Contract Logistics

Logistics in Australia’s Consumer Goods & Retail Sector

In this white paper, we will examine recent changes in Australia’s industry structure and the rise of consumer goods and retail sector. We’ll also take a look at what’s unique about Australia’s logistics market and how to optimize logistics operations.

Australia is the world’s 13th largest economy by 2017 GDP (USD 1.3901 trillion). For 26 years or 104 quarters since June 1991, Australia hasn’t had an economic recesssion, defined as two consecutive quarters of negative growth.

As it’s expected to post a 2% GDP growth in 2018, Australia is about to set the world record of the longest run of uninterrupted economic growth.

While it’s been enjoying this unique period of stable growth, a wind of change is blowing through Australia. As global car makers closed down their plants in 2016 and 2017, its manufacturing sector has collapsed. In retail, consumers are flocking to online shops. With the recent entrance of Amazon to the Australian market, its B2C market is expected to be expanded significantly.

Australia’s Changing Industry Structure

The retail distribution market, a similarly import-dominated market, has a large size of AUD 168.7 billion but has had slow growth of 0.7% on average for the last five years. These days, however, retail distribution patterns are changing.

With increasing preference for online shopping, driven by limitations in operation hours for offline stores, and the expansion of communications infrastructure, the Australian e-commerce market has seen an average annual growth of 13.5% for the last five years and is expected to grow to a AUD 22.49 billion market in 2018. 

The focus of this white paper is to examine effective responses to Australia’s changing industry structure, especially its consumer goods industry.

Size of Australian Retail Market per Area (2017~2018)

Characteristics of Australian Logistics Market

Its Geography and Population Distribution

Australia’s total area is 7.68 million km2, about 80 times the size of South Korea. The continent is 4,000 km wide at its widest horizontal point, and 3,200 km wide at its widest longitudinal point. About 30% of the area is made up of desert terrain, most of which is below the continent’s average of 300 m above sea level.

These characteristics give rise to the comparatively higher logistics cost in Australia, with road transport taking up more than half of the logistics market. International trade is focused around the three major east coast cities of Sydney, Melbourne, and Brisbane, with nearly 80% of Australia’s total international cargo volume being processed in the east.

Its Logistics Industry and Infrastructure

More than half (50.9%) of the logistics market is made up of overland transportation, whereas 15.5% and 7.0% can be attributed to international transportation/customs and warehousing, respectively. According to a report from IBIS (2017), road freight forwarding declined for five straight years to AUD 2.4 billion in size. In detail, industrial materials accounted for most (38%) of road freight, followed by wholesale/retail goods (27%), import/export (23%) and agricultural products/minerals (12%).

Its railway network, particularly important in a country with a vast land area, is the world’s 6th largest, covering a total of 33,819km. For seven years since 2014, its government plans to invest AUD 70 billion in transport infrastructure and AUD 75 billion in road repair/construction to promote its logistics sector.

In particular, it will invest AUD 8.4 billion in total for the next 10 years to build a 1,700km-long freight railway connecting Melbourne and Brisbane by 2026. This railway is expected to transform its logistics market as it will enable to move shipments within 24 hours, shortening transit time by more than 10 hours compared to the existing routes via Sydney.

Australian Rail Network

Optimizing Distribution of Consumer Goods

Simulations for Distribution Center Location Optimization

To select the most optimal locations for distribution centers of consumer goods in Australia, we divided the Austrian continent into 160,000 areas based on population density and retail market size, created 12 alternative scenarios and carried out demand forecast simulations.

Assuming that we provide same-day, two-day, or up to three-day deliveries, we picked 7 final candidate locations out of approx. 5,000 across the country’s 6 states and 2 territories.

Here, we used Green Field Simulation, taking into account only economic feasibility and service optimization while leaving out all other limitations (maximum cargo volume that can be processed in the logistics center or the number of final destinations available, etc.).

A comprehensive examination of cargo volume forecast, construction costs, and shipping costs revealed that it would be best to locate distribution centers in five areas of QLD1) (Brisbane), NSW2) (Sydney), VIC3) (Melbourne), SA4) (Adelaide), and WA5) (Perth). The optimal inventory allocation across these centers would, out of 100% as the total, follow the order of QLD (28%), NSW (29%), VIC (30%), SA (4%), and WA (8%).

Finding Optimal Locations for Distribution Centers in Australia

1) QLD: Queensland (Area: 1,730,648 km2)
2) NSW: New South Wales (Area: 800,642 km2)
3) VIC: Victoria (Area: 227,41 km2)
4) SA: South Australia (Area: 983,482 km2)
5) WA: Western Australia (Area: 2,529,875 km2)

Improvements in Delivery Zone Operations

Because of extreme distances involved in the delivery zones of Australia, and the subsequent and inevitable inclusion of many Gray Zones6) in the network, any attempts at optimizing transportation operations in Australia must take into account the optimization of such Gray Zone operations to reduce shipping costs and delivery lead times.

In the case of Company A, a local retailer, 5.5% of its 2,600 partner stores lie within the Gray Zone. Because Company A had a policy of requiring delivery from the distribution center located in the same state, this resulted in logistics cost increase.

By establishing a standard for Gray Zones and requiring that the deliveries within the Gray Zones be made from the nearest distribution center, lead time and delivery costs can be shortened dramatically.

Examples of Gray Zones in Southeast Australia

6) Grey Zone : As a term referring to an area that is unclear as to which area it belongs to, it means an area in which the adherence to the predefined transportation policies results in longer distance, compared to other nearby centers.

Conclusion

The key to solving this uncertainty, rising consumer costs, and decreases in customer services is ultimately the reform of the logistics industry. This involves presenting credible answers to many challenges that the logistics firms of Australia face, such as the standardization and decrease of supply lead times for all regions, acquiring visibility in the movement of goods within these complex systems, optimization of inventory that accounts for costs and inventory sizes, a continent-wide system of integrated inventory and movement monitoring, and improvements in accuracy of demand prediction.

Only those who can pose answers to these difficult questions can emerge as dominant in the market, and solutions must be cost-effective. However, these problems cannot be solved by relying on agents with low transportation figures or relocating warehouses to low-rent areas.

Samsung SDS has been the largest Korean 4PL logistics operator in Australia since 2014 when it established its Australian corporation in 2014. As of 2018, the company has more than seven logistics branches in Sydney, Melbourne, Brisbane, Adelaide and Perth, handling customs work for major ports and truck, rail, and intermodal transportation to any destinations in Australia.

Furthermore, its own integrated logistics system Cello offers end-to-end logistics services for shippers, while the Korean headquarters and the Australian corporation jointly operate the GCC (Global Control Center) round-the-clock to provide effective response to any contingencies. Expert consultants help provide creative and effective solutions to complex problems of optimization and logistics.

The true optimization of a supply chain must necessarily involve IT and standardized processes that can offer stable and effective management with minimum manpower. If you’re looking for a logistics partner in Australia, why not collaborate with Samsung SDS, your trustworthy partner for cutting-edge logistics.

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To find out more about logistics of Samsung SDS, visit Cellologistics.com and download the white paper.

 

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