International logistics expert: These mega trends are changing logistics

Professor of Logistics Alan McKinnon gave an overview of logistics mega trends at Posti’s eCom Next event. Supply chains have faced so many disruptions that there is no going back, he says.

E-commerce, emission reductions, flexibility, shortage of skilled labor, technological innovations and physical footprint. These are examples of developments that are changing the management of logistics and supply chains, says Alan McKinnon, Professor at the German Kühne Logistics University, whose career in logistics has lasted more than 40 years. McKinnon was one of the keynote speakers at Posti’s eCom Next event. In his speech, he offered insight into mega trends in logistics and supply chains, as well as online store logistics. In recent years, supply chains have been burdened by a number of disruptions. Delivery times have increased, the shortage of components has intensified and the prices of container transport have multiplied. At the same time, McKinnon says that we are facing a climate emergency, with logistics being both a cause of climate change and a victim of extreme weather phenomena. According to McKinnon, it used to be possible to rely on the system quickly returning to its previous state after a single disruption. “Numerous shocks have followed one another at short intervals, and we must now return to the future, to a new normal. In a world that is more vulnerable than before, the focus shifts to adaptation.”

The competition on speed and returns are challenging e-commerce logistics

Of the mega trends affecting logistics, McKinnon discusses the growth of e-commerce in particular, as it challenges logistics from several different perspectives. The huge increase in volumes has forced companies to increase their space, operating location and delivery capacities. “Large online retailers mainly compete on delivery speed. Many retailers offer next-day or even same-day deliveries.” McKinnon has a term for this: instant logistics. In addition to the competition on speed, retailers and transporters are facing the challenge of returns and the expectations of buyers to receive their orders almost anywhere. “In the USA, 21% of orders are returned. In the UK, 42% of those who bought clothes online believed that they would return at least one of the products they had ordered. Some consumers seem to be building a shop in their living room by ordering different sizes and styles, trying them on and returning them.” According to McKinnon, all of this has led to severe financial pressure as it is very expensive to provide such a service level.

These mega trends are affecting logistics: 

E-commerce

“The share of e-commerce in all trade has increased, particularly since 2012. The percentage has doubled in the USA and tripled in Europe. In some European countries, such as Italy and Poland, the share has increased sixfold. One study estimated that the pandemic increased the share of e-commerce in all trade by almost 4%. Although it wasn’t possible to maintain the rate of growth of the pandemic, the current rate of up to 5% per year is still impressive.”

Emission reductions

“If nothing is done, CO2 emissions from freight traffic will increase by an estimated 22% by 2050. The International Transport Forum modeled various ways of lowering the percentage. The five most efficient ways are to reduce freight traffic, transport as much freight as possible with low-carbon vehicles, optimize the use of vehicle capacity, improve energy efficiency and reduce the use of fossil fuels.”

Flexibility

“I don’t believe in full localization of production or the so-called reverse globalization. Nevertheless, it’s a fact that we’re too dependent on individual, critical producer countries and individual products. Production chains need to be diversified so that the company isn’t dependent on a single supplier on the other side of the world.”

Shortage of skilled labor

“The pandemic has exacerbated the long-standing shortage of skilled logistics workers. The long-term solution would be process automation, which is already underway. There are self-driving vehicles, highly automated warehouses and picking systems. Because large-scale deployment takes time, logistics will continue to be a labor-intensive sector in the near future. The pandemic demonstrated the importance of logistics, but the sector has an image problem.”

Technical innovations

“One significant technical development affecting logistics is automation. A recent study asked what players in the sector consider to be the most important areas for technological development. The list includes blockchain, IoT (Internet of Things), automation, drones, robotics and artificial intelligence. In addition to these, I’d like to mention the application of metaverse to logistics and the physical internet.”

Physical footprint

“In recent years, companies have been suffering from acute stock shortages. Now that the economy has recovered from the pandemic, companies have tried to rebalance their logistics chains, which has created additional pressure on warehousing capacity. The real estate market has responded to this by investing heavily in logistics facilities. Companies’ requirements for warehouses are also changing as commerce moves online. They need next-generation centers and microhubs close to the customer.”