Over the past few weeks I have been doing some research into the field of third party logistics (3PL). It is not a market I know well but one I think is ripe for some significant disruption and transformation over the next few years. It is clearly an asset intensive business – transportation and property (principally warehousing) being the main constituents along with people. Planes, trucks, trains, ships – are all massive capital investments and maximising loads and capacity leads to higher yields and efficiency. Most 3PLs are concerned with this and getting operationally efficient as possible is a principal goal of most of the leading providers – as it should be. However I would argue that there is really is a fourth dimension that is become increasingly significant and will in time potentially become the most important of all – that of technology. This will come in the form of advanced automation, the use of big data and the influence of the Internet of Things on the supply chain.
Data plays a very significant role in supply chains already – and optimising routes and capacities is the name of the game. Technology is beginning to have a significant influence on the market. last year UPS purchased Coyote, a technology driven, non-asset based truckload freight brokerage business. By all accounts this was to gain access to Coyote’s advanced freight scheduling software which has been a catalyst for their rapid growth. Last mile deliverers like DPD and Yodel have differentiated on their technology platforms which allow detailed tracking and advanced scheduling, often for the benefit of the end consumer.
New startups like Convoy and Roadie are trying to “uber-ize” the shipping business. If you have a package you want shipping to the other side of the country, they will match you with a shipper going that way. And it is all very ‘uber-like” – a great mobile experience on an advanced technology platform. These are however small scale compared to Amazon. When Amazon gets interested in a market then the incumbents should be very wary. In the beginning Amazon relied exclusively on 3PLs like UPS and DHL/Fedex to distribute the goods we all order on their site. However increasingly Amazon is creating its own distribution business with its own fleets of vehicles, and that’s aside from their foray into drone delivery. This ought to have their traditional partners looking over their shoulders. It is also rumoured that Amazon have “hundreds” of PhD mathematicians working on network logistics. I rather doubt the traditional 3PLs have anywhere near that number. What are these guys and gals doing? Well, clearly they are focused on making the sourcing of product, storage in warehousing, picking and then delivery to end consumer as fluid and swift as possible. Amazon Prime (Next Day, One Day and Now) is only possible with state-of-the-art supply chain logistics being co-ordinated through big data analytics. Ultimately this is about delighting the customer by near real-time delivery of goods.
In other news, driverless trucks are on the horizon. Otto, a startup in the space recently trialled a self-driving truck which carried a commercial delivery of beer through the Rockies from Fort Collins to Colorado Springs – a 120 mile journey. Whilst the truck only drove itself on the Interstate, it will not be long before it is able to navigate urban areas on its own. Otto was bought this summer by Uber – a move which again, should have the incumbent third party logistics companies take note and at the very least start investigating where this market is going.
Disruption comes to many markets and is usually driven by technology advancements. What Uber has done to the taxi market and what Air B&B is doing to the hotel market are just a couple of examples of disruption within very traditional, and somewhat prosaic industries. Logistics is ripe for change and it is technology that will be driving that change.