Unpacking the Biggest Threat to a Multi-Trillion Dollar Industry
It may not incite the most technology hype or attention-grabbing headlines, however the centuries-old logistics industry is a critical sector that provides an enormous impact on our global economy. According to the annual State of Logistics Report, spending on logistics in the U.S. rose to $1.5 trillion in 2017, which represents 7.7 percent of U.S. gross domestic product. In terms of revenue, research indicates the global logistics market will grow from $8.1 trillion USD in 2015 to $15.5 trillion USD by 2023.
Even more surprising than the amount of resources allocated to the industry is the fact that many of the world’s largest shipping companies, such as CMA CGM, Maersk and the Mediterranean Shipping Company, were founded as family businesses and passed on generation through generation. With such rooted history, it’s no wonder the industry has been reticent to embrace technological innovation. Change is never easy, especially not for industries so substantial and understandably entrenched in their original ways (keep in mind that an innovation like container shipping was only developed in the 1950s). Strict union and labor laws have also likely added to the problem, with technology often being viewed as a threat to jobs.
A Chronic Disconnect
Given the legacy nature of this industry and the potential for technological disruption, it’s no wonder there’s been a recent influx of venture capital into this market. Last year, VCs backed more than 245 startups in the shipping and supply chain management sector, which marks a record investment totaling at least $4 billion, and major industry players like UPS and DHL have started investing in startups that stand to complement their operations. Here’s the lingering problem, though: Most logistics technologies do little more than connect the existing complexities of the industry, as opposed to eliminating them. The operational swim lanes that were so clearly established centuries ago remain intact, with new tools getting closer to the edges, but still swimming within historic lanes.
In fact, proof of this problem lies in the fact that any consumer can track the arrival of their $10 Amazon package down to nearly the hour by simply opening an app on their smartphone, but customers of global logistics giants still have no clear visibility into the status of their multi-million dollar shipments. Air, ocean, rail, trucking and warehouse organizations continue to keep their product and shipment data siloed, forcing the industry to rely less on automation and more on phone, paper and even fax. Not only does this antiquated practice create endless opportunity for costly human errors, it also perpetuates huge transactional expenses. Case in point: Last year, total logistics spending hit nearly $1.5 trillion, and that’s roughly $250 billion more than companies spent on logistics a decade ago. Between growing interest rates, higher fuel costs and changing import tariffs, these astronomical costs will only continue to skyrocket if logistics organizations continue to lean on manual processes.
Transparency and Collaboration are Essential
There’s no argument, then, that to survive in the modern business landscape, the logistics industry must embrace what Amazon has mastered: transparency. Price discrimination and power dynamics have historically made information-sharing undesirable for some, however the time has come when managing a multi-million dollar supply chain in an Excel vacuum just isn’t feasible anymore. Transparency can prevent lost shipments from occurring, curb organizations’ tendency to over-supply, and combat the widespread problem of trucks driving around only half full -- all of which cause significant revenue and services losses. Transparency can also allow global logistics organizations to drastically streamline their customer service efforts, because if a customer has continual access to their shipment data, they’re less likely to ever need to contact customer service.
In order to fundamentally change such a massive industry, however, we can’t just keep throwing venture capital and promising technologies at the problem. Achieving greater transparency and automating workflows at a level that provides significant value will never be possible if logistics organizations continue to proceed with business as usual. Instead, the entire model needs to be disrupted. Logistics technologies need to focus on collaboration and unifying siloed environments above all else. Industry leaders need to embrace an open marketplace so there’s visibility over capacity and utilization can be optimized. Operational workflows must be automated, with software doing the heavy lifting and allowing for search and audit capabilities, and AI should be incorporated to optimize routing and load configurations, and even predict capacity and purchase of loads.
Building the Right Plumbing
Most importantly, though, there needs to be a holistic shift in the logistics industry’s thought process. Technology can empower change, however a different mindset is required to enable the change to actually take place. Good, old fashioned references and one-on-one brokering will be critical to transforming such a monumental industry, and industry leaders witnessing other incumbents successfully navigate technical transformations will also be key. In turn, the startups tackling everything from freight shipping and trucking, to e-commerce logistics and last-mile delivery will need more than just funding. To effect true change, they’ll need help achieving critical mass and acquiring qualitative, referenceable customers.