2014 will go down in Australian trucking history as a year of readjustment. While construction and capital expenditure data confirmed that the end of the mining investment boom has well and truly come, the non-mining sectors struggled to take up the running, leaving many a transport business in the dark about where future revenue might come from.
With the end of the year now firmly in sight, the question is, how and when will Australian trucking find the right response to such a fundamental shift? If the Westpac/Melbourne Institute Leading Index is anything to go by, the tide will turn in mid-2015.
While the Index is still in negative territory, it did pick up in October, suggesting the economy could be headed for greener pastures during the June quarter, according to Westpac chief economist Bill Evans. Bill also said the improved growth outlook suggested by the Index was consistent with Westpac's view of where the economy was headed, driven by expectations of a pickup in consumer spending and non-mining investment in 2015.
Westpac’s cautiously optimistic outlook is in line with what UK consultancy PwC found when it conducted its annual Global CEO Survey halfway through 2014. While the survey did show that many global executives are still worried about over-regulation and the ability of governments to tackle debt and deficit levels, it also indicated that serious economic risks have been averted for now – a relief for the increasingly globalised trucking community.
Dun & Bradstreet's most recent Business Expectations Survey is even more optimistic, saying that 53.2 per cent of Australian businesses expect increased sales in Q1 2015 compared to last year. The research company also found that 71 per cent of businesses are more optimistic about growth in the next 12 months compared to the previous year – the strongest response recorded in 2014.
According to Gareth Jones, CEO of Dun & Bradstreet-Australia and New Zealand, the more positive business outlook for next year follows signs of gradual improvement in the local economy. “After a 2013 during which businesses were motivated by risk minimisation, this year has been one of slowly-building optimism, while these latest figures suggest that 2015 will see more businesses capable of growth,” he says.
“Although still below trend, Dun & Bradstreet's is forecasting a lift in Australia's GDP growth from 2.2 per cent to 2.5 per cent in 2015, while a more accommodating currency level and a stronger United States economy will support business optimism.”
Consumer confidence, however, appears to be the missing piece in the recovery puzzle and one with the potential to derail the business sector's capacity to grow and drive a new phase in the economy's development.
According to PwC, one reason for that restraint is that businesses have to chase a moving market. With the mining boom waning, they have to address the needs of more diverse – and demanding – customer segments and have to fight off increasingly intense competition.
To do so, the consultancy recommends ‘industrialising’ innovation to make it repeatable, dependable and scalable. More than a third of the 1,344 executives PwC interviewed see product and service innovation as the main route to growth in 2015 and feel a need to change their R&D and innovation capacity, their technology investments and the way they use and manage big data.
In a third new study which also came out around the mid-year mark, logistics powerhouse DHL attempted to predict just how such an innovation mind-set could impact the logistics industry, which is not exactly known for being a hotbed of rapid modernisation.
“In the future, technical innovations that were originally developed for the consumer market will make the transition to the world of logistics at a much faster pace. This, in turn, will result in rapid changes within supply chains. Indeed, the application of such innovations will make our businesses more cost-efficient and sustainable,” predicts Dr Markus Kückelhaus, Director Research & Development at DHL Customer Solutions & Innovation, who leads the Trend Research Team at DHL.
According to the DHL expert, ‘big data’ is the one re-occurring keyword. “Digital tracking along international supply networks is already a daily reality in our business. We track and trace the origin, destination, size, weight, contents and current location of millions of items on a daily basis. Big data analysis solutions translate into both increased efficiency and customer satisfaction – not to mention the development of entirely new business models.”
Mark Patterson, Vice President of Innovation and Product Incubation at DHL Supply Chain, adds, “the challenge is how to use this information – which is available in quantities that we’ve never experienced before – to improve end-to-end supply chains, product availability and cost management.”
In the wake of the economic downturn, cost can in fact turn the scale of innovation – both according to DHL’s future scenario and PwC’s management survey. “Controlling cost is critical to achieving success in the future and we’re seeing this desire to control costs shape supply chains across all sectors,” he says – indicating that efficient transport equipment and streamlined logistics solutions are in high demand.
“Our customers are increasingly challenging us to use innovation to add value to their businesses. They expect us … to understand what the future holds and how innovations in all areas can benefit their businesses.”
As a result, collaboration is becoming more and more important – not only between the powerful OEM community and the supplier scene, but also between transport businesses, the vehicle manufacturing industry and the consumer at home, who is becoming more powerful than ever in the digital age. As part of the collective quest to control cost and improve efficiency, more and more companies are therefore looking to form joint ventures that can benefit the customers of more than just one business.
“For many firms, collaboration is no longer just a concept that is merely talked about: it has real meaning and significance,” says Patterson. “Like-minded organisations from different sectors are starting to collaborate together and work through issues that they are each seeing in their own supply chains. The same issues occur for firms in all sectors: efficiency, cost control, resilience and agility.”
On the back of that collaborative push for innovation – driven by the age-old urge to provide customer satisfaction – consistency is also becoming more important. DHL’s Mark Patterson has found that the rise of big data will help industry understand where differences in key processes are hindering progress, helping it rectify those issues in an instant – a development that will eventually trickle down to vehicle and component design as well.
“Clear operational methodologies will … enable supply chains to establish consistent processes, as technology, data and leadership will make it easier for processes to be replicated and deployed locally and globally,” he says – effectively taking up PwC’s concept of ‘industrialising’ innovation to make it repeatable, dependable and scalable.
The move to potentiate inventiveness through co-operation to achieve the next efficiency gain may not only be helpful from a business point of view – it can also help companies respond to the growing sustainability trend. “For example, there are limits to how far one company can improve the efficiency of its urban delivery trucks,” says Patterson. “But two or three firms working together – sharing truck loads – can make a real environmental impact, reducing harmful emissions and realizing substantial cost savings.”
Building on the risk minimization trend we’ve seen last year, cost-control, customer engagement, innovation and collaboration are now becoming ‘business as usual’ in Australia. In that sense, the biggest future trend is arguably the renunciation of Band-Aid solutions for the benefit of a more hard-headed approach to business.
That’s probably why PwC found that nearly a third of all executives are now focusing on opportunities for growth in the countries where they already do business, with just 14 per cent planning to explore new geographic markets.
But, that does not mean global trends like the constant need for innovation and collaboration are now invalid. According to Patterson, they can still be successfully implemented – either as standalone measures to tackle a particular problem or dovetailing with one another to make “significant, measurable improvements” to supply chains around the globe.
Yet, the interplay between them and the resulting adjustment of corporate strategy will become more significant than single trends themselves. “Quite simply, everything is now in flux,” says PwC Chairman, Dennis M. Nally – pointing out that companies must go beyond the rearrangement stage experienced in 2013 and be ready to radically reassess how they function.
“In this new world, the very purpose of business – not just its practices – will come into question. [Leaders] will have to encourage innovation that’s both radical and methodical; connect with employees and consumers who don’t look, think or act like them; experiment with new operating models while preserving existing efficiencies; and deliver value without compromising on quality or integrity.”
As a result, we are headed for somewhat of hybrid economy at the end of 2014, where leadership in both transport and manufacturing has to be comfortable straddling two worlds – drawing on the best of the old while operating at the frontiers of the new.
The cautious optimism we’ve seen recently may therefore be more of a sign of relief that some of the mining-related losses have been offset, rather than the starting signal for a new boom. It is, however, indicating that the gun-shy ‘wait-and-see’ period is finally coming to an end.