Key logistics innovations of the future to impact warehouse, shipping costs

July 14, 2017
Customer demands for expedited delivery and e-commerce capabilities have put new pressures on the supply chain. Shippers have to be able to provide rapid (often same-day) delivery of goods with a high level of visibility for customers.

Customer demands for expedited delivery and e-commerce capabilities have put new pressures on the supply chain. Shippers have to be able to provide rapid (often same-day) delivery of goods with a high level of visibility for customers.

At the same time, new technologies are making it easier for logistics providers to provide these services. Competition and price pressures are further complicating delivery.

“Firms are getting smarter in terms of how they manage expenses related to warehousing,” says Vijay Narayanan, Senior Research Analyst, Visionary Innovation Group at Frost & Sullivan. “But consumers are more demanding, especially when you are talking about the user experience and instant deliveries. These are going to be critical factors in the future. They have forced service providers to deliver more customized, unique solutions that address broader concerns and new types of value-added services.”

According to Frost & Sullivan, the rapid proliferation of connectivity and the increase in start-ups is creating new types of services based on on-demand, real-time and last-mile delivery solutions. This is opening new growth opportunities. The analyst firm recently provided an overview of new research that indicates predictive analytics and other technologies will enable anticipatory delivery – shippers will be able to put goods in motion in advance of an order. Big data and other technologies will also make it easier and more cost effective to control brokerage services, improve routing and accelerate product flow.

According to the company’s forecast, global logistics spending is expected to grow from $8.06 trillion in 2015 to 10.6 trillion in 2020, with a compound annual growth rate of 5.63 percent. Much of that spending is being driven by demand for new types of value-added services, as well as transportation expenses and increasing congestion.

In fact, while warehousing costs will fall from 25 percent of overall logistics spending to just 15 percent, transportation costs will increase from 60 percent of spend to 70 percent by 2020.

Frost & Sullivan has identified four key innovations that will transform future logistics operations. They are:

Autonomous Fleets. Both the shipping and trucking industries are investigating how autonomous vehicles can be used for delivery. In addition, warehouses are already investing in robotic forklifts and other types of machine-guided systems. “As we move beyond 2025, we’ll see movement toward long-haul transportation autonomy,” Narayanan says. “Autonomous cargo ships will launch by 2030.”

Rolls-Royce is already working on this shipping concept, and expects the first autonomous commercial vessel to be a harbor tug or ferry for carrying cars across a river. Ocean-going cargo ships could be here in 10 to 15 years. “From a standpoint of cost efficiency, autonomous ships and trucks will result in a massive reduction in costs,” Narayanan says.

Data Monetization. In the logistics space, “data is the new oil” is a catch phrase that is rapidly gaining traction. The data generated by logistics and fleet systems can create insights on route optimization, transit times, temperature control and even customer buying patterns. Big data and analytics will enable effective decision making in an increasingly complex supply chain.

“Data and analytics are expected to play a crucial role when talking about new business models,” Narayanan says. “Integration of high-speed computing and analytics will allow firms to identify which vehicles are suitable for a specific delivery or pick-up within minutes. Big data allows firms to make the right decision as a quick pace, and if there’s a match, to then deliver it to the right driver and create tremendous value.”

In the automotive space, this type of analytics could help prevent parts shortages, such as those experienced by Toyota after the Fukushima nuclear disaster in Japan. “What big data could have done is predict natural disasters and then make real-time decisions that could reduce losses,” Narayanan says.

More importantly, this type of analytics can enable what companies like Amazon are calling “anticipatory logistics.” Companies will be able to accurately predict what customers are going to order before they order it, and already have pre-shipped packages available for delivery.

Delivery Drones. Amazon also has been working on developing drones that could be used for last-mile delivery. According to Archana Vidyasekar, Visionary Innovation, Global Research Manager at Frost & Sullivan, the company doesn’t expect this technology to generate any revenue until after 2019, and even then it will be a very small part of the logistics market.

“Does the ROI make sense?” Vidyasekar says. “We’re seeing some interesting announcements. We expect that drones will find a place in the market, but from now to 2019 it might be more in the business-to-business space.”

Drone delivery in the U.S. will also require adjustments to state and federal aviation regulations on commercial drone flights. “Safety regulations for unmanned commercial drones require visual line of sight for the operator, and that issue needs to be addressed,” Vidyasekar says.

The use of drones could drive new efficiencies. According to Frost & Sullivan’s analysis, if Amazon charged customers $1 per drone delivery, they could earn a 50 percent return on investment while offering same-day delivery that is cheaper than other alternatives.

The “Uberization” of Logistics. There are two different models emerging that are making it easier for shippers and carriers to connect electronically. First is the Uber-like model that aggregates demand and matches individual deliveries in real-time to optimum carriers. This is an on-demand service for shippers, and a number of companies have already emerged to offer the service.

The second is an Expedia-like marketplace where carriers, sellers, buyers, forwarders and other stakeholders can connect through an open platform.

This can make it easier for shippers to price-shop, and reduce the time wasted on the telephone trying to coordinate with freight forwarders.

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