2016 Logistics Study On Digital Business Models - Roland Berger
2016 logistics studyon digital businessmodelsResultsOctober 2016
Management summary (1/2) Digitization is already reshaping other industries and is going to change the logistics business, too This study aims at developing and describing specific future digital business models in logistics as well as overall "digital endgames" inorder to arrive at recommendations for actions that decision makers in logistics companies can take It is based on a detailed analysis of digital trends that have an impact on logistics, an international online survey among professionals inlogistics as well as design-thinking workshops with industry experts, start-ups and researchers 95% of people in the logistics business think that digitization will partly or completely change the industry Data security is seen as the most important threat deriving from digitization. Consequently, the loss of sensitive data is viewed as the mostimportant obstacle to cooperation with business partners. Only about one third of the survey participants believe that their business modelcould become irrelevant, although other industries have shown significant examples of disruption When it comes to the implementation of actions toward digitization, a lack of know-how and lack of stakeholder support are the keychallenges. Roland Berger's aim with this study is to enhance the level of know-how surrounding digitization in logistics as well as to makedecision makers in logistics companies aware of the challenges and opportunities of digitization Numerous digital business models in the logistics industry have already been created by start-ups and even more will evolve in the future.Some will encompass the full logistics chain and others will cover only small elements. Some will create online markets for services, otherswill help optimize processes or increase transparency Roland Berger believes that there will be four types of surviving players in the logistics industry: (1) booking and optimization platforms(BOP), (2) carriers and terminal operators (CTO), (3) supply chain specialists (SCS) and (4) service providers (SP) BOP will take over a significant amount of today's standard forwarding business. They will act as intermediaries between customer and CTOand will have to be independent in order to be accepted by business partners. SCS are expected to manage and handle complex logisticstask that require specific industry knowledge or that cannot be standardized. SP are going to provide data, transactional, clearing, softwareand other services, which are enablers of digital business modelsRoland Berger Logistics Final 181016 Short.pptx2
Management summary (2/2) Given that the standardized forwarding business is potentially at risk for today's logistics companies, they may lose up to 70-80% of theirrevenue. A typical forwarder's P&L shows about 20% gross margin, which is needed to cover operating expenses, SG&A and profit. From ashipper's perspective it is attractive to directly approach carriers via a BOP and to save a significant share of the forwarder's gross margin As creating an individual BOP will not be an option for logistics companies, they will have to decide whether to become asset oriented andturn into a CTO or to become service oriented and turn into an SCS and/or an SP Regardless of which individual strategy a logistics company may choose, a few important topics should be taken into consideration: The strategic dialog should be started by quantifying the potential revenue and profit gap A decision on the future key strategy, i.e. asset or service based, should be made and a strategic roadmap should be developedaccordingly Companies should define their position toward a booking & optimization platform. They should consider getting in touch with potentialcooperation partners in order to create one Digitization is inevitably going to come. Therefore, digital transformation is a key task that needs to be performed by introducingemployees to digital thinking and by implementing new ways of IT project management However, no one knows exactly what is going to happen. Hence, the continuous exploration of the potential of new technologies, e.g. bysetting up a corporate incubator, is another important task Finally, in order to be prepared for dramatic changes ahead, a corporate performance program should be set up and accompanied by asolid financial plan. It is advisable to involve financing partners early in the processRoland Berger Logistics Final 181016 Short.pptx3
ContentsPageA. Motivation5C. Online survey – Status quo and outlook on digitization in logistics9D. Digital business models15E. Digital endgames – What the future could look like in logistics17F. The authors31Roland Berger Logistics Final 181016 Short.pptx4
A. MotivationRoland Berger Logistics Final 181016 Short.pptx5
Increasing numbers of people book their vacations online – Despitea growing market, travel agencies are being forced to close downOnline penetration of German tourism 17* Websites like Expedia.com are becoming morepopular Expedia Inc.'s revenues have increased by more than100% over a seven-year period – USD 5,763 m in2014 Convenient processes as well as cost savings drawtravelers to online booking Only all-inclusive tours are still mainly booked offlineSource: Phocuswright, Statista, Roland Berger Germans spend 13 bn more on vacations than they didin 2006 However, the number of travel agencies has declined byone third over ten years. There are now more than 4,000travel agencies less than in 2002 Hotels are under pressure from sharing platforms likeairbnb.com Online presence of hotels is often decisive for bookingsRoland Berger Logistics Final 181016 Short.pptx6
As the container celebrates its 50th birthday, a new revolution isimminent in the logistics sector Angel.co lists 1,112 logistics start-ups Number of entries for keywords"logistics start-ups, freight and cargo" intop blogs for technology increased from3 in first half of 2010 to 134 in first halfof 2015 Survey by Roland Berger shows:logistics sector expects massive changeSource: Freightos, Roland BergerRoland Berger Logistics Final 181016 Short.pptx7
Using a multi-layer study design, we want to draw a realistic picturefor new business models in logisticsApproach and status quoPhaseStatusBasic setupGroundwork ofGoal Compilationdigital trendsSurveysurvey Digital businessmodels Identification of Formulation ofopinions of logistics concrete "digital"relevant to logistics service providersbusiness modelsindustryon digitizationin workshops with Discussion of Analysis of statusindustry experts,trends with industry quo regardingstart-ups andexperts, start-upsimplementation ofresearchersand researchersdigital businessmodels in logisticssector Outlook on expected developmentDigitalendgames Detailing andvalidation ofbusiness models Identification ofmost relevantbusiness models Deduction ofpossible "digitalendgames"Release Presentation ofresults in fall 2016 Trigger for furtherdiscussion andimplementation ofdigital businessmodelsRoland Berger Logistics Final 181016 Short.pptx8
C. Online survey – Statusquo and outlook ondigitization in logisticsRoland Berger Logistics Final 181016 Short.pptx9
Almost 95% of the participants share the opinion that digitization willpartly or completely change their industryStatement 1: Changes in the logistics industry caused by digitizationDigitization will change the industry. completely partly not at allI don’t know1%4%36% According to the vast majority ofrespondents, digitization will changethe logistics industry completely(59%) or at least partly (36%) in thecoming years Changes are possible in many areasand will especially affect markettransparency and collaborationbetween different (new) marketparticipants59%95%Source: Roland Berger online survey "2016 logistics study on digital business models" developed in cooperation with TU MünchenRoland Berger Logistics Final 181016 Short.pptx10
Data security is seen as a big risk – Replacement of currentbusiness models possible and already advanced in other industriesStatement 3: Risks of digitizationHow could digitization threaten your business model?Every option was assessed individually46075402960460149969274111267601 Business model#5 becomes irrelevant1 quality#4 Increasedtransparency5922 price#3 Increasedtransparency4 complexity#2 Increasedof competition1 Data security#1 breaches3657901117792 Data security is seen as a riskacross all industries and companysizes Fully one third of participantsbelieve current business modelscould become irrelevant Especially participants with acontract logistics background( 45%) and those from largercompanies see this as a risk Numerous examples confirmdisruption in other industries:– AirBnB vs. hotels– Uber vs. taxi companies– Expedia vs. travel agencies– Amazon vs. retail companies– Netflix vs. video rental stores1 – Big risk 4 – No riskSource: Roland Berger online survey "2016 logistics study on digital business models" developed in cooperation with TU MünchenRoland Berger Logistics Final 181016 Short.pptx11
There is disagreement about the impact of digitization on the marketstructure, even within sub-sectorsStatement 4: Impact of digitization on market structureDigitization leads to.61827No industryspecification10960Carrier/terminaloperator (air/sea)8Air/sea freight5815Carrier/terminaloperator (land)Land transport40Contract logistics111027 Other industries indicate that,alongside leading digital players, alarge number of niche providers canestablish themselves After high market fragmentation,consolidation typically followsdigitization in industries Digitization can become a problem,especially for medium-sizedenterprises, which have neither thenecessary size nor a sufficientspecialization – They are "stuck inthe middle"20MarketconsolidationMarketfragmentationNo impact on marketstructureNo statement49Source: Roland Berger online survey "2016 logistics study on digital business models" developed in cooperation with TU MünchenRoland Berger Logistics Final 181016 Short.pptx12
Loss of sensitive data or competitive advantages are key obstacles tocooperation with competitors and external partiesStatement 8: Risks of cooperationWhat obstacles do you see when cooperating with .Every option was assessed individually competitors non-logisticscompaniesLoss ofsensitive data8960Loss of competitiveadvantages8659Bad technicalinterfacesRisk ofdependencyUnreliability ofpartnersNo added value ofcooperation18271826 authorities3372459297311647Source: Roland Berger online survey "2016 logistics study on digital business models" developed in cooperation with TU München81 The loss of sensitive data is mostnotably a danger from the point ofview of contract logistics, especiallywhen considering potentialcooperation with competitors Particularly carriers rate the loss ofcompetitive advantages incooperation with competitors as amajor risk – For them, data securityis not a key issue The interviewees do not expectsubstantial benefits fromcooperation with authorities. Air/seacarriers with a high share ofinternational traffic see the greatestpotential. For this group, however,the lack of technical interfaces isthe biggest obstacleRoland Berger Logistics Final 181016 Short.pptx13
Lack of know-how and stakeholder support are key challenges withregard to the implementation of digital measuresStatement 14: Challenges regarding implementationWhat challenges do you face when . implementing digitization measures?77117174"Don't know"14"Don't know"442130382646 Lack of support frommanagement/employees284"Don't know"241065043 4"Don't know"1117541Lack of resources13027 Lack of strategicdecisions4"Don't know"1 Lack of stakeholdersupport Lack of know-how Small companies have to copeespecially with a lack of resources,whereas bigger firms consider alack of know-how and lack ofsupport from management andemployees to be a major factorimpacting implementation484159946466711 – Very big challenge 4 – No challengeSource: Roland Berger online survey "2016 logistics study on digital business models" developed in cooperation with TU MünchenRoland Berger Logistics Final 181016 Short.pptx14
D. Digital businessmodelsRoland Berger Logistics Final 181016 Short.pptx15
Business models can be classified based on their influence on thelogistics chain and their value propositionBusiness model categorizationB2B brokerageplatform LTL/LCLTracking andcommunicationplatformComparisonand bookingplatform FTL/FCLIntegrated analysisand consultingsystemFullInfluence onlogistics chainPartialAd hoc parceldeliveryBrokerageplatform fortruck driversCreation ofonline marketsVirtual schedulingTranslationsoftwareCost and revenueanalysisOptimization ofprocessesIncrease oftransparencyValue propositionSource: Expert workshops, Roland BergerRoland Berger Logistics Final 181016 Short.pptx16
E. Digital endgames –What the future couldlook like in logisticsRoland Berger Logistics Final 181016 Short.pptx17
Future players in logistics can be broken down into four groups –Service providers are also active in other industriesSurviving players in the logistics industry (endgame scenarios)Booking & optimi- 1zation platforms(BOP) Independent platformfor the managementof logisticstransactions Route and costoptimizationcapabilitiesCarrier & terminal 2operators(CTO) Asset holders andoperators performinglogistics tasks High asset and costefficiency Either specialized orstandardizedSupply chain3specialists(SCS) Solution provider forcomplex or industryspecific tasks Deep understandingof industry-specificsupply chainsService4providers(SP) New players, hardware providers andexisting online players Provision of supportservices for logisticscompaniesActive in multipleindustriesSource: Market experts, Roland BergerRoland Berger Logistics Final 181016 Short.pptx18
1Booking platforms will primarily be attractive for standardized andsmall to medium-sized orders – Many BOP will compete for clientsBooking & optimization platforms (BOP)Customer12BOP1CTOSCSSPInteraction model1 Booking, payment, rating 2 Logistics services BOP are ideal for clients with standard orders Customers settle their request, booking and payment via BOP; BOP receivesa booking fee and interacts with CTO After the delivery, BOP asks customers for carrier ratings to allow futureclients to compare different CTO With technology moving onand clients constantly lookingfor the cheapest price, BOP'scost efficiency will soon makethem omnipresent in themarket for standard orders 'The winner takes it all' – TheBOP with the broadest offeringwill attract the most customerswhile pushing most forwardersand other platforms out of themarket Still, BOP need to differentiatethemselves or will most likelybe exposed to a price warCTO: Carrier & terminal operators; BOP: Booking & optimization platforms; SP: Service providers; SCS: Supply chain specialistsSource: Market experts, Roland BergerRoland Berger Logistics Final 181016 Short.pptx19
2CTO must react to BOP by selling recurring business and largecorporate packages – Customers will benefit from better pricesCarriers & terminal operators (CTO)Customer123BOP1CTOSCSSPInteraction models1 Booking, payment, rating 2 Logistics services3 Booking, payment CTO will either receive orders from BOP ( ) or directly ( ) CTO will get most standardorders from BOP, but firmswith recurring business andvery large companies withstandard logistics needs maychoose to buy discountedservice packages from CTOdirectly BOP booking fees can cutdeeply into the bottom line –CTO companies shouldconsider forming alliances tobuild their own BOP Optimizing their businessthrough service providers willbe key for CTO in anincreasingly digitized industry– Acquisitions may benecessaryCTO: Carrier & terminal operators; BOP: Booking & optimization platforms; SP: Service providers; SCS: Supply chain specialistsSource: Market experts, Roland BergerRoland Berger Logistics Final 181016 Short.pptx20
3SCS handle complex logistics tasks that require industry-specificsupply chain expertise – Contract model is one optionSupply chain specialists (SCS) – Contractor modelCustomer655C4BOPTO5SCSSPInteraction model4 Booking, payment 5 Outsourcing, mostly via BOP6 Logistics services SCS offer a full solution service with outsourced logistics services that are partof a complex supply chain Management of supply chainswill become even moredigitized and require SCS topartner with service providersor even acquire them Finding the right size will be atough challenge for SCS ascost structures have to be slimwhile innovation must be keptat a high level SCS could also work in anagency model, only chargingfor their direct servicesCTO: Carrier & terminal operators; BOP: Booking & optimization platforms; SP: Service providers; SCS: Supply chain specialistsSource: Market experts, Roland BergerRoland Berger Logistics Final 181016 Short.pptx21
4Service providers are involved in all client interactions and serviceprovisions – They enable the change in the logistics industryService providers on models13 Client service provision 14 Pay-per-use service15 Subscription-based service Depending on a service provider's offerings, it can serve CTO, SCS and/or BOP– Whether the product is available through a subscription scheme, pay-per-useor a combination of both is highly dependent on its ease of duplication Service providers supportCTO, BOP and SCS inperforming and optimizingtheir services Examples of SP clusters:– Data (GPS tracking, routing,price information)– Transactions (payment,collection)– Clearing (customs clearance, documents handling)– Software (data interfaces,translation, optimization) SP are essential driverstoward the future industrysetup with only four majorplayers, but their final role isyet to be definedCTO: Carrier & terminal operators; BOP: Booking & optimization platforms; SP: Service providers; SCS: Supply chain specialistsSource: Market experts, Roland BergerRoland Berger Logistics Final 181016 Short.pptx22
Standardized forwarding business will come under pressure –By contrast, the contract logistics market is expected to growMarket outlookForwardingair/seaCurrent shareof standardizedbusiness (FTL,LTL, container)Forwardingland 80% 70%Contractlogistics 5%Projectedmarketdevelopment Booking platforms are expected to attract most of forwarders'standardized business, aiming at grabbing their margin As a result, forwarders' business models need to be transformedTypical forwarder income statement [%]100SalesSource: Market experts, Roland Berger2080CoS875OpexSG&AProfit Demand for personalized products isexpected to grow Supply chain specialists are expectedto offer product personalization As a result, contract logistics market isexpected to grow 9% p.a. Digitization might boost growth asdemand for tailored solutions increasesRoland Berger Logistics Final 181016 Short.pptx23
Current logistics companies will have to decide in which direction todevelop their business – Becoming a BOP is not an optionHypotheses on future roles in the logistics industry (endgame scenarios) New neutral players Cooperation of customers Cooperation of forwardersBOPCTO Current players Former logisticscompanies with a mixedbusiness model Some new players, e.g.in urban logisticsSCSSP New players Cooperation of hardwareproviders Existing online players Cooperation in a flexiblestructure will become a morecommon business pattern Booking platforms being usedby various parties will have tobe neutral – It is not an optionfor single companies to set upbooking and optimizationplatforms (BOP) Former globalforwarders/ integrators Specialized logisticscompaniesCTO: Carrier & terminal operators; BOP: Booking & optimization platforms; SP: Service providers; SCS: Supply chain specialistsSource: Market experts, Roland BergerRoland Berger Logistics Final 181016 Short.pptx24
Forwarders can move into two directions:Focus on asset ownership and operation or focus on servicesStrategic options for forwardersSupply chainspecialistCarrier/terminaloperatorStatus quoforwarding(air, sea, land)Service providerMarket exit(consequence of a lack of repositioning)Roland Berger Logistics Final 181016 Short.pptx25
Strategic direction is influenced if not predetermined by currentbusiness model and market positionStrategic options for forwarders – Influencing factorsSupply chainspecialistStatus quoforwarding(air, sea, land)Carrier/terminaloperatorSize sSpecialization andknow-how1)ReputationCustomerbase andrelationshipCorporateculture3)Service providerAssetstructureFinancialstructure andcapabilities1) Degree of understanding of industry-specific supply chains2) Especially in relation to competitors 3) Degree of agility, acceptance of changeRoland Berger Logistics Final 181016 Short.pptx26
BOP are expected to be a focal point in logistics – Regardless ofstrategic position, market players need to connect to or control themRelations between BOP and other logistics players (exemplary)Solely informationexchange with BOPKeeping focus on corecompetenciesAbility to choose thebest BOP for oneselfInvestments onlyneeded for setup ofinterfaces with BOPLoss of customerinterface and henceinformation on whatclients are seekingLow bargaining powercompared to BOPLow influence on BOPcargo data standardsPlayer 2Player 1Player 5BOPPlayer 3Player 4Strong market powerAccess to future profitpoolsKeeping control ofcustomer interfaceInfluence on cargodata standardsHigh investment costsReorganizationrequirementsConflicts resulting fromalliances with otherplayersPotential loss of focuson core businessSetup of booking andoptimization platformBOP Booking and optimization platformRoland Berger Logistics Final 181016 Short.pptx27
In order to be prepared for the interaction with a BOP, forwardersneed to undergo a digital transformationElements of a digital transformationTypical challengesRequired transformation Holistic cultural changeOutdated legacy systemsLimited operational efficiency Inclusion of the entire workforcePeople Sustainable anchoring of digital culturesubstituting old methods, skills anddecision processesLack of integration Top-down definition of requirementsProprietary standardsComplex structuresProjects Extensive use of standard software41 Agile development methods, e.g. scrum 13Aging personnel223Roland Berger Logistics Final 181016 Short.pptx28
Logistics companies need to streamline their cost base and securenecessary financing in order to survive the transitionOperational and financial transformationCost base Achieve benchmark operationalefficiency and cost baseFinancing Transformation will requiresignificant cash funds for peopledevelopment and IT systemsFinancing Achieve efficient long-termfinancingCost base Banks will be reluctant to finance.Hence operational cash flow willbe main source of fundingRoland Berger Logistics Final 181016 Short.pptx29
Preparing a logistics company for the digital age is a holistictransformation program – An early start is essentialKey takeawaysStart the strategic dialog by quantifying the potential revenue and profit gapDecide on your key strategy, i.e. asset or service based, and develop a strategic roadmapDefine your position toward a booking & optimization platform. Consider getting in touchwith potential cooperation partners in order to create onePush digital transformation by introducing employees to digital thinking and byimplementing new ways of IT project managementEstablish the continuous exploration of the potential of new technologies for yourbusiness, e.g. by setting up a corporate incubatorKick off a corporate performance program and develop a financial plan. Involve yourfinancing partners early in the processRoland Berger Logistics Final 181016 Short.pptx30
F. The authorsRoland Berger Logistics Final 181016 Short.pptx31
The authorsDr. Klaus van MarwykSascha TrepptePartnerProject Manager 20 years of industry and consulting experience– Logistics and automotive industry– Restructuring and performance improvement– Corporate finance and M&A– Strategy development 6 years of consulting experience– Aviation (focus: airports)– Infrastructure and construction– Logistics– Shipping (focus: sea ports)Mobile: 49 160 744 2202E-mail: Klaus.vanMarwyk@rolandberger.comMobile: 49 160 744 3601E-mail: Sascha.Treppte@rolandberger.comRoland Berger Logistics Final 181016 Short.pptx32
Websites like Expedia.com are becoming more popular Expedia Inc.'s revenues have increased by more than 100% over a seven-year period - USD 5,763 m in 2014 Convenient processes as well as cost savings draw travelers to online booking Only all-inclusive tours are still mainly booked offline 29% 32% 34% 35% 36%
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