The integration of Industry 4.0 and Internet of Things (IoT) in the logistics sector is being discussed under the term Smart Logistics. Behind this is the data-driven approach of networking all the players involved in the supply chain in order to accelerate the flow of goods and make it more efficient. Smart Logistics essentially arises from innovations in Transportation Management Systems, Warehouse Management Systems and Supply Chain Planning.
What is changing and why?
The biggest changes in logistics are expected to come from the integration of artificial intelligence (AI). In September 2020, the Congress “Zukunftskongress Logistik” met in Dortmund. The head of the Fraunhofer Institute for Material Flow and Logistics (IML), Prof. Michael ten Hompel, was confident that through the use of AI, supply chains can be independently networked in real time and at all levels. In this way, autonomous devices could negotiate contracts and conclude payment transactions independently. Fraunhofer IML is already working with the “Silicon Economy” on a digital platform economy that will act as an environment for these new technologies. According to Prof. Michael ten Hompel, the logistics sector will benefit particularly from AI and play a leading role in its use. This forecast is also supported by DHL’s current strategy. The logistics provider opened its third innovation centre in September 2019, this time in Chicago after Troisdorf and Shanghai. There, employees, customers and scientists are working together on the digital future of logistics. DHL already uses autonomous and collaborative robots in its shipping centres. AI is intended to optimize routes and drive automation. The company has already announced the next step: the development of a digital platform to control and monitor all shipments. This is because the expectations of market participants regarding delivery times as well as process improvements in deliveries are high, and the competition, which now comes predominantly from the online sector, is not sleeping. For example, the two e-commerce giants Amazon and Alibaba integrate entire supply chains via their platforms. Other logistics service providers can participate in this as partners, but it is even more important that they build intelligent infrastructures themselves so that they do not slip into full dependence on the online giants in the future.
Great pressure to innovate smart logistics from online giants
The big online retailers Amazon and Alibaba are already playing a major role in the developments in logistics and are steadily increasing their market shares. Alibaba, for example, has big plans with its own logistics service provider Cainiao. Cainiao Network operates a platform that handles everything from digitization and standardization, from waybills to route optimization for couriers. Just recently, Cainiao accepted its first container bookings. Setting a new standard in delivery times – this is in particular what the Chinese company has set its sights on. At the end of 2020, it was announced that Cainiao will also expand to Japan in the future. The expansion is expected to improve shipping by up to 40 per cent especially through a stronger logistical infrastructure and greatly reduce delivery times.
Cainiao’s largest Chinese competitor, JD.com, aims to deliver selected products within China within 30 minutes. JD.com relies on AI to determine the distance between retail shops registered in its partner network, its own warehouses and distribution centres, and customers. If an offline shop from the network is closer to the customer than the company’s own warehouses, delivery is made from there. There are already more than 20,000 partners in the network, mostly retailers from China. In addition, JD.com cooperates with the US retail chain Walmart, which is represented in JD.com’s network with over 170 shops.
In Q3 2020, JD.com, with shares in logistics company Kuayue Express, expanded its logistics division with the aim of developing technology activities as well as service extensions for third-party providers and enabling integrated supplier management.
Novel digital platforms using AI, automated distribution centres as well as new business models for the delivery of goods are thus the enablers for the short delivery times.
“Last Mile” as the most important success factor?
In logistics, the route of a product from the distribution centre to the customer is referred to as the “last mile”. Innovations in this area could determine market leadership in logistics for end customers in the future. One trend is the establishment of many small shipping warehouses that are distributed like a network across entire countries in order to keep the distances to the end customer as short as possible. Amazon already maintains 175 such so-called “fulfilment centres“. In order to monitor stock levels in advance, warehouse data is networked in real time with retailers and manufacturers in a shared data room. The delivery itself still has high potential for optimisation. Precise tracking of the delivery vehicles could announce the delivery to the customer on their smartphone to the minute. The consideration of a delivery time specified by the customer and simplified returns should soon be better implemented.
Specialists for route guidance, such as Uber Freight, the cargo division of Uber, are also maturing into competitors for logistics service providers. In Germany, a number of start-ups are also successfully addressing the issue of the “last mile” and carrying out lightning deliveries for well-known large companies. Good examples of this are Tiramizoo and Liefery oder Parcello.
Autonomous vehicles, infrastructure and the state enable progress
In order to introduce and implement innovative concepts such as the use of autonomous delivery vehicles or delivery drones, an intensive exchange with state stakeholders such as municipalities as well as licensors is inevitable. The ability of a state to ensure the functioning of autonomous vehicles can therefore become a key economic success factor in the future. The United Arab Emirates (UAE), for example, have recognized this and are investing massively in their infrastructure to make it fit for the autonomous future of delivery traffic. By 2030, a quarter of the vehicles on the UAE’s roads are expected to be autonomous. In the Autonomous Vehicles Readiness Index 2020, which has been compiled annually by KPMG since 2018, the UAE has now positioned itself in 8th place, while Germany has slipped from 8th to 14th place compared to the previous year.
Competition in smart logistics is becoming political
Meanwhile, competition in logistics is reaching a new dimension. Where US corporations compete with Chinese corporations, it quickly becomes political these days. The US government, supported by many governments from the EU, successfully fought for fairer rules in international postal traffic in the Universal Postal Union until the end of September 2019. The Universal Postal Union (UPU), founded in 1874 and based in Geneva, is the third oldest international organisation in the world. According to a secret and complicated mechanism, it determines how much an item costs to send from one country to another. This is because in the recipient country of an item, it is no longer the post office where the item was posted that is responsible, but the one responsible for the area of delivery. This service has to be paid for. However, in order to avoid major imbalances in international postal traffic due to differences in purchasing power around the world, the UPU classifies its 192 member countries into four categories. The lower the category, the less a country had to pay for an international item. This system, which actually makes sense, had led to an item from China (an emerging market according to the UPU) to the USA costing only a quarter as much as an item within the USA. This calculation can also be applied to the EU. This resulted in massive price advantages for Chinese e-commerce traders. The German E-Commerce and Mail Order Association rebelled.
Every year, about 70 million small consignments of goods are sent from China to Germany. German postal companies have so far lost at least 100 million euros a year in postage revenue. Likewise, domestic traders were missing out on potential sales due to distortion of competition. As the US had threatened to leave the UPU, member countries found a compromise at an extraordinary meeting in September 2019: industrialized countries are now allowed to charge higher amounts for forwarding international mail.
Exciting start-up movements in the smart logistics industry despite Corona
One would suspect that the Corona restrictions would have a rather slowing effect on the logistics sector in particular. Developments in logistics start-ups speak a different language. Many new start-ups were registered in the logistics sector in the Corona year 2020. Ludwig Hausmann, partner at McKinsey & Company, also commented positively on this at the KLU Logistic Innovators Day. “The momentum of start-up funding has accelerated through Covid-19.” He said the total funding for logistics has increased by 25 per cent from 2019 to 2020.
Smart logistics is the future
The flow of goods from source to destination depends on the integration of multiple elements such as ships, trucks and planes, ordering and information systems, and most importantly, people and their rulebooks and policy decisions. A network that intelligently connects and coordinates all participants, at best in real time, is the prerequisite for the success of Smart Logistics. Logistics is becoming a growing success factor on different levels. Against the background of these developments, what opportunities and risks do you see for your company? Feel free to contact us for a professional exchange.