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Analysis Expert Insight

The path ahead: Digitising the T&L industry

Jean Salamat and Camil Tahan, principals with Strategy& Middle East (formerly Booz & Company), part of the PwC network, discuss the need of the hour for the freight industry in the GCC.

As the GCC countries diversify their economies to generate sustainable growth, there is an urgent need to digitise the freight transportation and logistics (T&L) industry. T&L is a key driver of economic activity in the region, yet local players are falling behind their global competitors in terms of digitisation. For many local leadership teams, the constant stream of new technologies can be overwhelming. Yet there are three that should be priorities for regional players in the industry: data analytics, on-demand mobility, and blockchain.

At present, the T&L industry in the GCC faces a threat from the slowdown in growth. A recent Strategy& Middle East study found that while freight revenue in the region grew steadily at an annual rate of about 10% from 2010 to 2014, it has declined roughly five percent a year since then. The region’s slow growth environment has resulted in a decline in imports, businesses scaling back projects, and governments spending less on freight infrastructure such as ports.

Compounding this decline, the region’s T&L industry significantly lags behind its peers in developed markets when it comes to the use of digital technologies. Such technologies offer two key benefits to T&L companies. The first is greater efficiency. Our analysis has found that digital solutions can increase the operational efficiency of T&L companies and reduce operating costs up to 10-30%, while minimising operational risks and breakdowns by 75%. This is critical at a time when the industry is facing financial pressure and lower freight volumes.

The second, and more transformative, advantage of digital is that it allows T&L companies to develop innovative business models to better engage with customers, deliver enhanced services, and unlock new revenues.

Despite these benefits, some management teams in the region are understandably hesitant regarding digital. Most T&L executives advanced through the ranks when such technologies did not exist. The flood of new tools and applications entering the market can be confusing, and there is a temptation to chase the latest and greatest offering, or to entertain propositions from any vendor knocking on the door. Unfortunately, many technologies generating headlines are still not fully formed and have a long way to go before they can generate real value for companies.

Yet there are three proven digital technologies that are applicable to the GCC’s T&L industry: data analytics, on-demand mobility, and blockchain. All three are already in use and creating substantial gains for T&L companies in other markets. Notably, all three are reducing costs and powering new business models to create additional revenue. Rather than simply helping companies offer the same service more efficiently, they are enabling new services to customers. The change is as radical as the shift in media from videocassettes to watching television on demand on a smartphone.

The first of the three technologies, data analytics, enables companies to capture and interpret data in greater volumes and with higher levels of detail and accuracy. This yields insights that can dramatically improve performance. Companies can manage information in a way that makes their services smarter, faster, and less expensive. For example, German freight company DHL Express uses big data and analytics along its entire value chain. The company has sensors on delivery trucks, which collect traffic data and send them to a central analytics system. The central system analyses these data and uses the resulting information to reroute other drivers. The company also “crowd-sources” pick-ups and deliveries, allowing available drivers to scale up and handle increased volume on their routes, and thus improve fleet utilisation. DHL even sells some of its market-based data to small- and medium-size businesses, helping those companies improve their own performance.

The second priority technology is on-demand mobility. These are applications to get data securely and reliably into the hands of employees, managers, and executives through smart phones, tablets, and other mobile platforms. One regional start-up, Load-Me.com, has created a mobile marketplace connecting shippers, logistics professionals, and drivers, giving them real-time information about shipments that need transport, trucks, and other logistics services. By creating transparency and streamlining some of the burdensome processes required to book freight, Load-Me.com has simplified logistics, increased competition, and lowered freight costs—all through mobile platforms.

The third technology is blockchain. Essentially a digital ledger, blockchain allows organisations to record transactions online in a secure way, encrypting them and distributing them across a wide network of computers. In the freight industry, blockchain connects carriers and shippers directly, without the need for distributors or middlemen. A Silicon Valley startup called Skuchain has created a blockchain-based application specifically for T&L. The application tracks shipments securely through each leg of their journey, putting smaller and less-experienced carriers such as those in the Middle East on an equal footing with larger, established players.

Jean Salamat and Camil Tahan, principals with Strategy& Middle East

Jean Salamat and Camil Tahan, principals with Strategy& Middle East

All three technologies are extremely powerful, and they introduce new ways of working for T&L companies. Where to start? Rather than getting dazzled by shiny new tools, companies need to ground technology in real-world applications, by identifying a specific business problem and determining how a specific technology will help them solve it. They also need a clear and comprehensive strategy for implementation. This means a structured approach that will allow organisations to implement new tools consistently and successfully, regardless of which technology they prioritise.

To that end, before embarking on a digital transformation, T&L companies must first define their digital business strategy and consider how they might rethink their business model. Next, they need to think about the digital solutions that will enhance their services and customer interactions. They then need to lock down the choice of technology based on their position within the T&L value chain. Critically, companies also need to invest in upgrading their digital skills, particularly in cybersecurity and data mining. Finally, T&L players need to re-engineer their business and operational processes to capitalise on the new digital tools, in areas such as cargo-tracking, pricing, and cross-docking.

Digitisation is rapidly disrupting virtually all sectors, and T&L companies in other markets are already capitalising on this trend. Given the pressures facing the local industry, it’s imperative that T&L companies start implementing digital technologies. By doing so, they can put themselves on an equal footing with global competitors—and help support the region’s broader economic aspirations.



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