The digital transformation of logistics: Threat and opportunity
Digitalization threatens to fundamentally disrupt logistics but could also help the industry reduce its inefficiencies and shrink its environmental impact.
Over the past two decades, as the Internet revolution swept the world, our day-to-day lives have become increasingly digital. With email eclipsing ‘snail mail’ and digital downloads replacing physical products, this could well have dealt a devastating blow to the logistics industry. But in fact, something remarkable has happened: more packages than ever before are now being shipped. On any single day, a staggering 85 million packages and documents are delivered around the world.
Demographic and digital trends are combining to drive growth, but logistics businesses cannot afford to rest easy and enjoy the fruits of this global boom in shipments.
Logistics has introduced digital innovations at a slower pace than some other industries. This slower rate of digital adoption brings enormous risks that, if ignored, could be potentially catastrophic for even the biggest established players in the business.
As other industries with close links to logistics, such as retail, are revolutionized by digital technology, the chances of digital disruption engulfing the logistics industry increase – for instance, the rise of e-commerce has led to new digital entrants in the last-mile delivery market.
More significantly, digital platforms will become increasingly important in the logistics industry, allowing small companies to have a global reach and compete with the sector’s established giants. Over the next few years, the race to build a dominant global platform will transform the customer’s experience of logistics and will be the central issue in determining which enterprises will be the winners and losers in a truly digital logistics industry.
With the logistics industry suffering from some very significant inefficiencies – for instance, 50% of trucks travel empty on their return journey after making a delivery – digital transformation can also bring important social and environmental benefits by increasing efficiency and cutting down energy consumption and emissions.
Our analysis indicates that there is $1.5 trillion¹ of value at stake for logistics players and a further $2.4 trillion worth of societal benefits as a result of digital transformation of the industry up until 2025. In other words, industry stakeholders should take notice and come together to prioritize digital transformation initiatives given the potential for significantly higher value to be created for society than for industry.
We have identified five themes that will be central to the digital transformation of the logistics industry over the next decade:
The time and complexity required for these initiatives to reach scale across the market vary significantly. We have identified certain underlying requirements that are the building blocks for the digital transformation of the logistics industry, which we outline in our recommendations. Two of the most important ‘no regret’ capabilities include: companies should improve their collection of data from all along their value chain; and enterprises should ensure they have the capability to analyze big data streams to derive insights that improve operational efficiency and enable the launch of new services, such as last-mile delivery.
We raise three key questions for logistics industry leaders and stakeholders to consider and address:
- Should the larger industry players continue to invest in scaling their existing closed platforms or should they be adding new business models such as crowdsourced platforms and analytics as a service?”
- How can logistics stakeholders incentivize faster implementation of shared warehouse and transportation capacity to reap significant societal and customer benefits?
- Logistics contributes 13% of all emissions globally. In light of the COP21 Agreement in Paris, how can industry stakeholders quickly agree on developing safe and trustworthy approaches to more environmentally friendly technologies such as autonomous trucks and drones?
1. Disclaimer: These calculations are subject to change. Impacts are based on estimates and would vary in range given a change in adoption rates or disruption in any of the initiatives
Logistics is one of six industries (along with automotive, consumer, electricity, healthcare and media) that have been the focus of the World Economic Forum’s Digital Transformation of Industries (DTI) 2016 project. An overview of the DTI program can be found here.
Our in-depth findings about the digital transformation of the logistics industry are available in a white paper, which can be downloaded here.
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