Growth can be hard to find and threats are looming
Transportation and logistics (T&L) CEOs are more optimistic about the global economy than many of their peers – 36% percent expect it to improve, compared to 27% of all CEOs. That’s still lower than last year, though, when 41% of T&L CEOs thought the economic outlook would get better. Short-term confidence in their own prospects has gone up slightly though, with 36% very confident of growth over the next 12 months. The picture is a bit brighter looking forward three years, but a sizeable number of T&L CEOs believe that growth is getting harder to come by. Less than half of T&L CEOs say there are more growth opportunities for their company today than there were 3 years ago (48% vs. 60% of overall CEOs), while more than half feel there are more threats (57%).
What are they worried about? Sector companies face a broad range of regulations, from emissions caps to new measures designed to guard against terrorism, so it’s not surprising that over-regulation tops the list of forces T&L CEOs need to contend with – 78% are concerned they could threaten growth. Next up are exchange rate volatility and geopolitical uncertainty.
T&L CEOs continue to focus efforts on improving operational efficiency; 37% say they plan to outsource a business process or function, and 76% are planning to implement cost reductions – in both cases that’s more than many other industries.
In a new, multi-polar world trade and travel patterns look set to shift dramatically
CEOs in our survey overall see an increasingly multi-polar world – one with many dimensions of power, growth and threats. They see greater divergence in political, economic, financial and regulatory systems and differing beliefs and values. Perhaps most importantly for T&L, three-quarters of CEOs overall (including many leading the industry’s customers) expect to see an increasing regionalisation of trade. Somewhat surprisingly, T&L CEOs are less likely to agree on this point – 37% of them say a single global marketplace will prevail.
With strong estimated average real GDP growth rates over the period to 2050 in South East Asia (e.g., Vietnam, Philippines, and Indonesia) and Africa (e.g., Nigeria and South Africa), we see trade lanes shifting towards China-centred trading routes. As we’ve shown in previous research, trade between emerging countries is on the increase.
CEOs views reflect this trend. China stands out as a source of opportunity for T&L; 49% of CEOs rate it as one of their top three markets for growth, well ahead of the next closest market (the US, at 38%) and above the average across industries. Despite the current slowdown, China still offers higher growth rates than most other markets. Charlie Cornish, CEO of Manchester Airports Group in the UK told us: “One thing that I have found about Chinese companies they are very interested and very focused on short, medium and long term. Most Chinese companies will operate with a 25-year plan. The Chinese government, as you know, operates with a 25-year plan. And they tend to be here for the long term. So they will manage their way through economic blips. And I'm sure there'll be more over the next 25 years, but they are committed to the relationship with UK companies and they are committed to building trade across the world".
Africa has also hit T&L CEOs’ radar but rather than any one country standing out, there are a broad range of markets beginning to get attention. Kenya, Nigeria, Rwanda, Angola, DRC, Congo Brazzaville, Uganda, South Africa, and Zambia are all named by at least one CEO as a top growth market for the next twelve months. And slightly more T&L CEOs rank a shift in global economic power among the top three important global trends likely to transform wider stakeholder expectations of businesses within their sector over the next five years (65% vs 58% of CEOs overall).
T&L CEOs see customers and clients as by far their most important stakeholders
92% say they have a high or very high impact on their organisation’s strategy. But just what do customers want?
Most T&L CEOs (79%) feel their customers are primarily interested in cost, convenience and function. But around a fifth (21%) of CEOs believe that their customers are seeking relationships with organisations that address wider stakeholder needs. This percentage more than doubles to 43% when CEOs consider what their customers will prioritise in five years’ time. That means some customers are already making decisions on purchases and relationships based on how a company does business – including its social and environmental impact - and what it stands for. And more will do so in the future.
Customers aren’t the only critical stakeholders; more than half of T&L companies say that governments and regulators (63%), industry competitors and peers (65%), employees (56%) and supply chain partners (55%) influence their strategy.
On the talent side, 52% of T&L CEOs believe that top talent wants to work with organisations that share their social values and this will rise to 64% in 5 years’ time.
Most T&L companies already have a long-term focus and that looks set to intensify; 79% say they prioritise long-term over short-term profitability today, and 88% say successful companies will do so in five years. Similarly, 57% say that corporate social responsibility is core to their business today rather than being a stand-alone programme, rising to 61% in 5 years’ time.
Tax payments by multinationals are an issue of growing public concern
Tax payments by multinationals are an area of concern for some stakeholders. There has been considerable media coverage of the level of tax paid by multinationals in certain markets where they are making major profits, and the OECD is now taking action to try to ensure tax paid is a fair reflection of profits through its Base Erosion and Profit Shifting (BEPS) project. Relatively few T&L companies (16%) are making significant changes to how they manage their tax affairs, though. That’s surprising, given that 70% of T&L CEOs agree that their company’s approach to tax and tax transparency affects its reputation, and 63% of T&L companies also see a rising tax burden as a threat to growth.
More transparency around the large range of payments that the industry makes - not just corporate income tax, but government royalties, licence fees, permitting fees, property taxes, employment taxes, sales taxes, and stamp duties - could help local communities understand better the contribution they are making.
Technological advances are re-shaping stakeholder expectations of the T&L industry
New technology has already caused significant changes in how the T&L industry relates to a variety of stakeholders, from customers to governments. Real-time tracking of packaging and shipments is now the norm in the logistics industry, while airlines are increasingly using mobile and online solutions to streamline operations and improve the customer experience. But these changes are just the beginning. Tracking may expand to include not just location, but other factors like temperature too. Parcel delivery may be transformed by the use of drones, and robotics advances are starting to make a worker-free warehouse a reality.
All of these changes will have a major impact on how stakeholders view T&L, and that’s reflected in the nearly three quarters (73%) of T&L CEOs who believe that technological advances are among the top three global trends which will be most likely to transform wider stakeholder expectations of businesses within their sector over the next five years.
And new entrants are taking a piece of changing supply chains
Technology is also the enabler for some radical shifts happening in the industry. A recent PwC Strategy& article on Commercial Transportation Trends provides an overview of several new types of companies entering into the T&L space and targeting various pieces of the logistics value chain, from building local networks to filling unused capacity or serving low-volume niche players. Industry CEOs are starting to take notice; 50% are concerned that new entrants could threaten growth.
Industry players are changing too
90% of T&L CEOs plan to make changes – and more than half plan to make significant ones – in how they use technology to assess and deliver on wider stakeholder expectations. We’ve already discussed some of the ways that’s happening in the industry. But it’s not only technology that will be on CEO's radar; in order to better meet stakeholder expectations, nearly half of T&L CEOs plan to significantly re-assess how to manage the company’s brand, marketing and communications and how to define and manage risks.
T&L CEOs say they’re using a number of connecting technologies to reach stakeholders, with customer relationship management (CRM) systems (67%) and data and analytics (60%) standing out. CRM systems will help companies keep tabs on customer expectations and improve brand and marketing efforts. Big data analysis is becoming a core capability for T&L companies that want to address changing customer needs, maintain the ability to shift direction to match customer preferences and improve operating efficiencies. It can also help to define and manage some of the risks that are important to stakeholders, from customers to governments to investors – by delivering important information about vehicle safety, for example. We see the use of big data analytics as one of several strategies that can help T&L companies defend against disruption.
How should business be doing more in order to measure impact and value as stakeholder expectations evolve?
We’ve already flagged the importance of technology and innovation in a changing sector, so it’s not surprising to see that innovation is one of the areas that T&L CEOs want to understand better. It’s notoriously hard to measure. But with innovation critical to new business models emerging in the sector, T&L companies will need to improve.
Innovation isn’t number one on the list for T&L CEOs, though. The measurement of risk takes the top spot, together with environmental impact. Both of these areas are integral to building trust with wider stakeholders. Environmental impact measurement is likely to become a regulatory requirement in many territories too, with new regulations on emissions and environmental standards making it necessary for companies to track more than ever before. Another important area is employee practices; half of T&L CEOs want to measure these better, compared to just 39% of CEOs overall.
Like their peers in other industries, T&L CEOs want to communicate better on their purpose and values and business strategy above all, as well as on some of the key areas above. Of course, there is a continuing need to communicate the core financial data, but our research suggests that there is room to improve on the assessment and communication of innovation, risk, and non-financial impacts.
Moving forward, companies will need to call on a broader (and more detailed) set of tools to measure indirect value. One approach is PwC’s own Total Impact Measurement and Management (TIMM) model that integrates sustainability, economic and tax indicators to evaluate an organisation’s total impact, in order to help decision makers understand the net effect of their actions and assess the trade-offs they have to make. Most T&L CEOs (78%), like their peers in other industries, agree that business success in the 21st century will be redefined by more than financial profit.
Strategies that work
PwC’s Strategy& recently studied some of the world’s most successful companies, noting that a key part of their success was committing to an identity and aligning their entire organisation around that. This approach enables a business to define a compelling and distinctive customer value proposition that’s aligned with its purpose, a business strategy focused on that proposition, and an operating model and differentiated capabilities that can effectively deliver on the proposition. For T&L companies, whether they be commercial airlines, ports, domestic trucking companies or logistics firms, at least some of these differentiated capabilities are likely to stem from the ability to use new technologies like big data analytics and to improve their understanding of risk.
Charlie Cornish, CEO, Manchester Airports Group, UK
Global Transportation & Logistics leader
Tel: +62 21 5289 0966