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Logistics 4.0. Who Will Win in the Competition of the Future?

13.03.2018

Karachun.jpgWe continue discussing the development of IT services in the logistics industry with Vladimir Karachun, a top manager of TELS Group of Companies with 12-year experience of management in transport logistics and currently involved in five automation projects. In the first part of the interview, we discussed the development of transport exchanges, the market of IT solutions for logistics automation and the evolution in communication technology [link to the first part]. The second part will regard the major effects of IT development in logistics and management of human resources in the industry.

TRANSPARENCY OF THE MARKET

Vladimir, in the first part of the interview you said that the current rapid development of automation in logistics will soon lead to significant changes in the principles of logistics operators’ work. What does it mean?

What’s absolutely true is that everything happening now around logistics automation will lead to high price transparency in a few years. Freight forwarding companies won’t be able to retain the same income level as they have today.

The automation trend grants transparency in everything – from defining customer’s needs to cargo unloading at destination points. Open proposals in global space will support competition resulting in lower rates. This is already evident from the intra-European market – profitability in transportations is much lower there than on the international routes between Europe and the CIS. Successful strategy of a logistics operator working in the EU implies profiting from large volumes of low-margin transportations by growing volumes of tens to hundreds of thousands transportations and receiving 10-15 euros from each transportation. At first glance, this doesn’t seem profitable, but given the excess cargo offers and the absence of administrative barriers, the EU market looks more attractive for many European operators than the eastern market.

Gradually, such business conditions will come to Europe-CIS market. And if freight forwarding companies want to remain competitive in the market, they already need to solve the problem of arranging their work based on intellectual technology so that lower prices for a deal increase the total revenue and profit of the company.

Is it the only option? Will logistics operators retain their competitiveness only this way?

There is another option – going farther “to the East” to the markets of Uzbekistan, Kyrgyzstan, Tajikistan and Azerbaijan. Due to greater economic backwardness and the lack of price transparency in these markets, it’s possible to receive higher profits from transportations for a longer time here.

Another highly profitable segment of logistics is transportations of project cargoes and contractual partnership in a number of areas, for example, when a logistics operator solves a large range of customer’s issues. By playing on the budget for logistics an operator can transport with losses on one routes and have high profits on the other routes, provide not only transportation but other related services (consulting, documentation and customs support, inventory planning, etc.). Thus, an operator receives the required total profit. An important condition for that is perfect optimization of all business processes and the ability to integrate with customer’s processes.

Contractor’s expertise which allows the customer to optimize logistics costs and ensure high efficiency in partnership at different levels also plays an important part.

So, will the logistics market divide into “standard” transportation with low profitability and large competition and expert contract logistics with large logistics budgets?

That’s about right. Freight forwarding companies in our market do not have much time to decide how they will ensure their competitiveness in fast changing environment.

SALES IN LOGISTICS

How will the development of IT in logistics change the sales of logistics services? What should the market participants expect?

The leaders of largest logistics companies addressed a conference at Transport Logistics exhibition in Munich. One of the most discussed issues were the following: who should sell logistics services, what place robots and artificial intelligence will take in logistics, what part will human resources play.

Sales in logistics will be divided into the following groups: a) satisfaction of “simple” transportation needs – can be sold by robots and information services; b) projects, logistics solutions – can be sold by highly competent experts.

The role of tenders and tender platforms will grow, so qualified specialists working with tenders are becoming more in-demand both for buyers of services and contractors.

Automation of communication is becoming a necessity also because a new generation of buyers and sellers using new communication tools, which are no longer mobile phones, e-mails and corporate web-sites, is growing. Contemporary technologies are neural networks and chat-robots capable to communicate with TLS consumers and make preliminary offers. Companies not integrated with global information space will not be even regarded as market players. And even when such companies participate in the market, they will need to survive the competition.

When customer’s requirements go beyond “simple”, sales should be carried out by highly-qualified experts as they are no longer selling transportations, they are dealing with solutions.

WORKING WITH HUMAN RESOURCES

How can IT evolution change work with human resources?

The conference in Munich also raised the problem of the so-called “Y” generation, in private the participants discussed how to attract and motivate young people. The new generation are the employees with a completely different communication culture which is integrated with information technology.

In the markets of the former CIS countries, young people still have more opportunities to grow professionally and get highly paid in logistics, so an employer has easily attract them to the industry.

The situation is different in developed European countries as young people there have more options for development and the logistics industry is not particularly distinguished by the level of wages. The question how to attract people to logistics is acute. So it´s logical to adapt to the situation and organize communication environment comfortable for young people.

Business automation is significant not only from cost optimization point of view, but also because of the existing shortage of skilled human resources. The industry is trying to ensure “standard” transportations controlled without human involvement or under operator’s control without “expensive” competencies.

Some companies collaborate closely with university departments, lecturers and professors to develop new scientific approaches and tools to optimize their activity, on the one hand, and prepare qualified experts for the industry who could organize logistic processes after graduation, on the other hand.

But unlike our market where logistics is mostly serviced by young people, logistics managers in Europe are older. So why do the habits of young people matter so much?

Of course, in Europe logistics is an “old-age” industry with the major staff over 30. Most managerial positions are occupied by people of 40 and more.

But the market is now growing and we need people who will be able to serve this growth. At Transpoland exhibition, the representatives of a large online staff portals made a forecast that within the next three years the logistics industry in Europe will experience an acute shortage of human resources (hundreds of thousands employees). So young people can be the solution for the problem. It’s evident that new HR experts capable of motivating young people and developing the industry need to be involved. This encourages even large slow-changing companies to rethink the role of young resources.

***

Large and medium-sized freight forwarding companies in the former CIS countries working in the international market won’t be able to stay away from the European trends or, as they call it, Logistics 4.0. As we have noted, the speed at which IT technologies develop gives a couple of years to modernize all the processes. It’s not just minor improvements or automation of individual business processes, it’s a matter of technological competitiveness, which is possible only along with comprehensive modernization. And it will become a key factor for success in Logistics 4.0.


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