21st century themes: Logistics

May 2016

Logistics – the management of the flow of goods – permeates every aspect of economic activity. As technology advances, logistics are done more intelligently than ever before, hence the invention of the term “smart logistics”. It’s a phrase that will resonate down the 21st century.

Innovation and automation are the keys to successful supply management these days as they can reduce costs and improve productivity, especially as automation can generate data that creates further opportunities to refine processes. Companies, for instance, that link their supply data to online analytics tools can better understand the relationship between website traffic and orders and shipments.

Data from sources like social media and analytics software can give companies insights into customer spending habits that can inform how supply chains operate. A benefit of big-data technology is that it can analyse unstructured data to uncover sales-process information such as quotes that never became orders, searches that never became quotes and customer buying patterns. Understanding customer behaviour, price sensitivities and habits help logistics managers refine their sales and marketing strategies and build customer loyalty.

For large retailers, supply management has been streamlined by using technologies such as radio-frequency identification tags and complex systems incorporating bar coding and GPS tracking. These can be used to track inventory and resources in warehouses, during transit and on shop shelves.

Technological advances and pressure for shorter delivery times are likely to combine to shorten global supply chains, particularly as the use of 3-D printing and customisation become more widespread.

The smorgasbord

There are two main forces driving logistics development in mature markets and they are especially favourable for the owners of the latest-generation logistics warehouses. The first is the challenge confronting traditional retailing. This is driven by the growing focus on supply efficiencies via consolidation of warehouse operations and/or relocation to capitalise on new transport infrastructure. This requires new developments, new locations and new warehouses.

The other is the shift to online retailing. There is a growing need to offer overnight delivery to consumers, which requires local distribution hubs and cost efficiencies. This leads to more outsourcing to third-party logistics companies that require suitable logistics hubs and warehouses.

E-commerce sales as well as bricks-and-mortar retailing are giving rise to the latest class of logistics and distribution properties including mega e-fulfilment centres, parcel hubs and delivery centres, local urban logistics depots for rapid order fulfilment and returns processing centres.

All up, logistics companies make for interesting stocks. There’s Amazon, the king of distribution centres; DX, which serves the retail sector in the UK; and Switzerland’s Panalpina WeltTransport, which provides freight forwarding and other logistics services. Germany’s SAP, with its in-memory HANA product, and the US-based Oracle, which dominate the cloud and in-memory computing markets, leveraged their strengths in back-end systems to offer logistics companies advantages in these areas. In Asia, there’s China’s SITC International, which is flourishing as third- and fourth-tier cities expand in China and intra-regional trade grows in Asia. In Australia, there’s Goodman Group, which manages warehouses, and the newer WiseTech, a freight and logistics software company. If these companies have anything in common, it’s that they are smart.

Important information

References to specific securities should not be taken as recommendations.