Digital transformation of transportation & logistics industry in its infancy

The transportation and logistics (T&L) industry has observed steady growth for more than 10 years and is now worth more than R5,2-trillion. The industry is facing three major challenges – agility, sustainability and visibility – which companies operating in the industry are hoping to address through digital transformation. In its latest report, “The Digital Transformation of Transportation and Logistics”, Lux Research highlights the most compelling use cases for digital transformation within transportation and logistics, and shows where maturation is still needed.

“Trade globalisation, digital consumers and low oil prices have all driven growth in the T&L industry while imposing new challenges,” explains Harshit Sharma, Lux Research analyst and lead author of the report. “For example, there is growing consumer demand for agility through the rapid delivery of products. Air cargo is the best means to achieve this but decreases sustainability significantly due to air freight’s high carbon intensity, not to mention that rapid delivery can also mean often engaging with new vendors, creating visibility challenges. We need to innovate to find better all-around solutions to address these challenges without exacerbating others.”

Global trade has also created supply chain visibility issues for companies due to complex supplier networks, leading to greater risk, shipping delays and even lack of supplier accountability. A wide variety of digital use cases are currently being explored in logistics, which are at varying stages of commercial maturity and innovation activity.

Lux recommends that logistics companies first look at digital as a connected system, as opposed to disconnected pieces, and build foundational use cases, such as asset monitoring, before delving further into advanced applications like autonomy and AI. These systems should focus on the area of greatest importance to your organisation, whether it be agility, sustainability or visibility, but as stand-alone elements, use cases will not produce their best value proposition.

“Currently, the digital transformation of logistics is in its infancy and offers a host of opportunities for further development. Technology development is being led primarily by innovative start-ups like FarEye, ClearMetal and Optoro, and tech companies like IBM, and not by industry service players, which is in stark contrast to many adjacent industries, including oil and gas, chemicals and power,” says Sharma. “An underlying reason for this trend is the unfamiliarity of traditional players with digital. This could eventually lead to third-party logistics companies being phased out in favour of tech companies that offer both capital and novel technology.”

Lux predicts that as digital transformation scales in the industry, traditional logistics companies will look toward to new business models and go asset-less. As e-commerce continues to grow and competition in this space escalates, major players may look to consolidate and invest in the logistics vertical to build a competitive advantage and drive competition out of regional markets.

For more information, download the report’s executive summary here.