transplantation (Mokyr 1996).
Technological adoption in large logistics companies has been slow as top‐line demands, corporate bureaucracy, large geographic presence, and a lack of innovation culture stifle even the most well‐resourced technological investments. Senior executives from top 20 logistics company have stated, “Digital platforms are just for the next generation”, “Temporary labor automated process flows would never work in a country like China” and “Blockchain is a topic from 10 years ago” (Bao et al. 2018). Changing perceptions and stances on the impacts of potentially pervasive technology takes time and is often a seismic event to put things into perspective as shown by recent events during the outbreak of COVID‐19.
The Role of Startups in the Logistics Community
Large multinational logistics companies are seeing a steady outflow of senior talent to niche technology‐driven supply chain and logistics startups. Startups are primed for leveraging technology as they have significantly less overhead and less bureaucratic structures to overcome as they explore new service and product value propositions (Tipping and Kauschke 2016). Much of the logistics and supply chain disruption starting to happen has been led by agile companies, startups or not, who can utilize digital tools to bolster strategic investments in sales, marketing, and distribution, to more quickly and more effectively deliver value to their customer (Schwab 2015). Logistics companies have typically not attracted the most innovative, the most intellectual, nor the most technologically sophisticated talent, simply because they have not needed to as the industry required strong communication and relationship soft skills, some basic computer, and math hard skills and not much more to get where the industry is today.
Logistics Companies Under Pressure
Macolm McLean's invention of the standardized shipping container not only gave rise to some of the largest international transportation companies today but also helped to decimate the manufacturing communities of some of the largest consumer nations like the United States and Japan and those in Western Europe (Levinson 2016). With the recent influx of protectionism and the decreasing cost of physical automation, near‐shoring manufacturing is making localization of production more of a reality, and those same nations above can bring manufacturing home again. Even though freight rates are a fraction of what they were in the days of break‐bulk shipping, logistics costs are on the rise and are no longer considered a small percentage of the landed cost. When brands or trading companies evaluate their total landed cost of goods, logistics have traditionally represented a small amount, hence the lack of scrutinization and upskilling of in‐house talent to handle these roles. Manufacturing costs are lowering due to the affordability of robotics, and this is causing transportation to be a much larger factor when determining the selling price of a product to the end consumer (Kelly 2017). Under more scrutiny, logistics companies must adapt by lowering their selling rates that can only be sustainable by lowering the inputs of their services and products.
Technology Investments by Logistics on the Rise
Increased pressure from customers, startups, economic forces, and suppliers is causing senior executives from many top logistics companies to more closely evaluate what role technology will play in reducing their costs (Riedl and Chan 2019). From sales to finance, white‐collar positions in logistics are increasingly seeing that everyday technology available on their phones has not been represented at their work. Using investments in technology by logistics companies as a barometer, the industry is at a tipping point. The investment community has taken notice, and much‐needed capital injections to digitize this traditional B2B industry are happening regularly.
From 2012 to 2017, there were over 3 billion dollars invested in logistics and shipping startups (Riedl and Chan 2019). In response to this, industry‐leading logistics companies are responding in turn by earmarking huge investments in technology. C.H. Robinson, a leading global logistics company, just committed to investing one billion dollars over the next five years, citing technology as having a “profound impact on the supply chain marketplace” (Prairie 2019). Those that do not make the jump will be left behind as there is more and more consolidation in the logistics community through mergers and acquisitions as there is still no “hub economy” logistics player, yet. One of the leading contenders in terms of size and financial resources, Deutsche Post DHL Group's CEO Frank Appel, stated that “Digitalization will change our industry, it will change our company…We want to invest 2 billion [euros] in the next couple of years” (Frangoul 2019). Industry leaders are finally responding and opening up their checkbooks, but have they been too complacent and opened up the doors to new players?
New Entrants Threaten Status Quo
Where larger outsourced logistics companies have already offshored many of their back‐office functions to shared service centers, there is now an effort to automate those same functions, and medium‐sized logistics companies now are directly comparing outsourcing with automation. As the cost of these documentation, coordination, and billing tasks, which had previously been done in the more expensive labor consumer nations, decreases, so will the margin on the overall price arbitrage. These previously low‐ and mid‐skill‐level positions who had been dependent on labor inputs will be offshored or automated.
Aggressive competition and agile startups will seize market share by reducing their selling rates. This is hypothetically made possible in highly automated and technologically savvy companies that have little overhead and a low marginal cost. It is also worth noting that startups chasing market share and revenue, while ignoring profitability in hopes of raising seed capital, have the potential to impact things as well. As an example, Morgan Stanley's analysis of Uber Freight, a platform designed to facilitate the movement of cargo by matching truck drivers with cargo owners, shows that Uber Freight is giving 99% of its revenue back to its throughput carriers and keeping only a 1% margin for itself (Aouad 2019). This is a prime example of how a hub economy, and in this case a sharing economy company, is crossing industry segments and threatening the role of domestic trucking brokers just as it did with the taxi industry.
The impacts of technology on logistics from a product perspective are worth examining. The US trucking industry, estimated at $700 billion, still uses “phone, fax, and email as primary methods of connecting”; however companies like Transfix are building online marketplaces to remove that inefficiency (McAfee and Brynjolfsson 2017). Since 2017, there has been a boom in companies offering the same services from Uber Freight to Next Trucking. Many warehousing companies sit on excess space in which Flexe, a Seattle‐based company, is looking to optimize by offering a platform for those companies to rent that space out (McAfee and Brynjolfsson 2017). The Neighbor application has taken that a step further, and now anyone can rent the extra space in their home (Holder 2019). These new products are causing major disruptions for logistics companies in the same way the Uber and Netflix have disrupted the transportation and television industries while also maintaining low overhead costs. These new entrants are pushing logistic companies to respond by increasing technological capabilities to offer similar products and customer experiences.
Disintermediation Threat Looming
The rise of Uber Freight and many others like it through the supply chain and logistics ecosystem should frighten logistics companies as the comparison with a travel agency is strikingly real. Disintermediation, defined as suppliers dealing directly with customers and eliminating the needless cost and interaction of an intermediary, happened in the travel agency as the number of sales went 80% online within seven years of its commercial and technological enablement (Dodu, 2008). Whether it is expedia.com or Uber Freight, there is a lesson to be learned. Freight forwarders must move up the value stream. Beneficial cargo owners (BCOs), otherwise known as the direct customers of logistics and freight forwarding companies, typically have limited knowledge on evaluating different carrier options and even less experience dealing with all the formalities involved in booking directly (Gasparik et al. 2017); therefore the value that a freight forwarder provides is in