Singapore’s reputation as a global logistics hub is sustained by 5,000 companies and the 85,000 people in their employ. Through the provision of various services covering contract logistics, freight forwarding and trucking, the logistics sector contributed about S$7 billion in VA (Value Added) in 2018, which corresponds to a compound annual growth rate of 3.3 percent since 2015.
According to the World Bank, Singapore is the highest-performing logistics hub in the region. It is a prime location for major logistics firms, with the top 25 global players such as DHL and Schenker anchoring their logistics and supply chain operations here. It is also the logistics and supply chain management hub for manufacturers across various industries, e.g., Dell, Hewlett Packard, LVMH, Novartis, Panasonic and Siemens Medical Instruments.
This vibrant ecosystem is facing headwinds. Logistics services are sensitive to trade flows. Heightened trade tensions, notably between the United States and China, are negatively impacting world trade. The World Trade Organization (WTO) downgraded its forecasts for trade growth steeply in 2019 and 2020. A more severe blow to the global economy, caused by the COVID-19 pandemic, could produce an even bigger downturn in trade. WTO warned global trade could fall by up to a third.
Trade Winds of Change
The effects of deteriorating trade conditions are spilling over to Singapore, one of the world’s most open economies with the highest trade to GDP ratio and an extensive network of Free Trade Agreements. Cargo movements, the barometer for trade volume and velocity, reflect such a decline. After a 7.9 percent increase to reach a record 2.12 million tonnes in 2017, the increase in air cargo traffic through Changi Airport moderated to 1.4 percent in 2018 to reach 2.15 million tonnes. In 2019, this figure was 2.01 million tonnes, a fall of 6.5 percent. Sea cargo charted similar movements in cargo throughput; a 5.8 percent increase in 2017, moderated to 0.4 percent in 2018 and a decline of 0.6 percent in 2019. As freight needs decline, the revenue outlook for the logistics sector will be challenging. COVID-19-induced effects are likely to be temporary, but global trade tensions raise the spectre of protracted trade depression.
The rise in global protectionism does not leave countries defenceless. On the contrary, very positive developments are unfolding in this part of the globe. The Belt and Road Initiative (BRI) holds much promise for the creation of intra-regional trade opportunities, facilitated by connectivity and the network effect. The BRI comprises a Silk Road Economic Belt - a trans-continental passage that links China with South East Asia, South Asia, Central Asia, Russia and Europe by land - and a 21st century Maritime Silk Road, a sea route connecting China’s coastal regions with South East and South Asia, the South Pacific, the Middle East and Eastern Africa, all the way to Europe. The programme is expected to involve over US$1 trillion in investments, largely in infrastructure development for ports, roads, railways and airports, as well as power plants and telecommunications networks. These projects would require massive logistics support and augur well for our companies. In addition, the creation of the Asean Single Window, a single online platform aimed to streamline processes, will facilitate intra-Asean trade. Traders and their logistics partners can look forward to faster cross-border customs cargo clearance and reduction in transaction costs.
Catalysing Growth through Specialisation
These are challenging but exciting times for the logistics sector. Like the wind, the direction of trade flows will change, and it has. Wherever the caravans of trade now ply, we can make the best out of prevailing opportunities.
We anticipate a rise in demand for cross-border trucking, especially in the Asia Pacific region. This demand is driven by the relocation of production from China to South East Asia, and the growth of consumer markets in the region. As countries continue to prioritise the construction of roads, overland services are set to become a compelling mode of transport - faster than sea freight and cheaper than air freight. Capitalising on this development, Enterprise Singapore partnered global logistics player Kuehne & Nagel to help local logistics SMEs build capabilities for handling higher-value cargo via land transport. The companies have benefited from the market insights on cross-border trucking opportunities in Malaysia and Thailand, access to Kuehne & Nagel’s business networks and platform solutions, and the prospects of attracting higher-value work.
Cold-chain management and pharmaceutical logistics are two promising, high-value areas for logistics companies that check all the right boxes. Besides specific equipment and storage facilities, service providers need to comply with the requisite standards and harmonised handling procedures to maintain the integrity of the products handled. The Singapore Logistics Association (SLA) will be establishing a Pharmaceutical Logistics Work Group to look into ways to help local enterprises acquire the necessary capabilities and know-how.
Staying Abreast of Consumer Trends
Rising consumer affluence and innovative digital platforms are driving robust e-commerce growth. The COVID-19 crisis will accelerate the move from brick-and-mortar channels to online channels. This expansion of e-commerce spawns demand for last-mile delivery services. According to the World Economic Forum , demand for last-mile is expected to grow by 78 percent globally by 2030. There are exciting opportunities for logistics providers in this high-growth market. Parallel to e-commerce is another emerging consumer trend: omni-channel retailing. It is the new reality in a world of rising consumer expectations and instant gratification. In the fast-moving segment, retailers need to deliver a seamless personalised customer experience anytime, anywhere, on any device.
Merchants in both e-commerce and omni-channel retailing have business models that exact challenging demands on logistics operations. A high-performing, cost-effective fulfilment network that supports real-time customer engagement is key. Logistics facilities such as warehouses need to support seamless inventory visibility and optimisation across channels. Improved speed, flexibility and convenience are par for the course for thriving in this space.
Competition in the e-commerce space is heating up. Logistics insourcing is gaining momentum; though it may not replace outsourcing, some of the logistics sector’s clients have started their own logistics operations. Leading e-tailing businesses such as Amazon, Alibaba and Walmart have focused on building up their last-mile delivery and logistics services, while increasingly going after the middle and first-mile of the logistics chain. They are investing in multi-modal assets, offering highly customised delivery options at competitive rates. Strategic moves by these large retailers will intensify competition for both large and small logistic players eyeing a slice of the e-commerce pie.
For logistic players who constantly seek to reinvent and remain relevant, these competitive elements will not pose any barriers. First-movers such as DHL are already fast expanding their footprint in this area, providing leadership to smaller players who are ready to seize these exciting opportunities. For the new players, the transition from business-to-business (B2B) to business-to-consumer (B2C) will involve a new roadmap to rethink and redesign logistics processes to complement current core business. The key to success is to design, manage and execute a well-optimised last mile delivery service to meet rising expectations of new retailing channels. Successful market penetration will allow companies to take on new businesses in this market. Doing it well can attract more partnerships with e-commerce and omni-channel merchants, resulting in a more diversified portfolio and long-term profitability.
Gaining More Mileage Together
The Logistics Alliance, a six-member industry group, embarked on a project in 2017 to develop a centralised, real-time system to track container trucks islandwide. Known as the Transport Integrated Platform (TRIP), the platform is now up and running. At the project launch, then SLA’s (a member of Logistics Alliance) first deputy chairman, Mr Kay Kong Swan noted that innovative solutions were urgently needed in the logistics sector as higher business costs were eroding profit margins.
“Competition within Singapore has become keener,” said Mr Kay, who is also the Chief Executive for Integrated Logistics at CWT Limited. But he believes that more cooperation among businesses could increase efficiency across the sector - for example, when it comes to how container truck routes are coordinated with depot processing schedules. “Once you have a common platform for all drivers... you can share and pool jobs,” he said.
Elsewhere in the logistics chain, venture capitalists are leveraging their networks and experience, especially in the B2C segment, to quickly scale up asset-light business models in fast-growing areas of logistics. A host of specialised startup businesses have emerged to target key aspects of transparency and automation in the logistics value chain, from initial quote request and booking, through real-time track and trace, to end fulfilment. These companies are focusing on technology-driven solutions such as Big Data and cloud technology to deliver customer-centric services. With technology lowering barriers to entry, these new entrants can carve out the more lucrative elements of the logistics value chain.
The growing presence of new players cannot be ignored. Logistics companies would need to respond with the right set of levers to stay competitive. A broader response to this new competition will inevitably involve a higher level of digital fitness, allowing for better asset utilisation, supply-demand matching and greater supply chain efficiencies. At the launch of Connected Logistics Innovation Platform, an initiative to promote innovation by DHL Express with the support of the Economic Development Board, Senior Minister of State for Trade and Industry Koh Poh Koon made a clarion call for the logistics community to embrace technology: “With new business and technology trends increasing in things like 3D printing and robotics, logistics businesses will definitely need to be more agile and adapt to these kinds of new trends… Logistics is all about connectivity - all the solutions... must have a way of cross connecting and talking to each other to allow this ecosystem to mature.” He noted that while the bigger players might be aware of the need to change and digitalise, it is important for everyone to level up and work with various players in the ecosystem.
Existing players need to view new technology-oriented logistics startups as offering innovative solutions rather than disruptors who want to displace entire value chains or legacy service providers. Collaborations with new players can be synergistic and areas for partnerships diverse, ranging from Software-as-a-Service (SasS) to Robotics-as-a-Service (RaaS), enabling logistics companies to access and leverage on the technological strengths of new players to co-create digitally innovative solutions for the market. New players can also benefit from existing players’ experience and well-networked business relationship. It is potentially a win-win situation.
Moving Faster and Further with Technology
The logistics sector is moving steadily through various stages of digitalisation. The initial focus was on optimised resources and integrated operations such as integrated fleet and freight and warehouse management. As the digital economy expands, the sector is able to accomplish more with shared resources and business connectivity, by focussing on supply chain integrity management, resource aggregation platforms, B2B trade facilitation platforms and federated lockers network integration to support e-commerce last-mile delivery. Further along the continuum would be the use of Automated Storage and Retrieval Systems (ASRS) and robotics for unmanned warehouse operations and the use of aggregated data in predictive distribution management.
The use of technology in various stages of maturity has gained momentum in the last few years. Local freight forwarding company Alliance 21 launched its online freight and fulfilment portal in 2017 with the government’s support. The portal brings together its global network of partner agents on a single digital platform; users can obtain quotes and make freight bookings more easily, and consignors can track the shipments from any web-based device. This strengthens the company’s position to compete with larger multinational third-party logistics companies. Another example is the partnership between Shalom Movers and UT-Ways to pioneer the use of Robotic Process Automation (RPA) for freight information submission and retrieval. This innovative endeavour, supported by the government and Republic Polytechnic, led to time savings of 67 percent per airway bill submitted.
Data from the Robotic Industries Association show that between 2019 and 2021, sale of logistics robots is projected to rise at a compound annual growth rate of 18 percent. According to McKinsey, robotics will become cheaper. This will increase the uptake of robotics adoption in warehouses and last-mile delivery. Robotics-as-a-Service (RaaS) provides an alternative path for logistics providers to access robotics functionalities without up-front capital expense.
Analytics will also feature strongly as an IT necessity as more data-driven decisions need to be made. According to the 24th Annual Third-Party Logistics Study 2020, 94 percent of shippers believe analytics is helpful for ensuring on-time and complete order fulfilment and shipment visibility. This requires logistics providers to build an IT data strategy beyond basic analytics to transform and mine data for business insights.
Technology adoption in logistics features prominently in various government support programmes. SLA, together with members of the Logistics Alliance, will spearhead a new three-year roadmap focussed on technology adoption and exploring opportunities in overseas markets. Supported under the Enterprise Singapore’s Local Enterprise and Association Development (LEAD) Programme, the roadmap is expected to benefit over 700 companies.
Revving Up for the Next Lap
The logistics sector is no stranger to change. The chain of value-added services provided has grown rapidly in the decades since logistics outsourcing started. From warehousing and inventory management to order fulfilment; from supply chain solutioning to strategy formulation, the wheels of enterprise are in constant motion to keep pace with business and consumer demands. Doing much more than just moving products from one place to another, our companies are creating dynamic and responsive supply chains for businesses.
In a tough operating environment, logistics partnerships need to go beyond short-term, tactical objectives such as cost reduction and service improvements to focus on longer-term strategies through supply chain management, fourth-party logistics (4PL) and consulting services. Logistics providers that can align themselves to their clients’ strategic direction can break out of the conventional customer-supplier relationship. This is a source of service differentiation.
Making the transitions would involve new business models that are both IT-intensive and customer-centric. As businesses move up the value chain, employees too must move in tandem. Business models, operating systems and infrastructure are only as good as the people who marshal them for the intended outcomes. A logistics company operating an unmanned warehouse could keep traditional manpower to a minimum, but would need to deploy the right expertise with a different skill set such as in systems control.
Developing future-ready teams is imperative for companies to take their business further. The Logistics Alliance provides the pathway and resources to do that. Five partners have come together to collectively offer a suite of courses covering the full spectrum of contract logistics, sea and air freight and trucking. They include the Republic Polytechnic’s Centre of Innovation for Supply Chain Management and four organisations representing the key logistics trades: Container Depot and Logistics Association (Singapore), Singapore Logistics Association, Singapore Transport Association and SAAA@Singapore, formerly Singapore Aircargo Agents Association.
The endeavour to build a future-ready workforce gets a further boost from concerted national efforts to recruit talents for the logistics sector. Through the Professional Conversion Programme, professionals from other industries who are keen to start anew with us, and their new employers, are eligible for subsidies and grants upon successful conversion. With such shared commitment in human capital development, involving the government, trade associations, employers and employees, the logistics sector is ready to run the next lap.
