For global logistics, 2020 was a strange year. While the world slowed down, global supply chains picked up. After an initial lull in manufacturing, trade returned with a vengeance, driven by a shift from services to goods, eCommerce, and the simple fact that things need to keep moving, whether it’s toilet paper, food, or, more recently, a vaccine.
The supply chain may have recently been “discovered” by outsiders, with headline-grabbing stories around port slowdowns, vaccine supply chains, and eCommerce investments, but there are a few important technology takeaways for logistics professionals that shouldn’t be overlooked.
Operations at scale – right margins for tech.
Sure, some of 2020’s supply chain investment bonanza was directed towards international players, like Forto. But, for the most part, trucking platforms, and eCommerce fulfillment platforms dominated. The closer to the customer, the bigger the investment. This plays out in recent McKinsey research on stockholder returns too.
Despite the demand and the ensuing attention, and unlike the container shipping environment, eCommerce fulfillment prices didn’t double or triple in price. eCommerce success is amplified at scale, not weakened, which is why nearly every eCommerce player has built their platform and business model around both scalability and the promise of incremental returns. When I ran the calculation a few years back, the number of annual containers handled divided by the number of employees at a top ocean forwarder was about 40 containers/employee. That same calculation at a major courier provider was 11,290 packages/employee. Investors are attracted to the revenue potential from a growing economy that scales elegantly. This resilience despite (or, when data is leveraged correctly, because of) scalability is what attracts the customers. And it’s how logistics providers must build their tech stack.
A connected world.
This type of scalability can’t come from (only) internal tools. When talking to non-logistics professionals, I whip out my 9th grade probability math and explain that if ten parties are part of a shipment and each one is successful 98% of the time, there’s still a 19% chance of something going wrong with that shipment. Which means that by your fourth shipment, there’s more than a 50% chance that something will go wrong.
Very few logistics providers own their entire asset and non-asset based chain, which means that communication between parties must happen… and it’s usually at these seams that the problems flood in. In other words, the best internal tech stack will do nothing if it’s not connected to other, equally impressive tech stacks. Technology inside, technology connecting, and people keeping it going.
And, yet, exceptions will happen.
$10,000 transpacific containers, limited airline capacity, rolled containers, and shipments gone awry are all frequently raised as the argument for why humans and relationships are crucial for managing the volatility inherent in global freight. 2020 may be the mother of all exceptions (dare I say an exceptional exception?), and there’s definitely something to this argument. The fact that shippers – and many of them – are still paying such high prices reveals the real price tag behind exception management. Even such high prices may only negligibly impact underlying product costs for many goods. However, the cost of goods not arriving when needed is astronomically higher.
Having a phone number to call when the ship hits the fan is never a bad thing . I think it’s absolutely critical, whether you’re banking, buying online, or shipping.
But if you subscribe to the premise that both the infrastructure-level providers – the asset owners – and the larger players will be shifting to tech-based logistics, it’s likely that their exception handling will too. It may first only apply to a small percentage of exceptions but as the magical combination of RPA, data, and supply chain flexibility kick in, this should increase steadily. But it will almost certainly handle every exception. For those building a tech stack from scratch, this means finding the right tech minimize exceptions, first and foremost, and then finding the right tech to augment humans managing the exceptions. One human with one right tech tool is likely better than five tech tools without humans or five humans without the right tech.
Here’s to a better, more tech-y 2021.
Eytan Buchman is the Chief Marketing Officer at the Freightos Group, which includes freightos.com, WebCargo and Freightos Data. He also runs the company’s logistics technology research and education efforts. Since joining Freightos in 2013, he has played a critical role in scaling the business across thousands of logistics providers, tens of thousands of importers, and collaboration with air and ocean carriers. He regularly writes and speaks about logistics technology trends, and hosts “The Future of Freight”, a webinar series that showcases leaders in the logistics technology ecosystem.