We are happy to announce that our partner Anton Inshutin was leading a panel about Digital Transformation in Logistics at NOAH London on 30 October. Below you can see some of the ideas shared on the panel
The ships make money only when they are out at sea, and not when they are stuck at a port. For centuries the sea freight industry suffered from huge inefficiencies, as ships spent nearly half their time in ports waiting for loading and unloading.
The industry-defining leap forward in logistics came in the middle of the 20th century with the invention of the standardized intermodal shipping container by Malcolm McLean in 1956. The intermodal shipping container, which could be moved seamlessly between road, rail and sea freight, brought radical change to the industry. Using containers reduced the time it took to load and unload ships by 22 times and made it 36 times cheaper than traditional methods to deal with cargo. This was a real revolution in the logistics industry that paved the way for the rapid growth in global trade that followed.
Today, the ocean freight industry carries US$12Tr worth of goods annually, approximately 60% of which via containers. Over 150 million TEUs (twenty-feet equivalent container units) are being shipped annually worldwide. And this number has tripled just over the last 20 years. The revenues of the ocean freight industry exceed US$300Bn.
Despite this rapid growth, more recently the improvement in the logistics sector has been more evolutionary than revolutionary. In a sense, the lack of innovation in the sector is understandable. Large industry moats, such as high fixed asset intensity and large working capital requirements, have kept new market entrants and the competition at bay. However, new emerging digital technologies are effectively lowering the barriers to entry and making it easier for new start-ups to disrupt even some of the biggest players in the industry.
The freight forwarding space, which is more asset-light, was the first to be attacked by digital disrupters. Startups like Flexport and FreightHub are analyzing their client data to optimize shipping routes and streamline relationships with other players along the shipping container supply chain, such as ports and shipping carriers, and thus cutting off shipping times compared to traditional LSPs. However, digitizing freight forwarding is akin to an offline retailer opening up an e-commerce site. Whilst this makes the user experience more convenient, this does not change the underlying industry processes, the backend still remains inefficient. To solve the backend problem some digital freight forwarders try to go full stack in terms of vertical integration. For example, Flexport leases warehouses and cargo jets.
The recent digitization of supply chains has forced some traditional LSPs into investing and automating their processes. Some incumbent LSPs launch their own digital services, mostly at the front-end, to compete more effectively with emerging digital freight forwarders, especially in the SME segment. For example, DHL Global Forwarding launched Ocean View, which offers real-time updates on maritime shipments and DHL SupplyWatch, an AI program for identifying supply chain disruptions. In Germany, for example, Panalpina launched a pilot ocean shipment management system. Dubai Parts World also released a container visibility solution in the UK recently.