Digitalization – a potential revolution for the logistics industry?

More than in many other sectors, digitalization is set to revolutionize the logistics industry. Digital innovations have been introduced at a slower pace in the oldest and most global commercial sector than in other industries. But the now rapidly progressing digital transformation demands new digital business models to retain market positions.

AN ESSAY BY AMADOU DIALLO. He is CEO Middle East and Africa at DHL Global Forwarding and was the founding CEO of Saloodo! He is also Chairman of Amref Health Africa in Germany, a Member of the Supervisory Board at Welthungerhilfe, Director @ Africa Risk Capacity, as well as a Limited Member of the Universal Business School in Mumbai and GBSN in Washington.

Significant progress in 3-D printing may soon threaten the market. An increasing number of complex, highly individualized or small-batch products can be printed, including foodstuffs, entire houses and automobile bodies. The production of a commodity can take place where it is required – eliminating the need for transportation and warehouse storage.    

Even greater potential for revolution can be attributed to the internet of things (IoT). Each device is connected to the internet and can send and receive information. The result is a global system of total networking. The IoT enables the exchange of information between all parties involved in the supply chain process. The result is improved planning, monitoring and control to the benefit of logistic providers and customers alike. 

This is a great example of how information enables innovation and better decision-making accelerates processes and reduces costs while simultaneously increasing customer satisfaction. The role of information is, therefore, continuously increasing as a decisive factor of production and must be an essential element of any corporate strategy. 

New logistics concepts are arising in reaction to these developments: DHL has developed a parcel copter that enables fast and flexible sending and receipt of parcels in geographically demanding locations.  Rolls-Royce is developing connected drone container ships and several players are developing self-driving and connected cars. Connected wearable devices are revolutionizing the way people such as logistics employees interact with their environment. Goods on shelves are indicated by a Google glass, scanned and booked automatically. 

Challenges to traditional logistics companies

Significant progress in 3-D printing may soon threaten the market. An increasing number of complex, highly individualized or small-batch products can be printed, including foodstuffs, entire houses and automobile bodies. The production of a commodity can take place where it is required – eliminating the need for transportation and warehouse storage.    

Even greater potential for revolution can be attributed to the internet of things (IoT). Each device is connected to the internet and can send and receive information. The result is a global system of total networking. The IoT enables the exchange of information between all parties involved in the supply chain process. The result is improved planning, monitoring and control to the benefit of logistic providers and customers alike. 

This is a great example of how information enables innovation and better decision-making accelerates processes and reduces costs while simultaneously increasing customer satisfaction. The role of information is, therefore, continuously increasing as a decisive factor of production and must be an essential element of any corporate strategy. 

New logistics concepts are arising in reaction to these developments: DHL has developed a parcel copter that enables fast and flexible sending and receipt of parcels in geographically demanding locations.  Rolls-Royce is developing connected drone container ships and several players are developing self-driving and connected cars. Connected wearable devices are revolutionizing the way people such as logistics employees interact with their environment. Goods on shelves are indicated by a Google glass, scanned and booked automatically. 

Digital choice

In order to thrive, logistic companies must choose between the development of a new digital organization and the digitalization of a traditional organization.

The creation of a digital startup offers some advantages – they are usually faster, more agile, innovative and more profitable than traditional organizations. This is partly because they do not have legacy systems and structures. Furthermore, you can recruit highly qualified and specialized staff, establish flat organizational structures, and be agile and capable of making information-based, fast decisions. The competitive edge of digital companies over analog ones lies in the development of and excellence in data and artificial intelligence capabilities to deliver real value added to their customers. End-to-end digitalization is crucial, including full digitalization of the backend processes to ensure efficient cost structures.

On the other hand, digital startups often lack the necessary industry expertise, partner organizations and a solid customer base at the outset. It follows then that startups have access to limited revenue sources initially and a lot of money must be invested in raising the company’s profile and building the crucial mass of customers.

New competitors

New entrants offering innovative digital platforms on the IoT, such as Convoy, Flexport, Freigthos and UShip, are reshaping the freight business. What they all have in common is the desire to match the supply and demand for transport services by means of a marketplace, via an online portal. Even though these newcomers are not yet known to many logistics companies, they
are already changing the sector and, backed by considerable
financial resources, are radically disrupting the existing landscape.

These new digital competitors are breaking into the highly competitive logistics market from an entirely different direction. The goal is to network all parties involved in a supply chain –from the consignor, forwarding agent, shipper, dispatcher and driver through to the consignee – using an integrated information system. By combining, for example, information about the truck, trailer, superstructure, driver, order and product, the transportation and handling process is being significantly improved.  

In the medium term, the entire logistics supply chain – from suppliers, purchasing, producers, warehousing, commissioning, distribution, logistics and trading to the end-customer – is to be monitored and optimized in real time.

Looking ahead

The logistics industry is being significantly transformed by digitalization. This is due to its many inefficiencies resulting from a large number of key players along the value chain and the intermittent exchange of information. Startups, digitalized logistics companies and automotive manufacturers are trying to address these inefficiencies and make life easier for established logistics companies through digital solutions and business models. However, everything comes at a price: will these solutions be worthwhile and if so, who for? Not all of the players can be at the top of the value chain and pocket the lion’s share. This privilege will be reserved for a few players only. In most cases, monopoly-like structures have become established because customers do not want to run around in different marketplaces. 

With a “Google” culture into the logistics market

With Saloodo!, DHL has created a digital marketplace for its logistics services that combines the best of both worlds: the speed and flexibility of a digital startup and the logistics expertise and capabilities of a market leader. The aim of this startup is to secure market leadership in the freight business through an innovative digital platform. Saloodo! has developed its own culture, which is much more interested in the “Googles” or “Facebooks” than in a logistics company.

Published: November 2017


Images/Illustration: Nina Tiefenbach