An opportunity for the next evolutionary step in logistics

Developments over the last 2-3 years have clearly demonstrated that there’s only one thing we can be certain about today: nothing is certain. We face rising geopolitical tensions manifesting in trade disputes, a global pandemic, and war in Europe. At the same time, this past summer across Europe, the US and China saw droughts and wildfires that make ever clearer the urgency of climate change and need to take action to limit global warming. So, what role does logistics play in this, and how do all these crises and challenges impact logistics? Over these last three years, the logistics industry clearly demonstrated its relevance to the global economy by supplying the world with vaccines and medical equipment during the largest pandemic of the last century. Logistics has shown extraordinary creativity and resilience despite immense challenges. Contrary to initial fears, supply chains did not break in the face of national and regional lockdowns.

This doesn’t mean that the logistics industry hasn’t felt the effects of the pandemic and the war in Europe. We face a lack of air freight capacity, especially since international passenger travel has not yet returned to pre-pandemic levels. Alternative flight routes to the East and the lack of cargo aircraft have thrown additional sand in the gears. The situation is similar in ocean freight, where schedule reliability is only slowly regaining ground. Freight rates are still high, and while they have stabilized somewhat, they look to remain elevated over a longer period. In addition, once ships arrive at port, the processing is delayed in some cases by outdated infrastructure and a growing shortage of drivers in regions such as North America and Europe.

In all, the challenges appear to be getting larger and more complex. But herein lies one of the most unique opportunities of our time – a chance for the logistics industry to take the next step in its evolution. Our industry has never been so visible; rarely has the logistics industry demonstrated more clearly the value it adds. At the same time, we stand at multiple crossroads. Three main factors will determine the future success of the industry: digitalization, sustainability and people.

#Digitalization

The first important steps towards digitalization have already been taken. Freight rates and transport routes have never been so transparent. However, compared to other industries, the logistics industry is still in the early stages. There are countless other areas where digitalization can help to not only make processes more efficient, but also improve problem areas such as schedule reliability and lack of capacity and personnel. Whether in ocean freight, air freight, or overland transport, companies today work mainly with closed systems. The exchange of data and documents could be significantly improved through greater use of APIs. Greater interconnectedness has the potential to not only make processes faster and more efficient but also save resources.

One example from Germany: in 2020 alone, the rate of empty runs in road freight was over 50%[1]. At the same time, there is a serious driver shortage, with at least 80,000 drivers fewer than needed.

#Sustainability

We have no choice but to decarbonize supply chains. Today, transport is responsible for roughly 11% of worldwide CO2 emissions. The current geopolitical situation and a persistent pandemic are hindering steady progress in green transport solutions, with inflation and rising cost pressures taking care of the rest. Nevertheless, the industry has made considerable economic progress over the last few years. More recently, sustainability goals are becoming not only an integral part of corporate strategies but also important KPIs for evaluating companies in financial markets. However, we need to go a step further and make sustainability targets a factor in incentives and compensation for executives and decision-makers. In keeping with “burn less – burn clean”, all industry players should have to invest in alternative fuels such as sustainable aviation fuel, green technologies and infrastructure, or risk losing their license to operate – in more ways than one. Those who don’t offer sustainable transport and logistics solutions in the future will no longer be competitive. If we fail in limiting global warming, we’ll be faced with a much worse alternative.

#People

Even as technologies and digitalization continue to make work easier, the people factor remains critical. For the foreseeable future, machines will not be able to replace people in logistics. On the contrary, logistics, like many other industries, faces a lack of skilled workers. In fact, the ‘War for Talent’ is likely to escalate. In Germany, for example, the baby boomer generation is slowly but surely heading into retirement. This means that in the next 15 years, around a third of working-age people will retire. For us in logistics, we must make our industry more attractive and interesting. Performance-based pay is just part of this; it’s also about developing new concepts to improve working conditions for the various professions, with an increasing focus on work-life balance and employee well-being. But there isn’t just one solution; instead, we need broad-based measures working together. Digitalization can help here, but effective concepts regarding the workplace and working hours, as well as measures addressing infrastructure, are important as well.

If we can succeed along these three factors, we can ensure our industry’s success going into the future. More importantly, we won’t just be creating real value for our customers but for society as a whole.

[1] BMDV official road freight statistics (bmvi.de)