COVID-19 brings opportunities for cloud-based software solutions

COVID-19 brings opportunities for cloud-based software solutions

It’s difficult to get a baseline for digital adoption in international logistics but it’s easy to see opportunity given that only 24 percent of Maersk’s spot bookings are transacted via the container line’s online tool, Maersk Spot, while Hapag-Lloyd saw less than 10 percent of its total 2019 volumes were booked digitally.

That’s two of the top five shipping lines just scratching the surface of global shipping volumes and disintermediating the forwarding market upon which they’ve long relied.

Also consider that many large container lines, forwarders, and ports are sitting on antiquated mainframe systems, proprietary codebases, and a patchwork of siloed systems as a result of historic industry consolidation. Shippers are marginally ahead in the effort to digitize but are also grappling with the reality of antiquated systems and difficult change management efforts.

All of that signals inertia in an industry gripped by uncertainty due to the ongoing COVID-19 pandemic. This may be the time, then, that cloud-based software, also known as software-as-a-service (SaaS), has its true moment in logistics. Cloud software shifts what’s traditionally been a capex and resource-intensive effort to one that’s opex-oriented and scalable with cost savings of 30 percent or more.

No longer is there an effort to procure, maintain, secure, and upgrade hardware and software — let vendors deal with those details and capture the efficiencies. I’d be remiss not to mention cybersecurity as there is increased scrutiny of vendors in light of wide-scale breaches at FedEx, Maersk, Cosco Shipping, and Mediterranean Shipping Co. in recent years. The reality is that any device connected to the internet is vulnerable, but the cyber security capabilities of cloud players tend to trump those of in-house teams.

We’ve also seen a rise in cloud-based “point solutions” whose focus on one particular problem, competency, or workflow allows them to become best of breed. Similar to other parts of enterprise SaaS, the perceived effectiveness and desire for end-to-end solutions is waning. New entrants offer operational efficiencies, cost savings and, most importantly, improvements in customer experience.

Consider Kontainers, which enables an e-commerce-like experience for booking sea freight for forwarders and liners to affordably capture revenue opportunities in untapped market segments. In the realm of document management and workflow, you have Vector AI (a Dynamo portfolio company), which allows for the digitization of documentation to streamline both trade finance and core forwarding processes.

COVID-19 has accelerated the imperative that companies use cloud-hosted systems to build workforce flexibility, with organizations needing to maintain operations in the face of remote work orders. I spoke to a forwarder that credited their cloud capabilities for a seamless work-from-home transition. For what it’s worth, they won a $20 million contract this week that would have been difficult to vie for without that technology. Looking into the future, today’s SaaS investments can contribute to long-term flexibility and business continuity — not to be taken lightly as the majority of the world has been confined to their home.

Mesh with middleware

Moving to the cloud or adopting cloud software is easier said than done because both large and mid-sized players are not in a position to “rip and replace” core revenue-impacting systems. It’s nearly impossible to migrate legacy codebases, databases, and habits in a timely and cost-effective manner. As such, there’s a need for SaaS products to co-exist with existing monoliths - the latter being sunset over time.

Even on the topic of interoperability, time and costs have kept CIOs and CFOs away from major commitments. As Mark Twain said, history often rhymes and these were comparable to conversations my partner at Dynamo, Jon Bradford, was privy to among banks in the aftermath of the financial crisis in 2008. Enter middleware software solutions that allow for interoperability by standardizing components for two vastly different legacy pieces of software to work together. The likes of Youredi, Orderful, Chain.io, or project44 allow a speedy and affordable way to bring together the legacy and new in the name of long-term efficiency and customer satisfaction.

Do the financials add up?

Budgeting for technology investment is an iterative process. Any enterprise must be financially prudent while aligning investment to the long-term vision and priorities of the management team.

The data around recessionary investment are hard to come by, but conventional wisdom is that companies that invest through a downturn with customers and efficiency in mind end up in a position of strength as the macroenvironment normalizes. Using the classic net present value (NPV) approach to budgeting, paired with lower hurdle rates and motivated vendors, investments will be more attractive now than they have ever been.

A 2009 HBR piece on Seizing Advantage in a Downturn best summarizes it: “... you won’t be able to do everything, of course, or even most things. But that shouldn’t keep you from making some big bets. Prioritize the different options, protecting investments likely to have a major impact on the long-term health of the company, delaying ones with less-certain positive outcomes, and ditching those projects that would be nice to have but aren’t crucial to future success.”

US imports plunged 9.3 percent year over year in the first quarter of 2020, according to PIERS, a JOC.com sister company within IHS Markit, thrusting the international logistics industry into a sea of uncertainty but also opportunity. The winners and losers emerging from this trough will be determined by their willingness and ability to invest meaningfully into technology that drives efficiency and better customer experience.

Downturns prove to be daunting but great companies are minted from such adversity. As we look ahead to a future in international logistics with greater levels of digital penetration, the current environment offers a window to catch up or accelerate technology goals in the name of efficiency and customer experience. The decisions taken in the next year could well set the stage for the next 10.

Santosh Sankar is a partner at Dynamo Ventures. He can be reached at santosh@dynamo.vc.