News / Logistics at the crossroads as the rise of the 'megacity' impacts supply chains

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The global logistics industry has been described as being at a “critical juncture”.

According to a new report from Transport Intelligence (Ti), Total Logistics 2019, a “host of economic, security, legal, political and societal pressures” has combined with “a plethora of disruptive forces, many of which are as a result of the development of new technologies”.

These influences will heavily affect supply chain design as well as the strategy of logistics operators and their customers, says the report.

Ti predicts this will include the migration of global supply chains to more localised operations, due to the changing nature of demand globally, which has been spurred by the recent evolution of some urban areas into megacities – often located in emerging markets.

This will also see established European freight forwarders increasingly viewed as acquisition targets by fast-growing Asian rivals.

TI’s research show that the growing importance of localised supply chains has been under way for several decades, but the more recent emergence of megacities – urban conglomerations with populations of ten million or more – is likely to have a profound effect on the logistics operators, given that each megacity is likely to have its own particular dynamic.

“Megacities will create their own economies of scale, supplied by local/regional production facilities,” says the report. “Each city will develop its own unique ecosystem, which takes into account the movement of people, data, finance, energy, waste, goods and services.

“Transport demands will be specific to each city’s needs and capabilities: poor planning and infrastructure will result in high logistics costs.

“Fulfilment, packaging, miniaturisation and reverse logistics will require increased intensity of logistics provision,” the report notes.

At the same time, localisation of supply chains has been propelled by shippers’ increasing propensity for near-shoring and is likely to strengthen many logistics operators’ appetite for acquisitions.

“Near-sourcing will increase the need for logistics capabilities in emerging markets on the periphery of Europe, such as Turkey and North Africa. Geographic expansion through acquisition will be widespread,” it says.

This is partly because the traditional model of business expansion via organic growth “has become increasingly unfashionable”.

“Acquisitions can deliver immediate revenue streams and an operational presence, which organic growth cannot,” the report says.

That is especially true in regard to how operators offer logistics services to the e-commerce industry, it notes.

“Technology is becoming the most important competitive differentiator as consumer behaviour and expectations change. Companies with specialist capabilities will be targeted by larger players.

“The development of e-commerce will also be a major disruptive force. Logistics companies will need to add niche services, both in fulfilment and last-mile delivery.”