Looking Beyond Last Mile for Supply Chain Digitization

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2Q 2018 | IN-5127

Global freight transportation revenues are expected to reach US$2.5 trillion by 2023 with Freight as a Service’s (FaaS) 5-year CAGR rising by 40%, from US$102 billion this year to US$512 billion in 2023. The entire supply chain must be digitized, connected, transparent, and secure to enable promised efficiencies and flexibility. Continued rapid expansion of e-commerce will depend on end to end, real-time optimized services. Road-based transport from long haul to last mile have received the most attention with a plethora of telematics solutions and regulations, along with rising interest in air cargo. Rail and maritime, however, lag well behind and are critical to successful intermodal models. Yet service providers tend to approach logistics from one end of the supply chain, with fewer expertly spanning across modes. Additionally, warehouses and distribution centers are urgently searching for optimized intermodal centers with adequate space and opportunities for automation to support e-commerce. One such example is the planned purchase of DCT Industrial by global leader Prologis for US$8.4 billion, which will offer expansion in California and New York.

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Intermodal Expansion

NEWS


Global freight transportation revenues are expected to reach US$2.5 trillion by 2023 with Freight as a Service’s (FaaS) 5-year CAGR rising by 40%, from US$102 billion this year to US$512 billion in 2023. The entire supply chain must be digitized, connected, transparent, and secure to enable promised efficiencies and flexibility. Continued rapid expansion of e-commerce will depend on end to end, real-time optimized services. Road-based transport from long haul to last mile have received the most attention with a plethora of telematics solutions and regulations, along with rising interest in air cargo. Rail and maritime, however, lag well behind and are critical to successful intermodal models. Yet service providers tend to approach logistics from one end of the supply chain, with fewer expertly spanning across modes. Additionally, warehouses and distribution centers are urgently searching for optimized intermodal centers with adequate space and opportunities for automation to support e-commerce. One such example is the planned purchase of DCT Industrial by global leader Prologis for US$8.4 billion, which will offer expansion in California and New York.

Customized and Complex

IMPACT


E-commerce continues to rapidly evolve shippers’ expectancies for timing and service thresholds. The rate of technology adoption and business processes have created a steep learning curve, especially for Small to Medium Businesses (SMBs) and transport modes accustomed to success based on relationships and manual efforts or siloed legacy systems. Consolidation and new competitive entrants, including those with a prominent online presence, are jarring incumbents into action. A new “bar” has been set to include solutions created for real-time updates, open systems, mobile optimization, data security, intermodal alignment, and distribution center geographic optimization. However, per GEODIS’s 2017 Supply Chain Worldwide Survey, only 6% of companies had attained complete supply chain visibility.

The benefits of transparency across multiple modes and suppliers include significant Returns on Investment (ROI) from reduced inventories, lead time, and losses and from enhanced service levels. The supply chain providers that survive and thrive must operate exponentially faster and develop more virtual relationships—some of which may include coopetition. Some parcel management suppliers are partnering with warehouse management solutions vendors to offer enhanced coverage. Verticals, locations, and cargo options will need to be dynamically addressed and customized for different shippers.

The best solutions will truly function end to end and connect cargo from the initial loading dock to terminal/ports, maritime movement to port arrival, and management to the rail- and road-based transit to dock and door. Per ABI Research, road-based transit in 2018 accounts for approximately 64% of freight transportation; however, no supply chain can be optimized without integration of the remaining modes.

All Together Now

RECOMMENDATIONS


The value of integrated cargo tracking (status, location, and condition of assets) increases exponentially when it is one part of a holistic digital strategy. Companies including IBM and Oracle have developed solutions in this space. Technologies such as Bluetooth beacons are beginning to deploy in the logistics industry. Awareness is foundational to addressing any issues proactively. Operational cost savings are derived from benefits such as avoidance of misplaced, lost, and damaged goods as well as the ability to alter course when demand or conditions change.

Supply chain professionals need to balance the need for immediate process and technology implementation to save money and gain revenue along with assessing longer-term opportunities from blockchain to automation and Artificial Intelligence (AI). Both established and emerging companies must look for dynamic changes and future-proof their supply chain on both the demand side (POS, social media, weather, economic trends) and the supply side (capacity constrictions, regulatory changes, weather, staffing) to minimize or eliminate demand fulfillment issues.

ABI Research’s Industry Survey demonstrated an openness to a variety of technology adoption in the transportation and logistics industry, with 30% of transportation respondents planning robotics usage in the next year. AI was ranked highest for monitoring, data analytics, and recognition methods.Most respondents ranked FaaS highest for disruption andfor itsability and flexibility to choose loads and routes dynamically. AI is critical to nearly 3/4 of respondents to enable the adoption of prognostics.

Implementer concerns include data security/privacy for both the companies and their clients. SMBs are confronted with resource issues to integrate with long-standing back-end legacy solutions. Complexity is another consideration if multiple software/service providers cannot integrate or address specific vertical needs.Emerging technologies, such as blockchain, had the lowest number of logistics awareness, with only 10% of respondents investigating. Yet blockchain—as a scalable, digital, distributed ledger with smart contracts—provides simple, time-stamped data sharing without tampering or privacy breaches. The underlying technology will reduce payment disputes, lower processing and administrative fees, and provide authentic and secure transactions. Even temperature control deviation of cargo can be enhanced through blockchain. Although initial work is underway for maritime, it is expected to extend in the coming years across the supply chain, with early users including Maersk, IBM, and Walmart.

Overall, the value of freight transport will continue to expand through the adoption of innovative technologies, deeper integration, and greater asset utilization. Increased shipper demands for transparency, ever shorter times to delivery, and predictability will also lead to greater automation.Over the next five to ten years, traditional and even centuries-old transport types will move closer to a digitally enabled and integrated supply chain.

Services

Companies Mentioned