and customs (Burkovskis 2008). The ultimate value that they offer is in being a single source of information and a centralized window to provide their clients with the services and relevant information needed to move a shipment (Gasparik et al. 2017).
The challenge remains on how to move that centralized point away from phone calls and emails to a more efficient medium that offers system connectivity and instant access. The first step in the digitalization journey for logistics companies is not abundantly clear as often they are heavily reliant on outside stakeholders, including customers, governments, and vendors. With $1.5 trillion of value at play in the logistics industry, there is an influx of new players, and incumbents are scrambling to figure out their strategy (Gould 2018).
Navigating a Digital Transformation
Budget Considerations for Technological Upgrades
Struggling with where to start and how to keep their business afloat, talent‐strapped logistics companies must face the difficult discussion of where the money will come from to fund their digitalization journey. Logistics is a fixed cost heavy business in that there are many pass‐through costs, which are generally much higher than the final margin, and therefore there are inherent risks if things go wrong. Profit in the logistics industry is quite low compared with the sharing economy companies mentioned above. Even within the logistics industry, there is a large gap between the courier/express/parcel (CEP) companies who could have double‐digit EBIT margins compared with the logistics service providers whose profitability is usually between −1% and 8%(Tipping and Kauschke 2016). The necessity of logistics as it facilitates the movement of goods around the world and the inability for one company to control each step along that supply chain will ensure that logistics providers have a vital role for the foreseeable future. Logistics companies need to focus on projects that are within their control where they have the foundations in place, the budget to realistically invest, the talent to drive, and lastly, the permissions from shareholders to execute (see Figure 1.2).
Figure 1.2 Target digitalization projects.
Shipment coordination is necessary, and for a long time, it was a profitable business to buy space along the chain and resell it at a higher rate by offering an integrated seamless solution to the world's market. The ability to move goods efficiently in and out of international markets independent of the distance but dependent on the speed, quality, and price of coordination determines the value of logistics (Tseng et al. 2005). In other words, logistics companies are not going to get an injection of additional margin from their customers to facilitate this digital transformation; this will need to be a capital expense that will be recouped through either reducing payroll, which often means cutting high‐paid executive staff, or procuring from their suppliers at a lower rate.
Lessons Learned from Other B2B Industries
A multitude of traditional service industry businesses has been disrupted by the advancements of technologies associated with cloud computing, faster processing power, and the beginnings of AI through sophisticated algorithmic filtering processes. From international logistics to international communication, there will continue to be further economic growth, and new markets emerge as supply‐side gains will enable efficiency that will lead to reduced costs (Schwab 2015). For example, there has been a large shift in the way that the publishing, taxi, hotel, finance, music, movie, and travel agency businesses all operate as they fight to compete against their zero marginal cost platform model competitors.
Automation Leading in Terms of Return on Investment
Outsourced manufacturing to the emerging and developing world may have peaked in terms of manufactured goods as tariffs and nontariff barriers (NTB) threaten the effectiveness of cross‐border supply chains (Großer and Weinert 2019). If there is negative growth in the global economy, the 0.8–1.4% productivity gains from automation will decrease the polarization that has previously skewed toward low‐skill, repetitive, and rote work (Manyika et al. 2017). Companies have to utilize their assets, internal capabilities, and cash to “transform their core businesses” in hopes of producing the same outputs with a lower cost or striving to produce new revenue generators, as the adoption of new technologies and entrants of a new form of competitors is encroaching on many economic silos that had been previously untouched (Marco and Lakhani 2017).
Up until the spread of COVID‐19, shareholders had been content with positive returns and had not exerted pressure for automation as they considered the media backlash and subsequent revenue ramifications of subzero job creation. As competition grows fiercer through more transparent marketplaces in a somewhat commoditized and mature industry, potential economic constrictions loom, and increasingly nominal technical factors make automation more realistic. A combination of these factors will erode the societal and governmental protectionary boundaries that have kept workers at their current subsistence levels (Manyika et al. 2017). Low‐skill workers tend to recover fairly well after recessions; however, middle‐skill cognitive workers, like logistics clerks, tend to bounce back slower (Foote et al. 2015).
The pursuit and possibility of near‐zero marginal costs as in the freight market are driving companies to reengineer their current business processes and make them look at automation. Companies are always trying to increase productivity to reduce costs. However, until recently, economists did not think it was possible that technology could push that marginal cost of “communication, energy, and transportation, as well as many other physical goods and services” as close to zero as seen in the “emerging sharing economy” (Rifkin 2015). This is more of a reality today as the cost of automating tasks is dropping at a rapid rate with new emerging technological advancements in computing power and machine learning.
There is a shift away from outsourcing manual labor in terms of both physical and digital tasks, which still have a significant operational expense, toward the capital expenditure of investing in automation. This is looking more appealing as labor costs go up and talent shortages of skilled workers continue to plague R&D leading countries like the United States and China. Logistics company leaders, as representatives of businesses leaders, will be at the forefront of technological change and will be able to take advantage of the efficiency gains offered by technology; however, they must focus on rethinking their business to see how automation can work alongside their workforce rather than think in terms of simply automating tasks using legacy processes (Bughin et al. 2016). See more on this topic in the RPA chapter by Sullivan, Simpson, and Wesley Li, Chapter 5.
Winners and Losers of a Digital Transformation
Utilizing robotic process optimization, upgrading to a cloud server, or setting up a customer‐facing API may sound like great first steps along this journey. However, whether a company decides to use an outside consultant or drive this initiative from within their organization, there can be substantial roadblocks that hinder the digital transformation. The potential benefits of better technology must be weighed against its costs, including not only the cost of obtaining the technology but also the costs of learning how to use it and integrating it with other technologies already in use. There is also the risk of rushing into a new technology and having a more efficient technology come out just after that makes the investment that the company just made obsolete. Technological change will help some workers do their job more efficiently but potentially put others out of a job. In the end, it will be the market, profitability, and economic efficiency that have the final say on what technology will be used and how (Mokyr 1996).
The Necessity of Economies of Scale
Having a strong in‐house IT team coupled with a CIO would certainly help companies along this