Impact of consumer

trends in logistics

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Three main aspects are creating significant logistics challenges and
opportunities

Evolving consumer trends

Changing face of the consumer
Different buying behaviors
New patterns of consumption

Transportation industry dynamics How does the

Now a CxO-level priority
industry address
Unprecedented volatility
these trends?
New entrants disrupting market

Disruptive technologies
Real-time visibility, Digital and Analytics
Advanced Optimization
Electrification, autonomous trucks etc.

McKinsey & Company 2

Macro consumer trends are impacting various industries
significantly
Changing demographics
Millennials taking over
Millennials will be the largest
age cohort in spending in 5
years
Hyper ageing
28％ of population is above
65 years old in Japan.
Government estimates 38.4%
in 2065
De-population and
urbanization
Continuing population shift
towards large cities. 50% of
municipalities struggle to
sustain the basic life lines
Evolving buying behaviors
Expecting faster delivery
Amazon ships same day to
50%+ population, next day to
95%+ population
Shopping across channels
20% spending shift to online
retailers, hard discounters
and club stores
Moving to digital
E-commerce 7%+ of total
retail sales in Japan
Searching for savings
49% Americans ‘increasingly
looking for ways to save
money’
New patterns of consumption
Focus on health
Americans increasingly
health-aware, aging
population wants to stay
healthy
Increase in convenience
Declining will and/or skill for
cooking, shift to snacks,
ready-to-eat
Preference for local
Rising expectations for local,
seasonal and personalized
foods
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 7.0

Japan hit the “6-7% ecommerce rate wall”, which will bring about
large-scale structural changes to the logistics

Shifts in ecommerce rate in each country Examples of changes that occur to the logistics system at
2008~2015; ％ the inflection point （≒EC rate of 6~7％）
25
Advance Major retailers invested in dark stores and moved to bring
logistics in-house
20.0
case study
 Tesco, ASDA, and Waitrose started shipping ecommerce
20 of the UK products from existing stores by 2010
(2009-2011)  However, the expansion of ecommerce resulted in the active
establishment of dark stores in the latter half of 2010, and the
14.5 use of employees for logistics such as pickup and delivery
15

11.0 Advance Major US logistics players were unable to cope with the increase
in small deliveries, causing delays
10 case study
 They were unable to cope with the increased number of
Inflection
7.5 of the US deliveries for Christmas 2013 brought about by the spread of
point (2013-2014) ecommerce
(6~7％) — UPS, which has 90% share of B2C mail order had 17% of
5
its shipments delayed
4.8
— FedEx also had 10% delayed
 Both of them temporarily hired tens of thousands of workers, but
0 their business results suffered
’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ‘20

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… and it happened
%, 2008-2018(e)

Yasuharu Kosuge
7.0
Managing Executive Officer, Yamato
6.5 Yamato Shock Holdings
6.0 We were unable to forecast the
5.5 5.1 5.2 5.3 5.2 growth of E-com players - we were
4.9 4.8 off by few years
5.0 4.6
4.5 We still remain to be in the unique
3.8 position to serve such players-we
4.0 3.5 are our best to accommodate their
3.5 needs by adjusting delivery
3.0 requirements
2.4 2.3
2.5 Most of our customers have
2.0 accepted our fare increase offer,
1.5 and there has not been much
complaints heard yet
1.0
0.5
0
2008 09 10 11 12 13 14 15 16 17 2018 2019
(e ) (e )

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But why?
X% Percentage of transport costs
Primary Primary
elements for elements for
sales Change over time Background of change cost Change over time Background of change

Capacity1 Aging drivers and an increasing Fuel3 Rising oil prices (the upward trend has
number of retiring drivers subsided and is going slightly
Insufficient new drivers downward)
45%5

Average unit There is strong cost reduction Person- Continued lowering of wages
price2 pressure from shippers, making it nel costs4 In recent years the decrease has
impossible to reflect costs or reduced stopped due to the lack of drivers
capacity on unit prices 45%5

Capacity …and despite this, capacity utilization Other (Assumed to have few Depreciation costs
has not shown improvement (it has changes) Maintenance costs, etc.
utilization
deteriorated since 1995)

1996 02 08 2014 10%5

Due to pressure from shippers to reduce unit prices and a shortage of

The rise of fuel costs, which make up approx. 50% of direct costs, has
drivers, the only effective lever would be to improve capacity utilization;
been considerable, and per-unit costs continue to increase
the industry is yet to see the change
1 Due to changes in statistical methodology, ton-kilometer data from 2009 and earlier was recalculated using the coefficient of connection; 2 The distance-based fare for a 2t truck (total for 3 urban areas), based on 100km; 3 Shifts in the
retail price of light oil; 4 Total cash wages for the road freight forwarding industry; 5 Rough estimate from clean sheet analysis

Source: Survey on Motor Vehicle Transport, Kasai-formula survey of actual truck fares, monthly labor statistics survey, Oil Information Center, clean sheet analysis McKinsey & Company 6
An Inconvenient Truth

TPS Inventory
JIT Lean
Kaizen
Automation McKinsey & Company 7
e-commerce players have started to develop own last-mile network

Source: Company website, Toyo Keizai, Tsuhan Shinbun McKinsey & Company 8
Cargo owners are trying to improve the productivity

A model shift in long-distance transport with Partnership of six chemical players have
two players from different industries developed into first large-scale shared
developed into Japan’s first “trailer relay logistics for chemical products
transportation” system

Competition and Collaboration - Four beer Several major Japanese food makers will
competitors have started shared logistics unify their capabilities to form a new
for first-last mile delivery logistics platform, “F-LINE”

Source: LOGI-BIZ, Toyo Keizai, Press release, general article search McKinsey & Company 9
Multiple start-ups have emerged along the Japanese logistics value
chain, and there are more yet to come with further funding
( ) Founding date
Warehouse/ Consignee
Manufacturer / Shipper distribution center (Home, shops, etc.)

Pickup / Transportation Material handling Last mile delivery

Truck matching platform Crowd warehouse Dispatching routing
(2001/7/16) management system 1 (2015/6/30) system; started from
(2009/9/1) Nagoya Univ.
Truck matching focused Robotics for material Automated system for
on small packages handlining trade practices
Japan
(2013/10) (2011/7/6) (2015/7)
Start-up
Truck matching and On demand outsourcing Development of
examples waiting time control platform autonomous delivery
(2015/6/30) (2013/12/25) (2018/5)
vehicle
Inventory optimization via
AI platform
(2015/4/10)
Both investments are led by Softbank, which Autonomous robotics that Robotics-based pizza
Non- proves to be an active investor in logistics related co-operate with humans delivery service
Japanese technologies and start-ups worldwide
examples $20mil $750mil2

1 Became listed in July 4, 2018; 2 Investment still not officially announced

Source: LOGI-BIZ, Toyo Keizai, Press release, general article search McKinsey & Company 10
New entrants are disrupting freight brokers through digital freight
matching – Uber-like model is most prominent Most common

Business models Description Example companies

Apps with GPS-based alerts for nearby

Uber-like loads through algorithmic/ single pricing,
though still plenty of human interaction today

Apps based off existing Loadboards which

Loadboard-Plus
also provide digital freight matching

Proprietary apps published by incumbent

Broker-Plus freight brokerage companies for carrier
partners

Apps similar to those in the 'Uber-like‘

Specialty category, but geared towards specialty freight
(e.g., heavy haul, auto transportation, or HHG)

Apps used in local peer-to-peer networks or

Last Mile
to fulfill last mile delivery
McKinsey & Company 11
These are Supply Chain problems to solve

On-Time delivery

Better value Shorter order lead times

proposition for Same-day / next-day last-mile delivery
the consumer Omni-channel capabilities
Need for e2e traceability

Respond to high demand variation

Efficient Manage high SKU complexity

Supply Chain Reduce empty miles
operation Minimize expedited cost
Maximize available capacity

McKinsey & Company 12

 1. 2.
Elastic/Flexible Customer Studio –
4 key Supply Chain Everything as a
ingredients for Service
the next
Supply chain
s-curve in
value unlock
supply chain
transformations
4. 3.
Digital Capability Automation through
Enterprise Mobility

Source: McKinsey McKinsey & Company 13

Thank You

McKinsey & Company 14