Transportation and logistics firms must make bolder and more smart strategic decisions than ever before to unlock growth and profitability in a tough industry. The sector's shaky history of wealth generation is countered by compelling lessons from successful operators in a variety of transportation and logistics businesses, both before and after the crisis. Despite the industry's turmoil, several major megatrends will open up unprecedented chances to join new markets and rethink established business models. Transportation and logistics firms' asset intensity and geographic breadth will reward granular fact-based judgments about which markets to compete in, city by city, route by route.
McKinsey found, in 2016, there are some key findings from 264 listed transportation and logistic companies from around the world over ten years that the through-cycle capital market performance of the transportation and logistics sector is below investors’ requirements. This means that over the last ten years, the companies in our sample have generated an average total return to shareholders (TRS) of 7.2%, a figure well below the sector’s cost of capital (10.5%).
They also found even in the worst-performing industries, successful players provide valuable lessons for those seeking a pathway to economic profitability. Means in total, businesses in the bottom 60% of the sample destroyed 3.5 times the economic profit generated by the top 40%. But it's not all ruin and gloom. Individual "winners" in each industry have been able to build value, usually by bold strategic decisions to increase margins and capital efficiency.
Winning strategies will make the most of the megatrends that are shaping the transportation and logistics sector. Companies will face the challenges of understanding how the digital revolution will affect their business and of mastering their digital transformation. Finally, an increase in the volatility of demand and input factors will require greater strategic agility and flexibility than in the past.
How do overcome this?
Senior executives of transportation and logistics businesses should ensure their strategies. They can be agile in resource allocation, resolve the asset dilemma, make a digital transformation, and manage the uncertain world.
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