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3 of the biggest challenges facing the freight and logistics industry

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August 2, 2019

“The freight and logistics industry is an essential component of the national economy” says the Australian Government, and it supports the nation’s “quality of life aspirations”. But though the sector accounts for 10% of Gross Domestic Product (GDP) - and its revenue is projected to grow by 2.2% over the next five years – the freight and logistics industry’s contribution to the overall economy is shrinking.

So what challenges are facing the industry, and how can the insurance industry support its continual growth? In this article, we take a look at 3 of the biggest challenges facing the freight and logistics industry, and how the insurance sector can help.

#1 Technology

thumbnail 1 transport logistics challenges2Technology has revolutionised the freight and logistics industry, largely for the better. Digital technologies (such as tracking and automation) have enabled market players to achieve greater economies of scale, and this has been – and will remain - a major growth driver for the sector. Emerging technologies like autonomous vehicles, advanced telematics and drones will further disrupt freight and logistics, and this is something we’re already seeing with the launch of Amazon’s Prime Air service and Uber’s self-driving truck.

But with all its benefits, technology presents a significant challenge for the industry too. In PwC’s 2017 Commercial Transportation Trends report, commercial transportation companies flagged a number of challenges that they cited as the biggest barriers to further digitisation, such as:

  • Lack of digital culture and training (a challenge for 50% of companies)
  • Skills shortages and insufficient talent (28%)
  • Unresolved questions around data security and privacy (38%)

One thing is clear: technology presents a massive opportunity for the freight and logistics industry, but it’s not without its risks. Cyber risk is an increasingly topical and serious issue in the industry, especially in the wake of a recent global cyber-attack which saw TNT and AP Moller-Maersk among its list of victims. To that end, the freight and logistics industry will need to carefully assess its cyber risk exposures and mitigate those risks with cyber insurance.

#2 Skills shortages and the ageing workforce

Wages have remained stable across the sector and workforce productivity has improved in recent years, but the freight and logistics industry is struggling to attract highly skilled employees. The so-called ‘talent crisis’ is not a new issue, but regional skills shortages and the ageing workforce are exacerbating its effects.

Highly-skilled employees with a vital range of technical and soft skills are a scarce resource, and transportation and logistics companies are lagging behind other sectors when it comes to recruitment and attracting talent. Underpinning this is a (perhaps perceived) undersupply of qualified candidates, competition for resources and an ‘image issue’ – the industry is not seen as an attractive one for job seekers.

The ageing population will further contribute to the talent crisis, especially considering that a quarter of the freight and logistics industry workforce in Australia is made up of individuals between 50 and 64 years old. This will have a profound impact on the road freight sector, which has been experience a shortage of truck drivers for some time now. Incorporating the needs of older workers into workplace risk management strategies is essential for making sure they remain supported and productive, while more competitive employee benefits and packages will help attract younger talent.

#3 Infrastructure

thumbnail transport logistics challenges2The freight and logistics industry relies on the government to plan and fund major infrastructure (such as roads, railways, airports and ports), and the Federal Government has committed to spending over $70 billion on transport infrastructure between now and 2020-21, with a further 10-year funding allocation for road and rail investments.

On the whole this is excellent news for the freight and logistics industry as it will create opportunities for further efficiency gains, but the positive impact of infrastructure upgrades will not be evenly distributed across the sector. Port infrastructure upgrades and expansions will have a positive impact on competition, cost reduction and productivity, but ports have historically been ‘bottlenecks’ during the infrastructure growth period. Efficiency gains in the road transport sector will be modestly felt too, as firms are likely to only benefit from improved routes and capacity maximisation.

Supporting the freight and logistics industry

The insurance industry has a role to play in supporting the freight and logistics industry. Managing technological change and associated cyber risk is a major area for collaboration between insurance brokers and logistics firms, and so is managing workplace risk in the face of a talent crisis and an ageing workforce. Insurance brokers can also help their clients in the industry reduce their exposure to risks associated with infrastructure and construction projects.

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