Trends shaping the Supply Chain & Operations: Key trends in Manufacturing & Transportation Markets, June 2024 PDF Free Download
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Arda Karacelebi
arda.karacelebi@tr.ey.com
Trends shaping the
Supply Chain &
Operations
Key trends in Manufacturing &
Transportation Markets, June 2024
Industry trends and competing forces
Businesses need to critically assess their supply chain design to keep pace with multiple external competing forces
Logistics Bottlenecks
~$31bn
in trade is rail-landlocked or
stuck at anchor off US coasts
Redesign distribution strategy
(Parcel, D2C)
Product Portfolio
~60%
of plant changeovers attributed
to tail 10% of products
Rebalance portfolio to
prioritize high margin SKUs
Digital Disruptions
Move from linear to digitally
networked and autonomous SCs
78%
executives say supply chain
digitization has accelerated
due to the pandemic1
Talent & Retention
Link SC op/org model to talent
value proposition
23%
increase in job resignations
from pre-pandemic levels
Tax Structure
15%
global minimum corporate
tax rate expected from 2023
Re-architect supply chain to
adjust to global tax law changes
SC Sustainability Focus
54%
companies rank sustainability
as #1 criteria for innovation
Redesign supply chain to meet
sustainability goals
Geopolitical Situations
Drive supply chain structural
resiliency (right shoring)
$1.4bn
reduction in containerized
Russian Imports
Material Shortage
Diversify global supplier base;
aim for supply chain agility
200%
price rise in Polysilicon amid
supply shortages in 2022
Note: 1. 2022 MHI Annual Industry Report – Evolution to revolution (building the supply chains of tomorrow)
RESILIENCY
Pandemic Economy
natural disasters
Technology Regulation
Trade Wars
digital
Climate
Change
costs
Workforce
talent
Tax policy changes
BREXIT
Distressed suppliers
Cyber Attacks
Changing Consumer
Is your supply chain agile and prepared to withstand disruptions?
Page 3
Inflation
War in Ukraine
Tension in Middle East Top seven trade trends in 2024
1. Elections, elections, elections
2. Challenging Ministerial Conference
for the World Trade Organization
(WTO)
3. Green supply chain regulations will
start to impact
4. More sanctions and export controls
5. Strained US-EU relations to
continue
6. Accelerating customs
modernization
7. Trade finance
Cyber Security
Chatbots
Mega Trends Changing Consumer World New Technologies, Data and
Analytical Competencies
Sector-focused Trends |
Advanced Manufacturing &
Aviation
Reducing CO2
Economic Recession
Beyond
Globalization
Post-Pandemic
World
Changing Workforce
Dynamics
Changing Customer
Expectations
Personalized
Solutions
Supply Chain Resilience
Sustainable Manufacturing
Solutions
Cloud Technologies
Robotic Automation
Metaverse &
Web3
Changing Social
Texture
Rise of Gen Z
Blockchain &
Digital Assets
Artificial
Intelligence &
Machine Learning
ChatGPT & GenAI
Customer
Experience &
Centricity
Workforce Upskilling
Immersive and Simulative
Technologies
Next-Generation
Manufacturing
In response to global economic shifts, technological advancements, and
demographic changes, companies are recalibrating their strategies
-12%
-7%
-2%
3%
8%
2022 2023F 2024F 2025F
Brazil China Europe
Germany India Japan
United Kingdom United States World
•Global growth rates expected to slow in 2024
oItaly and Germany are experiencing a slowdown due to policy shifts
oIP sector in the US is expected to contract due to aggressive monetary
tightening and weak external demand, but a recovery is anticipated to
start in H1 2024.
▪The Inflation Reduction Act will make a down payment on deficit
reduction, invest in domestic energy production and
manufacturing, and reduce carbon emissions by roughly 40% by
2030.
•Europe's economy falters as monetary policy hits manufacturing hard, with
PMI at pandemic lows
•UK's economy sees temporary manufacturing surge due to fiscal incentives,
but challenges like inflation and policy constraints persist
•China's strategy includes industry support and accommodative monetary
policy, but structural challenges may impede an investment-led recovery
•India's momentum boosts 2023 forecast but lowers 2024 to 2.6% due to
potential rate hikes and past policy challenges
Page 5
Source: EY Knowledge analysis, Oxford Economics, Sept 2023
Industrial Products Output:
(Growth (%) y-o-y by country/region)
Key trends in Industrial Products
The impact of geopolitical tensions, inflation and supply chain disruption continues to weigh
heavily on IP output but modest recovery is expected in H2 2024
Page 6 Key trends in Industrial Products
11 July 2024Page 6
Global growth and inflation impact of three scenarios for how the
Israel–Hamas conflict could evolve
Source: EY Knowledge analysis, press articles
Scenario
Impact on Oil prices and
VIX*
Impact on global GDP and
Inflation**
Confined
War
Oil: +$4/barrel
VIX: No impact
GDP:
-0.1 ppts
Inflation: +0.1 ppts
Proxy
War
Oil: +$8/barrel
VIX: +8 points
GDP:
-0.3 ppts
Inflation: +0.2 ppts
Direct
War
Oil: +$64/barrel
VIX: +16 points
GDP:
-1.0 ppts
Inflation: +1.2 ppts
*Impact calibrated on 2014 Gaza War, 2006 Israel-Lebanon War, and 1990-1991 Gulf War
**Impact on year on year change in global GDP and inflation for 2024, estimated using Bayesian Global VAR
Israel's substantial diamond export sector could be impacted by
Middle East conflict, particularly involving Iran, given its
expertise in diamond processing and grading has a significant
impact on Industrial products suppliers
Israel, a hub for semiconductor design and fabrication faces
potential impact on its $5.09 billion integrated circuit exports in
the event of conflict, especially with Iran, has a significant impact
on Industrial product manufacturing
Israel produces sensors, meters, and detectors for diverse
sectors, with exports valued at $2.32 billion in 2021.
Additionally, they advance optical and laser technologies, which
could face disruptions in a worsening conflict, impacting
industrial products suppliers
An escalation of the Israel-Palestine conflict may result in a significant increase
in global oil prices, potentially triggering a worldwide economic downturn
The Israel-Palestine conflict's escalation may elevate global oil prices, and may
impact Israel’s integrated circuits and other measuring instrument sector
If conflict between Israel and Palestine intensifies, potential risks
that could impact Israel’s industrial product manufacturing and
supplies
Geopolitical changes impact industries, prompting manufacturers to enhance
resilience through strategic "no regrets" measures
Page 7 Key trends in Industrial Products EY Knowledge
Enhance scenario-planning capabilities
Invest in the business of customer
experience
Drive operational resiliency
1
2
3
Create a differentiated employee value
proposition
Accelerate digitalization
4
5
Five 'no regrets' moves manufacturers
should make now
Manufacturers should consider a range of future states
and implement new levels of agility
Key dimensions for geopolitical scenario analysis
Customer and Revenue Operations and Supply chain
Innovation and R&D Technology Human Capital
Finance and Capital Allocation Sustainability
Government Relations and Public Policy
Risk and Compliance
The latest EY CEO Outlook Survey (July 2023) found
that all CEO respondents (100%) plan to alter their
strategies in response to geopolitical challenges. For
instance,48% will halt a planned investment, 32% will
reconfigure supply chains and 27% will exist business in
certain markets.
IP CEOs are reconfiguring supply chains due to geopolitical shifts, catalysed by
new tax/industrial policies and trade restrictions
Page 8 Key trends in Industrial Products EY Knowledge
21%
21%
18%
15%
13%
8%
3%
As a result of the changing geopolitical landscape,
what actions are you planning to take over the next
six months?
[The respondents were allowed to select multiple responses]
You said that a changing geopolitical landscape may
lead you to alter your investment, operational or
supply chain plans – what is the main driver of those?
[The respondents were allowed to select one option only]
49%
38%
33%
33%
30%
No Yes
100%
Reallocating our investments into a different country
Reconfiguring our supply chains
Delaying a planned investment
Exiting businesses in certain markets
Stopping a planned investment Global economic fragmentation
Regulatory pressures
New tax or industrial policies
Restrictions on trade or foreign investment
Regional disputes/tensions
Wars or active conflicts
Social unrest, including strikes and protests
Q
Q
►As geopolitical landscapes shift, businesses that monitor these changes and flexibly adjust their operations will likely thrive. The
trend towards supply chain reconfiguration is not just a reaction to change, but a proactive step towards building a more robust and
successful business in an ever-evolving world
►New tax or industrial policies and trade restrictions are driving businesses to rethink their investment and operational strategies,
signaling a responsive shift in global commerce
Source: EY Knowledge analysis, EY CEO Outlook 2023 - Advanced Manufacturing
Source: EY Knowledge analysis, EY Ecosystem Study, 2021
Key trends in Industrial Products
Page 9
Business model innovation delivers value in new ways which can support growth
well above market rates and be less dependent on business cycles
What can IP companies
gain from innovative
business models?
Revenues based on the value delivered
Closer customer
relationships New revenue models
Products-as-a-service
Steadier revenue streams
3-7x
higher EBIT margins than
selling products alone
An ecosystem of partners
>13%
Successful ecosystems can boost incremental revenue
growth and earnings, and reduce costs by more than 13%
EY Knowledge
As a result, Major Trends in Industrial Products are;
•Geopolitical instability will drive industrial sectors to re-shore supply chains and invest in tech for resilience
•A robust and manageable digital strategy helps manufacturers go from digital-optional to digital first
•Supply chains are transforming into digitally interconnected, collaborative, adaptive partner ecosystems
•Innovative business models are creating new revenue streams and delivering unique B2B2C customer experiences
•Green manufacturing and the growth of circular economies are driving sustainability initiatives
•Employee-centric working environments focused on upskilling and training are critical to managing talent
Geopolitical tensions, inflationary pressures, tight labor markets, changing customer expectations and pandemic
fallout are forcing Industrial Products manufacturers to rethink growth strategies, optimize operations to improve
profitability, proactively work on reducing supply chain constraints, prioritize sustainability and offer superior
employee experiences.
These market forces are giving rise to a whole new set of industry trends which will define the future of industrial
manufacturing:
Page 10 Key trends in Industrial Products EY Knowledge
Road
$1,45
$1,65
$1,85
$2,05
$2,25
$2,45
$2,65
$2,85
$3,05
$3,25
Oca.19
Mar.19
May.19
Tem.19
Eyl.19
Kas.19
Oca.20
Mar.20
May.20
Tem.20
Eyl.20
Kas.20
Oca.21
Mar.21
May.21
Tem.21
Eyl.21
Kas.21
Oca.22
Mar.22
May.22
Tem.22
Eyl.22
Kas.22
Oca.23
Mar.23
May.23
Tem.23
Eyl.23
Kas.23
Oca.24
USD/mile
US road transportation: Market conditions expect to soften in 2024, owing to a decrease in freight
demand and an expansion in trucking fleet capacity
Page 12
Source: DAT, Cass, EY Knowledge Analysis
►In the first half of 2023, full-truckload rates experienced a
continued decline, driven by surplus capacity and diminished
demand
►The latter half, however, indicated a recovery phase with
increasing tender rejection rates and enhanced load-to-truck
ratios, culminating in rate stabilization
►Throughout 2023, truckload rates maintained relative
stability, despite minor regional and segment-specific
fluctuations
►Some carriers introduced slight rate hikes, whereas others
provided discounts or entered negotiated contracts with
select shippers
►In 2021 and 2022, there was a notable increase(~4 to 5%) in
new orders for heavy-duty tractor fleets (Class 8 trucks),
which led to an oversupply in the truck fleet market by 2023.
Despite this surplus, new orders have continued to rise from
the H2 2023, driven largely by many carriers' initiatives to
modernize their fleets by replacing older vehicles
►Additional factors affecting rates include escalating
expenses due to increased diesel fuel prices, labour costs,
and insurance premiums
Source: DAT
US road transportation dry van truck spot rates (including fuel
prices)
Expansion of the Class 8 heavy-duty tractor fleet, weakening demand
and trucking costs are influencing the road freight rates in the US
Average spot freight rate in 2019 is US$1.85
Jan’23–Jan’24:
-10.1%
85
95
105
115
125
135
145
155
Oca.19
Nis.19
Tem.19
Eki.19
Oca.20
Nis.20
Tem.20
Eki.20
Oca.21
Nis.21
Tem.21
Eki.21
Oca.22
Nis.22
Tem.22
Eki.22
Oca.23
Nis.23
Tem.23
Eki.23
Oca.24
Price index
Europe road transportation: Freight rates are expected to increase moderately due to increase in road toll
rates from Jan’24
Page 13
Source: GSCI, Upply, IRU
►Since late 2022, rising commodity prices have significantly
reduced consumer spending, leading to a gradual decline in
road freight rates
►In Q4 2023, industrial production in Europe decreased,
with the UK experiencing a 0.9% fall, Germany 1.6%, and
France 0.2%. This reduction in output affected freight
demand
►Manufacturers, grappling with escalating costs, have
adapted to the downturn in consumer and international
demand by decreasing their needs, thereby increasing
available transport capacity and further reducing spot
freight rates
►Additionally, higher road tolls (expected to increase by
more than 5% in 2024) are set to adversely affect the
transport companies by narrowing their profit margins and
altering their pricing models
►These increased operational expenses are expected to be
passed on to shippers, ultimately raising freight charges in
the upcoming months of 2024
In Q4’23, EU freight rates fell due to a decrease in peak demand, driven
by inflation and a significant drop in consumer confidence to
unprecedented lows
Source: GSCI, Upply, IRU, EY Knowledge Analysis
Europe road transportation price index
Page 13
Jan’23-Jan’24:
3.6%
Index Average in 2019 is 102.71
95
96
97
98
99
100
101
102
103
104
105
Oca.19
Nis.19
Tem.19
Eki.19
Oca.20
Nis.20
Tem.20
Eki.20
Oca.21
Nis.21
Tem.21
Eki.21
Oca.22
Nis.22
Tem.22
Eki.22
Oca.23
Nis.23
Tem.23
Eki.23
Oca.24
Price index
China road transportation: The upward trend in freight rates has been driven by a rise in operational
expenses coupled with steady demand for freight services
Page 14
►Throughout 2023, major ports in China witnessed a
modest rise in cargo handling and a general increase in
the volume of goods transported
►Growth in business activities has improved conditions on
both the supply and demand sides, leading to a moderate
rebound in freight rate levels.
►Despite the volatility in oil prices since 2022 and the
effects of global incidents like the Red Sea Attacks,
transportation costs have remained above those of 2022
►Projections indicate that road freight rates are expected
to continue their upward trend, staying about 2 to 3%
higher than in 2023 as the next year unfolds
Freight rates for road transport in China have been experiencing a
modest uptick. In Jan’24, there was a marginal reduction of 0.1% in
rates compared to Jan’23.
Source: clic.org.cn, EY Knowledge Analysis
China road transportation price index
Source: China logistics index
Jan’23- Jan‘24:
-0.1%
Index Average in 2019 is 97.7
Challenges like escalating labour costs have influenced the operational expenses and profit margins of
truck carriers in the US
Page 15
Average truck operational cost structure – North America
(2022 - 2023)
US transportation and warehousing hourly wages (US$/hr)
►Fuel: Costs surged to 64.1 cents per mile, marking a significant
increase of ~53.7% for carriers across 2022 and decreased
marginally in 2023
►Driver Wages: Increased by ~12 to 14 % to 72.4 cents per mile in
2022-2023 as companies competed to attract and retain drivers
amid a challenging labour market
►Truck Maintenance: Factors such as parts shortages, rising
technician labour rates, and the impact of inflation pushed repair
and maintenance costs up by ~8 to 10% in 2023
US truck carriers spent ~$0.80 per mile on average on driver pay and
benefits in 2023, surpassing 2018 as the highest recorded
►In 2023, the US transportation and warehousing sector
experienced a consistent rise in hourly wages. This upward
trajectory in wages is anticipated to persist into 2024
►As of Jan’24, the average hourly earnings for all employees in
transportation sector reached $30.38, up from $29.81 in Oct’ 23
►This wage growth reflects broader economic trends and influenced
by factors such as inflation, labour market demands, and
regulatory changes
US transportation and warehousing hourly wages increased by 5% in
2023 compared to 2022
40,3%
28,5%
14,7%
8,7%
3,9%
0,7%
2,0%
1,2%
Driver costs
Fuel costs
Truck/Trailer Lease Purchase Payments
Repair & Maintenance
Truck Insurance Premiums
Permits & Licenses
Tires
Tolls
Source: ATRI, BLS, EIA
24
25
26
27
28
29
30
31
Oca.19
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Oca.22
Nis.22
Tem.22
Eki.22
Oca.23
Nis.23
Tem.23
Eki.23
Oca.24
Transportation and warehousing
hourly wages (in USD)
Key Trends – Major trends in the road transportation sub-sector
Page 16
1
2
3
4
5
Freight rates are finding equilibrium at a "new normal" after reaching unprecedented highs in 2022
Market conditions for road transportation are expected to soften into 2024, with a continued dip in freight rates. In
2023, US spot freight rates fell over 20%, and Europe’s road freight price index decreased by 12% compared to 2022
Transportation operational costs are rising due to higher truck maintenance and labour costs
Falling freight rates, coupled with rising operational expenses (with labour costs up by 5% and truck maintenance
by approximately 3 to 4% in the US), are squeezing profit margins for carriers in the full truckload sector
Truck driver shortages - A lack of skilled and qualified workers
Shifting demographic trends are exacerbating the worldwide shortage of truck drivers in the logistics sector, an
issue that has been longstanding
Adoption of advanced technologies to play a key role in maximizing efficiencies and improving agility across
the transportation value chain
Pandemic not only tested supply chain resilience and efficiency to the limit but also paved the way for accelerated
technological adoption across the sector
Emergence of digital freight forwarding startups represents a transformative shift in the logistics industry
With global supply chains plagued by bottlenecks, lockdowns, and other disruptions, shippers are leaning on the evolving
digital start-ups focused on instant freight booking, on-demand trucking services, etc.
Rail
The global rail freight market is expected to grow at a CAGR of 4.7% between 2022 to 2030, with the APAC
region leading the global rail freight market
218,9 229,2 240,0 251,2 263,0 275,4 288,4 301,9 316,1
2022 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F
Global rail freight market size (US$ billion)
Source: News articles, EMIS, EY Knowledge analysis
Page 18
Global rail freight market segmentation 2022, region wise
(Total value – US$218.9 billion)
►With the rise in international trade and the countries recognizing the
benefits of rail freight transport (as rail freight is ~20-30% cheaper
than road freight for transporting large volumes of cargo over long
distances with ~10% more on-time delivery rate), cross-border rail
freight transport is gaining huge momentum across different parts of
the world.
►Additionally, the sector’s growth is anticipated to be driven by the
widespread use of cutting-edge technology and the influence of major
industry players.
Global rail freight market is expected to reach US$316 billion by 2030 due
by the expansion of international trade volumes
►The APAC region’s rail freight transport sector is expanding rapidly
and going through several changes including, among the Belt and
Road Initiative (BRI) of China, Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP) and the booming
e-commerce sector
►The EU has set an ambition to double freight rail’s modal share by
2030, both to reduce the transport sector’s CO2 emissions and to
ease the congestion of major road connections
►In 2022, the US rail freight revenue experienced a decline due to
economic volatility and high inflation rates
APAC leads the global rail market, followed by West Europe and North
America, with high government investments and the population’s heavy
dependence on rail transport
2,6%
3,2%
3,3%
21,7%
23,0%
43,2%
South America
Africa
East Europe
North America
West Europe
APAC
The global rail freight market exhibits a degree of concentration, with several large players dominating the
industry
Revenue of major railroad operators in North America and Europe
(in US$ billion)
Source: EMIS, EY Knowledge analysis
Page 19 * For Deutsche Bahn AG data for 2023 is available for six months till June 2023
►In 2022, the top ten rail freight companies accounted for
43.44% of the total rail freight market. Berkshire
Hathaway Inc. emerged as the largest competitor,
holding a 9.91% market share.
►Competition within the rail freight sector varies globally.
Still, it remains relatively low as the nationalization of
railways is common in many countries, including France,
Germany, China, India, Russia, and Canada.
►For the first time, private companies or subsidiaries of
large holdings operating as private companies occupy
most of the European rail freight market with a market
share of 51%.
The landscape of the global rail freight transport market is
somewhat concentrated, comprising a mix of both private
entities and state-owned enterprises
5,9
10,7
11,1
21,8
22,5
52,5
276,2
6,5
12,6
12,7
24,9
25,2
62,8
302,0
9,3
12,4
12,2
24,1
23,5
25,0
364,5
Canadian Pacific Kansas City
Canadian National
Norfolk Southern
Union Pacific
BNSF
Deutsche Bahn AG*
Berkshire Hathway
2023 2022 2021
Hinterland
access
Dedicated
freight corridors
(DFCs)
Trans-
national
land bridge
Trans-
Continental
land bridge
North America
Europe
Latin America
China
Region
High priority Moderate focus Low to medium
priority
Freight rail infrastructure development focus – Geography wise
•US has the largest rail freight
network globally which is
privately owned (~140,000
miles) and transports one- third
of all US exports.
•FRA* announced US$1.4b
investment for 70 US rail
infrastructure projects primarily
into rail track modernization and
safety related upgrades.
US & Canada
•EU targets to achieve 30% of rail
in European freight transport by
2030.
•Trans-European freight transport
corridors are being established to
strengthen the competitive
freight.
•11 rail freight corridors (RFC) are
planned in the EU of which 10 are
currently operational.
Europe
•Out of 6 China’s flagship Belt and
Road Initiative (BRI) international
economic corridors, 3 of those
trade routes rely on trans-
continental railway routes.
•China is also investing in rail
freight corridors in Africa and
South America to improve
connectivity b/w its BRI projects
to ports.
China
•8 projects of ~US$20-30b under
development for commodity,
agricultural freight across Brazil,
Peru, Bolivia etc.
•Brazil plans to increase exports
through rail freight to 40% by
2035 up from 17% in 2021.
Latin America
•Providing hinterland access will be the focal point of rail freight
infrastructure globally which also enables first-mile capabilities to rail
operators.
Key Insights
•Europe is pushing for a modal shift from road-to-rail to curb emissions.
•Success of China-Europe freight rail has spurred the interest of trans-
national and trans-continental land bridges with new trade routes being
developed in India-ME and Latin America.
Key Freight rail infrastructure development globally
Major economies are recognizing the importance of rail freight and investing a substantial amount in the
development of rail infrastructure
Page 20
Category
Source: EY Knowledge analysis, news article
*Federal Railroad Administration
Rail freight contribution to the overall CO2 emissions is lowest among all freight modes
Page 21
►The global transportation sector is a major polluter,
producing more than seven billion metric tons of carbon
dioxide (GtCO₂) a year. Cars and vans were the biggest
source of transportation emissions that year, accounting
for approximately 48% of global transportation emissions
►From their peak in 2019, direct CO2 emissions from rail
remain under 100 Mt CO2. During the past two decades,
direct CO2 emissions from diesel rail operations increased
by 0.6% on average annually
►Diesel plays a much more prominent role in freight rail,
accounting for 75% of its total energy consumption
worldwide in 2022. Continuous progress on freight
electrification can reduce this to ~55% by 2030 in the NZE
Scenario
Rail transports around 7% of global passenger-km and 6% of
global freight tonne-km but accounts for only ~1% of transport
emissions
Sources: IEA, News article
48%
16%
9%
10%
6%
6%
5%
1%
Rail
Cars &
vans
Domestic
aviation
Bus
International
aviation
International
shipping
Medium
freight
vehicles
Heavy freight
vehicles
Global distribution of CO2e produced by the transportation sector in 2022,
by sub sector
Companies are adopting electric train and track electrification measures to achieve their Net Zero target
by 2050
Page 22
CO2 emissions from rail in the Net Zero Scenario* (in MT)
*CO2 emissions expected to change as follows from 2018 to 2030, to achieve Net Zero target by 2050
Sources: IEA, News article
►Japan's Hitachi and Italy's Trenitalia presented a new
high-speed hybrid train that can switch between
battery, electric or diesel and can function in both
electrified and non-electrified lines, further modernising
the European rolling stock (in 2022)
►India is investing in road-to-rail shift and is rapidly
moving towards its target of 100% rail track
electrification by 2024, with the share of electrified
track increasing from 45% in 2015 to 80% in 2022
►Global milestones for behavioural change in Net Zero
Scenario includes swapping of regional flights (<1 hour)
for high‐speed rail where feasible, by 2050
Countries and regions making notable progress to achieve Net
Zero Scenario (NZE) target
101,93 103,38
85,62
92,07 94,64
63,22
2018 2019 2020 2021 2022 2030
Projection based on
Net Zero target
CO2 emissions from rail in the Net Zero Scenario* (in MT)
Key Trends – Major trends in the rail freight sub-sector
Page 23
1Increase in infrastructure development activities
With the dominance of rail freight in rail transport, major economies are recognizing the importance of rail freight and
investing a substantial amount in the development of rail infrastructure
2Shift towards green operations
To achieve Net Zero target by 2050, operators are shifting towards low-emission operations including fleet
electrification, testing alternate fuel technologies and increase in renewables utilization
3Greater emphasis on safety and maintenance
Due to recent rail incidents (East Palestine, Ohio, and Raymond, Minn.), government and rail operators are
emphasising more on track safety and maintenance with increase in rail safety enhancement investment
4Adoption of digital technologies
Digital technologies such as AI, telematics and autonomous systems are being leveraged to enhance asset
condition, improve operating efficiency and ensure rail safety
Page 23
Shipping
Though alliances have largely benefitted in access to global coverage, dissolution of 2M alliance raises
questions on strategic losses for ocean carriers
Source: AlixPartners, Clarkson research, EY Knowledge analysis Source: Clarkson Research
Market share evolution by alliance: Reducing operational costs and utilising overcapacity, providing
competitive pricing are some key benefits of horizontal mergers and acquisitions
2012-13 2014-16 2017-21
18% G6 Alliance
12% CKHYE
Alliance
70%
Independents
17% CKHYE
Alliance
21%
Independents
Average
total TEU
29% 2M Alliance
15.9m 18.5m 21.9m
15% O3 Alliance
18% G6
Alliance
17% THE Alliance
29% OA Alliance
29% 2M Alliance
20%
Independents
Future of shipping alliances?
Shipping companies' investment in capacity
growth has redrawn the alliance landscape
▪The 3 biggest alliances account for >80%
market share by 2022 with the biggest being
2M alliance between MSC and Maersk
▪In Jan’23, Maersk and MSC announced that
they will dissolve the 2M alliance post 2025
▪In 2023, Maersk and Hapag-Lloyd
announced formation of a new alliance, to be
launched in January 2025, called the
“Gemini Cooperation”
▪Maersk is focussed on vertical integration
through M&A’s IN 2023, while MSC is
prioritizing in expanding its core operations
Average market share provided
Page 25
Houthi attacks on Red Sea shipping exacerbate global trade and supply chain woes,
compounded by the Ukraine war and abnormal low water levels in the Panama Canal
Page 26
Indian Ocean
Atlantic Ocean
Cape of Good Hope
Red Sea
Europe
East Asia
Africa Gulf of Aden
Bab El-Mandeb Strait
Middle East
Suez Canal
Alternate route
via Cape of Good
Hope but this
increases time
and costs
Houthi attacks in the Bab el-
Mandeb Strait
Red Sea Transit
Suez Canal
Cape of Good Hope Transit
Red Sea, with the Suez Canal at its northern tip, is an
important shipping route, with ~10 to 12% of global
seaborne trade volumes passing through annually
The Houthis have been stepping up their attacks at Red Sea
since the start of the Israel-Hamas war in Oct 2023
The group, which is backed by Iran, has been using drones
and rockets against foreign-owned vessels transporting
goods through the strait of Bab al-Mandab
Any ship passing through the Suez Canal to or from the
Indian Ocean must come via the strait of Bab al-Mandab
and the Red Sea.
The Suez Canal is the quickest sea route between Asia and
Europe and is particularly important in the transportation
of oil and liquefied natural gas (LNG)
Houthi militants first conducted an attack on Nov-19 2023
and have since launched 27 attacks.
Redirecting ships through Cape of Good Hope increases travel
time and shipping costs
Asia to North Europe trip via the Cape of Good Hope instead of the
Suez Canal adds 3,100 miles and 9 days to the journey, making it
about 44 days. Middle East to North Europe trip via the Cape adds
4,700 miles.
Source: Clarksons, Press releases, EYK Analysis
Red Sea attacks have significantly disrupted global shipping, leading to increased
shipping costs and rerouting of trade routes, with wider implications for global trade
Page 27
Source: Clarksons, Press releases, EYK Analysis
►Shipping costs, including for gasoline, have surged as ships take longer routes. This has strained
the market, initially raising prices for longer Middle East routes and now affecting intra-Asian trips.
►For instance, shipping 35,000 tons of fuel from South Korea to Singapore now costs over
US$49k/day, a 50% increase, highest since 2022
Red Sea Attacks Implications on
Shipping Sector
Increase in cost of shipping
1
Shipping delays
2
Increase in Insurance rates
3
Disruption in shipping schedules
and capacity imbalances
4
►Rerouting ships away from the Red Sea extends transit times, straining shipping capacity and
potentially causing vessel shortages and delays in goods delivery.
►The diversion via the Cape of Good Hope (COGH) raises costs (~40% additional fuel consumption)
and time (transit time increases by 30-50%)
►The reliability of shipping schedules has been greatly affected, leading to widespread disruptions in
global trade. This, coupled with capacity adjustments by liners, is driving up rates on routes like the
Trans-Atlantic, Shanghai to EU and the US
►Additionally, equipment shortages are arising and likely to worsen, as vessels not returning to Asia
on schedule result in a lack of equipment for future shipments
Safety and security concerns
5
►The threat of attacks in the Red Sea region raises serious safety and security concerns for the crew
aboard these ships
►Shipping companies are investing more in security measures and protocols to ensure the safety of
their crew and cargo
►The recent Red Sea attacks have led to a steep rise in war risk insurance premiums for shipping,
with rates increasing to ~0.5%-2% of a ship's value, significantly higher than previous rates
►This surge in insurance costs, coupled with the threat of attacks, is prompting major shipping
companies to reroute around Africa, leading to longer transit times and higher transportation costs
However, the industry is strengthening its capacity despite currently running at 65-75% TEU capacity on
mainlines
Global containership fleet (in thousand TEU) and growth
Page 28
22.147 23.034 23.707 24.776 25.772 27.767 29.651 31.133
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
8,0%
9,0%
10,0%
0
5000
10000
15000
20000
25000
30000
35000
2018 2019 2020 2021 2022 2023f 2024f 2025f
Global container fleet Growth
►On the supply side, the sector is rapidly growing fleet
growth - boxship fleet grew by 5.7% in Oct 2023 YTD (4.0%
in FY 2022) as deliveries stayed close to record levels at
0.6m TEU in Q3 2023.
►Deliveries continued through Q4 2023 and is expected to
maintain momentum in 2024, reaching an annual estimate
of 2.1m TEU in 2023, leading to fleet growth of 8% (2.6m
TEU in 2024, with fleet growth of 7% expected)
►Whilst weak index usually requires operators to adopt a
‘wait and see’ approach to tonnage acquisition, however,
operators have continued to drive newbuild contracting in
the sector.
►Large liner companies ordered 98% of total capacity
in 3Q2023 (560,600 TEU), with Evergreen
accounting for 67% of capacity contracted.
►However, boxship recycling also increased in 2023, with 57
ships of 105,000 TEU sold for scrap in Oct 2023 YTD (over
6x the FY 2022 total) and is expected to gain traction in
2024 as supply pressure builds and emissions regulations
impact.
►2025 is estimated to witness robust deliveries of 2.3m
TEU, potential for a further increase in scrapping and fleet
growth of 5.0%.
Key takeaways
Containership demolition (in thousand TEU)
117 183 188
12 16
138
686 790
0
200
400
600
800
1000
2018 2019 2020 2021 2022 2023f 2024f 2025f
Containership demolition
Source: Clarkson
Source: Clarkson
Key Trends – Major trends in the shipping sub-sector
1
2
3
4
5
Rebound in demand from weak 2023 market
Global container trade is projected to rebound by 8.2% in TEU-miles in 2024, as rerouting of vessels away from Red Sea
drives demand while volume growth is projected at 3.8% after a weak 2022-23.
Freight rates normalize to near pre-pandemic times, bur red se disruption spike rate in the short term
Compared to the record financials during COVID-2019, 2023 was a weak year for liners with multiple major
operators reporting a weak Q4 amid softening markets. However elevated freight rates amid Red Sea
disruption is likely to lead to a healthier Q1 2024.
Increase of capacity amid demand slump
However, the industry is strengthening its capacity despite currently running at 65-75% TEU capacity on mainlines.
Deliveries continued through Q4 2023 and is expected to maintain momentum in 2024, reaching an annual estimate
of 2.1m TEU in 2023, leading to fleet growth of 8% (2.6m TEU in 2024, with fleet growth of 7% expected)
Shift towards green operations
Carriers are adapting their operations towards low-emission operations accelerated by new regulations
and demand from shippers
Adoption of digital technologies
Digitalizing operations such as electronic bill of landing (eBLs), and employing advanced technologies such as AI
and IoT based solutions to improve supply chain visibility
Page 29
Page 30
Source: IATA, EY Knowledge Analysis Note: Values plotted are scaled using Plot Digitizer, https://plotdigitizer.com/app
Macro-economic conditions pose a major hindrance in the growth of the air cargo market despite rising
demand and increasing cargo capacities
20,3 21 21,6
21,9 22 22,1
21,6 21,321 21,1
16,6
19,3
21,7
23,2
22,722,7
21,2
20,5
19,5
19,9
20,8
Industry Cargo Tonne Kilometers (CTKs) 2017-23 (billion
per month)
1,6%
-0,3%
4,2%
-1,7%
2,5%
1,5%
0,9%
1,2%
-3,6%
2,5%
-0,8%
1,3%
5,8%
1,4%
Industry
Africa
Asia Pacific
Europe
Middle East
Latin America
North America
Growth in international CTKs by airline
region of registration (Y-o-Y)
Aug'23 Sep'23
CTK increased by 1.9% Y-o-Y in Sep’23
•The global cargo tonne kilometres (CTK) remained
1.3% less in Sep’23 as compared to Sep’19,
however the CTK increased by 1.9% Y-o-Y in Sep’23
•The increase in global industry-wide CTK was
primarily driven by growth of air cargo demand
from the airlines in the APAC followed by the Middle
East region owing to increasing trade activities
•The overall industry capacity measured in available
cargo tonne kilometres (ACTKs) also showed a
12.1% Y-o-Y growth in Sep’23, owing to the growth
in international belly cargo capacity by the airlines
from the Asia-Pacific, Latin America and Middle
East regions
Growth in international belly cargo capacities
resulting in increasing ACTKs Market Outlook
•The air cargo market is largely dependent on the
macro-economic trade environment and thus faces
challenges such as a minimal increase of 0.8% in
global trade during 2023 due to political tensions
such as Russia-Ukraine war and rising fuel prices
impacting profitability
Logistics
Rising e-commerce sales and penetration has been a key driver to the overall parcel volume growth
Source : Transportation Intelligence, Pitney Bowes Parcel Shipping Index, EY Knowledge Analysis
Page 32
270 314
401
481 456 492
746
853
717
2018 2019 2020 2021 2022 2023F 2027F 2027F 2027F
Base High Low
Global e-commerce logistics market growth (US$ billion)
88 103
131
159 161
200
225
250
200
2018 2019 2020 2021 2022 2024F 2028F 2028F 2028F
Global parcel growth (in billion parcels)
Base High Low
►As per Transport Intelligence estimates, global e-commerce logistics will grow by 10% pa CAGR 2022-2027E.
►As per Pitney Bowes estimates, the global parcel market (B2B and B2C) is expected to grow by 6% pa CAGR from 2022
to 2028, doubling volumes from approximately US$100 billion in 2019 to US$200billion in 2024.
Amazon disrupted the last-mile delivery and tech-enabled logistics to outpace the growth of legacy players
Source : Pitney Bowes Parcel Shipping Index, EY Knowledge Analysis
Page 33
19% 19% 18% 19% 19%
30% 29%
22% 24% 24%
6%
11%
20% 23% 23%
45%
40% 38%
32% 32%
1,0% 1,0% 1,0% 2,0% 2%
2018 2019 2020 2021 2022
FedEx Ground & Express (U.S.) UPS U.S. Domestic Package
Amazon USPS
Other
Estimated share of all package deliveries in US by volume
►Amazon forayed into same-day
delivery through Prime Now, and
gained a market share of 23% of total
US Package Deliveries in 2022, which
is led by surge in last-mile deliveries.
►Amazon aggressively built its own
fleet of air cargo planes, trucks and
a ground delivery system to capture
the market.
►Amazon has invested heavily in its
logistics network, that enables it to
deliver packages for less than it would
otherwise pay UPS or another
delivery service.
Key takeaways
►In 2023, the time between a customer placing an
order and final delivery fell to an average of 4 days
from 6 days in 2021 and 8 days in 2020.
Parcel carriers moving inventory closer to end
customers:
►Parcel carriers have improved their service levels
which were impacted during the initial stages of the
pandemic.
►Firms such as Amazon have moved their inventory
closer to end consumers to reduce lead time.
Shippers diversifying their customer mix:
►Owing to increased demand and freight rates,
shippers have diversified their carrier mix.
►Thus, shippers can collaborate with new delivery
providers for speed advantages.
Retailers investing for next-day deliveries
►Big retailers such as Walmart, Target have also
invested ~US$100 million for improving store-
fulfilled deliveries and efficiency in next-day
deliveries.
Retailers such as Walmart, Target are targeting faster delivery speeds for better service to its customers
Page 34
Initiatives across the value chain for faster deliveries
Delivery speed continues to improve
0
2
4
6
8
10
12
14
16
Average time for end-to-end fulfilment is between 4-6 days
Days
Source: project44, Secondary research, EY Knowledge Analysis
2023 has seen the quickest delivery
times in the last mile delivery market
0
0,5
1
1,5
2
2,5
3
Transit times* stay low throughout 2023
*Number of days between an order being shipped to its delivery.
Cyber Security
Chatbots
Mega Trends Changing Consumer World New Technologies, Data and
Analytical Competencies
Sector-focused Trends |
Advanced Manufacturing &
Aviation
Reducing CO2
Economic Recession
Beyond
Globalization
Post-Pandemic
World
Changing Workforce
Dynamics
Changing Customer
Expectations
Personalized
Solutions
Supply Chain Resilience
Sustainable Manufacturing
Solutions
Cloud Technologies
Robotic Automation
Metaverse &
Web3
Changing Social
Texture
Rise of Gen Z
Blockchain &
Digital Assets
Artificial
Intelligence &
Machine Learning
ChatGPT & GenAI
Customer
Experience &
Centricity
Workforce Upskilling
Immersive and Simulative
Technologies
Next-Generation
Manufacturing
In response to global economic shifts, technological advancements, and
demographic changes, companies are recalibrating their strategies
Traditional supply chain structures
are not equipped to cope with these disruptions
Limited
investment in
technology
Immature risk
mitigation process
Intercompany pricing not
keeping pace with trade and tax
environments
Geographic concentration
Mis-aligned and
Mis-placed inventory
levels
Poor data integrity,
quality and security
Lean & cost
optimized
Talent challenges
with tenure & skills
Focused on
Tier 1 suppliers
Vendor
concentration
Limited visibility
Slow response to
changing trade and
tax environment
TRADITIONAL SUPPLY CHAINS ARE RIGID AND LINEAR
Suppliers Manufacturers Warehousing CustomersLogistics Distribution
Resilience & sustainability is not inherent in today’s supply chain structures
Page 36
Supplier
Customer
Retail/
Consumer
Customer
Con-
nector
SC as
a Service
For-
warder
Eng.
Contractor
Logistics
Contractor
Supplier
Retail/
Consumer
OEM
Contract
Manufact.
Com-
petitor
Customer
Now.
Cost optimized, manual, rigid and linear
Value-creation within entities,
on premise IT, slow to respond
The new world: Industry 4.0 with ecosystems on
cloud enabled platforms
Self-driving supply chains
Beyond.
Autonomous
robotics
ai
Next.
Agile, Networked Ecosystems
Future of supply chain
Shifting from rigid and linear to agile, networked ecosystems on the path to an autonomous future
Page 37
External pressures are driving 5 supply chain reinvention themes that require
behavioral change
Three people / talent matters:
Organization and workforce planning
Mindset/skillset shifts
Behavior change
Humans
@
Centre
S
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C
Geopolitics shaping supply chains
Industry 4.0 and ai redefining
the art of the possible in SC
Changing customer behavior
Port congestion and driver
shortages
Natural disasters
Climate change
Regulatory requirements
Talent shortages
Top 5 priorities to recovery and beyond
Strategic
architecture
Rapidly re-define and
integrate your supply
chain strategy. Alter your
global trade flows, global
tax models, supply chain
operating model and
network footprint
Transparency and
resiliency
Design and build agility into
your supply chain footprint
and supplier network.
Improve your disruption
response through real-time
monitoring and scenario
planning. Shift the mindset
of your people and partners
towards visibility and trust
vs. control
Cost reduction
and cash
extraction
Drive a step change in your
supply chain cost and
working capital profile
allowing you to fund the
transformation
Sustainability
Embrace social compliance,
green consumerism and the
future of a circular economy
by engaging suppliers and
industry partners, aligned
with available incentives to
drive competitive advantage
and societal outcomes. Link
corporate responsibility
to organization vision and
personal purpose
Digitally networked
supply chain
Move from doing digital to
being digital. Implement
supply chain technologies that
open up new revenue streams
rather than simply efficiencies.
Close the talent gap in digital
fluency. Navigate challenges
of emerging digital taxes
8 – 15%
cost and cash savings
from network footprint
optimization
15 – 25%
reduction in lead times
15 – 40%
improvement in forecast
accuracy
5 – 10%
increased throughput and
10 – 20%
operating cost reduction
with Digital Twin
20 – 25%
cash flow improvements
5 – 15%
customs and duties cost
reduction
20 – 30%
in inventory reductions
9 – 16%
supply chain cost reduction
5 – 20%
revenue uplift
5 – 10%
service level improvement
3 – 15 points improvement
in overall equipment
effectiveness (OEE)
10 – 15%
reduction in planning cycle
times
Potential Benefits
Page 39
Now.
Cost optimized,
manual, rigid and
linear
Next.
Agile, Networked Ecosystems
Beyond.
Autonomous
Five elements of the great supply chain reset
Rationalized portfolio, service levels, and as-a-service
►Which product/market segments, geographies, and customer experience levels do we
focus on?
Resilient, circular operating model
►How can we embed circularity and sustainability into the design, sourcing, manufacture
and transportation of our products?
Segmented footprint and challenging traditional management hubs
►Can your business sustain its current balance of onshore / offshore production?
Automation and cognitive decision support
►How can you use AI technology to increase supply chain transparency and control across
complex supply networks?
Collaborative relationships built on value –not cost
►Are you working with suppliers toward a common goal – or is the relationship merely
transactional?
Page 40
of respondents to
an EY study are
considering
nearshoring.
53
%
of respondents are
thinking of
reshoring to take
activity back to
their domestic
market.
43
%
of European
companies plan to
establish or expand
operations in
Europe. (Localized)
79
%
Embed end to end visibility,
simulation & risk monitoring
Design omni-capable agile
networks
Secure alternative sources of
supply
Develop a resilient operating
model & workforce
Create a trusted & secure
supply chain
Resiliency =
Visibility + Agility
Sustainability =
Environmental + Social + Governance
Ensure sustainable & diverse
sourcing
Enable traceability, visibility &
disclosure
Decarbonize the value chain
Introduce circularity into your
business model
Assess tax impacts &
incentives for a sustainable SC
Traditional Demands
Cost take out &
cash extraction
Industry 4.0 &
Digital SC
Now.
Beyond.
Autonomous
Next.
Agile, Networked
Ecosystems
Cost optimized, manual, rigid
and linear
Sustainablity is one of the key discussion points and risks for Executive Board
for Supply Chain Point of View
Page 41
Source: “Ginni Rometty: It Should Be Augmented Intelligence, Not Artificial,”
World Economic Forum. January 18, 2017.
YouTube. https://www.youtube.com/watch?v=j98rY3vhPhE
Some people call this artificial
intelligence, but the reality is this
technology will enhance us.
So instead of artificial intelligence,
I think we’ll augment our
intelligence.
- Former CEO, leading tech company
“
Market trends
AI has the potential to transform end-to-end Supply Chain & Operations
AI has emerged as one of the most transformative technologies across industries, and it has significant implications for every department within the company,
including supply chain & operations
76%
supply chain organizations are investing in
GenAI, focusing on knowledge management
applications
CEOs are deploying AI in supply chain
management
manufacturing CEOs say that AI is delivering
a “strong ROI” for their operations
70% 40%
AI in the supply chain
market is projected to
reach $41.23 billion by
2030, at a CAGR
of 38.8%.
“
Source: AI in Supply Chain Market by Size, Share,
Forecasts, & Trends Analysis (meticulousresearch.com)
Source: Artificial Intelligence Proves its Worth in Manufacturing | Supply Chain Connect, How supply chains benefit from using generative AI (ey.com)
Source: HFS Gen AI survey
69% 80% 80%
of supply chain leaders agree “GenAI has the
potential to significantly reinvent supply
chains”
of supply chain leaders agree “Failing to
integrate GenAI in our supply chain will
put us at a competitive disadvantage”
of supply chain leaders agree “GenAI is one
of the highest priorities for our
organization’s supply chain strategy”
Decisions are digitized through Aera Skills
Property and Confidential © 2023 Aera Technology
Decision Intelligence enables Autonomous Supply Chains
Property and Confidential © 2023 Aera Technology
Decision Intelligence using ai: How it helps humans to drive tail decisions…
Inventory - Dynamic Safety Stock Example
Property and Confidential © 2023 Aera Technology
►Provides various
predefined insight
templates
►Calculates the financial
impact for the better
decision making
How will the Gen AI to be deployed near future…
Page 47
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