4 decision points that will move transportation and logistics companies forward in the digital age

The future looks something like this: Entire sections of the supply chain are being phased out by automation; drivers work in tandem with artificial intelligence; customers place and track orders on smartphones; shippers and carriers never have to shake hands; and machines monitor the entire process to see how we can move faster.

This isn’t just speculation – it’s already happening. And there may be changes on the horizon that few are prepared for. In working on a series of T&L mergers and acquisitions, we have seen what differentiates companies that are rapidly expanding from those being left behind.

The digital revolution, of course, isn’t unique to transportation and logistics. In fact, the nearly $5 trillion industry has in many ways been a laggard compared to other industries. Recent surveys of T&L leaders have shown that many companies still lack digital training or digital strategies.  

It’s clear that more companies are prioritizing digital: Almost two-thirds of supply chain professionals said technology was a competitive advantage in a recent Gartner survey. But many industry players, especially in the mid-market, are still riding in the digital wakes of their larger competitors. To stay ahead of the curve in the years ahead, logistics leaders need to be steering the digital ship for their organizations.

If you’re a shipper or a 3PL, you’re probably asking how technology can be a differentiator and provide greater operational efficiencies. Instead of detailing what technology you should adopt in the coming years, we offer advice on how companies can deploy digital strategies that can make them agile, right now and for years to come.

1. When becoming a digital T&L company, prepare to invest—or prepare to become an acquisition target 

Staying ahead of the digital curve requires major investment, and the confidence that a sound digital strategy will pay off. Companies that say they prioritize digital innovation but underfund it will inevitably become prime acquisition targets as the dominant T&L players expand their size and scope. 

Each month seems to bring a new megadeal — in April, Danish logistics firm DSV agreed to a $4.62 billion merger with Panalpina Welttransport after months of negotiations. In the United States alone, 33 mergers between location-based logistics providers were announced or closed in 2018.

Despite years of consolidation, the industry is still heavily fragmented with significant global growth predicted in the near term. The World Economic Forum estimates that digital transformation puts $1.5 trillion of value at stake for logistics companies over the next six years. 

Shippers and 3PLs either need to be innovating or preparing to sell. Those that do not budget for automation, data insights, and integrated systems will quickly fall behind in areas such as predictive analytics, blockchain, and automation — technologies capable of reducing cycle times while improving quality and team morale.If companies wait for technology to become ubiquitous before they adopt it, it will be too late. Leading organizations now include functions that are tasked specifically with exploring future needs and possibilities. Company leaders need to be willing to try new things – even if it means the occasional failure. 

2. Either commit to maintaining homegrown tech, or switch to off-the-shelf solutions  

We’ve seen many companies become so focused on building their own custom applications that they forget to look around at what’s already available. Even if the in-house applications meet the businesses’ current needs, they often become difficult to maintain. 

These companies are often saddled with technology debt– the ongoing costs of updating technology that is perpetually out of date or lacking key features and functionality or are in need of replacement. As the pace of technology quickens, T&L companies looking to gain speed should consider off-the-shelf solutions, which have matured immensely in the last five years. 

Companies like FourKites and Project44 offer a breadth and depth of tracking and visibility that simply wasn’t available five to seven years ago. Companies like Convoy are quickly cutting out the middleman between carrier and shippers. Innovators like noodle.ai are exploring the many ways that machines can improve efficiency by reducing cycle times, inventory, and work in progress.

That’s not to say companies should never develop custom solutions. For instance, Seko effectively developed their spin-off SaaS division, Gelnius, which leverages AI and automation in its TMS platform, promising enhanced visibility, automation, and integration with carriers. Companies that develop internally need to have the wherewithal and dedication to maintain and innovate their custom application over time, or tech debt will occur.

Unless a company has the financial and technical resources to develop custom applications that offer superior features or address an unmet market need, they should focus efforts and investment on finding the right TMS platform and actively collaborating and partnering with the software vendor to mature the platform.

3. Hire an innovation officer or engage outside consultants—or do both 

The one place we do recommend doing your own development is around customer interaction. Companies should create nimble wrappers – or integration layers – around their TMS platforms and operational systems to personalize the data and analytics. This is where companies can gear solutions to their unique customer requirements. 

It’s crucial to create a role that is dedicated to and accountable for developing a digital strategy that centers on customers. We recommend engaging external perspectives by hiring an outside advisor to develop a digital innovation roadmap or by hiring an internal resource to focus on developing and driving the company’s digital strategy. 

This person – a variation on the Chief Customer Officer – becomes the company’s eyes and ears in the market. They monitor competitors, visit customers in the field and attend trade conferences around the world to understand and proactively plan for new customer demands, trends in the industry, and innovation in the marketplace. 

When executives gather around the table to make major decisions, this voice makes sure the company knows which options are available, which projects competitors are pursuing, and whether your company’s direction aligns with the customers’ needs. 

4. Bring together all modes of transportation—including their data——with integration platforms

The consolidation of T&L is breaking down traditional barriers between modes of transport. The major shippers are now capable of moving cargo by air, water, and land. It’s clear that carriers and customers increasingly expect one shipper to be able to manage multiple modes of transportation. 

That requires shippers and 3PLs to break down the walls between these modes within their own organizations. TMS solutions need to bring data silos and software into one system, not a patchwork of unintegrated platforms that don’t speak to one another. 

This is where we often see the tech debt at its worst – where companies custom-build the middleware needed to connect systems as their operations expand. While the custom-built solution may meet immediate business needs, these solutions are often inflexible, and the platforms will age over time, resulting in tech debt.  

Once again, there are excellent solutions — Integration Platform as a Service (iPaaS) — out there that can do this for you and allow you to focus on your core business and customers instead of trying to become a software development shop. But it’s important to develop a digital strategy, and understand how the pieces will fit together, before making a purchase or investing in a custom-built solution.

Conclusion 

These four steps will help you move towards where the T&L industry is heading, even if it’s not entirely clear right now how it will get there. The destination looks something like this: Customers will make a single order – selecting from instantly generated quotes – at which point one company will manage the shipment from pickup to drop off, as the customer monitors its shipment in real time. 

Change won't happen overnight; it will occur through many small innovations along the way. As the market consolidates, and more companies offer point-to-point solutions, the race will be all about efficiency. Those companies that have learned to be nimble adopters of new technologies will thrive while those that don’t will struggle to maintain their likely dwindling market share.