Global Logistics & Shipping: a sector profile
Modern logistics is about so much more than stacking metal boxes onto ships. Sam Tulip, who has been watching industry trends over two decades editing trade publications, identifies the key areas of opportunity for UK firms.
Across the world, logistics – the science of getting the right goods to the right place at the right time for the right price – is in a period of unprecedented change and development, affecting every aspect from infrastructure and technology to business processes and management methods.
Effective logistics is increasingly the competitive battleground for individual companies and entire regions, and UK-based businesses are in a unique position to sell their innovations, experience and know-how to the world.
Boston Consulting Group (BCG) values ‘global logistics’ at $2.7tn, certainly an underestimate as it doesn’t capture companies’ internal logistics, or the informal economy such as rickshaw drivers. A wider measure taken by the World Bank suggests $4tn, or 10% of world GDP. Additionally, there are trade-related services such as insurance and brokerage.
The UK has traditional strengths in services and continues to be a leader in logistics development. Our practitioners serve not only densely-populated conurbations but remote rural and island areas. They operate in highly competitive markets where e-commerce and multiple channels to market are the norm. Social and environmental responsibility, transport congestion, labour shortages and pressure on land and warehouse availability are constraints that drive the creation of innovative and efficient solutions.
The World Bank lists the UK eighth in a list of top global logistics performers beating, for example, Hong Kong, the US and Japan (Germany comes top). That level of achievement should be eminently saleable abroad.
So, where do the opportunities lie for British companies and the myriad other firms that support this mega-industry?
Logistics infrastructure is valued by BCG at $257bn a year
On the largest scale, the recent enhancement of the Panama Canal is radically changing how markets are served in the Americas and beyond. This potentially makes ports such as Liverpool, with its capacity recently enhanced to take ships carrying up to 20,000 standard containers, a European destination for global trade. Meanwhile, the Chinese-backed ‘New Silk Road’ promises to bring previously unconsidered countries such as Kazakhstan, and ports around the Indian Ocean and Gulf, into play both as product sources and as logistics hubs.
Traditional ‘low-cost manufacturing’ countries such as Vietnam and Cambodia are investing heavily in infrastructure to counter the trend towards ‘near-shoring’ - bringing time-critical manufacturing closer to end markets - which itself requires other countries to invest in logistics. New hubs are developing in the Middle East, some of which, such as Dubai Ports, have significant ties with the UK (London Gateway). In India, fiscal changes are triggering local and international logistics investment as manufacturing and distribution focus on supply chain, rather than tax, efficiency.
UK engineers, architects and project managers are heavily involved, and in turn open opportunities for other British specialists. London consultancy Atkins has a long-term relationship with Port Manatee, Florida - the closest deep sea terminal to the eastern end of the ‘new’ Panama Canal - planning berths, warehousing, intermodal centres and transport needs. Foster + Partners, the internationally renowned architectural practice, is famous for airport work where the design of freight terminals and facilities is at least as important as the more glamorous passenger side. UMC Architects specialises in the design of logistics and distribution facilities from bases in Manchester, Notts and London.
Logistics operations are increasingly driven by IT, ‘big data’, machine-to-machine communications and the Internet of Things. The UK can gain an edge in offering tailored, rather than one-size-fits-all, solutions while cloud-based ‘Software as a Service’ (SaaS) makes vendor location less relevant. Pimberley PIM in Manchester develops cloud-based Product Information Management systems, resolving the problem that the same product from a common inventory might have different descriptions depending on where and through what channel it is sold.
Pimberley says: “Manchester is a great place to be an early-stage tech company with a buzz surrounding initiatives such as Tech North and the Northern Powerhouse. We have the opportunity to create a world class SaaS solution right here in the north of England.”
Many UK innovations in technology might not be badged as such, but will be specified, acquired and incorporated by multinational players in industries such as transport, materials handling equipment and warehousing automation.
It is no coincidence that firms such as Amazon and Google look to the UK both as a source of innovation and as a proving ground for developments such as drones or autonomous vehicles.
Apple has acquired UK voice technology developers (VocalQ, Novauris), Google has bought artificial intelligence and object recognition specialists (Vision Factory, DeepMind Technologies): both of these areas are of potential importance for logistics technology (although the acquirers may have other uses in mind).
Design, modelling and planning
Logistics and supply chain networks don’t just grow, they need to be planned to meet objectives of cost, service level, responsiveness and so on. Distribution networks, location of manufacturing and warehousing facilities, and other factors also need to be modelled and planned. British skills as unlikely as satellite image interpretation can be important here. Gideon Hillman, one of the UK’s most respected logistics and supply chain consultancies, lists network design, distribution centre location analysis, vehicle fleet profiling, space optimisation, demand profiling and inventory analysis as just some of the modelling skills that operators require, increasingly across multiple countries, channels to market, and transport modes.
Labour shortages, and the need for ever greater speed and accuracy, is a driver for automation at every level, from the physical movement of goods to commercial processes. Warehouse operations are increasingly being automated but machines must be safely integrated with workers. Asda’s new 97%-automated distribution centre in Warrington is said to be among the most ‘ergonomically friendly’ in Europe; the 600 colleagues stay at their workstations while nine robots and 4.5km of conveyor do the lifting and travelling. Automation also fully utilises the 27m height of the building, in part reflecting UK space constraints. Parent Walmart plans to replicate this in the United States.
Ocado - like Amazon essentially a technology company rather than a retailer per se - recently announced its first overseas licensing deal for its proprietary know-how, expertise and software, with expectations that its warehousing automation solutions will also be attractive globally. Ocado integrates UK and foreign developments in machine learning and AI, robotics and automation, advanced data analytics and the Internet of Things.
British business software companies such as Access Group, or Optima, develop Warehouse Management and other systems that can make best practice accessible to companies of all sizes worldwide even without these levels of automation.
Financial and business services still have a big international role for UK plc
British insurance companies are already discussing new allocations of liability and forms of insurance, not just for ‘self-driving’ private cars but for autonomous trucks, warehouse and factory automation, and in fact all systems where ‘the machine’ is assuming a greater degree of control. As one example, Cambridge artificial intelligence firm FiveAI is working with insurance giant Aviva and other parties to explore and develop protocols that can be used to design liability and insurance frameworks around ‘self-learning’ machines. If accepted into UK commercial law, such approaches could be widely adopted.
Meanwhile, aspects of e-commerce such as e-invoicing (much encouraged by UK Government), by automating the reconciliation of purchase orders, shipping notes, invoices and other documents, is enabling sophisticated new forms of supply-chain finance. Such schemes could be a boon to supplier companies in countries with underdeveloped banking and financial systems. London’s Woodsford TradeBridge is one company specialising in this area, particularly for SMEs trading with overseas partners. Sancus Finance is another name in this field, using City expertise to provide innovative financing solutions to global supply chains.
Global demand is increasing for sustainable operations, for instance in use of energy and other resources, and for compliance, both with customer requirements and national and international laws. Achilles operates ‘globally, regionally and locally’ with more than 400 staff worldwide validating and auditing supplier information. KSSA in Belfast is a specialist in ethical trade audit, while BSI Audit aims to ensure that “your suppliers are not exposing your brand to potential security, social responsibility or business continuity risks”.
Consultancy is worth $16bn globally, according to BCG. Crimson & Co, (originally a spin-out from PwC) is now truly global, with significant presence in the US, India, Australia, Singapore and Brazil, offering global brands a common approach to logistics challenges. With a very different background is Northamptonshire’s Davies & Robson, founded in 1919 by two former railway clerks, which also has a blue chip client base and relationships extending almost a century. For logistics consultants, client requirements can range from devising global supply and distribution strategies to the detailed design and implementation of new facilities and processes. Increasingly they are also involved in the provision of interim and project management, and the development of local staff and skills.
Education and training
British professional qualifications are much sought after – the Chartered Institute of Logistics and Transport has 33,000 members across 30 countries; the Chartered Institute of Procurement and Supply 115,000 around 150 countries. UK universities offer close to 100 taught courses, mostly at Masters level, with some taught at sister Universities overseas – Aston University’s BSC course, for example, is also available in Muscat University, Oman. Meanwhile many UK training providers, and organisations such as Crown Agents, provide or facilitate accredited course in-company and to individuals by distance and e-learning.
Other areas where UK companies may take an important role range from the development of self-learning systems and wearable tech in warehouses to managing the logistics implications of the predicted ‘share-economy’; assets from domestic goods to industrial facilities may increasingly be shared rather than owned outright. The UK tends to be a fairly early adopter of such trends and thus provides British-owned or based businesses with an attractive platform on which to build their logistics offer to the world.