The most significant and intricate sector of the global economy is logistics and supply chain management. It does, however, face some significant problems in the world economy.
No, the global logistics sector cannot legitimately lament a lack of employment or significance. On the contrary, this enormous, extraordinarily potent machine has never been more significant than it is right now. Yet there is a lot that might be improved. This becomes plainly obvious when considering the immediate and longer-term issues. So, which intends that the logistics sector will have to deal with some extremely difficult difficulties as the 2020s progress.
Perhaps a plateau after the Corona
In many nations and industries, the pandemic caused a boom in logistics that was unforeseeable. Exceptions to this rule confirm that it is particularly true for those portions of the industry connected to Internet trade. The issue with this is that many booms foresee longer-term expansion, which means that there will likely be enough capacity for a considerable amount of time following and, in some situations, even excess capacity.
The pandemic has mostly lost its horror in many parts of the world, despite the fact that it is not yet truly over. For instance, US President Biden just declared the outbreak to be over. Due to the fact that demand won’t rise significantly for a while, several segments of the business may plateau in the ensuing years. Further challenges are being brought on by how the situation in Ukraine is affecting international trade.
The impact of the pandemic is fairly clearly visible in the annual sales (worth in billions of euros):
2012 > 91,1
2014 > 102,3
2016 > 104,6
2018 > 115,7
2021 > 135,0
The consequences of the pandemic are mostly to blame for this sharp increase between 2020 and 2021. To put it lightly, this is already at least subsiding, and this has already laid the groundwork for a plateau. But, the Ukrainian War and its Consequences must be Included:
- The earnings of many logistics companies are being impacted by the sharp increase in energy prices and general inflation.
- Although while neither country is very relevant for global trade, Russia and portions of Ukraine are currently two quite significant trading nations for European logistics, and orders are being lost as a result.
The statistics were condensed by credit insurer Euler Hermes in a research released in the spring of 2022. As a result, the initially predicted global trade growth is lowered from 6% to 4%. High energy prices and the avoidance of the Black Sea as a shipping route cause additional problems. The report worries that as a result, the insolvency rate in Europe may increase to 23%.
The logistics sector can currently only do so much. This is because they have no control over either the price of energy or the extent (or duration) of the battle. In order to be financially equipped for the near future, a large number of businesses and private individuals have already significantly curtailed their trading and spending behaviour.
At this moment, it seems doubtful that there will be a very bad slump (end of September 2022). But, development in the upcoming years is probably going to be much slower than it was prior to Corona, and particularly during it.
An improvement in the toughness of international logistics networks
How strong the reliance on raw resources is in this regard is demonstrated by the present energy price shock, particularly for transport logistics. The epidemic was also a glaring example of how fragile a network of logistical and industrial processes can be, covering many nations and half of the planet.
Making oneself less susceptible to such disturbances as quickly as feasible is the main task here.
The metal business alone, a very significant global participant, demonstrates the variety of potential sources of disruption. They start with unavoidable detours caused by politics (like port closures or the aforementioned Black Sea), continue with personnel failures (like Corona or, in the case of Russia and Ukraine, the effects of war), and by no means come to an end with the “Ever Given” becoming stuck in the Suez Canal.
For instance, according to the Hans Böckler Foundation, just between 1990 and 2011 alone, the global trade portion of the world’s gross domestic product climbed by 21%. As a result, the world economy is depending more and more on chains that run smoothly all the time.
Nonetheless, in recent years, the average annual cost of supply chain disruptions for all businesses has been roughly 184 million euros. 84 percent of German industry recently experienced medium to severe delivery issues.
In this regard, it is difficult to consider the logistics industry in isolation from the other manufacturing and value-creation processes. So, it once again lacks complete control over the situation to overcome these difficulties. Nonetheless, there are undoubtedly a few methods:
Overall flexibility must be increased in supply networks. In general, there must always be at least one alternative to each link in the chain, and switching to this alternative must not be too difficult.
Single sourcing must be generally abandoned in all forms.
Complete warehousing must be reemphasized by logistics providers, and clients must be informed of this alternative. Although warehousing is not a cure-all, it can effectively absorb a variety of disruptions.
Many people could view logistics as a particularly digital industry, citing technologies like picking robots and similar ones as examples. There are organisations that are among the best in this field. Also, the industry’s level of digitalization is at least “excellent” in terms of processes.
Overall, though, digital catch-up work in logistics, and particularly in transportation, is significant. As soon as possible, this needs to be resolved.
In reality, recent developments in the sector in this nation have been backwards. According to a recent report, the digitization of transportation and logistics declined by 5.3 percentage points between 2020 and 2021. This makes the dual sector in the Federal Republic one of the least digitalized.
The results are also disastrous:
Processes require too much human labour. As a result, they become needlessly expensive and more vulnerable to mistakes and interruptions of all types. When foreign (=digitally better positioned) enterprises are given an advantage, this hurts the local economy in particular.
Large segments of a digitally positive youth have a more negative perception of the industry, which makes the labour crisis worse.
With each passing year, disparities with other businesses that rely on “logistics at digital eye level” become wider. This disparity may have far-reaching effects.
The difference is also getting wider. As a result, critically important catch-up processes are always getting more difficult, expensive, and complex.
The logistics must recognise its significance in this situation. Even while other nations are also having difficulties with digitalization, this should in no way be a justification but rather a motivation to improve their own condition.
Logistics is in complete charge of this challenge. This doesn’t imply digitization for the sake of digitization, either. Yet, it does imply that the sector as a whole must acknowledge how crucial and advantageous a reorientation is.
In the end, every single digital transformation results in immediate process optimization and medium- to long-term cost benefits. The possibilities are limitless. In the end, more will is required in this situation than money, or at least not as much as many businesses expect. Especially given that digitization is the primary solution to a different sector challenge:
- A critical talent gap among young people
- Quite likely, the situation is significantly worse now than it was ten or fifteen years ago.
- Of fact, there are currently very few industries that are completely unconcerned with youthful talent. Yet, given the systemic importance of the logistics sector, the situation is extremely serious and has a far bigger impact.
Some organisations were glad to report an increase in the number of trainees in the field of forwarding and logistics services just a few years ago. In this field, there were 5,610 new trainees in 2016.
Yet today, hardly much of that earlier gleam of hope remains. Just 4,302 contracts were completed by 2020. As a result, this occupation is a long way from being in the top 20 for apprenticeships. In actuality, there were only 31,096 trainees across all training years, and only 10,787 new contracts were signed in the whole traffic and transportation sector this year.
This is true in an industry where 70,000 drivers are already needed to fill the gap left by the 30,000 truck drivers who retire each year. In contrast, the 3,062 new professional driver training contracts seem almost humorous.
As a result, the employee issue is becoming increasingly more of a problem in almost all businesses and, in some situations, even poses a threat to those businesses’ very survival.
Problems rarely can be addressed, but challenges often can. In fact, the sector has frequently gone beyond the point where the issue of new hires is hardly ever resolved through human means:
- On the one hand, there are simply not enough young people, as there haven’t been enough babies born in this country for years, and on top of that, not enough young people are immigrating from other nations.
- On the other hand, apprenticeships’ overall standing is declining. For instance, the proportion of first-year students was 55.5% in 2021. Since more than half of a cohort now pursues higher education, many of them are lost to apprenticeship professions. And the remainder choose careers that are seen as more alluring rather than necessarily entering logistics.
Of doubt, the sector still has to improve its allure. Only recruiting specifically for the target group and considerably more extensive image marketing will be able to do this. Yet in the long run, this tactic will simply cause a delay.
The only viable long-term solution is a considerable increase in digitization across the board. Only it can serve as a “force multiplier” to improve the performance of current workers while simultaneously lowering reliance on more skilled people.
introducing autonomous vehicles
The issue of automobiles stands out among other logistical difficulties for how it contrasts short-term issues on the one hand with medium- to long-term issues on the other.
Because they efficiently address the cause of the driver shortage, autonomous vehicles will be a tremendous help to transportation logistics in the medium to long future. But, the impending introduction is currently creating a situation where fresh talent is being discouraged. Few people choose a profession whose impending demise is obvious.
One significant challenge in this situation is the obvious contrast between the overall picture portrayed by the mass media and the technical reality:
On the one hand, there hardly ever seems to be a major media outlet that does not claim that self-driving vans, lorries, and other such vehicles are only a few years away from becoming widely used.
However, autonomous vehicles are categorised into distinct classes, and it will take them a significant amount of time—literally decades—before they can manage every part of a human driver’s work. Without 5G, fully autonomous operations are not feasible, and it will be the 2020s before Europe has really seamless and redundant 5G coverage.
Naturally, manufacturers are putting their full effort into the driverless vehicle. Of course, there are already test operations. But, the 2030s won’t arrive until such vehicles can travel anywhere because to technical and legal constraints.
This lengthy period of time can be attributed, in part, to the fact that big tech companies, who are regarded as the leading creators of autonomous technology, have less of an interest in logistics. Their business strategies focused on renting and subscribing to products. Passenger transit is hence far more fascinating. As a result, autonomous technologies are only secondarily used in transportation, and what is produced for automobiles and buses may not always be appropriate for it.
Young talent is turned off by autonomous driving now, but in the future, their need will be significantly reduced. So, the logistics sector is currently in a serious pickle, and little can be done about it:
- Above all else, the associations must exercise communicative autonomy towards the media. Potential junior personnel must be given accurate information and strict deadlines for their communication channels in this situation. Tenor: While autonomous driving will eventually be a reality, it is unlikely to happen in the 2020s or for all businesses at once. Hence, employment security will continue for some time.
- To hasten growth, industry pressure is required. The driver shortage can only be permanently solved by autonomous vehicles; all other solutions are only stopgap measures.
There must be no holdouts when the first vehicles of this type hit the market. Yet it in turn assumes “intellectual digitization” of the sector as soon as feasible, in order to promote a more digitally favourable style of thinking generally.
Conclusion and synthesis
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As it were, the logistics sector as a whole, is today at a crossroads and confronting one of the most difficult difficulties of its history.
For many businesses right now, the biggest challenges may be a lack of human resources and dramatically rising gasoline expenses. Nonetheless, the industry as a whole is currently going through a change phase. Internal combustion engines are slowly being phased out, and autonomous technologies are emerging hardly any faster, as well as a significant shift in society.
There is just one thing that is certain: this change process will last for a few more years before coming to an abrupt end. But, whether logistics will be in a better position thereafter largely relies on the direction it takes in the immediate and short-term.