THE CHOREOGRAPHY

OF CHANGE:
THE FUTURE OF
LOGISTICS

lombard.co.uk

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Executive
Summary
Logistics is a rapidly evolving market.
Many factors are shaping the future of
how people move goods and what they
will require from their transport supplier.
It will be important for hire and reward
companies and those who own freight,
to understand these trends, the changes
they will bring and the opportunities
they represent.
These trends can be broken down into
the imminent, or current, changes;
medium-term (over the next three
years); and the long-term (10-15 year)
changes. These affect the relationship
between supplier and customer; the role
of information technology; the structure,
mode and route of supply chains; the
environment; and shippers shifting
attitude to risk, among many others.

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Some of these issues may seem to be

operationally or geographically distant
and so not relevant to all transport
businesses. However, much of what
consumers and freight customers
expect is driven by perception and
sotrends which change minds, change
the marketplace.
Lets start with the imminent shifts
affecting transport operations. These are
all issues which are making themselves felt
now and to which the most sophisticated
players in the industry have already
responded but many of the SMEs have
not. And given that over 60% of the hire
and reward road transport industry has
between two and 50 vehicles in their
fleets, thats a big gap to be bridged.

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Information
technology
The first issue is the role of computing,
which is slowly shifting from a useful tool,
to the heart of the operation.
1. The commercial crux of the logistics
industry is now the interface between
customer and transport supplier.
Whether business or residential,
customers want real-time information
at their fingertips. This means accurate
ETAs, geo-fencing, integrated IT
systems from intake to invoice.
2. Technology has encroached on
logistics in a piecemeal fashion.
Many SMEs today run several
different systems between transport,
warehousing and back office
functions. Data can be often be
imported or exported, but there is
little true integration. This means that
it is very hard for many companies
to have an accurate and up to the
minute figure for transactional costs;
or, therefore, any real foundation for
setting sustainable rates.
3. A lack of integration also limits
companies ability to save money. The
last bastion against automation is often

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the transport office, where routeing

and scheduling software (R&S)
which has a proven track record in
multi-drop and trunking operations
is suspected to be inferior to human
judgement. It isnt its counterintuitive algorithms can usually beat
people hands down. Industry and
software suppliers will have to work
together to make R&S software more
useful in very dynamic operations, with
out of gauge freight or where specific
human factors need extra weight.
4. Cloud computing will speed the
industrys change to fully integrated
systems. Cloud involves hosting
the applications on the internet and
paying a monthly license fee for
their use software as a service.
The huge benefits of this include
instant scalability, a freeing of
in-house IT resource and minimal
upfront investment. The downside
is that sensitive data is in someone
elses hands and migration to
another supplier can be problematic.
Nonetheless it will make an IT
revolution affordable for many SMEs.

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The Environment
Another issue of huge and unyielding
importance will be global climate change,
and the targets set by concerned
governments to cut the contribution of
transport to greenhouse gases.
1. It no longer matters whether
company directors believe in
climate change or environmental
sustainability. Companies have no
choice but to perform in the most
environmentally sustainable way
possible; one because the political
and legislative will is inexorably
driven that way; two because the
electorate, otherwise known as
consumers will it; and three, because
reducing waste and fuel reduces cost.
2. UK targets for cutting carbon
emissions include an 80% reduction
from transport by 2050.

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3. The EU has brought in a ruling which

says that all companies must include
carbon emissions data in their annual
report from April 2013, including
both direct and indirect vehicle use
so transport companies will have to
start to measure carbon output and
be answerable to customers for it.
4. In all probability the industry will not
succeed in reducing empty running
any further without a paradigm
shift in how logistics works. Despite
massive re-education and operational
improvements throughout the
industry, driven by the need to drive
down cost, the Department for
Transport last year recorded empty
running at the increased figure of 28%.

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Market
expectations
As a society dedicated to consumerism,
our expectations and wants are changing.
How we choose, buy, receive and return
our goods is not just affecting retail but is
changing our culture in the same way
that technology changes have made us
impatient with a screen that takes 20
seconds to refresh.
1. Customer expectations, (like IT), are
being driven by the retail market.
Logistics is under more intense
customer pressure than ever before;
and the standard is being set in
retail with day one deliveries from
the likes of Iceland, and guaranteed
next day from online retailers and
supermarkets. If business is actually
driven by expectation and emotion,
we are all becoming used to transport
systems with unprecedented
predictability, flexibility and
accountability. Non-retail transport
suppliers have no choice but to raise
their game.

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2. Home delivery is a continuing challenge

but as retail functions, such as the
changing room, move away from the
high street and into the recipients
front room, returns will become a
huge problem. Returned goods have
the potential to wipe out the margin
and load the carbon footprint of sold
products. So far, no one has engineered
the perfect solution.
3. Adding value. While transport
margins will remain low, multiple
handling of goods is more rewarding.
Hence adding value, through order
fulfilment, shop readiness, sub
assembly (see below) etc are all
advisable vertical shifts.
4. Modal shift will increase as the
financial and environmental costs
of any journey are scrutinised.
More investment has gone into rail
terminals and port-centric logistics,
although there are still barriers to the
universal application of either. But this
leads us to the medium-term.

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Medium term
trends in
logistics
Many changes have already started but
will take time to mature and for solutions
to be tried and settle in the marketplace.
Smart transport operators will consider
these changes, however, and see where
possible opportunities and threats exist.
1. Modal shift will be part of a massive
re-engineering of supply chains which
will continue over the next three to
five years. So far efforts to extend
deep sea shipping to more Northern
ports are patchy, as ports require
shipping lines to commit prior to
investment and shipping lines require
customers to commit. Equally the
rail network will gradually become
more responsive to the needs of
a post-manufacturing economy
but currently lacks flexibility and
transparent costs. Anyone running
vehicles needs to be flexible enough
to integrate their services seamlessly
with both of these as required
and also to be aware that as the
chips settle, there will be excess
capacity at some of the ports and the
competition will step up.

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2. More sub-assembly and

manufacturing work will return to
mainland Europe and the UK, as
economies like China see higher costs
and inflation. There will be low-cost
economies for some time yet, but
the cost differential will need to seem
substantial and secure when offset
against environmental pressures to
shorten supply chains, sustained
unemployment in Europe and the
increasing need for security
(see below).
3. Transport companies will need to
collaborate with customers and each
other in order to engineer the best
supply chains. Currently logistics
companies are entirely serviceled the customer says New York,
tomorrow and the logistician reaches
for an airfreight container. In the future
it will be the expert logisticians role to
challenge the customers assumption
for their own commercial good: Why
tomorrow? With better planning
we can have better lead times and
more cost-effective, environmentally
sustainable supply chains.

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Medium term
trends in
logistics
4. Consignment information will require
uniform barcoding systems which
can be read by any destination on a
products journey some speculate
this will lead to the development of
freight hubs which will issue standard
RFID/barcodes to specific protocols.
5. Final mile will become more crucial in
terms of guaranteed timescales, and
high levels of customer satisfaction,
something regional SMEs could
excel at. Comprehensive IT, tight,
efficient operations and personal
touch customer relations will be
thedifferentiators.
6. As the industry becomes more
professional about full disclosure
of transactional costs, consumers
will have to start to pay for instant
gratification; delivery charges will
start to become a more balanced
proposition.
7. There is a good chance that logistics
wages will rise. The 2014 Driver
CPC will temporarily hit the numbers
of qualified drivers available and
firms who have invested in training
will risk losing their qualified staff to

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Continued

more apathetic employers who will

nonetheless be prepared to offer
more money. However, in the longer
run it looks unlikely that, as the driver
population ages, the logistics industry
will be able to recruit sufficient young
talent to keep numbers healthy.
8. Transport firms must start to think
now about where they will attract
new candidates and how they will
train and develop them. A growing
skills shortage between 2014 and
2017 is a distinct possibility.
9. There will be issues to resolve
between the necessary collaboration
the industry will need to adopt going
forwards, and the need to preserve
competitive edge; but so far many
logistics companies are sharing
carbon-saving data and practices
with no problem.

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Long term: where

will logistics be
in 10-15 years?
Longer term changes in the logistics
industry will to some extent be
determined by the choices we make today,
politically and operationally. We should
be aiming for sustainable local supplies
wherever possible; sustainable methods
of transportation; and a logistics industry
which has complete control of its cost
base but which insists upon rates which
include sufficient profit to drive training
and investment. In reality, however, rates
will probably always be harshly treated
by market forces, which means transport
operators need to tie their costs down as
tightly as possible before we approach the
changes listed below.
1. Fleets will have far higher levels of
alternative drivelines/fuels. Oil will
still be expensive and used only for
specific operations. This will change
the buying model of vehicles
total ownership costs will be more
expensive and residual values may be
irrelevant for some vehicles.

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2. Freight shippers (customers) will

expect product to travel by the
mostsustainable route which can
meet KPIs so will look for a more
flexible, consultative role from
transport suppliers.
3. There is currently substantial overcapacity in the European transport
market as a whole and significant
differentials in companies cost bases.
There will be further consolidation.
4. 3D printing will possibly have been
superseded but will have made
component manufacturing cheaper
and easier regardless of labour
costs so even more manufacturing
will take place regionally to serve
individual markets.
5. Supply chains will see substantial
re-engineering both at an operational
and infrastructural level in order to
meet cost and environmental targets.
However, another factor will become
increasingly important security of
supply. Areas of political instability,

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Long term: where

will logistics be
in 10-15 years?
natural disasters, and possibly even
terrorism, will make global shippers
far more concerned with buffering
their supply chain against possible
disruption.
The 2011 earthquake and tsunami
in Japan caused automotive parts
and semiconductors, amongst other
products, to face plant closures,
but, crucially, also port closures, and
disrupted rail and road movements.
Commentators think it is increasingly
likely that the supply chains of the
future will need greater redundancy
built in and that the lowest-cost,
just-in-time, inventory-free models
will give way to multiple supply points;
local warehousing; and contingency
planning.
6. Finally we come full circle to IT. Not
only will internationally recognised
consignments codes exist to allow a
single RFID or barcode to speak for
a product at every border, port or

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Continued

terminal, but transport systems will

have to integrate horizontally and
vertically. As transport companies
collaborate more to gain efficiencies,
contract and truck-specific data will
be available to subcontractors and
customers. The beginnings of this
are already visible in the relationship
between major third-party logistics
providers (3PL) and some of their
subcontractors.
However, this will go further to match
customer service systems with
transport management systems. The
industry will start to operate more on
the level of multi-way interactivity
between suppliers of different tiers,
transport providers and retailers.
This is one reason why any transport
system which companies choose
should be on an industry-standard or
open platform, so that doors can later
be built between it and whoever they
wish to share data with.

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Conclusion
Logistics is about movement. How
we make and move goods, and where
we make and move them from, will
continue to change. Some things will
remain fixed and essential strong cost
control, responsive, proactive customer
service and in particular the absolute
dependability of the final mile. The trends
which are emerging in logistics now,
however and which promise to shape
the next decade of operational and
commercial reality, should be examined,
discussed and planned for.
No one in business has a crystal ball, but
true adaptability comes from those who
have thought through their options ahead
of time.

Sec

LBF0

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About Lombard
Commercial
Transportation
This paper has been developed on behalf
of Lombards Commercial Transportation
team. Lombard is part of The Royal Bank
of Scotland Group and is the largest
asset finance provider in the UK, funding
commercial vehicle assets for over 150
years. Throughout its history Lombard
has accumulated considerable expertise
in delivering funding solutions for vehicles
and has long recognised the integral role
the commercial transportation sector
plays in the UK economy. In 2011 the
company put in place a dedicated team
to underline the emphasis placed on the
sector. The accumulated knowledge within
the commercial transportation team
has been utilised to develop a centre of
excellence in the funding of trucks and
trailers, supported by a national network
of specialists with local knowledge in order
to enable businesses to be supported at a
regional level. In this way Lombard provides

a service that ensures that customers have

access to a depth of expertise, flexibility
and sector knowledge when funding
commercial vehicles and trailers.
Lombard offers an alternative to
vehicle manufacturer captives that
only provide finance for their own
products, by providing customers with
more flexibility in sourcing their fleet.
This allows access to a mix of new and
used trucks and trailers from different
manufacturers to meet specific needs. It
also provides a more customer friendly
end of term service that does not lock in
the customer to one manufacturer and
therefore ensures that any replacement
vehicles best reflect the business
futurerequirements.

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call 0800 502 402.
TEXT RELAY 18001 0800 502 402.
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