The adoption of digital technology by the logistics sector has been underway for a while. As with many other sectors, the use of information systems originated within companies and then, due to the Internet, evolved into networked communities of interest. This evolution was directed and controlled by logistics companies themselves, who contracted established solution providers to build specific versions for their exclusive use. This approach enhanced the ability of freight forwarders, for example, to continue providing their services, albeit in a more efficient manner. But it did not fundamentally alter ‘what’ they were doing, nor their relationships with clients and consignees. But the entry into the market of digital forwarding ‘platforms’, providing generic services such as price discovery, quotations, load matching, etc. is now starting to challenge and disrupt those traditional models.
What does a freight forwarder actually do? In short, they have always been an information broker, process manager and financial intermediary, helping clients navigate through the complex landscape that is international trade. For centuries, this was done using paper documents and trusted relationships. These days, digital technology has replaced the paper forms with electrons and display screens, but the flow of goods from manufacture to final delivery still requires the trusted interaction between numerous involved parties for a successful outcome.
Because logistics and supply chain management operations are usually invisible to the public at large, many of the recent developments in technology have focused on the user experience, enabling easy online access to information, entertainment and social media. Thus, we see the explosion in mobile devices that are so intuitive to use – they seldom require instructions. The same goes for access to information for travel, shopping and e-commerce and banking. These tasks are much easier to automate and operate across generic internet platforms, but they are not as complex as those required to manage global logistics. The systems doing that are intricate, complex and, depending on the vintage of the underlying technology, user unfriendly to engage with and operate.
Many industries are now starting to adopt these easy to use consumer technologies as they update or replace their existing operational systems. This can be seen in the financial sector with the explosion (at least in the UK and parts of the EU) of FinTech companies, challenging and disrupting established institutions and liberating customers from sluggish and inflexible processes. Other sectors are also subject to these forces, not least logistics and supply chain management. Venture capital investors have realised the potential in terms of market size, that the logistics sector represents and, as a result, have been pouring money into numerous start-ups focused on this space.
To the neutral observer it seems to present a target rich environment, but things are not what they seem.
To be fair, until recently, anyone who has had to deal with any of the main players in the industry (e.g. cargo carriers, forwarders, customs authorities, etc.) were astounded at the poor customer experience. This has presented the opportunity for many start-ups to develop solutions that hope to improve that experience. So, functions such as price discovery, carrier selection, quotations and online bookings, etc. have attracted a number of start-ups developing solutions for them.
Online bookings have been around for many years, but they were mainly via dedicated links directly to the carriers concerned, hoping to lock the customer into that carrier. As the travel industry has been reshaped by the online travel aggregators, allowing users to shop across multiple holiday options, the booking process in the logistics space is now also evolving. This has resulted in start-ups providing solutions that accelerate the pricing and quote request element and also enable the electronic booking of the quotation if acceptable.
At this point the information flow falls under the control of the logistics party handling the shipment and not the party through who the customer has discovered the price and placed the booking. All of which requires a seamless integration from a technical point of view, but also integration from an operational and contractual point of view – i.e. having placed the booking, who is liable in the event of any dispute.
This simple scenario highlights the challenges when seeking to ‘digitise’ the logistics space.
Because the logistics industry involves numerous actors, process flows, information exchanges, etc. it is hard to establish a universal platform across which every action occurs. The technical challenges are enormous, but as technology has evolved, this has improved, however it is still a challenge.
Many of the new entrants have provided specific solutions for problems that they have correctly identified as ‘opportunities’ for improvement. Unfortunately, unless it is understood where these specific processes sit within the total logistics information flow and the related adjacencies, they function in an isolated and suboptimal manner. As this reality is realised, the development teams then start looking at how they can extend their solution out to the adjacent areas so that they can control more of the overall process. At this point they start to appear as competitors to the established solution vendors on whose co-operation they depend to make their core proposition work. In short, if they need data from the incumbent solution to deliver a price quote and an open interface to send back a booking request, if the incumbent decides not to play anymore, the start-up has a solution that is no longer viable.
The other dynamic at play relates to the funding of these start-ups. Venture funds are prepared to make enormous investments into unproven ideas in order to build very large businesses that disrupt entire industries, dominate and then through scale, generate huge returns. So, they are really only interested in solutions that can scale massively. So, at first glance, the logistics sector has massive scale and a lot of apparent inefficiencies. A start-up with a solution that removes these inefficiencies and removes the friction between a buyer and a seller for example, must be a winner – runs the thought process.
But this has proven to be false in a number of situations and VC’s, while generous towards ideas that have potential, are unemotional and decisive about killing those that don’t deliver. This is why so many start-ups have to quickly change focus if the initial proposition has limited success and evolve into something else.
The evolution of electronic marketplaces for load matching, rate shopping and others, into so called ‘digital forwarders’ are clear examples of this. They need to keep the funding flowing until they can generate enough revenue to meet the business plan and satisfy their investors. At this point they are in a race with established forwarders and carriers who are also trying to exploit new technology to keep existing and attract new customers. The established players may not have access to the vast sums of money that VC’s can provide, but they do have industry knowledge and experience.
This evolution will continue for a while and unless a game changing event of appropriate size to impact the entire industry occurs, the outcome is unclear. An example of a game changing event might be if Amazon Logistics decides to provide its operational applications to the industry for free, across its Amazon Web Services cloud platform. They are already doing this with some AI elements, making them available as ‘services’ that other systems can interact with. Microsoft is exploring something similar, but Amazon now has huge amounts of practical expertise running physical operations.
Source: Transport Intelligence, December 5, 2019
Author: Ken Lyon
If you’d like to learn more about the state of the European road freight digital landscape, including a detailed review of the new business models transforming the space and profiles of all the main digital players operating under each model, please click here or contact Michael Clover by calling +44 (0) 1666 519907 or emailing [email protected]