Introduction

In the years that led up to 2019, the twin rise of e-commerce and consumer expectations began placing unprecedented strain on global transportation networks and logistics providers.¹ Manufacturers and retailers responded by pushing their existing systems—a wide-ranging global network of tightly coordinated just-in-time production and fulfillment operations—even harder. When the pandemic hit in early 2020, demand shifted precipitously, just as production began pausing unpredictably everywhere from Dubai to Shenzhen. Simultaneously, moving goods through ports and on planes became significantly more complicated. The result: disastrous bottlenecks and price spikes that underlined the fragility of our overstretched supply chains and accelerated the urgency of rethinking leading practices for how we move goods.

Today the transportation industry is at an inflection point, as several massive shifts bear down on it at once. Nearshoring efforts are underway across a significant number of industries as companies strive to shorten and bolster supply chains. China’s dominance in global trade is expected to wane, its trade growth dropping from 26% to 13% in the next five years,² and countries in Central and Southeastern Europe, as well as Central America and Mexico, picking up the slack with competitive labor and closer proximity to end-use markets.

These developments on their own would constitute a seismic shift in the future of freight, but they are expected to be accompanied by revolutions in data science (IoT, analytics, and artificial intelligence), material science (electric vehicles), and engineering (autonomous vehicles). Every shift represents an opportunity for new competitors to enter the market, as startups, megaretailers, and hyperscalers all vie for a piece of the trillions of dollars at stake.

Deloitte’s research reveals a transportation industry poised for significant transformation, where success will be determined largely by the ability to deftly navigate five major forces. These combine to present major challenges and opportunities for the transportation industry.

• Onshoring and nearshoring to redraw the transportation map: Our research shows increased interest in moving manufacturing closer to the end consumer to mitigate disruption risk and the inflationary impact on the cost of goods. Even if this happens at half the rate our survey respondents expect, it will represent radical change, creating new opportunities for established leaders and openings for new competitors to enter the market.
• Well-curated data is the great differentiator: Companies with advanced, unified digital strategies are currently at a significant advantage, as an industry that still suffers from data fragmentation rushes to close the gap. Nearly half (48%) of survey respondents expect data to improve visibility into assets and goods in the next three years. Over the same time horizon, many say data will help improve customer relationship management (44%) and workforce optimization (35%). The ascent of data and analytics could pave the way for new competition from digital-native startups and hyperscalers to set their sights on transportation as a source of profits.
• New competitive dynamics abound: As the industry reconstitutes itself, cloud services providers, megaretailers, vehicle manufacturers, and tech startups are pursuing the transportation industry and its profit streams. As their interest and expertise grow, they are positioned to usurp territory and customers from legacy logistics companies while prompting new models of collaboration.
• Restructuring will align core capabilities to a changing environment: Transportation leaders recognize they need to change to meet this moment. Most survey respondents are in the process of reshuffling their structure and operations—60% are outsourcing noncore capabilities, and a similar share (59%) are actively seeking acquisitions to expand their capabilities. These trends are not mutually exclusive: Companies that are outsourcing are also building or acquiring new core capabilities.
• New vehicles and new insights mean new competition: The coming wave of next-generation vehicles harnessing electric power, autonomous technology, and IoT data will not only alter the capabilities, efficiency, and sustainability of the transportation system, but will also potentially precipitate a power shakeup. Among our survey respondents, 60% believe it is inevitable that truck manufacturers will seek to become fleet managers as technology advances and lines of supply are redrawn.

Leaders should plan for rapid acceleration of these forces and configure their companies to win in a constantly evolving environment. Alongside these trends, the role of the public sector, in the form of state, federal, and international governments, is paramount. These bodies play roles in modernizing infrastructure, regulating or deregulating the transportation industry, and establishing incentives around emissions, nearshoring, EV, AV, and more. A new era of partnerships with governments and regulators will factor into the long-term success of the industry’s incumbents and new entrants.

Nearshoring redraws the map

Analysts have been predicting a nearshoring boom for decades, but the “trend” has stubbornly failed to yield a significant shift in actual investments until now. Today, the fresh memory of a global supply chain collapse, favorable macroeconomic forces, and a surge in robotics and automation are combining to create conditions for this movement to finally have legs.

American companies are expected to reshore nearly 350,000 jobs in 2022,⁴ up from 260,000 in 2021. Major automobile and electronics manufacturers are set to build new facilities costing billions of dollars to manufacture their highest-value products in the United States—investments in battery production plants announced by automotive companies in 2022 alone exceed US$13 billion. Labor availability and cost of manufacturing in Western Europe and the United States are being mitigated by advances in robotics and automation, stimulating the reshoring of manufacturing for everything from kitchen utensils to hardwood flooring.⁵

Our survey respondents anticipate a significant share of Asia-originating freight to move onshore or nearshore to alleviate supply chain challenges and improve competitive positioning (figure 2).

Transportation executives whose companies have begun preparing for nearshoring anticipate 20% of Asia-originating freight will move to closer-proximity markets by 2025 (figure 3), doubling to 40% of freight originations by 2030. Manufacturers’ expectations are similar, and 62% of them have begun this process already. Survey respondents expect agriculture, apparel, and consumer electronics to see supply lines being reconfigured the most.

This reconfiguring of supply chains inside countries and regions could have significant consequences for transportation companies as they are forced to rethink their footprint, infrastructure, and relationships. Current supply chains are based on decades of work by executives who built their careers establishing operations in Southeast Asia, developing the supply lines needed to move products, across the ocean, through ports, and into major consumer markets such as France, Germany, India, Japan, the United Kingdom, and the United States. This new moment carries with it the burden of forging new, interconnected shipping networks inside countries and regions. But it also carries the promise of reduced supply risk that comes from widely distributed freight networks, along with reduced labor and transportation costs.

Different impacts, different strategies

Any significant shift in production geographies will impact companies across most modes of transportation, but the degree of impact, and the nature of the most effective response will vary from company to company. For example, if nearshoring takes place at the rate projected by our survey respondents, ocean carriers like COSCO and A.P. Moller-Maersk would require a far different response than a carrier focused on intra-European or intra-US trucking.

Maersk, for instance, has acquired digital fulfillment firm Visible Supply Chain Management LLC, which specializes in parcel delivery, along with a California-based warehouse distribution company, to strengthen its position in the United States.⁶ The Denmark-based container logistics company has built a strategy to simplify global logistics by integrating each step of the supply chain from factory to doorstep. With customers increasingly demanding simplification and reliability, Maersk seeks to deliver that by supplementing its large fleet of vessels and terminals with new assets in land-based transportation, warehousing, and logistics solutions.

Supply chain companies like DHL and XPO Logistics face different challenges. Newly established manufacturing plants would lead to a redistribution of warehouses and fleets in North America and Europe, raising the prospect of winding down operations in markets where these companies operate, while ramping up in others. This reconfigured map of plants and warehouses would carry through to the location of workforces and company-owned or leased fleets.

The great data unlock

For decades, the transportation industry has generated massive amounts of data, but until now it has only been able to unlock a fraction of it. Today’s transportation companies have access to not only far higher-resolution data, but they can also take advantage of cutting-edge data science to perform analytics in near-real time.

In a modern, fully digitized parcel company, every package delivery both embeds and generates data. For a company that ships upward of 17 million packages per day, across 200 countries, the data points add up quickly, offering enormous predictive power for companies with the ability to harvest and contextualize it.

Still, there are challenges to making this information truly valuable for decision-makers. Our research and experience point to four key friction areas:

• Information within transportation companies is often organized solely to meet the needs of its functions, business units, and regulators. The insights shippers seek often require another layer of specialized analysis that ingests and takes into account data from all areas of the business.
• The advent of data warehouses and data lakes offers the potential to tap wide swaths of data, but the tools and technologies to analyze them are still evolving and leading practices are still emerging. Companies are investing in data scientists, but are often at a loss to know when they have enough, or whether they are pointed at the correct targets.
• Many of the largest transportation companies have established free-standing information services units. These structures often place chief information officers and their teams in the position of making trade-offs due to finite resources. They face difficult choices: invest in contemporary information assets or allocate resources to maintain and improve legacy systems. This dilemma can impede the fast progress customers and company leaders expect.
• Like other highly regulated industries, transportation companies commit significant resources to fulfill the constantly evolving demands of regulators. For example, in the United States, the Surface Transportation Board requires Class I rail carriers to provide details as varied as demurrage and accessorial charges, carload waybills, and agricultural contract summaries. In May 2022, the Surface Transportation Board issued a decision requiring detailed weekly reports on service performance.⁷ At the opposite end of the government action spectrum, companies in the industry are still awaiting the Securities and Exchange Commission’s final guidance on environmental, sustainability, and governance (ESG) reporting requirements. These new reporting standards place additional demands on technology resources, which can place added demands on scarce resources.

Undeterred by these constraints, 78% of our respondents intend to (or already do) monetize data as a value-add service or capability (figure 4), as they now have inhouse data scientists. Survey respondents told us they expect data to provide the most value in visibility of their end-to-end logistics, customer relationship management, demand planning, and workforce management.

Data mastery is quickly becoming table stakes for the transportation industry. To keep up, many are turning to startups and cloud services providers. In fact, respondents say cloud service providers are as likely as legacy third-party logistics companies (3PLs) to become leading providers of data services in transportation by 2030.

New competition, new cooperation

Most transportation companies, especially those that operate at significant scale, are used to building or acquiring the capabilities needed to compete effectively. However, the novel features of the future transportation landscape may presage a new era of collaboration, forcing companies to evaluate their core strengths, analyzing where they can provide world-class service, and where they are better off partnering with another entity that has attained high-level domain expertise.

Just 29% of surveyed transportation executives regard legacy logistics providers as “best-positioned” to make progress in data optimization by 2030 (figure 5). Nearly 60% expect new entrants, retail giants, and cloud service providers to emerge as leaders in the new environment created by a confluence of trade flows, advances in technology, and changes in public policy.

This is not to say it’s impossible to build or acquire these capabilities, only that it requires sustained focus and leadership commitment. FedEx, for example, has made significant moves to take advantage of its scale while building the agility to respond to change. Its DataWorks unit coalesces capabilities, utilizes data science and machine learning, and works to monetize data derived from packages the company ships.⁸ In parallel, the company announced a multiyear collaboration agreement with Microsoft to introduce a cross-platform “logistics as a service” option for retailers, merchants, and brands as another way to navigate the pace of change in freight and transportation.⁹ More recently, FedEx acquired ShopRunner, which offers its members exclusive deals and standard e-commerce services such as free two-day shipping and free returns.¹⁰

Still, our survey respondents were clear that the capabilities that will define success in the next era of transportation are often not core to its current leaders. This provides a significant opening for nimbler, tech-driven players to find footholds in the market. Uber Freight’s acquisition of Transplace, for instance, aims to strengthen the parent company’s push to “democratize” the freight and logistics process by promoting transparency and driving efficiency across the logistics value chain.¹¹ If successful, it presents a challenging new business model that provides a supply of ready transportation that manufacturers and retailers are hungry for. Likewise, cloud providers, megaretailers, vehicle manufacturers, and startups are in a prime position to provide over-the-top services that pose significant challenges to legacy logistics providers.

Restructuring to better align capabilities

Core capabilities in freight movement have historically included portfolio planning, demand planning, workforce planning, safety, transportation scheduling, warehouse management, order fulfillment, and returns. The centrality of these capabilities will likely endure, but broad-based changes in freight flows and technology may change how they are supported and performed.

Near-term pressures on margins, and changes in the location and scope of operations could prompt companies to rethink how support functions are performed. Back-office capabilities are the most susceptible to change, and the ones that are increasingly available via software-as-a-service and platform-as-a-service models. Maintaining high-level expertise in these areas, while building the partnerships and capabilities necessary to operate in increasingly cloud-based environments, could become more burdensome over time.

Transportation leaders have already begun divesting from lower-value activities to allow for more focus on areas of critical and differentiated expertise. Our research shows that 60% of respondents plan to outsource more of their noncore capabilities, while 59% plan to add new capabilities through acquisition to ensure their operations and service offerings align with the current environment (figure 6).

Fleet transformation

Paced by emerging technology, public policy, and other factors, the transformation of fleets is coincidental, but not a primary driver for the current strategic shifts in the movement of goods. The emergence of EVs as a viable platform for long-haul delivery depends largely on public policy, powertrain availability, and advancements in electrical grids. AVs should help alleviate driver shortages for fleet operators and trucking companies (figure 7), but it is years away from widespread adoption and complete or near-complete automation. Even when fully implemented, the transportation industry will likely make extensive use of driver-assisted vehicles, rather than vehicles that are fully autonomous, whether parcel, courier and express delivery, or long-haul transportation of consumer durables.

What is changing in the near term is the adoption of thoughtful onboard technology, including IoT sensors to monitor freight, smart systems to ensure vehicle health and longevity, and tracking technology to monitor drivers’ health and wellbeing. Meanwhile, significant automation work is being done in the area of drayage, which is made easier thanks to the closed systems of docking facilities and warehouses.

Still, companies are investing in EV or AV transformation. Those respondents making investments expect 35% electrification and 45% automation by 2030. When asked which aspects of global freight flows will see the greatest impact, respondents foresee the most changes in drayage and the least in middle-mile transportation (figure 8).

Interestingly, almost all our respondents (92%) expected a specific disruption to what has typically been a core component of their side of the business: EV and AV manufacturers using their expertise in making vehicles to try to move into the transportation and logistics business. While 32% of respondents said OEMs moving into a fleet management role was “likely,” (figure 9) 60% called it “inevitable.” It will be interesting to see how this aspect of the coming mobility revolution plays out, and whether fleet management itself becomes yet another piece of infrastructure that can be outsourced by tomorrow’s lean, technology-driven transportation companies.

Conclusion

As the transportation industry continues to evolve in the context of short-term shocks and longer-term transformation, success will likely depend on strategies that account for the following:

• Nearshoring has been in the conversation for a long time without much true change. However, the lessons of the pandemic, advances in robotics, changes in labor markets, and shifts in geopolitics could drive real change in the next few years. Navigating these newly drawn maps would require reconfiguring partnerships, supply lines, infrastructure, and relationships with the public sector.
• The data revolution and the rise of modernized transportation fleets hold promise for established logistics leaders to boost efficiency and provide unprecedented insights. But these will also come with increased competition from newcomers to transportation who have deep competency in data science. Data fluency and transparency will be table stakes for tomorrow’s transportation companies. Innovation and rigorous alignment with strategic priorities will set true leaders apart from the pack, along with the ability to partner and acquire wisely. The next few years could be critical as companies decide which of their operations are their core competencies and which are better handled by outside partners.

When it comes to public policy, transportation companies should have both a broad aperture accounting for globalization and national economic strategies, and more targeted engagement at the state level. As public sector priorities and private sector opportunities continue to be closely intertwined, effective collaboration will likely take a variety of forms, ranging from tax incentives and workforce training to initiatives that involve federal- and state-funded organizations and research institutions. Together, government and industry leaders can help guide the modernization of infrastructure and practices to set the future of freight on a more stable and resilient path.

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