Transportation and logistics companies must digitize to drive forward GCC’s economic aspirations

July 2, 2018

As the GCC countries pursue economic diversification and sustainable growth plans, the need to digitize the freight transportation and logistics industry (T&L) is becoming increasingly important. At present, the T&L industry in the GCC, which is one of the key drivers of economic activity in the region, faces a combined threat of declining business revenue and outdated infrastructure, according to a recent study by management consultancy Strategy& Middle East (formerly Booz & Company), part of the PwC network.

  • Freight revenue has witnessed a decline by 5 percent every year since 2014 due to low oil prices and outdated infrastructure
  • Transportation and Logistics (T&L) companies need to invest and deploy relevant digital technologies to transform their business model
  • Digitization can help T&L companies reduce operating costs by 10-30 percent and minimize operational risks and breakdowns by 75 percent
  • Strategy& outlines a framework for T&L freight companies embarking on their digital transformation

As the GCC countries pursue economic diversification and sustainable growth plans, the need to digitize the freight transportation and logistics industry (T&L) is becoming increasingly important. At present, the T&L industry in the GCC, which is one of the key drivers of economic activity in the region, faces a combined threat of declining business revenue and outdated infrastructure, according to a recent study by management consultancy Strategy& Middle East (formerly Booz & Company), part of the PwC network.

The study reveals that freight revenue in the region grew at a steady pace of about 10 percent from 201o to 2014, but since then has seen a decline of 5 percent per year due to low oil prices, which has resulted in a decline in imports, businesses scaling back projects and governments spending less on freight infrastructure.

The region’s T&L industry significantly lags behind its peers in developed markets when it comes to the use of emerging technologies or investing in new digital solutions. Adding to the dilemma of regional T&L companies is the constant flood of new technologies which can be confusing if not well understood when and what to apply it for.

Commenting on this challenge faced by the T&L companies, Dr. Ulrich Koegler, Partner with Strategy& Middle East, said: “Rather than choosing from an ever-changing range of available technologies, T&L leaders must first determine their business objectives, and then identify the right application of technology to meet those objectives.”

Digital solutions offer two key benefits to T&L companies. One benefit is increased operational efficiency, and the other benefit is it allows for the redesign of business models.

Jean Salamat, Principal with Strategy& Middle East added: “Digital solutions can increase operational efficiency of T&L companies by reducing operating costs up to 10-30 percent and minimizing operational risks and breakdowns by 75 percent. This is critical at a time when the industry is facing financial pressure and lower freight volumes. Deploying new digital solutions also allow companies to fundamentally redesign their existing business models to enhance the customer experience as well as create new avenues for value-creation and revenue growth.”

The Strategy& Middle East report identifies the nine essential technologies that GCC T&L players can adopt and areas these technologies can effectually support. These include:

  1. Big data analytics - transferring physical goods to managing information and goods
  2. Internet of things – facilitates real-time information to support decision making and improve operations
  3. On-demand mobility – supports with getting real-time data securely and reliably into the hands of those who need it
  4. Robotics automation – for fully automated loading and unloading operations
  5. Drones – for immediate delivery solutions
  6. 3D printing - on-site manufacturing solutions as new delivery concepts or to optimize maintenance operations
  7. Blockchain – eliminates the need for distributors or other intermediaries
  8. Cloud – provides flexible, scalable, and commoditized IT infrastructure
  9. Augmented reality – for simplified and efficient operations

Camil Tahan, Principal with Strategy& Middle East, said “With the implementation of digital technologies, T&L companies will radically have a new way of working. It is, therefore, important for companies to structure their approach and consider a framework regardless of which technology they choose to prioritize”.

Before embarking on digital transformation, T&L companies must first define their digital business strategy and / or rethink their business model. Next, they need to think about the digital solutions that will enhance their customer interaction. They then need to lock down the choice of technology based on their roles within the value chain. T&L companies also need to invest in upgrading their digital skills particularly in cybersecurity and data mining. Finally, T&L players need to re-engineer their business and operation processes to capitalize on the new digital tools.

Digitization is rapidly disrupting different sectors, and T&L companies in other markets are already capitalizing on this trend. It is, therefore, imperative for GCC T&L companies to start embracing the use of digital technologies to support and engine the region’s economic aspirations.

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