No industry is immune to the changes brought about by digitization, although some are responding to the pressure more quickly than others. On the face of it, travel and logistics exemplify the extremes. There is hardly a consumer in Europe who does not take to the internet when thinking about booking accommodation or flights or looking at train timetables for an upcoming trip. Yet few businesses search online for information about air and ocean cargo. The balance of industry-related searches brings home the point: in 2017, for every 80 travel-related queries, there was one logistics-related query, according to our research.
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These statistics, however, shouldn’t suggest that travel is completely digitally mature or that logistics is totally in the stone age. The same research reveals significant variation at the subsector level when it comes to customers’ online behavior and companies’ response within the two industries (Exhibit 1).
And these are just some of the findings from work undertaken by McKinsey in collaboration with Google and the Kühne Logistics University in Germany, based on data from 15 European markets,1 as well as extensive interviews with experts on technology, travel, and logistics. This article presents highlights from the full report describing our research, Travel and logistics: data drives the race for customers (PDF–1.1MB).
Digital trends in travel and logistics
The research also points to important trends that indicate how companies in both industries should be preparing for a digital future. For example:
- Where business-to-consumer (B2C) sectors have led, business-to-business (B2B) sectors are being forced to follow. In the logistics industry, ocean carriers and freight forwarders are among the subsectors feeling pressure from customers to move online. The number of Google searches for terms related to these subsectors grew on average by 8 and 14 percent a year respectively between 2014 and 2017, outpacing growth in accommodation, which, across the two industries, is the subsector with the highest search volumes.
- The power of mobile is rising. While online searches in travel and logistics are increasing, so too is the proportion of those searches conducted on a smartphone (Exhibit 2). In 2017, they accounted for around 43 percent of all travel-related requests and 23 percent of logistics-related searches. Tablets and desktops combined shared the remainder. The trend suggests the importance of adopting a “mobile first” mind-set, prioritizing quick and easy mobile interactions. Yet rare is the company—even in the most digitally mature B2C sectors—whose mobile channels outperform the desktop.
- Most logistics companies provide limited online services. Only 6 percent of the largest ocean carriers and freight forwarders have end-to-end online booking capabilities. Some 38 percent of the former and 5 percent of the latter do not even offer online quotes, while most of those that do merely log an online request for a quote, which has to be followed up by email or a phone call, often a day or more later. By contrast, several attackers offer a full suite of online services.
- In travel, there are as many as 100 pre-booking online touchpoints. No wonder it is so hard to win customers’ attention. When researching travel online, the average customer shifts more than 50 times across channels—desktops, tablets, and mobile devices—chalking up roughly 100 pre-booking touchpoints.2 That adds up to way too many chances of losing potential customers if different information is given in different channels, customers are forced to reenter the same data time and again, and the sales agent has no record of the information given online. In addition, the majority of touchpoints are not “owned” by the travel company. Our research showed airlines owned fewer than 20 percent of all preflight digital touchpoints. That means companies have to be smart in knowing which of the various search engines, review sites, blogs, and so on are relevant to their potential customers in order to focus advertising budgets effectively.
- Slow page loads are a sure way to lose customers. Analysis of the websites of 33 large ocean carriers showed that more than half took 13 seconds or more to load on a typical mobile device, while 20 percent took more than 20 seconds. Airlines tend to have even slower websites. Half of the analyzed 50 websites took more than 18 seconds to load—wait times of more than 30 seconds were not uncommon. In comparison, the front pages of leading e-commerce companies typically load in less than ten seconds (sometimes way less) on a 3G network. Bounce rates, the share of users who do not explore a website beyond the first page, are strongly related to load times. On average, load times for users who bounce are 50 percent slower compared to load times for users who continue to engage with a website.3 This is an unnecessary loss of potential business considering the ease with which load times can be improved.
All this matters because of the potential threat digitization poses to incumbents unless they take steps to fully harness its potential. The transparency the internet brings puts downward pressure on margins at the same time as attackers—often new, technology-savvy companies that adapt innovations with speed—are raising the bar on what consumers expect, while reducing the cost to serve those customers and accelerating the pace of digitization.
A benchmark and a guide to where future value lies for customers
Against this backdrop, the research and analysis set out in our full report offers two tools for companies in the travel and logistics industries that are committed to digital success:
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Benchmarking digital maturity. First, the report provides a benchmark of the digital maturity of the subsector in which each company operates. It does so by looking at six measures. Three gauge customers’ demand for online interactions and services: (1) the number of searches made through Google’s search engine, (2) the share of those searches made on smartphones, and (3) online bookings. Another three gauge companies’ online marketing response to customer behavior, judged by the intensity of their online advertising: (4) advertisement coverage (how often a search is accompanied by an advertisement), (5) advertisement depth, and (6) “cost per click.”4 The last two are measures of the level of competition for online advertising “real estate.”
Creating and securing digital value. Second, the full report lists the specific actions that companies can take in both the short and medium terms to ward off competition and create value from digitization. We do this by examining passenger air travel as an example of a B2C business and ocean cargo and freight forwarding as examples of B2B businesses. To begin with, companies need to act quickly to improve customers’ online experience. For air-travel companies, ocean carriers, and freight forwarders alike, that might mean cutting the time it takes for a web page to load on to a mobile device, becoming more savvy about how to attract customers to their sites, or learning where they might lose customers on their online journeys and fixing the problem. Relevant information, such as the pitch of an airline seat, might be lacking, or there might be too many clicks required (some 30 percent of smartphone users will switch to another app if it fails to meet their needs immediately).5 For ocean carriers and freight forwarders, upgrading websites to enable customers to book directly online or improving self-service offerings could be in order.
Of course, the structure and competitive dynamics of each subsector differ. Nevertheless, the two-part approach we outline here is applicable to all companies, be they B2B or B2C.
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At the same time, companies need to look further ahead and understand and embrace the key technology-driven trends that will transform customers’ experience (Exhibit 3).6 We take a close look at 11 emerging technologies and suggest areas where they will have the most impact.
In air travel, for example, products will become more personalized and offerings increasingly transparent. Virtual reality and augmented reality, among other technologies, will drive this change. There will be greater use of digital “travel assistants,” capable of making and personalizing suggestions by applying machine-learning technologies. And air-travel companies will be able (and expected) to engage continuously with customers.
In ocean cargo and freight forwarding, technology will usher in smarter pricing and more tailored solutions, more collaboration along the value chain, and more data-driven products and services. For example, advanced analytics and the Internet of Things (IoT) could deliver end-to-end shipment visibility—perhaps to pharmaceutical companies whose temperature-sensitive products need constant monitoring—if containers, systems, and fleets were modified. And with better links to terminals and truckers, ocean carriers could, for a price, prioritize the loading and unloading of customers’ containers.
Customers are increasingly turning to the internet (particularly via mobile devices) for their travel and logistics needs. It is critical that both B2B and B2C players in these industries are able to accommodate customers’ growing preference for digital. A successful digitization strategy will depend upon a deep understanding of emerging technologies, the ways they could transform customer interactions, the pace at which they might be adopted, and how these factors might change industry structures and cause shifts in revenues and profit pools.
Download Travel and logistics: Data drives the race for customer, the full report on which this article is based (PDF–1.1MB).
