Predictive Analytics in an Unpredictable Industry
Ever wondered how that orange you had at lunch made it all the way from Florida to your local grocery store while still ripe?
If you’re like us, you probably imagine that the transportation network that got that into your hands is an advanced web of high tech software and automated processes. After all, the transportation industry ships 49.3 million pounds of goods across America’s highways, railroads, and domestic waterways.
Everything, from your Amazon order to that orange that you’re still hypothetically eating makes its way to you through an intricate system of palletized freight shipping. Here’s the thing though — the shipping industry is still reliant on paper and pencil methods to get goods to you in a digital world. What’s fascinating, is that it works.
The Traditional Approach to Shipping
For years, there’s been a traditional and time-tested approach to shipping goods (though if you want to nerd out about about pallets, that was a whole revolution in the 1940s). A company puts things on a pallet, a shipping brokerage is contracted to find a company to ship the goods from point A to point B, and they subsequently sub-contract with smaller shipping companies to achieve that goal.
Though this may initially seem simple, it’s actually a fascinatingly complicated web of services and companies that make this happen. Many of the companies and best practices that help goods get across the country serve as traditional proxy for a lot of the digital services that consumers take for granted.
Shipping brokerages, for instance, help connect smaller companies to various independent carriers and truckers that do the actual work of carrying the goods across the country. In many ways, these brokerages perform the same work that an online aggregator or directory does, albeit at a slower pace and a higher cost.
For example, if a small food startup in Philadelphia has a contract with Whole Foods in California, Publix in Florida, and Wawa in the Northeast, it usually will simply farm out all of its shipping contracts to a national shipping brokerage. That brokerage will contract with a smaller firm to pick up goods from the Philadelphia warehouse and transport it out ot town, then another larger national firm to get the goods across the country, followed by a smaller firm to deliver the goods directly to the grocery store. This system is unchanged largely thanks to the high cost of fuel and labor — by consolidating shipments into hubs, the entire industry remains efficient.
Curiously, little of this is done with the aid of modern technology, or even the internet. Per a 2016 study from PwC (PDF), “‘digital fitness’ is a challenge for the [logistics] sector”, with “inconsistencies in everything like shipment sizes, processes, or IT systems”. Most shipping companies and regional shippers are small, “mom-and-pop” outfits, with little capital to improve or automate systems. As an example, some warehouses and consumer chains do schedule appointments over the internet, but for the most part, every single pound of goods that you buy at a store has been delivered via an intricate network of phone calls, faxes, and institutional knowledge.
Data use in the industry today
Like most industries — the shipping and logistics business has its large industry leaders that set the pace and tone for the industry. Established giants, such as BSNF, J.B. Hunt, and XPO, along with new leaders like Amazon lead the way in adopting new data standards and technologies. Amazon, for instance, has revolutionized the use of robots and automation in their warehouse, using miniscule “heavy-duty Roombas” to lift and transport boxes around its warehouses. J.B. Hunt has placed a reservation on “multiple” Tesla autonomous electric semi-trucks, along with numerous other shipping giants.
Yet the shipping industry itself lags far behind, largely by virtue of the difficulty in industry-wide adoption of any technological solution. According to the American Trucking Association, 91% of trucking companies own fewer than 6 trucks. 97% own fewer than 20 trucks. Given that the industry is mostly small regional businesses, the ability to upgrade to expensive fleet solutions and software suites is extremely limited.
The Largest Challenge: Automation
The most crucial balancing point in the industry is the issue of labor and automation. In 28 American states, the most common job is a “truck driver” — considered to be one of the first jobs to be eliminated by the rise of automation. While this may seem favorable to a company’s bottom line — the same PwC study notes that it will be accompanied by regulatory issues, increases in liability costs, and ethical questions. Similarly worth noting is the potential spillover effects of massive layoffs in the trucking industry, which could carry over to the 7.3 million trucking-related jobs.
Obviously, the shipping industry is in for some big changes! In our next post, we’ll explore potential futures for the logistics industry. We’ll take a quick look at some companies making pioneering moves in the space, and focus especially on how data and predictive analytics are likely to fundamentally alter the industry.
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