Addressing major challenges in the logistics market
- July 30, 2024
- 3 mins
The logistics industry is grappling with several significant challenges that demand innovative solutions and strategic adaptations. One of the most pressing issues is the shortage of specialized labor and the high turnover rates among drivers and other key personnel. This situation impacts productivity and profitability, creating an urgent need to enhance job attractiveness and expertise within the sector. In this serie of articles, we will explore these major challenges and discuss potential strategies for transforming logistics operations to meet the evolving demands of the market.
Shortage of specialized labor and turnover
Currently, the profession of a driver is not sufficiently recognized. As a result, turnover is high, and drivers with real expertise are rare.
Losing a senior driver overnight is not an unusual situation. All carriers experience this, and it is a significant blow as it affects productivity and profitability for several months.
Recently, a CEO of a large transport group told us that one of his main concerns was specialization. He is not alone: more and more CEOs have recognized the need for expertise to increase productivity and profitability.
But how can these jobs be made more attractive? How can they be rapidly increased in expertise?
Old organizational schemes and managing uncertainty
Carriers are used to managing key moments of the year, like Black Friday or the Christmas period. But these moments are anticipated. Operational processes are well-rehearsed, and uncertainties are managed as best as possible!
Previously, organizations relied on recurring patterns with a certain margin for anticipation. However, communication lacked fluidity: information provided by an operations director struggled to reach the field.
Now, carriers are seeing the limits of this communication trapped within the gears of a stratified organization and aging information systems. It simply no longer responds to weekly constraints. From a strategic standpoint, how can they adapt to sudden volume changes and unforeseen events?
Henceforth, a new organization must be conceived, one that is always evolving and capable of adapting to exceptions.
CEOs are well aware of this, and many are asking themselves:
- How can I transform my organization without destroying the existing structure?
- How can I transform my organization to make it more agile?
- How can I ensure better and faster interaction between different roles?
- How can I respond to unforeseen events?
Today, all Supply Chain actors must be extremely reactive, but this is only possible if the organization changes its model.
How, then, can an organization be reinvented to consider not complicated systems, but complex systems without a user manual?
Explosion of B2C volumes and decreased margins
The complexity of situations to manage also stems from the explosion of B2C volumes, driven by the growth of e-commerce. The business is changing: with B2C, margins are collapsing.
Amazon plays a role in this economic phenomenon, making consumers believe that delivery costs nothing. Now, consumers take free shipping for granted! Certainly, the customer is king, but they have become increasingly demanding. For example, they want a delivery that matches their needs and better visibility on the receipt of their packages. The increase in these constraints impacts delivery costs, particularly the last mile, which accounts for up to 40% of the total cost.
Faced with the explosion of e-commerce volumes, carriers had to offer a B2C service with lower margins but significantly higher volume. Their situation is complex as they are caught between providing quality service (which is supposed to improve) and the very low margins imposed by retailers.
How can they escape this squeeze? Large carriers have chosen to massify their volumes to lower prices, even if it means subsidizing and losing money on some volumes to gain on others. However, in logistics, price pressure will increase: retailers estimate that their profits will collapse by 25% in the next three years due to the high cost of Last Mile deliveries.
Who will pay for these deliveries? Large carriers will have to position themselves with one of these two strategies:
- Continue to subsidize to gain market share,
- Rethink and specialize in a segment to justify added value that the customer still struggles to perceive.
With the explosion of B2C and decreasing margins, carriers and shippers will need to adapt to new ways of doing things!
In conclusion, the logistics industry faces multifaceted challenges that require a comprehensive and strategic approach. Addressing the shortage of specialized labor and high turnover rates necessitates enhancing job attractiveness and rapidly building expertise. Traditional organizational models must evolve to manage the growing unpredictability and complexity of logistics operations effectively. Additionally, the industry must find ways to balance high service quality with the financial pressures resulting from the rapid growth of B2C volumes and decreasing margins.
These challenges, while significant, also present opportunities for innovation and improvement. By rethinking workforce management, streamlining organizational processes, and adapting to market shifts, the logistics sector can position itself for sustainable growth and success.
Looking ahead, the integration of digitalization and technologies offer promising solutions to these issues. AI has the potential to transform logistics by enhancing decision-making, improving operational efficiency, and mitigating the impacts of labor shortages. In our next article, we will explore how AI can address these key challenges, providing actionable insights into leveraging technology for a more resilient and responsive logistics industry. Stay tuned as we delve into the transformative power of AI and its role in shaping the future of logistics.
