The German transport & logistics sector is mostly back to normal, which is good news for some and bad news for others

After parts of the German transport & logistics sector had to cope with extreme ups and downs over the past few years, IT spending in 2023 will exceed the volume of the pre-Covid year 2019.

The pandemic, as well as some challenging impacts of the post-pandemic recovery, hit the transport sector harder than most other sectors. However, the performance of individual players varied greatly. On the one hand, we saw grounded airplanes, empty airports, container ships stuck in ports, parked busses, and broken supply chains; on the other hand, there was a boom in e-commerce and related parcel services, and soaring freight rates led to record results for many freight companies. Public transport largely kept running, albeit often with near-empty vehicles; local transport can now be used nationwide with the new Deutschland-Ticket.

The transport sector has mostly stabilized but is now faced with other challenges, such as shrinking freight rates (ending the freight sector’s recent records), rapidly increasing passenger numbers, high fuel prices, omnipresent staff shortages, as well as a weakening economy and high inflation. Travelers continue to suffer from the enormous modernization backlog at Deutsche Bahn and other transport infrastructures.

From an IT investment perspective, rail & public transport, as well as postal services, remained more or less stable. In the freight segment, on the other hand, we saw a sharp decline in 2020, followed by fairly strong growth in 2021, which led to a return to pre-pandemic levels of IT expenditure. Aviation suffered by far the most from the pandemic – in 2020, spending on IT services halved! – and is not expected to fully recover in terms of IT spending anytime soon.

However, we also witnessed a strong resilience of IT investments in digital transformation and its enablers, particularly cloud, analytics/automation/AI, security, etc.

IT services shrank in all sub-sectors and, even though 2022 and 2023 saw a recovery in most areas, this segment is not expected to reach pre-crisis levels before 2025. Despite all the crises, though, there was growth in the software & cloud platform segment in all sub-sectors except for aviation.

Even Lufthansa continued to invest in digital innovation: the group partners with Google Cloud to develop a platform to better plan and manage its daily flight operations; AI-powered scenario planning and a better view of weather patterns, route options, fuel efficiency, as well as aircraft utilization and maintenance play an important role in this context – not just from an airline, but increasingly also from an ecosystem perspective, including data from service & handling providers, air traffic control, airports, and others.

This example shows how strategies to extract more value from data are at the heart of most digital investments. The sector is among the most data-rich vertical markets as these companies have a large number of customers (e.g. passengers, parcel clients, shippers) and assets (e.g. trains, buses, ships, trucks, planes, stations, ports, warehouses; many of them can increasingly be considered as giant IoT devices).

Deep data analytics and, increasingly, AI know-how, coupled with sector-specific process know-how, will thus be of major importance for IT suppliers; these capabilities are vital for virtually all IT investment areas, be it customer-facing tools in areas such as information portals, routing, ticketing, and mobile apps, or large-scale IoT approaches in areas such as tracking & tracing or predictive maintenance. Data can be used to either optimize processes within existing business models or to create new, data-driven business models, as well as meet regulatory requirements such as supply chain transparency and ESG reporting.

Read more about local sector-specific IT trends, market developments, and leading vendors in PAC’s recently published report on the German transport industry.