To defend against new strategies and niche value offerings, operators should leverage their specific expertise and develop flexible capabilities that address changing shipper needs, according to a new report from PricewaterhouseCoopers’s Strategy& team.
Relatively flat financial results in the transportation and logistics sector last year belied an industry ripe for disruption, according to a new report from PricewaterhouseCoopers’s Strategy& team.
Despite what Strategy& referred to as a “calm” and “relative tranquility” year in 2015, the changing needs of shippers and beneficial cargo owners have made supply chains more complex than ever, and this could lead to further disruption of traditional logistics models.
“These changes are best encapsulated by five trends,” the consulting firm said in its 2016 Commercial Transportation Trends report.
• The fracturing of supply chains, which increasingly feature a mix of offshore, nearshore, and onshore locations, and the expanding number of nodes in shipper distribution networks aimed at reducing delivery time to customers from days to hours;
• The rising recognition among shippers that transportation and logistics can yield a considerable competitive advantage for them; shipping is no longer a tactical decision influenced solely by cost, but rather a strategic consideration based on such factors as customer expectations, sales volume, and product mix;
• The expanded presence of high-margin shippers selling valuable and sensitive products, such as specialty pharmaceuticals and fragile electronic equipment, that require exceptional handling, security, reliability, and tracking procedures from their transportation companies;
• The frequency and magnitude of disruptive events — higher peaks in demand, “100-year” storms and other natural disasters, labor strikes, and geopolitical uncertainties — that are causing shippers to reevaluate their procurement tactics and the efficacy of their logistics networks;
• And the double-digit growth of e-commerce and the inroads that it is making in the business-to-business arena, where shipment complexity is higher and transparency and tracking requirements are greater.
According to the report, these trends are creating new demand patterns for the commercial freight transportation and logistics industry.
What this means is that shippers and BCOs are seeking out logistics providers that are more “strategically inclined” and able to operate across a diverse and sometimes unpredictable supply chain.
“Shippers particularly seek carriers that can accommodate spikes in volume and maintain a high level of performance during disruptions,” it said. “And they are looking for business-enhancing opportunities, such as 3D printing and digitally enabled solutions that provide visibility into multiple vendors, greater price transparency, and a consumer-like user experience.”
The report analyzes several types of companies PwC’s Strategy& group views as potentially disruptive to the traditional way of doing business in the industry as “established” operators may not be capable of meeting the expectations of an evolving market. The result is a group of new competitors “slicing off bits and pieces of the logistics sector, offering targeted services that some shippers perceive as providing more value and innovation than the more traditional, wider but less specialized, menus of the larger companies.”
Among the disruptors are what Strategy& calls “local network builders,” which buck the conventional model of centralized warehousing and distribution for a more localized structure; “crowdsourcing fillers” like Cargomatic and Roadie that connect shippers directly with carriers via online and mobile apps; “startup simplifiers,” which target small, up-and-coming cargo owners and provide them with a more tailored, specialized service offering; “big data manipulators,” companies like Echo Global Logistics and Keychain Logistics that leverage the power of data analytics to cut carrying costs and provide shippers with greater flexibility; and “hybrid carriers” like XPO Logistics.
“It’s highly unlikely that any one of these new niche value offerings will come to dominate the commercial freight transportation and logistics industry (or that these are the only new strategies we will see), but they are already reshaping the sector,” Strategy& said in the report. “Many additional competitors will arise in the near future, including but not limited to Amazon, which most of the industry views as the most threatening disruptor.”
According to the report, freight operators should be prepared disrupt their own individual operating models as a defense against disruptors. More specifically, carriers need to leverage their specific expertise and develop flexible capabilities that address changing customer needs in order to compete with these new strategies and niche value offerings.
Some examples of how to do this include creating a better balance between customer needs and operational efficiencies by providing shippers with greater visibility and maneuverability with respect to the timing and mode of shipments and making global, cross-modal solutions a standard offering.
Another method of self-disruption is strategic M&A deal making and integration, citing parcel and logistics giant UPS’s $1.8 billion purchase of Coyote Logistics as a prime example of this type of thinking.
“Foster the habit, throughout your company, of continually scanning for new competitors, seeking to understand how customer needs are being addressed by those competitors,” the report suggests. “When you identify product and capability gaps, consider acquiring companies that fill in those holes in your business model.
“Don’t view M&A in itself as a sufficient strategic response to the shifting demands of shippers,” it added. “M&A can be an excellent tool for obtaining capabilities and fleshing out product and service portfolios, but only if you have an effective tactical plan for meeting customers’ needs.”
Further, companies should be prepared to deploy internal data analytics as well as advanced customer-facing digital tools, and enhance their network agility and support capacity management using local or third-party networks to buck the traditional hub-and-spoke methodology.
“Together, adopting these capabilities — or the right combination of them for your company’s business model and customer base — can help carriers and logistics companies respond to the shifts in shipper demand that have opened the door to disruptors emerging within their markets,” PwC argues. “That’s a much more palatable option than sitting back and watching as your position in the marketplace erodes.”
PwC: Cargo carriers must disrupt themselves, or be disrupted
