The transport and warehousing sector is less productive than in 2015. Dutch productivity growth between 2012 and 2022 was barely half the EU average. Investing in digitization and accelerating the fuel transition are therefore necessary, to improve productivity in the Dutch transport sector.
The Netherlands is struggling with the growth of labor productivity, while comparable high-productivity countries, such as Switzerland, Denmark, Sweden and the US, are becoming more productive at a rapid pace. In its latest report, PwC investigates underlying reasons and corrective actions for the transport and warehousing sector. This sector includes both public transport, freight transport by road, rail, water or by air, as well as the warehousing and distribution centers.
Less productive than in 2015
The Dutch transport and warehousing sector was about 4.3 percent less productive in 2022 than in 2015. This means that workers in the sector now contribute less per hour worked than before, while productivity in other sectors, such as industry, is now higher than in 2015. This is worrying, because the transport sector plays a key role in the Dutch economy.
In addition to the fact that the transport and warehousing sector directly employs more than four hundred thousand people, this is crucial for an open economy. When thissector suffers productivity losses, operating costs for other sectors may increase. This is because transport and storage costs are getting higher compared to the output, for the same number of hours worked. A well-functioning, efficient and productive transport sector is therefore indispensable.
Why is productivity in the Dutch transport sector low?
Asked what is the main obstacle to increasing productivity, the sector itself mentions the following reasons:
A shortage of staff
A labour shortage increases the workload for existing workers and jeopardises the potential of companies to deliver high quality services and expand their offerings. The sector is struggling to attract enough talent. This is partly related to the image of the professions: working as a truck driver or on board a ship is demanding and requires long periods away from home. The fact that the sector is strongly dominated by men can also prevent young women from applying in the sector. In addition, companies in the sector may have a reputation for being polluting and environmentally unfriendly, a subject that is particularly close to the heart of the young generations who are now going to work. Changing this image requires a lot of work.
Digitization and automation are left behind
The sector is slow with digitizing and has therefore been unable to take advantage of technological improvements that can significantly increase productivity. The high costs and lack of standards are a hindrance to digitization. Companies are more cautious about introducing digital transformation, especially in sea and air freight, which can be attributed to the labor intensity of the sector. Although self-driving vehicles, for example, are a real possibility, ships, trucks and planes are still largely operated by people.
In addition to automation, digitization of management systems is inevitable in the context of the CSRD sustainability reporting rules, which require the keeping of environmental information and ‘key performance indicators’ throughout the production process. This can only be achieved with efficient, digital software that can manage large amounts of data.
In addition, the more practically trained human capital operating in the transport and storage sector is not particularly well prepared for changing processes, working environments and technologies, which is another important factor when it comes to labor productivity.
Large investments needed
The sector mentions also other reasons that productivity in the Dutch transport sector is low:
The transition to other fuels is slow
Due to the lack of cost-efficient alternatives, the transport and storage sector is still highly dependent on fossil fuels. Meanwhile, the EU wants to reduce transport sector emissions by 90 percent by 2050. This means that transport and storage companies should also prioritize compliance with these regulations, rather than focusing solely on operational efficiency and productivity.
The transition to environmentally friendly fuel is especially difficult in ship- and aviation. Firstly, because the new fuel must be widely available, also in (air) ports in less developed countries. Secondly, because it takes time to recoup large investments in ships and aircraft. Switching to more environmentally friendly fuel means converting and adapting thousands of millions of freighters and aircraft engines. This is risky if there is no clarity about what the fuel of the future is. These coordination problems can slow down investment, reducing productivity growth.
Regardless of the fuel chosen, emissions are an increasing source of cost. The maritime industry will be gradually included in the emissions trading system (EU ETS) from 2024, which requires emitting companies to purchase emission allowances given an upper limit on total emissions. Switching to greener fuels therefore automatically means lower costs in this area. The road transport sector is not currently covered by the EU ETS. Emissions from vehicles such as passenger cars and trucks are mainly regulated through national measures and EU legislation aimed at fuel efficiency and CO2 standards for new vehicles. In April 2023, the European Parliament agreed to extend the ETS emissions trading system to road transport fuels, including the road transport sector.
In addition, policies such as the European standard for green bonds are aimed at reducing the financing costs of sustainable companies. This means that companies that meet certain ESG requirements are considered more sustainable and can therefore receive cheaper financing through bonds. The problem is that transport is currently responsible for about a quarter of total greenhouse gas emissions in the EU, which means that financing is expensive. From the point of view of cost increase alone, the delayed transition to sustainable fuels therefore has consequences for productivity.
All in all, companies are reluctant to invest more than strictly required by regulations (which makes them miss out on productivity-enhancing investments), even if faced with rising emission costs.
Uncertainty and risks lead to short-term thinking
The recent (geo)political instability has affected the entire economy and the transport and storage sector is no exception. PwC showed in it’s supplychain monitor that this is putting pressure on the sector worldwide. These developments make it very difficult for companies in the sector to plan in the long term, as they constantly focus on managing unforeseen circumstances in the short term. This problem is further aggravated by the fact that transport is a ‘high volume, low margin’ business, which limits investment capacity.
How to increase productivity?
What can be done to increase productivity in the Dutch transport sector:
More automation and digitization
The fact that the transport and warehousing sector is lagging behind means there are plenty of opportunities to take advantage of. It is necessary for the transport and storage sector to continue looking for more ways to automate and digitize processes, in order to reduce the labour shortage and increase productivity15. Some possible solutions include, for example, the use of robots in warehouses, the deployment of drones, automated vehicles and the application of blockchain technology in contracts. For example, the use of digital resources makes it possible to better understand and predict customer wishes. This promotes efficiency by ensuring that production capacity is deployed where it is most needed.
Collaboration to accelerate fuel transition
Because this can only be done collectively, companies in the sector need to join forces to accelerate the transition to a sustainable fuel system. First, it will make the sector more attractive to potential workers, which will reduce labour shortages. Second, it will reduce emissions and related costs, promote regulatory compliance and possibly even provide cheaper financing. Third, it will be a driving force for a more sustainable and greener economy.
While some companies make significant efforts to become more attractive and environmentally friendly, they do not communicate their stories effectively and are overshadowed by other, more negative messages. A greater effort by a broad group of companies can yield better results and a more convincing story.
Improving ‘operational excellence’
In addition to automation and digitization, investments in better business operations, or ‘operational excellence’, can also contribute to increasing productivity. More effective deployment of staff and better performance guidance are essential. By doing so, companies can not only increase productivity within a few months, but also improve employee motivation and engagement. In this way, companies increase capacity in the warehouse or in the logistics chain, and at the same time, position themselves as an attractive employer in the labor market.
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