2. Introduction
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The global logistics market is expected to grow from USD 9.9 trillion in 2018 to USD 15.5 trillion by 2024, registering a compound annual growth rate (CAGR) of 7.5%. Many changes are taking place in the industry as the market is witnessing substantial growth in an ever-changing business environment. For example, the industry landscape is shifting from B2B based industrial structure towards B2C and C2C structure, due to the increasing growth of the e-commerce market. Cross-border trade is surging, thanks to the globalization of technology. On-demand solutions have expanded to offer various logistics services to customers and now, customer’s expectations are higher than ever before. Such changes in the market have translated into a demand for flexible logistics services: faster delivery reaching customers anytime, anywhere at a reasonable cost regardless of the logistics companies’ business cycles.
Despite the growing demand for more flexible and efficient logistics services, many logistics companies are struggling to keep pace with rapidly changing customer demands. Customers are now looking for local, real-time, and personalized deliveries. However, the market currently relies on the hub-and-spoke model where individual shipments are hauled from regional warehouses to a central shipping hub where they are sorted and bundled. Under this model, it is difficult to meet customer demands. Inflexible logistics services can trigger other challenges in different business environments. For example, logistics service providers in rural areas have less freight traffic and are likely to deliver one or two goods to the delivery destination. On the other hand, in urban areas where delivery destinations are concentrated, excessive traffic leads to inefficient deliveries.
With the expanding e-commerce market in developed countries, there is a greater demand for more flexible logistics services that ship all different types of goods. But, if the incumbents want to provide more flexible logistics services to customers, then the cost increase is inevitable.
In Korea, the logistics industry has achieved substantial growth thanks to the development of e-commerce and the logistics network, but growth in terms of quality has stalled. According to the Korea Integrated Logistics Association, the average unit price to deliver a single parcel in Korea’s courier, express and parcel (CEP) market decreased only by 7% from 2010 to 2016. Under such market conditions, providing flexible logistics services would only lead to price hike and efficiency loss.
The United States is also witnessing an increase in freight traffic with the rise of e-commerce. Customer expectations for more flexible logistics services are now high whilst many customers remain price-sensitive to delivery fees. Industry titans like Amazon are using cutting edge technology and integrating logistics and distribution together to meet such conflicting needs of the market. Nevertheless, this has left the incumbents with no choice but to increase the price so they can provide flexible logistics services.
In emerging markets, logistics services have not scaled into the market due to a lack of efficient infrastructure.
For example, India has experienced rapid economic growth. As the economy grew, India’s shipment volume has also rapidly increased and logistics related industries such as warehouses, freight forwarders, and container businesses have all grown. However, due to inefficient business operation and a lack of infrastructure, India’s logistics network has reached its capacity and failed to support India’s continuing economic growth. For example, the logistics network is divided up by freight transportation companies, so it is difficult to operate the network efficiently. India’s limited infrastructure coupled with a lack of ICT creates more challenges to India to raise the efficiency of its logistics network through collaboration.
Limited infrastructure is also a problem for Southeast Asia. This is one of the major issues for many Southeast Asian countries because relative to the size of their territories, many countries lack the infrastructure to connect major cities with remote areas or little villages in islands. Only 10% of the roads are paved in Cambodia and Laos, making it difficult for vehicle-based logistics services to reach many areas in these countries.
Indonesia consists of more than 17,000 islands so it is difficult to build a logistics network that connects all the islands. Also, among the 47 ports in 9 South East Asian countries, with the exception of Singapore, Thailand, and Malaysia, most of the ports have very low levels of performance and capacity for cargo handling, making it even more difficult to build a logistics network.
In order to address these challenges in Southeast Asia, an expended logistics network which includes alternative transportation modes such as bicycle delivery, and a system to efficiently utilize logistics infrastructure have been suggested as solutions. Nevertheless, at the moment there is no credible protocol that enables the operation of the expanded logistics network.
International delivery service providers and local logistics companies are cooperating in crossborder trade. For example, international courier companies like FedEx and DHL are partnering with small businesses and national postal companies around the world to provide international delivery. However, such collaboration is currently inefficient because no credible protocol exists and as result, exchanging data is very difficult. This is because each company runs its own label system and only a fraction of data about each cargo is shared. Due to a lack of transparency in transactions, complex procedures are required to verify transactions. Such inefficiency in the system ultimately leads to cost increase.
For domestic logistics, every participant in the logistics network invests heavily in all routes from first-mile to last-mile delivery to secure economies of scale. However, this makes collaboration even at the smallest level difficult. Participants have, in fact, made double-investment by investing inefficiently throughout the industry and in return, failed to achieve economies of scale. In theory, collaboration should be possible by combining the freight volume from each route so that participants can achieve economies of scale and enjoy mutual benefits. However, the reality is quite different. There is a possibility of the data-tampering of the frights’ conditions.
Furthermore, standards of each data are all different and a sense of mutual trust is weak due to silo logistics structure. All these factors make collaboration often challenging. Furthermore, logistics services are limited to freight transportation and storage due to lack of collaboration. This hinders the possibility to create added value to the industry. As customer needs diversify, customer expectations are growing for a variety of logistics-related services such as payment, packing, inspection, and repairs. Therefore, to some extent, collaboration with various service providers is essential to provide a wide range of logistics-related services to customers. However, under the current industrial structure, it is difficult to meet customer demand without collaboration taking place.
