Logistics market landscape

You hear the word logistics often. “He will handle the logistics of the family vacation” or “logistics is the most important part of a military campaign.” Vacations, war zones - what is the difference? According to the Oxford dictionary, logistics is the detailed coordination of a complex operation involving many people, facilities, or supplies. Simply put, it is organizing the movement of people and things. For businesses, this is crucial.

Take the age-old, easy to understand example of a business operation - the lemonade stand. Suppliers, ingredients, prices, consumers, operations, sales forecasts, advertisements - you name it - are all a focus of the operation. Logistics is the glue that holds each of these pieces together. The business can still function if you remove a few of these but it cannot function if you remove the glue.

Businesses are people and things creating value for other people and things. If all of these people and things cannot move through time and space, value cannot be created. That’s why logistics is crucial.

In an efficient market, the capacity of logistics modes (trucks, trains, ships, planes, etc.) and nodes (ports, warehouses, distribution centers, etc.) can sufficiently meet the demand of the goods flowing through them. Sometimes the demand for goods is greater than a supply chain’s capacity to move them. The most recent example is Covid-19. Nearly $10.4T of global stimulus unleashed a rebound in which consumers spent more on goods than normal, stretching global supply chains. Consumers shied away from spending on travel and eating out, and instead focused their dollars on physical goods, further adding pressure to supply chains. There are simply too many goods being produced and shipped for supply chains to handle.

The recent surge in demand is best captured in the Logistics Managers Index (LMI). Economic activity in the logistics industry has boomed since the beginning of 2020, reflecting strong demand for transportation and warehousing services.

This has all amounted to container ships around the globe anchoring outside of ports waiting to get in as ports do not have the capacity to process the surge in containers. Truck drivers, tired of waiting for available chassis at ports, have opted to spend their valuable time running routes that do not begin or end at a port. On top of this, it is estimated that the U.S has a driver shortage of around 80,000 drivers - a number that is even higher in Europe, at 400,000!

In a recent survey, third-party logistics (3PL) companies cite top challenges in 2021 as being capacity, growth management and labor management. The truth is, many logistics companies are not able to handle demand surges and dynamic markets. This leads to empty shelves, longer delivery times and unhappy shippers and end consumers. To be competitive, logistics companies must increase their supply chain adaptability and agility through investments in technology. Only 10% of 3PLs cite technology investments as being a challenge in 2021. There is an appetite for improvement.