The changing face of freight logistics

The freight logistics industry has seen a profound change over the last three decades.

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The freight logistics industry has seen a profound change over the last three decades. Before the extensive focus on optimising the supply chains that we see today, logistics was relatively simple with many larger organisations having an in-house logistics function.
Before the shift to integrated logistics, there was a strong focus on outsourcing the transportation function, often using a contract logistics model, in which the trucking function was outsourced.

This has changed profoundly and there has been an emergence of a diversity of logistics business models dominated by third- and fourth-party logistics service providers. The focus has grown to look at optimising the complete supply chain, often redesigning the structure of the supply chain through a review of physical assets (trucks warehouses, etc.), optimising stock flow and reducing held inventory. ‘Track and trace’ capabilities are now commonplace and provide real-time information for both the customers and logisticians, allowing for further refinement and optimisation.

In addition, the emphasis is now growing on passing the risk for goods held in transit and inventory directly to logistics companies. Many contracts have also moved from being fulfilment-orientated to focusing on delivering performance and reliability, in many instances, right through to the end customer.

Many retailers and manufacturers now regard logistics as a critical but often non-core function. In fact, part of mitigating the risk of logistics is to pass it on to someone who is better and more focused on managing this risk and who also has measures in place to deal with the supply chain disruption as it occurs. From a cost perspective, a logistics service provider also uses assets more effectively, frequently using them across more than one customer, allowing for the better use of the shared assets such as technology platforms, warehouses and, in some instances, trucking.

Digitisation and supply chain visibility have become basic requirements for managing supply chains. These technologies, although they have simplified significantly over the years, are probably best managed by parties that use them regularly and will have them embedded into existing supply chains elsewhere.

In many ways, supply chain optimisation is no longer a differentiator and the range of tools to optimise has grown significantly. Other technology capabilities such as data mining, responding in real-time to changing supply chain push factors, such as production, or pull factors, such as changing consumer behaviour, have become critical differentiators in this sector.

Customers are increasingly expecting logistics players to deliver shorter lead times from order to delivery and this, more often than not, requires the integration of technologies between different players across the supply chain. Using digital tools to assess real-time consumer buying patterns over a diverse range of items allows for triggers to be created in the supply chain. Producers and logistics providers can then anticipate orders well before they are made.

Financing goods in transit and providing adequate liability protection insurance, especially in respect of performance-based contracts, has become a further differentiator. This is particularly true for high-value goods in transit, which, in South Africa, attract much higher insurance costs. Blockchain technology will undoubtedly also foster a new generation of transactional applications that are linked to supply chain and import/export applications.

Centralised marketplaces, which use the Internet to sell components of the supply chain, such as trucking and warehousing services, will also undoubtedly impact how the supply chain is managed, often through providing smaller providers with direct access to a bigger market and potentially unseating some of the larger entrenched logistics players that dominate the market today.

This remains a highly competitive sector, with companies competing intensely based on price, delivery speed, reliability and supply chain optimisation capability.

There is an increasing shift to differentiate these services, often through value-adds and through the introduction of newer technologies. Many of these technologies are coming from outside the traditional sphere of logistics, with new software that is more dynamic to the market being introduced by small IT-based companies with almost no direct logistics footprint. This ‘uberisation’ of the market will certainly intensify as these technologies become more mainstream.

But for most corporates, placing strategic supply chains at the mercy of smaller firms, which have great technology but no direct logistics capability, is high risk. The more likely outcome for the mainstream logistics industry is for technology to become one of the key differentiators of capability.

This will be most intense in high-value complex supply chains where the technology dividend is significant.

These markets, which include pharmaceuticals, automotive and cold-chain logistics are also those that, in South Africa, have seen the fastest growth.

But, even in traditional ‘pit-to-port logistics’, technology is becoming more pervasive and contributes to reducing supply chain costs, reducing or optimising the stockpile levels, enhancing payloads, improving return loads and improving the overall price that may be achieved in the final market destinations. 

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