How are logistics service providers going to survive the sea-change of digitalization?

Mac Sullivan, Head of Technology and Digital Promotion, NNR Global Logistics (USA) And Mac Sullivan, Head of Technology and Digital Promotion, NNR Global Logistics (USA)

Mac Sullivan, Head of Technology and Digital Promotion, NNR Global Logistics (USA)

In this article, we will evaluate how, over the past 4 years, a series of events have accelerated the modernization and rapid digitalization of the logistics industry; one of the world’s oldest industries and one that had just caught up to the Third Industrial Revolution (3IR). As digital laggards, logistics service providers are finally seeing a glimpse of hope that the pain their customers have felt over the past 3 years could provide them with an opportunity to de-commoditize themselves and embark on a needed digital transformation journey.

The U.S. – China trade war

The U.S. – China trade war was an important catalyst to give previously overlooked back-office trade compliance, sourcing, and logistics employees and vendors a captive board-level audience. As the threat of a 40% increase in landed cost weighed heavy on the minds of CFO’s and COO’s alike, the challenge of trying to run financial and operational simulations on how these duty increases, or using their China Plus One strategy, would affect their supply chain. As shippers were faced with expensive and complex options, they looked to their previously marginalized and commoditized LSPs for help. What they found was that out of all the upstream production and the downstream distribution suppliers, their LSP had the least to contribute in terms of sharing the new cost burden, nor did the LSPs have viable digital solutions to forecast much of anything.

Unsure of the long-term effect, some U.S. importers frantically looked outside China for suppliers, others doubled down on orders fearing further tariff increases. This caused seismic capacity shift and led to freight volumes spiking during the traditional non-peak season in 2019. As rumors of the COVID-19 disease became reality and China went into its extended New Year break, the tumultuous supplier relationships and related freight capacity issues began an imbalance that has culminated in some of the highest freight rates ever.

COVID-19 and the work from home movement (WFH)

Mac Sullivan, Head of Technology and Digital Promotion, NNR Global Logistics (USA)

As Covid-19 spread, WFH was born which disrupted traditional workflows and communication but again bolstered the use-case for how LSPs should prioritize digitalization. Covid-19, as shown in the graph below, is being evaluated as a crucial tipping point where the Fear-Uncertainty-Doubt (FUD) and hype of automation, artificial intelligence, and other Fourth Industrial Revolution (4IR) technologies will subside. As mindsets and priorities evolve, we will see accelerated adoption and increased utilization of these technologies by LSPs. The question is how close are we to a point of practicality?

The Suez Canal was paralyzed by the container ship the Ever Given

When the 20,000 TEU capacity containership the Ever Given blocked the Suez Canal for five days it caused financial and operational shockwaves throughout the global supply chain. LSPs of all sizes weren’t able to quickly reroute their customers’ cargo like you would be able to use Waze or Google Maps, and this was yet another perfect example of how far LSPs have to go. LSPs now get that digital is forever and more serious about 4IR technology, like OCR document handling and AI-chatbots. These techniques aren’t new, but the velocity and urgency of the widespread adoption, implementation, and normalization certainly are. Not only that, but we are seeing new capital flood into startups who white-label their plug-n-play SaaS offerings to LSPs in a variety of areas.

LSPs will continue to feel this discomfort highlighted by the shift to WFH, imbalanced freight market, and higher than ever customer demands. It can be overwhelming as the looming threat of failure could lead to staff turnover, inefficient processes, unsatisfied customers, expensive consultants, and time-consuming analysis; or worse, becoming obsolete.

So, what can companies do?

At NNR, we saw a 300% increase in monthly desktop printer POs in July of 2020, which we discovered were a necessary part of document “splitting” and “merging”. Always looking for win-win solutions, we were able to optimize the old process of printing and scanning by doing this in Acrobat. Not only that, we were able to create a whole paperless campaign around the newly licensed software. Utilizing some framework elements of Zoom-Out, Zoom-in, we began to craft a company-wide goal of organically driving a pragmatic digital transformation; as opposed to not throwing money at fancy tools or bringing in expensive consultants.

IT was always a cost center with high levels of budget scrutiny and low levels of strategic focus from the C-suite. In some ways it still is but the opportunity was there for digitalization to allow savvy IT leaders with corporate mentors to capitalize on this opportunity by reducing bottom-line expenses and growing their top line by creating a frictionless digital sales environment. At NNR, we have been using agile product development supplemented by renewed focus on removing friction points in our mostly homegrown systems. It was very important to undergo a healthy re-negotiation of our relationship to digital ecosytem and prioritize “hey, it works!”; otherwise known as the Minimal Viable Product (MVP).

No pain, no gain

In 2021, LSP workers are overworked with no bandwidth because of the perfect storm of events. Making things worse is a recent labor shortage which means finding new talent to do brain-less work is nearly impossible. Companies must acknowledge that to digitally transform your company is going to require extra funding and everyone to at least temporarily bear the pain of extra work. Without that, you cannot drive process mining and mapping, which is necessary for realizing digitalization. All these steps are precursors to automating rote work, which can help to drive process optimization, free up human resources, and help to modernize your company. As  Ruben Huber, Founder of OceanX Network states “Even if it puts an additional strain on people, it pays out.”

At NNR, we strive to free up our staff to do what they do best: solving and proactively addressing complex problems that our competitors are not flexible enough or incapable of doing. Through a pragmatic digital transformation, we are not ignoring the bottom and top-line financial pressures, instead show its underlying value how we can better serve our customers and create a better digital work environment.

If digitalization is simply seen as a viable fire-fighting reactive solution and not funded or staffed properly, you will never get realize the possibilities of the 4IR, nor be able to adapt create scalable digital solutions for the inevitable next big event. For more info, check out our new book, The Digital Transformation of Logistics: Demystifying Impacts of the Fourth Industrial Revolution, where we highlight many of the challenges and opportunities facing the logistics industry.

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