Possibilities in a disrupting logistics sector

Logistics continues to be foreseen as a thriving industry in the Philippines. In a report by Ken Research, a global aggregator and publisher of market intelligence, equity, and economy reports, the Philippine logistics and warehousing market is projected to reach over P970 billion by 2023, along with a positive compound annual growth rate of 8.8% during the forecast period 2018E-2023E.

“The market is further expected to be driven by expanding industrial activities, growing e-commerce industry, upcoming infrastructure in the country & continuous investment by the government in development of logistics infrastructure and consistent economic growth,” Ken Research said in a statement.

On the other hand, the logistics industry is being disrupted on a global scale, creating possibilities that logistics firms should consider. In a recent report by multinational professional services network PricewaterhouseCoopers (PwC) titled “Shifting Patterns: The Future of the Logistics Industry”, logistics is perceived to be driven by disruptions coming from growing consumer expectations, technological breakthroughs, new entrants to the industry, and a redefined model of collaboration.

The first disruption comes from expectations of both individuals and businesses “to get goods faster, more flexibly, and — in the case of consumers — at low or no delivery cost.”

“Manufacturing industries are facing far greater expectations around efficiency and performance than ever before,” the report said of expectation in business-to-business (B2B) markets. “Their customers expect faster time-to-market, reduced defect rates, and customized products.”

Among business-to-consumer (B2C) markets, the report says that some parts of the sector are still struggling to keep up with consumers who have gone digital long before many of the retailers.

Emerging technologies such as data analytics, automation, and cloud technology are changing the way logistics operate, hoping to address the growing pressure to deliver a better service. However, while there is a huge potential provided by these technological breakthroughs, the industry has been slow to seize it.

“In our recent Industry 4.0 study, the percentage of [transport & logistics] companies that rated themselves as ‘advanced’ on digitization was just 28%,” the research noted. Thus, the lack of ‘digital culture’ and training is a challenge the industry must face and conquer, lest they risk being left behind.

Furthermore, start-ups with new business models, major players from other industries, and even the customers of logistics companies are entering the industry. Start-ups among the industry are taking advantage of new technology, especially in freight forwarding and last-mile delivery. Among the major players outside logistics, autonomous vehicles is cited as a possible entrant; while among the industry’s own consumers, e-commerce companies Amazon and Alibaba are apparent examples.

Redefining collaboration, being perceived as a means to increase efficiency, is another disruptor in the industry. Collaboration can become more dynamic through new technology, but inconsistencies in the processes make collaborations difficult. The report sees the concept of ‘Physical Internet’ (PI) as a viable solution. PI is based on the idea that “physical objects can be more efficiently moved around if they become more standardized and share common channels, like data packets on the Internet.”

“The Physical Internet could help address this ‘grand challenge’ by drastically increasing co-operation between companies and across transport modes through greater standardisation,” the research read.

Along with these key disruptions in the industry, the report looked at ways in how these changes might work together and shape logistics in 5 to 10 years. The report noted four possible scenarios: “Sharing the PI(e)”, “Start-up, shake-up”, “Complex competition”, and “Scale matters”.

Under the “Sharing the PI(e)” scenario, the dominant theme is the growth of collaborative working where current market leaders (or incumbents) retain their dominance.

“Incumbents increase their efficiency and reduce their environmental impact by collaborating more, and developing new business models, such as sharing networks,” the report explained. “Research around the ‘Physical Internet’ (PI) leads to shared standards for shipment sizes, greater modal connectivity, and IT requirements across carriers.”

Another possibility is the “Start-up, shake-up”, wherein new entrants in the form of startups will bring a bigger impact. With crowd-sharing platforms and blockchain as dominant technologies in this scenario, startups become significant players, take market share from the incumbents through new business models, and collaborate with them and complement their service offers.

“Complex competition,” meanwhile, is characterized by the expansion of logistics offerings of big retail players. As a result, they shift from being customers to competitors. “They purchase small logistics players to help cover major markets, and draw on their deep understanding of customer behavior to optimize supply chains,” the report further explained. From serving as suppliers to the industry, technology firms are also seen entering this industry and creating a wider competition.

On the other hand, incumbent firms further improve in the “Scale matters” scenario. As current market leaders, they “compete for a dominant market position by acquiring smaller players, achieving scale through consolidation, and innovation through the acquisition of smaller entrepreneurial startups.” — Adrian Paul B. Conoza