The changing logistics industry: Africa, India and the Middle East

Interesting changes in food consumption patterns

Another, less visible trend in demand, is the change in patterns of food consumption and its impact on logistics. Food is a major component of any logistics industry. Food logistics alone is expected to be a $150 billion industry by 2023.

“So, any big shifts in food consumption patterns have large implications on the logistics industry.”

After all, it’s something we consume every day and, sometimes, in significant quantities!

An interesting study on current food habits and future trends shows some startling changes. For example, Africa is expected to see a significant increase in processed foods consumption in the period till 2027. This is expected to be driven by population growth and this is despite a slowing in income growth that is anticipated worldwide. 

Similarly, India is expected to see a dramatic increase in dairy product consumption. This is partly driven by a population growth that will make it the most populous country by around 2022. Also, by growing disposable income. At the same time, traditionally large markets like the USA and Europe are slowing down.

Such shifts in consumption patterns will make it necessary to deliver new products and larger volumes into these markets. They will also require new capabilities by the logistics players. More refrigerated facilities in India and more responsive supply chains in Africa.

The expectations of the industry will evolve

These and other factors will change the expectations of customers of the logistics industry. We’ve discussed important drivers like the ability to handle growth, being able to improve penetration into low traffic areas, a change in profile of capabilities (like refrigerated facilities) and faster response times. These raised expectations will be the new challenges that the industry will have to rise to.

“Every challenge also presents an opportunity.”

The logistics industry, like many others, is undergoing a transition as (a) governments and (b) businesses start changing the rules of the game. Having looked at some changes in the demand side of the picture, it would be useful to see some supply side changes that are also influencing change.

The role of government in logistics

It is interesting that governments that are so focused on production, as in manufacturing, and consumption, as in consumer demand, have paid relatively less attention to logistics in the last few decades. An interesting study on how countries can look at reducing the total cost of ownership of logistics by taking a “macrologistics” view gives some interesting insights.

By modelling a country’s freight flows, both internal and external, it is possible to identify areas that can best benefit the economy. Also, by collecting and aggregating cost data, it is possible to do a more accurate estimate of the true cost of logistics at a national level. Currently, there are three countries that consistently measure and publish logistics cost at a national level. These are the USA, Finland and South Africa. Without such data, misunderstanding of the cost of logistics can lead to faulty decision making at a government level. A piece of research McKinsey describes how conventional wisdom on the Indian logistics industry is inaccurate.

Fortunately, governments around the world are much more focused on the need for reliable and cost-effective logistics operations within and between countries. So, using a combination of policy, infrastructure and technology, they are facilitating change. For example, in terms of policy, India has created a Logistics Division under the Ministry of Commerce and Industry in 2017. Since then the government has awarded industry status to logistics companies, allowing them access to lower cost funding. Infrastructure is being supported by several governments and across nations, as can be seen by the Connect Africa Initiative by OPIC and the Belt & Road Initiative of China that spans Asia, Middle East, Eastern Europe and Africa.

The rise of startups in the logistics space

“While government usually removes road blocks, both physical and policy, often the driver of innovation is the private sector.”

In the last few years, the level of innovation in the space of logistics has dramatically increased. This has been fuelled by e-commerce companies that found traditional logistics support inadequate for their needs, as well as start-ups that saw opportunities to leverage new technologies to address old problems. So, Amazon has been driving large-scale change in logistics models wherever they operate. This, in turn, is raising the bar on other e-commerce players and on other retailers. Once the pressure starts, it flows backwards up the supply chain quite quickly.

Fortunately, these tougher expectations are being addressed by a swathe of start-up companies across the globe. Having access to smart phones means a lowered cost of penetration to new logistics markets.

“Everyone uses a smart phone and by linking them to corporate networks, much is possible.”

This could range from simple tracking of consignments, to sharing of truck loads, to more complex milk runs and more reliable multi-modal transfer.

The talent risk is looming

One of the largest concerns, across the industry has been the lack of adequate talent. Given the new expectations of customers, companies need to determine how best to meet these new needs. Old methods often don’t make the grade and not changing leads to a risk of losing out to competition.

On the other side, with all the new changes being brought about by policy and technology change, the ways of working will have to be overhauled.

“This requires relooking at the nature of work, the nature of the work force, as well as the nature of the workplace to get best results.”

These two changes require companies to gear up by redesigning their strategies, infrastructure and processes. This is difficult enough to do when running a business. When this is coupled with a steady growth in volumes and demand, it places a huge pressure on talent. From truck drivers to supply chain planners, there is a shortage of skills across the board – they are well paying jobs, but getting the people is tough.

In conclusion

The world of logistics, like many other areas of business, is undergoing big changes. These changes are simultaneously taking place on the demand side as well as the supply side.

“Times of change are times when incumbents are most at risk and new entrants can get a foothold.”

Companies that track and utilise those changes to their advantage will benefit the most. While it is difficult to predict how exactly things will pan out, it is clear that the customer will benefit, and the industry is going to be very different from the past.