Logistics Trends and the Chemical Industry: Digitalize and Cooperate
Ten Mega Trends - Different in Type and Kind - Influence the Logistics Industry
There are ten megatrends which are different in type and kind that influence the logistics industry. Among those mega trends are globalization, demographic change, new lifestyles of customers, the trend towards service integration (servitization), sustainability, rising risks along global supply chains, digitalization or technology deployment, new challengers, professionalization of logistics processes and the development of logistics as a core competence.
Of course, the world is complex and ten trends might be too few to explain what is going on in logistics as a whole or in chemical logistics. But even ten trends are too many to be born in mind on a daily basis. Therefore we will try to break down these trends to the most important right now.
To do so, we start to discover the challenges of the chemical logistics industry by asking a couple of experts in the overlapping area of logistics and the chemical industry to name actual challenges from their point of view. The following list reflects just some perceptions of industry insiders from logistics service providers with a chemical industry focus and from the industry perspective likewise. The statements answer to the question on challenges of chemical logistics right now:
- We need to go into the direction of an integrated steering of global supply chains in times when supply chains are becoming even more complex each day. (chemical industry perspective)
-> statement points towards digitalization and the need for cooperation
- We need to deploy smart business solutions and digitalization to gain business. (chemical industry perspective)
-> statement points towards digitalization
- We need to focus on customers and process orientation according to business needs (resilience and responsiveness). (chemical industry perspective)
-> statement points towards the necessity for customer orientation
- Digitalization in production industry 4.0 must go hand-in-hand with logistics 4.0. Regarding data, shippers must think outside the box — that is ‘think beyond the factory gate’ to realize the true potential.
(logistics service provider perspective)
-> statement points towards digitalization and the need for cooperation
- The sooner we receive relevant information, the faster we can react. In our experience customers for logistics services are most successful when they analyze processes together with their logistics partners and, in consequence, are able to take the right strategic decisions. (logistics service provider perspective)
-> statement points towards the need for cooperation
- We try to receive information about planned shipments as early as possible; this allows us to align our expertise with the customers’ information in the best way possible. Let´s for example take logistics’ beloved, short month of May with all its bank holidays — or sales campaigns and quarterly statements. (logistics service provider perspective)
-> statement points towards the need for transparency
- What really became apparent in our sector in addition to a lack of drivers — there is a shortage of load capacity. At peak times, it is becoming more and more difficult to get enough load capacity on the market. These capacity bottlenecks push up costs that we have to pass on to our customers. Additionally, in Germany we are moving towards an alarming lack of drivers. (logistics service provider perspective)
-> statement points towards a lack of drivers and towards rising transportation costs
We conclude with some thoughts on the most relevant strategic trends the chemical logistics sector is facing at the moment.
Digitalization in Logistics
Digitalization and technology application in logistics is surely a mega trend that is not only palpable in the chemical industry. This will remain the case in the coming years. Where some years ago cloudy concepts of digitalization were dominant in discussions on that topic, nowadays technical solutions, concepts and methods get differentiated according to their possibilities.
However, there are still problems and a rapid deployment of technological solutions along chemical supply chains is not in sight. But once skepticism about sharing information across company boundaries and usefulness of technology have been overcome, the enhancements and steps into that direction will be made. Broadband expansion naturally plays a further role, as fast connections form the backbone of digitization and communication.
The expert statements above contain no particular technologies regarding digitalization. This is noteworthy, because it seems not to be a matter of technology or the right interface to apply digital technology. There are a lot of technological solutions in place and these can be applied, once the use case is found. Transparency and visibility of the supply chain appear to be achievable.
Obstructive reasons for lacking deployment of digital technologies or concepts are mostly caused in organizations due to cost oriented reasons. Vice versa, a lack of skilled workers might have a catalyzing effect to introduce digital means of production as productivity of logistics needs to rise to compensate for lacking work force.
A second concept mentioned in the experts’ statements is customer orientation. The streams of goods are becoming more filigree and even if the tons moved do not increase as in previous years, the streams of goods and their management become more complex and costly. To that extent it becomes more important not only to produce or deploy goods in the same manner as in the past, but to enhance products and services with the customer in focus.
Saturated markets in Central Europe need to be addressed customer-oriented with even more than just the right quantity/quality etc. but ever changing quantity and quality. In relation to the different markets in which a modern industrial company operates, this means addressing each market and customer with products that the customer wants.
This has harsh influence on logistics processes as well. When it comes to customer orientation and innovativeness in general, the logistics industry is taking lectures from a high number of new logistics ventures that are entering the logistics markets right now. Customer orientation is a concept which is highly appreciated by new ventures. So, established players of the logistics and chemical industry can learn from those new market entrants. In short, this means that the focus should be on customer orientation.
Lack of Loading Capacity in Transportation
A third relevant challenge right now and for a minimum of three or more years will be assuring loading capacity for transports. A shortage of load capacity has arrived in surface transport as truck drivers are lacking noticeably. As this is a topic about which we talked sometimes in the last few years, nobody can really state that it came surprisingly. However, the effects are unwanted of course and transportation buyers are surprised that prices climb at a general amount of around 5–6% right now, and the years with no big volatility in price developments are over. The reason is a harsh lack of drivers which won’t be overcome in the short term.
Another reason is the need for logistics service providers to invest in digitalization to lift productivity. From a market observer’s point of view the lack of skilled workers — especially drivers — might become the most important image campaign for the transportation business. Right now, nearly everybody in need for a goods ride now and then must take note of rising price levels. Anyone who really wants to know why this is happening must also take note of the bad conditions for the driver’s job.
This is not only a challenge in Europe but also in the Northern American transportation business. As surface transportation is even more important there due to much longer distances on the North American continent, the effects might be even worse there. But the reasons are very similar to those in Europe: bad conditions, bad payment and bad image. And asset light business models won’t help to mitigate that trend.
As nobody wants to have fixed costs for trucks, trailers and drivers, there seems no short-term solution graspable. The fight against lacking loading capacity is not really on anybody’s agenda. Having a look at autonomous driving which is talked about much nowadays, the driver shortage is here untimely. Drivers are needed more than ever, but you can’t promise a driver that he won’t be rationalized away in the coming years and the question is how to motivate people to become drivers.
That is a challenge not only for the chemical industry and not only for logistics but for the economy as a whole. Unfortunately, there is no short term solution in sight. Wages will go up and prices for transportation as well.
In addition, there are infrastructure problems with the loading capacity of inland waterway vessels due to low water or lack of flexibility in rail freight transport and road-side infrastructure problems, which are currently noticeable at operational level.
This brings us back to the statements made by practitioners in the chemical industry, which can be summarized and point in the direction of digitization, cooperation and customer orientation. These concepts are part of the solution to future challenges for industry experts.