The transport industry is considered one of the oldest and most global industries in the world. But only very few of us are aware of its importance – and digitalization makes efficient logistics processes even more important.
The transport industry has become a driving force behind the global economy. However, the transport sector is a blue-collar business and typically not the preserve of graduates of elite universities or “techies.”
But that is changing. Unlike in almost any other industry, digitization is set to revolutionize the logistics companies. In the meantime, this has reached senior management levels. For instance, Deutsche Post DHL Group (one of the pearls of the German economy), with around 520000 employees worldwide, attempts to maintain market leadership and attract digital natives with new business models.
Tech-giants drive innovation in the logistics industry
Logistics is a risky business. Political crises or natural disasters have a direct impact on trade and therefore on demand for transport services. Margins are lower than in other industries, overcapacity puts pressure on prices, an increasing number of environmental regulations raise costs, and the necessary infrastructure such as roads and railways are overloaded.
Now a new technology is threatening the market: 3D printing. The technology has been around for about 20 years but in the past, this has only applied to the development of prototypes. Meanwhile, significant progress has been made. An increasing number of complex products can now be printed including foodstuffs, entire houses, and the bodies of automobiles. The production of a commodity can now take place where it is required – and the need for transportation is eliminated. Some companies have already started to convert their spare parts supply to 3D printing. Now the first tech giant has responded: With its 3D printing trucks, it wants to take over the production of goods themselves as well as delivering them to the customer.
The even greater potential for change is attributed to the Internet of Things (IoT). Each machine is connected to the Internet and can send and receive information. It creates a global system of total networking. The Internet of Things enables the exchange of information among all parties involved in the supply chain process: improved planning, control and management in favour of companies and customers are the result. Information enables innovation, better decision-making, accelerates processes and reduces costs while increasing customer satisfaction. Information, therefore, becomes a critical factor in production and must be an important component in any corporate strategy. But again, it is the tech giants in the US who first react with new logistics concepts. Amazon hopes to significantly reduce the delivery time in cities by using “connected” drones (Prime Air). Rolls Royce develops “connected” drone container ships and Google the self-driving car – of course, also “connected”. Google wearable devices revolutionize the way logistics people interact with their environment: goods they need on shelves are viewed, scanned, and automatically booked using Google Glass.
Will traditional logistics companies remain in business?
Cost and competitive pressure will continue to drive digitization forward. The value chain will change dramatically and the importance of data-based services will continue to grow. Mobility and transport are simple goals of the digital economy and will lead the established companies into direct competition with the digital companies. The tech giants have just begun to transform the market. In other industries one had to make the experience that monopolistic positions could be formed from it in the shortest time. Many established companies are virtually helpless in the face of this. In the “old” world they knew their competitors and their strengths and weaknesses – in the digital world the “new” top dogs now come from another, the high-tech world.
This is also confirmed by a recently published study. In this market, 61% of the company representatives surveyed expect further monopolies to emerge and 73% expect new digital competitors to appear. 69% believe that digital customer access will be a success in the future. (Source: Geschäftsmodelle in der digitalen Wirtschaft. Müller, Simon. C., uva..: In: Studien zum deutschen Innovationssystem, 13/2016)
Digital Start-ups or Digital Transformation
Basically, the digital transformation must differentiate between the development of a new digital organization and the digitization of the traditional organization.
Setting up a digital startup has some advantages. For instance, they are usually faster, more agile, innovative and cost-effective in comparison to traditional organizations. This is partly because you do not have to deal with legacy systems and structures. Equally important is that even established habits in the workforce must not be changed. Instead, one can recruit highly qualified and specialized employees, establish flat organizational structures and be able to make decisions based on reliable information. Technically, you can rely on the latest technology – often on IT solutions from the cloud – and thus create efficient cost structures.
On the other hand, in the beginning, digital start-ups often lack the necessary industry know-how, partner organizations and a sufficient customer base. As a result, having low revenue sources and having to invest a lot of money in the company to reach the critical mass of customers is a must.
Mach 1 into the digital world
This was also true for Saloodo! and, in addition, there were further challenges as logistics introduced digital innovations more slowly than other industries. But after more than a year on the market, more and more shippers and transport companies are switching to Saloodo!. With its digital marketplace for logistics services, the Cologne-based start-up is positioning itself between logistics service providers and customers. Three main problems of road transport are solved:
1) Low transparency due to the highly fragmented market with many small providers of transport services
2) Low margin caused by high administrative costs and low IT support
3) Optimization of transport utilization and reduction of environmental and infrastructure costs
In our daily business, it is important for Saloodo! to maintain a start-up mentality, to be innovative and agile: “We have created our own culture, which is more reminiscent of Google than a logistic company. With all the challenges we face every day as a start-up, we always focus on the solution, not the problem. Meanwhile, other traditional organizations are also interested in how we work and how we have achieved these results in such a short time, “explains Thomas Grunau, CEO of Saloodo!.
Online Marketplace: The winner takes it all
Like no other market, the logistics industry is transformed by digitization. The reasons for this are the many inefficiencies that arise because of a large number of actors in the value chain and the inconsistent exchange of information. Start-ups, logistics companies and vehicle manufacturers are trying to exploit this situation and making life easier for established logisticians with digital solutions and business models. So, if they’re going to better utilize their transporters, optimize their routines, lower their administration costs, increase their delivery reliability, or simply demand the right price at the right time, switching to completely digital processes will pay off – even if at first it should be difficult to completely change established processes for years.
It may also be worthwhile for the start-ups, marketplaces and logistics system providers – but not for everyone. Because not all can be at the top of the value chain and collect the lion’s share. This will only be left to a few. Usually, monopolistic structures are established because customers do not want to frolic on different marketplaces or to use different systems. They will focus on where they find the most value at a reasonable cost – and the benefits are usually highest where they get the best deals and solve the administrative issues. Why then go somewhere else?
Azhari, P., Faraby, N., Rossmann, Steimel, B., & Wichmann, K.S. (2014). Digital Transformation Report 2014: neuland GmbH, WirtschaftsWoche
Bundesministerium für Wirtschaft und Energie, & Bundesministerium für Bildung und Forschung, (2015). Startschuss zur Gründung der Plattform Industrie 4.0 (Pressmitteilung). Abgerufen von www.bmi.de/DE/Presse/pressemitteilungen,did=696160.html
DHL startet digitale Frachtplattform Cillox. Abgerufen am 20.4.2017: http://www.verkehrsrundschau.de/dhl-startet-digitale-frachtplattform-cillox-1871692.html
Employment in the EU transport sector: www.transport-research.info
Gassmann, O., Frankenberger, K., Csik, M. (2014). The Business Model Navigator, Harlow, UK: Pearson Education.
Iansiti, M. & Lakhani, K.R. (2014): Digital Ubiquity: How Connections, Sensors, and Data Are Revolutionizing Business. Harvard Business Review (No. 2014).
Lakhani, K. R., Herman, K., & Snively, C. (2014): The thermostat industry: transformation from analog to digital. Harvard Business School Technical Note 615-038
Müller, Simon C., Böhm, Markus uva. 2016: Geschäftsmodelle in der digitalen Wirtschaft. In: Studien zum deutschen Innovationssystem Nr. 13-2016
Monitoring-Report Digitale Wirtschaft 2014: Innovationstreiber IKT. Bundesministerium für Wirtschaft und Energie: www.bmwi.de
Fahrerlose LKW`s könnte ich noch erleben. Abgerufen am 20.4.2017 http://www.wiwo.de/unternehmen/auto/vw-vorstand-andreas-renschler-fahrerlose-lkw-koennte-ich-noch-erleben/14574352.html
Uhl, Axel, Gollenia, Lars: Digital Enterprise Transformation. A business driven approach to leveraging innovative technology. Gower 2014
Venture Capital: Start-ups rollen die Logistikbranche auf. In: VC Magazin. www.vc-magazin.de
Wir werden mehr und mehr zum Anbieter von Transportdienstleistungen. Abgerufen am 20.4.2017 http://www.handelskammer.se/de/nyheter/wir-werden-mehr-und-mehr-zum-anbieter-von-transportdienstleistungen