04 Jun Real Disruption
In the logistics industry, we’re always talking about disruption. But what is it? In Deloitte’s Patterns of Disruption the authors suggest that disruption occurs when “something changes in the larger environment–technology or customer preferences or supporting infrastructure/ecosystem—to make [a] new approach possible and profitable. The incumbent, preoccupied with the status quo, doesn’t recognize that the ground beneath it is shifting. Hampered by the nature of the existing business, the incumbent struggles to respond effectively as the new entrant takes market share. The same aspects of the incumbent’s business that made it successful also make response difficult and tend to act as blind spots, preventing it from fully recognizing the threat when it is still on the horizon.”
It’s not surprising, then, that disruption is always big news. After all, in 2017, third-party logistics (3PL) providers operating in the U.S. generated 175 billion US dollars in gross revenue. The size of the industry and the invested money together create an environment ripe for disruption. When you add in the application of technology in an industry traditionally slow to technology adoption, you exponentially add fuel to the fire.
Over the last few months, I’ve attended a couple of industry conferences and have talked to quite a few smart people in my efforts to consider how we work through this ongoing disruption. I’ll break it down into two distinct categories of disruption—financial and technological. Many technology players are raising large financial amounts, but there isn’t a lot of discussion centering on where exactly these funds are being used.
Let’s take a look at the financial side of things. You don’t have to look far (pick up any trade magazine or hit your favorite online logistics journal) to find the latest story recapping who raised enormous funding for a startup or an established business model. What is less well-known is where all that money is being used. Here at AMT, we’ve had lots of discussions with carriers, shippers, and 3PLs about some of the companies acquiring the funding.
What we’ve found is that some companies with these new funds are using the money for normal business operations while purchasing capacity at a higher rate than they’re selling it for. Listen, this practice isn’t unique to transportation. And it might even be successful in the long run. Only time will tell if the strategy works. What we do know is there are a very few companies willing or able to deploy this strategy. But when they do, disruption occurs.
Let’s take a look at the tech side of things. In my opinion, tech strategies should be employed by all logistics companies. I’m not talking about hiring developers, programmers, and project managers although hiring your own team is an option. But it’s not the only option. I believe real disruption will occur in the arena where brokers and 3PLs are partnering with tech companies for specific pieces of technology to implement into their businesses. As we move to an “as a service” model, smaller companies can leverage these new technologies where they see fit.
This requires forward thinking people on your team, people who are willing to look at your processes and customer mix to create and then implement a plan. This is where disruption is exciting. You no longer need a multi-million dollar budget to develop the next level technologies larger companies have access to. In fact, I believe that smaller organizations can implement new technologies, test them, and continue or remove those technologies more quickly and efficiently than can larger organizations.
The Advantage of Being Small
Smaller organizations typically have more people familiar with every part of the 3PL business, not being as siloed as larger organizations. In this area, being smaller confers a true advantage as you implement new and better technologies to your specific goals. The 3PL market is rife with small business that have vast experience in the transportation space and that experience enables the most effective implementation of new technologies. This experience, so often overlooked, cannot be purchased as can a monthly subscription to a new technology.
When the conversation turns to disruption it typically centers on technology and money. But I believe the real disruption is that smaller, forward-thinking, 3PLs with years of transportation experience have access to the same tools the big companies have. Will they all take the leap? No, but those who do will disrupt the market without the worry of keeping the next round of investors interested