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Regular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.

Logistics in 2018 will be an anxiety-inducing war of tech vs. economics, and that’s great

09-Jan-2018
Logistics in 2018 will be an anxiety-inducing war of tech vs. economics, and that’s great
Logistics management can be rewarding, satisfying, and lucrative – but for companies and consumers alike, it’s still only a means to an end. The end is profit and happy consumption. And in 2018, the logistics industry will confront many challenges in delivering both. Here’s why:

Consumers only expect what the best innovator can deliver
If you remember a couple years ago, business enemy number one was the all-powerful millennial consumer who ditches brands at the slightest provocation and demands the world. Well, people have sobered on that idea a bit. It turns out consumers aren’t inventing new expectations out of thin air and hurling them at brands. They’re being taught what to expect, almost entirely by Amazon.

If you look at the history of both consumer and business technology, expectations only rise when there’s an innovator who can competently execute a disruptive new vision. Cell phones were on a dull path before Apple, as were social networks before Facebook, and electric cars before Tesla. When there hasn’t been a competent disruptor, the status quo reigns, like in most enterprise software. Customer expectations for fulfillment were one thing before Amazon, and entirely different after.

For the past few years, the logistics industry has tried to play catch-up to Amazon’s policies, fuelled partially by other retailers struggling to compete. But Amazon will continue to set the stage in 2018. It’s already extending its logistics management prowess and, more worryingly if you’re a logistics provider—logistical independence—via services like Prime Air and Amazon Flex. It will keep carving its own path and raising the bar. If logistics services are constantly playing catch-up, they risk being disrupted in the very territory they built.

Instead, logistics will have to get ahead of customer expectations—partnering more closely with businesses to set entirely new expectations of their own, and deliver innovative services that they can execute competently. With the several past years of being on the chase, 2018 is the time to start turning the tables on Amazon.

Global trade is shaky and requires creative business models to cope
Global trade spent 2017 recovering from the 2015-2016 demand slump. But as Q3 rolled around, another disturbing truth became apparent: There’s an oversupply in global freight capacity. This led the world’s largest ocean carrier, Maersk, to warn about the prospects of a global slowdown in 2018. Add this to the fact that there’s a political movement for protectionism in western economies while, at the same time, China continues to globalize—and there’s a lot of trade uncertainty out there.

How can logistics providers weather this storm? They’ll have to get creative. Whether that means new business models or more consolidation or partnerships will depend on the severity of the threat. The logistics industry also faces a classic Prisoner’s Dilemma situation. As an entire industry, logistics providers and carriers could cooperate to mitigate the threats they all face. Or, they could continue to undercut one another, exacerbating the industry’s woes for all. 2018 might be a year that forces reckoning with such histories.

Technology is a tool for creativity, but only if used appropriately
If you look purely from a tech point of view, there are several bright spots in the 2018 logistics outlook. UPS recently announced that it’s betting big on blockchain as the backbone of a smart, decentralized, intelligent supply chain network. The appeal of blockchain in transportation and logistics is huge, because logistics information infrastructure is mostly inconsistent and inadequate, with many systems still relying on electronic data interchange (EDI) standards of the 1990s or spreadsheets to pass information haphazardly.

But blockchain is also just plain hip. The fact that an iced tea company can put ‘blockchain’ in its name and have its valuation skyrocket shows you the kind of crazy hype associated with blockchain. Will all this hype materialize? No, at least not in the way we’re wishing for it today. Some blockchain developments will be legitimately powerful, but like any technology, they’ll only be worth as much as the problems they solve. Logistics providers will need to keep their attention on supply chain problems, not tech specs, if they want to be successful.

On a more tangible technology front, the transportation industry has electric, autonomous vehicles to look forward to. Elon Musk promises Tesla Semi will be nothing short of a revolution for the trucking industry, dramatically lowering the total cost of ownership, and even attempting to undercut rail via Tesla Semi’s driverless convoy mode. UPS, once again, is trying to get out front and has placed the largest public order for Tesla Semis so far.

Holding it all in tension
Will these innovations quell the economic volatilities and deep-rooted problems of the logistics industry? It is unrealistic to say “yes” or “no” and assume things are so simple. Tech innovations happen on both the supply and demand side, and economics forces have a life of their own. There will always be tension between tech solutions and market pressure. But as that tension comes to a head in 2018, there’ll be an added existential anxiety in an industry that is several decades old.

Where is the growth opportunity for logistics in a world where shippers have so much leverage? That question is definitely troubling. Real growth requires confronting great challenges. The logistics industry has spent the past several years skirting some ugly truths. 2018 might not leave any room to evade them anymore.

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