By Adam Wasserman, Managing Partner and Lois C. Yates, CEcD, GLDPartners
In one way or another, advances in product or business model technology has created quite significant changes in how companies are managing and planning their supply chains. Evolving corporate requirements have cascaded a wide range of new requirements to corporate supply chain managers and their external logistics partners. This dynamic has created a panoply of new challenges to what has been largely quite established and stabled supply chain environments.
To some in the logistics industry, these dynamics are creating new business opportunities, while to others these new requirements are producing challenges to legacy supply chain business. Generally speaking, these kinds of corporate requirement changes are causing upheaval and new logistics complexity – creating new opportunities for a number of logistics companies who are able to provide new service offerings and appropriate levels of product and customer care.
New Players and Services
To keep up with a variety of factors including increased globalization, demands for data transparency and real-time tracking requirements, etc., the logistics industry has evolved to be defined as an extremely data-centric world. The logistics sector is no longer mostly defined by its hardware − its trucks, vessels, airplanes and sometimes its buildings − but now is focused equally around the manipulation of cargo data. In seeking to be more relevant to its customers’ current needs, the logistics industry is as much about sophisticated IT applications as anything else.
Technological impacts are affecting a wide range of industries, but quite significantly in some of the most complex and global corporate supply chains, and this has caused the development of a new category of nimble, client service-oriented logistics companies. Some players are embracing change by offering new higher levels of cargo handling and location transparency, new transport routes and frequencies, higher care for sensitive cargoes, new warehouse and end-of-chain services. Practically all aspects of how the logistics industry functions are being changed by technology in one way or another. The evolution of digital technologies such as robotics, the Internet of Things, 3D printing, data analysis and cloud computing are being adopted by industry to provide faster, cheaper, more reliable and sustainable delivery.
The core business of the global ocean carrier container fleet is fully an ability to manager in real-time data about the shipment requirements for hundreds of thousands of clients every day.
Intermodal truck-rail is now a major component of some highly-sensitive supply chains that rely on highly-calibrated deliveries to clients that require consistent inventory replenishment.
Air cargo forwarders and their cargo movement partners are increasing their game to meet the time and special care handling requirements for sensitive cargoes.
The logistics industry is in a period of rapid adoption, where is it working overtime to keep up with client requirements. In many ways, the industry is playing catch-up and has not led innovation – but this is changing quickly. For example, the pharma industry had regarded air cargo logistics as lagging their increasing requirements for high-touch product care during transportation. Air cargo logistics had been regarded as lacking in ability to manage with precision and product temperature control during shipment – this with life and death along with expensive consequences if there were deviances. This has changed with new services including specialized facilities and newer, more sophisticated temperature control equipment.
Market Pressures in Key Sectors
Each sector that utilizes logistics services has different requirements, some are more complex and some are undergoing more rapid change. Below is a selection of examples from four sectors that are under substantial pressure to adapt to new technology realities.
Generally speaking, the pharma logistics industry has been slow to adopt processes which provide transparency and traceability in the processing and handling of pharma products. With the emergence of bio-logistics and the more patient-centric approach of precision and personalized medicine, cold-chain requirements represent the fastest-growing segment of the pharma industry.
A cold chain in the pharma industry is the temperature-controlled handling of a product from the time of its production through its transportation, handling, storage and delivery.
Cold chain management represents a high-cost and complex logistics process requiring constant monitoring and controlling temperature sensitivity. For the pharma industry, consistent performance for standards is mandatory. Poor logistics management performance is not acceptable in this case, and when problems occur the results can have life threatening consequences and be very costly. Logistics providers that are evolving as specialists for pharma cold chain need to be able to report on real-time track and trace issues and provide complete visibility in the handling of the product.
As requirements expand, digital communications, data collection and data transparency will be the true enablers of the cold chain process. As it stands now, GPS for temperature-sensitive shipments is not regulated. The benefits of shipping with a GPS device are to protect against theft and the ability to be proactive if a temperature excursion is detected. Although there is currently nothing that suggests new regulations are being contemplated – in the future there will be an increased demand for this technology and cold chain will be the battleground for the large and specialist logistics companies as they try to gain more market share in the lucrative pharma market.
The global aerospace industry has been expanding at an accelerated rate, led by the commercial aerospace industry which accounts for more than half of the global aerospace industry’s production revenue. The expansion of the industry has brought about the need for increasingly-sophisticated ways to support an expanding matrix of suppliers and their ability to efficiently interface with manufacturing customers.
The industry is concentrated in only a handful of key countries and the supporting supply chain system is highly developed. In most cases, suppliers are providing parts and components that are sophisticated while high-value and time and condition delivery requirements are extremely precise. A complex assembly line can be held-up at a significant cost if there are unexpected delays.
To increase production nimbleness and reduce product delivery/delay exposure, the industry has begun to exploit manufacturing production technology in very creative ways. 3D printing is quickly becoming a major disruptive technology as it offers the ability to rapidly exchange designs and manufacturing capabilities via file sharing. The aerospace industry is a good fit for 3D printing because it produces complex parts that have low weight requirements. It offers flexible parts production in one step, reduces waste material from manufacturing, allows parts to be produced on location and limits the need for warehouse space. The technology reduces shipping and production costs, cuts production cycle times and reduces the amount of logistics support needed.
Growing by a compound annual growth rate of over 23 percent, 3D printing is beginning to have a major impact on the aerospace industry as the major aircraft companies are investing in 3D printing companies. But the aerospace industry is just the tip of the iceberg for 3D printing applications. The technology is also applicable for the commercial space industry, spare parts, medical prosthetics, bioengineered human cells, explosives and sensors just to name a few.
The overwhelming growth in the eCommerce sector has caused an extraordinary upheaval to the global logistics system. E-commerce has changed the way deliveries are picked up, shipped and tracked – making things accurate and faster. If you think about it, the fundamental backbones of the eCommerce world are the ability to quickly manage massive amounts of customer, vendor, and delivery data along with the practical hands-on ability to actually deliver a physical product to a customer quickly. Both require technological solutions of a vast scale.
E-Commerce market share in 2018, as a percentage of all retail sales, is expected to increase to 11.9 percen, up from 3.5 percent a decade ago. But this fast growth – plus still a relatively low market share – means there is an enormous opportunity for continued growth, and this expected growth curve will bring even more changes to the wider logistics world.
As eCommerce vendors have expanded their product portfolios and geographic reach, the underlying business model has evolved. Customer expectations are swiftly expanding for receiving a vastly wider array of products faster, and consumers are now demanding unprecedented visibility into order status, tracking and delivery, forcing the industry to invest in new technologies and partnerships. Without question, being able to deploy products near to the customer and deliver them reliably and quickly will be the differentiating factor for success, and this speedy last mile has become the key battleground in the eCommerce supply chain.
Customer-centric strategies are dictating the need to have warehouse space strategically located near the consumer. Companies are looking for creative solutions in identifying the ideal urban real estate for delivering the last mile of the supply chain. But at the same time, it’s essentially impossible to deploy every customer product at a distribution center within a few miles of the customer location, so the ability to move the product quickly, join with other products, and delivery flexibility is key.
The wide automotive industry is the largest and most complex supply chain in the world and is experiencing a massive transformation. The automotive supply chain is truly global and is undergoing fundamental changes due to a top-to-bottom restructuring around the advance and deployment of innovative technologies. The sector is essentially evolving from a commodity-centric product model to a technological-centric product model, and the impact to the sector’s supply chain systems is considerable.
The industry is becoming far more complex from the perspective of the adaptation of new tech to legacy vehicles and in the development of wholly new, from the ground up, products that are built around a technology foundation. The industry in the United States is becoming further complicated by the expansion of the legacy OEM/supplier structure to now include a range of new tech players, new automotive start-ups and new Chinese companies. In the end, the automotive industry in several years will not at all resemble its historic structure – and the implications to shipment types, origin and destination points, volumes, required velocities, etc. are all undergoing meaningful change.
Technology and Product Manufacturing – The sector is now being redefined by transformative technology advances in the areas of autonomy, propulsion/powertrain, active safety systems and connected cars. These technologies and products are essentially new and additive to traditional production and include products such as sensors, optical measurement systems, advanced electrical management systems and storage, etc. For the past 100 years, the traditional industry production/assembly structure has been built around low-cost production and sourcing requirements, and ever-tighter logistics between assembly plant and manufacturing/production concentrations have defined the business model.
Juxtaposed against today’s tech influences, things are looking very different going forward. Much of the new very high technology autotech products will not be produced at or near low cost assembly plants but will instead be produced at only a handful of tech-hubs in the U.S., Europe and Asia. Detroit will always be an automotive powerhouse, but now Silicon Valley is a formidable global autotech steamroller. There are other tech and production hubs in Europe, Japan, South Korea and China, and together these hubs will require far more substantial logistics interface with other in-place production concentrations.
The implications of critical new high technology and high-value products introduce a new set of variables to the wider automotive production calculus. Due to their cost, automakers are doing everything possible to limit on-hand inventory levels and have worked to design seamless systems of production and transport to assembly site. Automakers have followed various modified versions of Just-In-Time production for years, but the array of these new tech and high-cost products are causing vast new challenges, and this will only increase in the future. This has implications for production planning and lead-time management and also has implications for cargo logistics planning. For example, integrated small optics and sensor systems are requiring quick-ship capabilities. The high product cost and required velocity now requires product moves via air cargo transport to the assembly site. Most manufacturers will generally avoid costly air cargo whenever possible, but increasingly this just will not be possible.
New Players and New Locations
There are two important influencual factors tht will impact North American automotive industry logistics.
The extraordinary strength of China – now the largest automotive market in the world and still a lower-cost producer – is also becoming a autotech powerhouse. Many of the new upstarts that are working to redefine the segment like NIO, BYTON and others are of Chinese origin. These companies will soon be selling China-made vehicles in large quantities and there will be new supply chain routes established to support full vehicle and auto-part transport into the North American market. Also, several of these companies are currently planning U.S. manufacturing plants. Due to these factors, we believe that there will be significant implications for West Coast-oriented inventory management.
The Western U.S. is on the rise as a global automotive hub. Tesla is producing vehicles in a very high-cost setting in the Bay Area. We also feel that due to these factors and because of the huge role that Silicon Valley is playing in developing many of these technologies, some further production investment will occur in the Western U.S. states. We have begun to see this with new investment announcements by Tesla, Lucid and Nikola in California, Nevada and Arizona.
Advancements in technology and changes in the way goods are bought and sold are creating large complexities for corporate supply chain managers. With the extraordinary changes occurring in a range of key supply chains, companies operating in these sectors are becoming more agile, and their logistics partners will need to become more flexible and nimble to respond to increased requirements.
We know that that there have been quite significant disruptive influences in pharma, automotive, aerospace and eCommerce, but there are changes also impacting other sectors like industrial-machinery manufacturing and food production. In the aggregate, these kinds of changes are beginning to reshape the underling structure of the U.S. logistics industry. It will be quite interesting to watch how changing requirements shape this sector over the next decade. Some key questions to think about include:
- Will trends in the trucking industry be defined by a super-efficient last mile capacity?
- Will Prime Air Amazon’s air cargo logistics system continue to grow and introduce new competition for the air cargo integrator segment?
- Will the U.S. West Coast gain importance as a global automotive hub?
- Will far greater U.S.-China automotive trade flows change domestic supply chain planning?
- Will there be more or less reliance on air cargo for cold-store supply chains?
- Will 3D printing become more commonly utilized in other production industries?
Global Logistics Development Partners is an independent international investment advisory firm that creates and executes growth solutions for manufacturing companies, and public and private logistics and property asset owners and investors. GLDPartners was founded in 2010 to address opportunities created by shifting global trade and logistics patterns, changing public policies and evolving markets. The Company has offices in the US, UK, Canada and in Mexico. For more information check out GLD Partners website: http://www.gldpartners.com.