Covid-19 as an accelerator in logistic digitization — the opportunity in the crisis
by Harm Wessels, June 1st, 2020
Much has been said and written about the World after Covid19 and it seems that nobody needs another corporate message about the impact on its business and its promises for a greater tomorrow. We all want to get back to “normal” or the “new-normal” as it is mostly called, however, what exactly this means is unclear for now. What is clear is that this global crisis is offering an opportunity to get out of it, better and stronger than ever before. This is something that Covid-19 has in common with generally every crisis. The circumstances just often blindside us so much, that we tend to forget the opportunities that out of a sudden open up. Cards are being reshuffled and it's not the strongest player that survives, but the ones that are able to adopt.
In 2010 I wrote my Master Thesis about Internal Brand Management in times of crisis and one of the - for me most fascinating - findings were how the behavior of organizations equals the behavior of humans facing a serious personal crisis. We are going through stages of “shock”, characterized by panic, to “reactions” like disbelieve, anger or grief to “coping”, when a first logical assessment of the situation hits in, to then finally reach an “orientation towards the future”. How fast a person or an organization is getting to stage 4 or at least 3 mainly defines how good and strong it can exit the times of crisis.
In the logistics industry, there are many great examples of companies that managed to adopt incredibly fast. An industry that had been very adverse to concepts of working from home or to apply new technologies as imperatives for their daily operation out of a sudden discovered the advantages of Google Hangouts, Slack or even social gatherings on a Zoom calls. The good experiences with adjusting the way of how employees work also seem to lead to a new way of thinking of how the industry itself could be managed in the future.
More and more logistic companies envision themselves as digital players in the long run, at least to some extent, however business as usual was the normal nominator for day to day operations. To break out of this cycle and to focus on what's gone be important in one, five, or ten yours from now did almost nowhere happen. That Covid forced us out of our routines now acts as an accelerator for change, a change that was already long visible at the horizon. Even before the global pandemic, new startups have shaken up the logistic market. Big investment rounds, new names, and exciting news where almost sounding like a gold rush. Reality looked a little different in the years after and many of the “fully digital” freight forwarders had to realize that forwarding is a business that requires deep knowledge and industrial expertise. Adjustment of their operations took place however, they have managed to enhance customer experiences so well, that clients all around the globe are now looking for better customer experiences, attractive front-ends, end-to-end visibility, and integration functionalities which haven't been there before.
Already today the activities of digital forwarders in the market have cost the traditional player market shares and business. McKinsey postulated in a recently published industry report “Despite the fact that incumbents are here to stay, startups have managed to tap into markets that incumbents have long ignored. They were therefore able to take a significant share of future growth potential away from incumbents.” This absolutely highlights why the time to move is now, and not tomorrow or after the crisis. Already long we all knew this is happening and coming but Corona now offers the opportunity to step back, reflect and get ready for the changing market environment. In other words, companies that are now able to turn from shock and survival mode during the pandemic, to the “orientation towards the future”, will be the true winners of the crisis.
The question that remains is the “how?”. Especially for small and medium-size freight forwarders big investments in new technology are not to manage. Margins are small and even smaller during the crisis and solutions can only then work if they have an immediate effect gaining new business, reducing the cost for it, and/or, come to a price that is digestible or risk-free by just becoming applicable when the new business hits in.
Another issue that especially SME companies are facing is limited internal expertise in regards to new technologies available, so even though innovative entrepreneurs might feel the time is right, financial and human capital is a challenge. In its startup founding report, McKinsey made an excellent comparison that provides not only a view on the problem but also includes already the solution: “Outsource IT. Just as logistics providers convince shippers to outsource activities that are not core to their business, namely logistics, logistics incumbents should avoid building complex proprietary IT solutions, even more so when these have to be layered on top of inflexible legacy systems.”
What especially SME forwarders should do now, is to really explore and evaluate the opportunities that digitizing customer processes would and could mean for them. Self quote function and operational self-service functions can boost sales and reduce process costs. In a low margin business, during a global crisis, this is key. Moreover, the decisionmakers should identify suppliers that are able to accelerate them and to get them into the digital age easily and efficiently. Day-to-day operations can never be disturbed so that there is a no-point any negative impact on the business side. Lastly, companies should decide for a vendor that is able to share the risk. Pricing models that are success-based already indicate the partner is convinced about the product they are offering. These products are likely to fly with the shippers as well and if not, there is no risk for the forwarder's current business.
Summarizing it can be said that the current Covid-19 situation is probably one of the biggest opportunities for digitization in the logistics industry. We were all forced to break with habits and to look around for ways to deal with the new circumstances. Now it is the time to get ready for the new-normal post the pandemic. Whoever dares to adopt now during the difficult days, will be perfectly geared for the future.
