Connecting Commerce. Logistics and transport industry confidence in the digital environment. Written by

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1 Connecting Commerce Logistics and transport industry confidence in the digital environment Written by

2 About the research Telstra viewpoint This article is part of the Connecting Commerce research programme from The Economist Intelligence Unit, commissioned by Telstra. The analysis is based on a survey of 2,620 executives in 45 cities across 11 industries conducted in June and July C-level respondents account for 42% of the survey sample, with the balance being other senior executives. Based on the survey, The Economist Intelligence Unit created a digital cities barometer for industry to assess and compare confidence in digital transformation environment across industries. Business confidence is a highly subjective measure of a state of affairs, based on attitudes, and is not necessarily an indication of an industry s actual level of digital development. Australia s supply-chain industry has no choice but to explore all options to improve efficiency and effectiveness, according to Jamie Smith, C-ITS strategy consultant for smart transport, growth and strategic markets at Telstra. He believes that over the next 30 years Australia s freight task will triple 1 as we move more energy, resources and goods to ports in order to satisfy world demand for commodities. Much of that demand will come from Asia, with analysts predicting that by 2030 the region will be home to over 60% of the world s middle class.2 And these customers will demand more choice and higher quality products. Mr Smith is hopeful that companies will soon start changing the way they operate to cope with increased demand, pointing out that Australia s freight and logistics industry is looking to implement innovative digital technology solutions to enable business improvements. But he adds that the rate of change has been slow. Many transactions amongst entities involved in the end-to-end distribution of goods from the field or the factory to the retailer are still paperbased processes, with many staff still being employed along the supply chain to key and re-key data, creating delays in processing and the potential for costly errors. A study conducted for the Australian Logistics Council3 suggests the economic impact of these manual finance and administration tasks could be costing the freight and logistics industry A$1.5bn a year in lost productivity, which Mr Smith reckons could mostly be recovered through the use of a national standardsbased supply-chain data exchange and financial transaction processing platform. We view digital transformation as an investment When asked which factors motivated their organisation to pursue digital transformation, respondents across all industries rated operational efficiencies as their second-leading answer (47%). In the logistics and transport industry, however, operational efficiencies were named the primary motivation, cited by more than half (54%) of respondents. One explanation for this is scale. For instance, DHL Express, a subsidiary of German logistics company Deutsche Post, operates in over 200 countries and has more than 500,000 employees. For a company of this size, any technology that can improve the complex process of moving goods across the world can help improve efficiency. Artificial intelligence, machine learning, big data, robotics, and associated technologies are a game changer, as these help us automate manual processes, says Jimmy Yeoh, senior vice president and chief information officer for DHL Express Asia Pacific, who is responsible for regional IT service management and service delivery for over 40 countries in the region. We view digital transformation as an investment. Big data and analytics, for example, not only help internal efficiency but also improve the customer experience. Customers want to know where their packages are in real-time, says Mr Yeoh. As a result, DHL is continuing to invest in technology to improve its customer experience globally. 1 Australian Logistic Council - Getting the Supply Chain right 2 KHARAS, H. & GERTZ The New Global Middle Class: A Cross-over from West to East. Wolfensohn Centre for Development at Brookings 3 Austroads, Investigating the Potential Benefits of Enhanced End to End Supply Chain Visibility 2 Telstra Connecting Commerce The Economist Intelligence Unit Limited

3 Business innovation pushing the boundaries Given the diverse benefits of digital transformation, leading logistics and transport companies are pushing the envelope when it comes to emerging technologies. DHL, for instance, is piloting delivery using drones and Google Glass to improve warehouse efficiency. In some instances, government regulators find it difficult to keep up with the pace of change. This is probably one reason why the overall environment for digital transformation is not rated higher in the industry (fifthth out of 11), a sentiment shared evenly (see Figure 1) across the four regions in the survey (US, EMEA, Asia and Australia). Figure 1: Overall barometer readings logistics and transport Score (out of 10) Rank (out of 11) Overall environment th Innovation and entrepreneurship Financial environment People and skills Development of new technologies ICT infrastructure th th At the same time, there are internal challenges towards greater digital transformation too. In the people and skills subcategory of the digital industry barometer, the logistics and transport industry ranked second to last (only after utilities) in terms of support for digital transformation. 10th 8th 8th The supporting environment for people and skills is considered especially weak in Asia, according to the digital industry barometer. Mr Yeoh explains that, fundamentally, the transport and logistics industry is still labour intensive and process driven, given that (currently) packages are delivered manually. Educating the regulators There are a lot of opportunities with digital transformation to pilot new technologies, says Mr Yeoh. We are pushing the boundaries but the logistics industry is constrained by regulations, which have not kept pace. Using drones for the delivery of goods is one such area in which logistics firms are investing but where government regulations remain unclear in most countries. One reason is that there is an element of risk associated with new technologies and it can be difficult for regulators to anticipate them. the rise of e-commerce also requires regulators to revisit old issues. Many customs and trade authorities, for example, still require physical papers to be filled out when shipping goods internationally. Logistics companies such as DHL, however, have used imaging technologies, hand-held scanners, electronic tracking and smart inspections for decades. We are working to educate regulators about the opportunities, says Mr Yeoh. In this day and age you don t need to physically inspect all the goods. For e-commerce vendors looking to export their produce across the word, such practices can also make the cost of trade prohibitive. Although some countries in the region have yet to implement technologies to improve their customs and trade processes, others are forging ahead. In the digital industry barometer, Asia as a region ranks first in the development of new technologies to support digital transformation. Singapore, for example, is leveraging an e-government system to provide a variety of online services to help facilitate trade. The port authority in the country is also leveraging various technologies to create a smart port, ranging from the use of drones to remotely inspect vessels and cranes to the IoT. 4 Conservative decision-making aside, Telstra Connecting Commerce The Economist Intelligence Unit Limited

4 Benefitting from e-commerce In 1999, e-commerce transactions among the world s 300m internet users totalled US$110bn. 5 In 2013, business-to-business e-commerce was estimated at US$15.5trn and business-to-consumer (B2C) at US$1.2trn. 6 The rise in e-commerce directly benefits the transport and logistics industry, which is tasked with delivering the goods. We re seeing 25% annual growth in B2C across the globe, says Mr Yeoh, citing a company report. 7 The growth in e-commerce packages has been a welcome development for traditional domestic postal services as well. Some may see it as far-fetched that small suppliers can actually make money by selling products and services online. However, the Malaysian Communications and Multimedia Commission (MCMC) has produced a series of YouTube videos to showcase how e-commerce has transformed people s economic fortunes. To reduce the logistics costs facing these small businesses and allow them to compete more effectively with larger competitors, the MCMC has worked with the Malaysian postal service to offer prepaid packages, which can each transport up to half a kilogram of goods for US$15 within Malaysia. DHL, meanwhile, benefits from its global scale. Most of the competition can do it in one or two regions, says Mr Yeoh. But we re the most international [of all the logistics providers]. This enables the company to take advantage of Figure 2: : Barometer readings by region logistics and transport OVERALL ENVIRONMENT INNOVATION AND ENTREPRENEURSHIP FINANCIAL ENVIRONMENT economies of scale, particularly when it comes to digital transformation. We continue to invest in technologies to provide the best-in-class, omni-channel experience to our customers across the world, he continues. We re investing in technologies to support end-to-end delivery for customers, for example, by using automation in terms of sorting goods to eliminating the physical element. On the receiving end, DHL is looking to improve the experience for buyers of goods through better use of the IoT and associated technologies. Satisfaction often boils down to a simple metric: People want to know when their package is arriving, says Mr Yeoh. Regional takeaways for logistics and transport firms US 6.90 US 6.74 US 6.90 ASIA 6.75 ASIA 6.55 ASIA 6.68 EMEA 6.58 AUS 6.38 EMEA 6.51 AUS 6.29 EMEA 6.29 AUS 6.43 PEOPLE AND SKILLS US 7.13 DEVELOPMENT OF NEW TECHNOLOGIES ASIA 6.86 ICT INFRASTRUCTURE EMEA EMEA 6.55 US 6.74 US 6.51 AUS 6.43 ASIA 6.34 AUS 6.56 EMEA 6.51 ASIA 6.50 AUS 6.29 Asia is best for logistics and transport firms when it comes to the development of new technologies and second in the overall digital transformation environment. EMEA is considered best in the supporting environment for ICT infrastructure, potentially due to strong support for broadband initiatives in the EU. The US ranks first in three out of the five subcategories but logistics and transport firms are especially confident about the availability of people and skills, an element that is seen as particularly weak in Asia. Australia is last in the overall environment and also last in two out of the five subcategories (financial environment and ICT infrastructure) Telstra Connecting Commerce The Economist Intelligence Unit Limited

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