5 billion at retail, an impressive number given that it just started in 2013.
“I do not believe the role of traditional freight forwarders will ever go away but we still have to pay attention to these new capabilities that exist out there now,” Mr Krishnan said. “It is going to have an impact on us in one way, shape or form, and crowdsourced delivery is one of them.”
Responses from transport and logistics professionals to the question: “Where are the biggest challenges or inhibitors for building digital operations capabilities in your company?”
Lack of digital culture and training: 50%
Lack of a clear digital operations vision and support or leadership from top management: 33%
Unclear economic benefit of digital investments: 21%
High financial investment requirements: 38%
Unresolved questions around data security and data privacy in connection with the use of external data: 38%
Insufficient talent: 26%
Lack of digital standards, norms and certification: 17%
Slow expansion of basic infrastructure technologies: 23%
Business partners are not able to collaborate around digital solutions: 22%
Concerns around loss of control over the company’s intellectual property: 15%
Note: Up to three responses per person accepted
Source: PwC ‘Shifting Patterns’ report