Accelerating into Uncertainty

10 Key Takeaways
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2017 State of Logistics Report: Accelerating into Uncertainty

With significant moves reshaping logistics

sectors and perhaps the entire industry, 2017
could turn out to be a pivotal year. Demand
patterns are shifting as technological advances
alter industry economics, creating opportunities
for new competitors to challenge old business
models. Here are the 10 Key Takeaways
from the 2017 State of Logistics Report.
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2017 State of Logistics Report: Accelerating into Uncertainty

1. Macroeconomics:
optimism in our minds
but uncertainty
in the books.
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2017 State of Logistics Report: Accelerating into Uncertainty

The year started on an optimistic note,

with the International Monetary Fund
predicting 3.5% worldwide growth.
Positive signs include declining
unemployment, rising incomes,
and burgeoning consumer and
business confidence but economic
activity disappoints and prolonged
cognitive dissonance
vexes decision-makers.
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2017 State of Logistics Report: Accelerating into Uncertainty

2. Motor carriers:
back in gear with rate recovery
and new equipment
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2017 State of Logistics Report: Accelerating into Uncertainty

Carriers idled 14,000 trucks in 2016, but orders for

new Class 8 trucks doubled in the second half of the year,
which could indicate carriers believe the worst is over.
Class 8 net orders
(thousand)
40

30

20

10

0
Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17
Sources: FTR Associates, Monthly Class 8 Net Orders
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2017 State of Logistics Report: Accelerating into Uncertainty

Semi-autonomous models
such as truck platooning will
soon take to the roads,
and electric truck engines
are in the works.
These innovations would
reduce the impact of fuel
prices and wages on carriers’
costs and shipping rates.
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2017 State of Logistics Report: Accelerating into Uncertainty

3. Parcel delivery:
demand for
e-commerce
reshaping
networks and
relationships
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2017 State of Logistics Report: Accelerating into Uncertainty

Three trends will reshape the sector over the next few years:
a shift to regional distribution networks, reconfiguring of
route systems, and an ongoing battle for last-mile dominance.
US parcel market by customer segment: US parcel market by product type:
size and growth ($ billion) size and growth ($ billion)
CAGR CAGR

4.4% 4.4%
93.1 93.1
7.9 7.2
78.4 6.0% 78.4 2.6%
10.2
6.3 6.5
36.4 9.6 1.6%
0.8%
35.3

75.7 5.0%
62.3
48.8 7.3%
36.9

2015 2019e 2015 2019e

B2C B2B C2C Ground Express Deferred

Source: A.T. Kearney analysis

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2017 State of Logistics Report: Accelerating into Uncertainty

4. Rail:
another down year,
followed by an upturn
and a challenge
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2017 State of Logistics Report: Accelerating into Uncertainty

Rail shipping volumes fell 5% in 2016, and revenues dropped 7%

with slack demand and soft pricing in key sectors.
Hope and challenge: shipping volumes grew in early 2017
and operating models are up for change.
US railroad traffic
(Thousand carloads)
310

300
2014
290

280

270

260 2017

250 Source (if required): A.T. Kearney analysis 2015

+8%
240
2016
230

220
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Note: YoY is year-on-year.
Sources: Association of American Railroads; A.T. Kearney analysis
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2017 State of Logistics Report: Accelerating into Uncertainty

5. Water:
a stormy year of
realignment and
expensive
investments
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2017 State of Logistics Report: Accelerating into Uncertainty

Shipping capacity growth has greatly outpaced demand

and continues to threaten livelihood of carriers.
Global container shipping capacity
(million TEU and TEU per ship)
2007: 2017:
8.8 21.9

26%
33%
2,000 – 5,099
32% 5,100 – 10,000
5,100 – 10,000
44%
2,000 – 5,099
12%
0 – 1,999
23%
0 – 1,999 14%
10,000 – 13,300
6% 14%
18,000+ 13,300 –
17,999

Note: TEU is 20-foot equivalent unit. Numbers may not resolve due to rounding.
Sources: Alphaliner; A.T. Kearney analysis
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2017 State of Logistics Report: Accelerating into Uncertainty

6. Air freight:
rates remaining moderate with
prospects looking good
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2017 State of Logistics Report: Accelerating into Uncertainty

Volumes rose 9.8% in 2016, and ripple effects carried over

into 2017, lifting air shipping rates 20% in the first quarter,
but still 25% below 2015 levels.
Drewry Air Freight Index from Shanghai to Los Angeles
($ per kilo)
5.0

4.0

3.0

2.0
Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17

Notes: Intel shows average of all-in air freight buy rates paid by forwarders to airlines for standard deferred airport-to-airport air freight services. YoY is year-on-year.
Source: Drewry’s Sea & Air Shipper Insight
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2017 State of Logistics Report: Accelerating into Uncertainty

7. Pipeline:
demand improving and
incentives to invest rising
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2017 State of Logistics Report: Accelerating into Uncertainty

The pipeline industry retrenched

in 2016 as volumes and rates flattened
under pressure from low oil prices.
Pipeline companies conserved capital,
and the newfound fiscal discipline
positions operators to benefit from
improving demand.
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2017 State of Logistics Report: Accelerating into Uncertainty

8. Freight forwarding:
disruption stalking a
slumping sector
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2017 State of Logistics Report: Accelerating into Uncertainty

Forwarders face more service demands

as e-commerce adds complexity to
supply chains and shippers seek greater
transparency and reliability along with
advanced routing capabilities.
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2017 State of Logistics Report: Accelerating into Uncertainty

9. Third-party logistics:
one-stop shops and
control towers—some
assembly required
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2017 State of Logistics Report: Accelerating into Uncertainty

The industry is shifting from a

transactional business model focused on
discrete services toward an integrated
model of one-stop shops for end-to-end
logistics services.
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2017 State of Logistics Report: Accelerating into Uncertainty

10. Warehousing:
growing pains at the
heart of the supply chain
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2017 State of Logistics Report: Accelerating into Uncertainty

Rates are up, space availability is at a record low of 8%;

yet profit margins, ranging from 3 to 6%, prevent investments
and inhibit a sustainable future.
US warehouse availability
(%)

8.9 8.7 8.4 8.2 8.0

–10%

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Source: A.T. Kearney analysis

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2017 State of Logistics Report: Accelerating into Uncertainty

Rapid technological change and new business

models are driving logistics toward a fully digital,
connected, and flexible supply chain optimized
to meet rising consumer expectations of
immediacy, personalization, and convenience.
Predictive analytics, the Internet of Things, on-demand
logistics, alternative energy, autonomous solutions,
and the sharing economy all have a role to play in the
next-generation supply chain.
2017 State of Logistics Report: Accelerating into Uncertainty

For more insights and strategic implications

from the 2017 State of Logistics Report, as well as
the four potential scenarios or the future of logistics,
download the full report.

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