2014 – A year for transformational change

With the New Year now underway, what will it bring for the logistics industry? From an economic perspective, quite likely much what it brought in 2013 – a slow growing global economy, relocation of manufacturing closer to customers and emerging markets continuing to come into their own.

For many years China has been known as the manufacturing capital of the world however that is changing as China’s economy evolves and manufacturing moves to low-labour cost locations such as Vietnam and Cambodia. Meanwhile, a growing middle class is emerging in such countries as Nigeria, Russia and Brazil and along with that is an increasing need to logistically support these emerging markets.

Overall demand for international transportation is expected to see signs of improvement. The airfreight market which began its slow recovery in mid-2013 will continue to see slow improving conditions in 2014. In fact, a 1.7% increase in tonnage is expected according to IATA which also notes that “on-shoring” of production is having an adverse impact on the cargo business.

Meanwhile the ocean freight market will continue to endure capacity issues and erratic rates for at least the first half of 2014. The P3 Alliance, made up of Maersk, MSC and CMA CGM, is set to begin service in July 2014, which may help stabilise rates and reduce capacity towards the end of the year.

While international transportation will probably follow 2013 trends, domestic transportation will likely pick up particularly as manufacturing relocates closer to customers. For North America, in particular, rail intermodal which ended 2013 up 7.3% for the year will continue to report good gains in 2014 due in part to increased oil production and the lack of adequate pipelines as well as increasing cross-border activity.

However, perhaps one of the most transformational trends that was observed in 2013 and will continue into 2014 and beyond is e-commerce. e-commerce has not only transformed retailing as we now know it but it is also transforming other industries such as healthcare, automotive, and industrial industries. As such, e-commerce has given rise to increasing demand for specialised warehousing as well as changing delivery solutions. Long suffering post offices are now enjoying gains in parcel volumes while the big three integrators – DHL, FedEx and UPS note that e-commerce now comprises a larger share of the parcels that each delivers. Not only are post offices and the integrators enjoying gains in e-commerce but niche players such as US regional small parcel providers and delivery services from Amazon, Google, eBay and others are all playing a bigger role in e-commerce logistics.

While business-to-consumer (B2C) e-commerce continues to dominate much press, business-to-business (B2B) e-commerce is also growing particularly as economies improve and more small-to-medium size (SME) businesses are created. This is a trend for logistics providers to monitor and perhaps also embrace these SMEs by offering specific solutions to assist this group to grow.

According to Ken Lyon, Managing Director of Virtual Partners, as businesses adjust to the explosion in online commerce and the growth in direct delivery or ‘click and collect’ business models, end to end visibility is essential. Logistics operations will have to reconstruct their business models to support this evolution and accept that technology is not just part of their solution set; it will be the foundation of their business. How they use software to operate their business, including how well they integrate into customers and supplier order networks will be key. Also, Lyon notes that this will need to be delivered on smartphone or tablet devices as the primary platform. “New employees into the workforce see PC’s as antique and will avoid or bypass using them in favour of multi-function mobile devices.”

While economic trends noted in 2013 will continue into 2014, advancements in technology will give rise to new ways of conducting business within many industries. As such, logistics providers will need to stay abreast of these advancements and conform to these changes by offering innovative solutions.