“Technology changes rapidly, but people and culture change slowly … It can take months to go from invention to product but then decades — sometimes many decades — for that product to get accepted.”
-Don Norman, design guru.
When Apple released its pocket-sized personal computer, promising unprecedented connectivity, the tech industry got excited. Five years later, production of the failed Newton PDA was canned.
Fifteen years later, when Steve Jobs launched the iPhone, the reception was dramatically better, illustrating that technology and receptivity to technology don’t always move in lockstep.
Technology has never been more critical for logistics than now. Plummeting freight rates mean that less than 50 percent of logistics providers turn a profit on ocean shipping, while competition from industry newcomers like Amazon and Alibaba pose unprecedented challenges and threats to the logistics industry.
DHL seeded its empire by moving ocean documentation faster than cargo ships, and one would think that by now flying pieces of paper around the world would be obsolete, but bills of lading are still physical paper. And although air cargo is a bit more advanced, only 37 percent of air shipments use electronic air waybills.
Technology is, in many cases, no longer an obstacle to logistics automation. Instead, there are a number of deeply ingrained cultural practices holding the industry back.
Risk aversion is perhaps the most prominent of these practices. Hewlett Packard is a prime example of risk aversion, according to billionaire Peter Thiel. After growing revenue from $9 billion dollars in the mid-90s to $135 billion in 2000, the company’s board decided to capitalize on existing products instead of innovating, and by 2012 the company was worth just $23 billion.
Risk aversion plays a powerful role in thwarting the widespread adoption of new technologies, and the shipping industry provides another example.
Folding containers aren’t a new idea, but even though 150 million shipping containers are moved empty every year, at a cost of over $5 billion dollars, and the financial benefits are clear, no large carrier has adapted collapsible shipping containers.
Risks should, of course, be contingent on opportunity and the ability to execute. DHL’s digital backbone overhaul could have been hugely advantageous, but poor implementation ultimately cost the company nearly one billion dollars. On the flip side, when Expeditors decided in the 90s to be a digitally-focused forwarder (and ensured the ability to execute), their stock soared by 6,000 percent in 25 years compared with the Dow Jones’ growth of 570 percent.
Decentralized decision-making also presents challenges. Although it can enhance organizational flexibility, companies must preserve an element of centralized strategic decision-making. However, at many of the world’s largest freight companies, different regions, countries or even departments use individual freight rate management systems.
Although this is possibly effective on a department level, the end cost to the company as a whole is high. For example, when Freightos tried to compare freight quotes from a top forwarder during a mystery shopping experiment, ocean and destination charges took only 30 minutes. The pickup charges took three days, mostly a result of communication.
Sunk costs also impede innovation and experimentation. Many large companies have invested significantly at some point in their history in a major IT shift, but keeping those systems current can be expensive and band-aid patches to update legacy software end up costing far more to companies.
The core obstacle to upgrading such systems is the perception that since so much was already invested, the system cannot be abandoned. The same sunk-cost mentality kept Air Force One’s internet speeds limited to 1990s dial-up speed into the 2000s.
One might be wondering if logistics is doomed to use outdated technology. Slowly but surely, however, a war is being waged on inefficiencies, with innovators at the vanguard.
Logistics companies are experts at moving freight around the world, but moving data is a whole other issue. Although 86 percent of logistics providers are relying on technology to improve operations, they don’t necessarily have the in-house expertise or bandwidth to develop and implement new solutions.
DB Schenker’s cooperation with uShip, announced in June 2016, is a good example of how teaming up can help. uShip has proven that it can automate domestic trucking in the U.S., and importing those capabilities may keep DB Shenker ahead of the curve without the challenges of developing tech from scratch.
Logistics companies should also consider using the cloud. With more accessible business-to-consumer user interfaces and less time spent on installations, it’s becoming increasingly easy to switch between providers, lowering transition costs and making sunk costs less of a barrier for new platforms.
There’s a reason that nine out of the first 10 freight rate management platforms appearing in a simple Google search are cloud-based, and between 2015 and 2016 and the average number of cloud-based software-as-a-service platforms used at companies increased by 50 percent.
Companies must also embrace risks. Avoiding risky decisions can be risky in its own right. When Kodak invented the digital camera and then decided it would be too risky to aggressively pursue it, they were digging their own grave. Companies like Kuehne + Nagel embrace risky decisions, moving their less-than-containerload sales online and encouraging other logistics startups with an accelerator program.
In an industry that relies on scale and demands relentless efficiencies, technology holds the key for better profitability. UPS once calculated that saving every truck driver one minute per day adds up to $14.5 million saved annually.
Now that technological sophistication has finally caught up with logistic complexities, strong leadership, educated decision-making and an openness to new processes will determine which 20th century logistics providers survive and thrive in the 21st century.
Zvi Schreiber is CEO of Freightos, a logistics technology company that offers pricing, booking and freight management solutions.