Smartphones have become inevitable parts of our daily lives and routines. We wake up with them and go to bed with them. No wonder that smartphones are also being applied in business. This trend has been going on for years, actually since the launch of the iOS and Android platforms. In the logistics industry it is not much different. Trendwatchers expect a lot from logistics apps. So much that we can easily talk of a hype. Question is which of these innovations will really make an impact. This article aims to provide an actual insight into the innovative nature of logistics apps and applications and how they are making an impact to economy and society.
Schumpeter (1883-1950) was one of the first scientists who gave meaning to innovation and the role entrepreneurs play as change agents in economy and society at large: “the fundamental impulse that sets and keeps the capitalist engine in motion comes from new commodity, the new methods of production or transportation, new markets, new source of supply, new forms of industrial organisation that capitalist enterprise creates”. Industries renew themselves from within by replacing existing ones and making old ones redundant. A concept which he called creative destruction.
He also placed the entrepreneur (a start-up if you like) in the middle of the system as the change agent. Innovation comes irregularly and sends shock waves through the economy. Usually real market disruptions do not come from large enterprises, but from entrepreneurial spirits, people who think different. The logistics industry is not famous for its innovative nature. Hypercompetition and capital-intensity lead to price pressure and low profit margins. R&D in new technology does not get the highest priority. Quite often, new impulses come from customers, suppliers, or from newcomers.
Let’s discuss some of the apps according to the five Schumpeterian categories of innovation:
1) Introduction of a new commodity, a product or service, or adding new quality features
Where visibility used to be the talk of the town, today everybody talks about connectivity: where is my shipment, where is my truck or trailer, what is my driver doing? With apps on mobile devices visibility is not limited by incidental statusupdates, but is it a continuous exchange of information from mobile device to planning department and vice versa. Where the integrators like DHL, Fedex and UPS and large freight forwarders used to be the early adopters of tracking and tracking technology, nowadays even the small pop-and-mom trucking companies can offer this service via mobile apps. Just to name a few of these applications in the Netherlands, VDO – renowned for its tachograph technology – has built a suite of apps on top of its existing transport planning tools. Another example is Dutch TomTom, famous as market innovator of road navigation systems, is feeding more and more real-time data to mobile devices. Then there is also an ADN-app. Dutch inland vessels can now receive up-to-date information, instructions and directives on dangerous goods based on their location in Dutch rivers and port basins.
2) introduction of new production methods
At first glance it seems difficult to place logistics applications in this category as logistics is service based rather than product based. Freight management applications fit in well as service innovations. For shippers as well as freight forwarders it is quite a hassle to make cost calculations for door-to-door service deliveries. For multinationals with highly fragmented global supply chains, where suppliers, production facilities, warehouses and outlets are scattered over 5 continents, the list of OD-pairs (origin-destination combinations) is endless. Even worse, freight rates change by the day. Freightos, an Israeli-founded company offers a solution to forwarders to manage their rates and automate their routing and pricing, both internally and on their web sites. Since their foundation in 2012, the company managed to raise more than 9 million euros of capital (until 2014).
3) opening of a new market
There are a growing number of logistics apps that tap into the new market of transport booking via smartphones. Just to name a few of these booking systems that see a new market in this area are Carrier Dashboard, uShip, Cargomatic and Flexport. It is impossible to cover all of these apps here, but it is worthwhile to elaborate a little further on a few of them. In USA, a company called Cargomatic seems to be building critical mass rather fast. Cargomatic has already been labelled as the Uber for trucks by nationwide news media such as USA Today, CNBC and Los Angeles Times. The beauty lies in its simplicity: cargomatic lets businesses order a truck on demand, and drivers accept the job via the mobile app. Once accepted, shippers can follow their cargo in real time, all the way through delivery. Cargomatic aims particularly on short distance, metropolitan deliveries. Another start-up that caught the eye of venture capitalists recently is FlexPort. Flexport has build its entire business proposition around a user dashboard thereby providing end-to-end visibility to their customers’ global supply chains. Where Cargomatic scope is metropolitan, FlexPort does the same on a global scale across various transport modes, and including customs brokerage service. With this proposition the company launched itself right in the middle of the established global freight forwarders. In the meantime, the company raised 29 million dollars of venture capital (9 million seed fund, 20 million series A fund). Is FlexPort tapping into a new market? Maybe, maybe not, but the approach by putting a web application at the core is definitely a fresh way to approach the market of freight forwarding.
4) new sources of supply
What to expect from the internet of things as a new data source for logistics companies? Internet of things is based on the principle that every product, component, pallet or box is attached to the internet and provides real-time data to partners in the supply chain. This is not entirely new, as RFID tags were based on the same principle. The difference lies in cloud technology. In the cloud different sources of data are combined, such as traffic information, weather conditions, flight or sailing information, product-specific characteristics. By combining this data and sending it real-time to decision makers, it allows them to proactively deal with the circumstances at hand, which could lead to a higher reliability, agility and responsiveness. True examples of applications have not come to surface yet, but the Dutch port community system PortBase – manager of all data flows in the ports of Rotterdam and Amsterdam – has IoT high on the agenda and is investigating the possibilities with its community partners and users.
5) new organisation forms
The fifth type of innovation is considered to be the holy grail for start-ups, being able to launch a completely new form of organisation, thereby disrupting the existing ones.The development platforms of Apple (iOS) and Google (Android) sent shockwaves to the computer business, smartphone business and are still echoing in other industries such as in healthcare, education, manufacturing and logistics. By inviting software developers to build apps on these operating platforms, mobile applications and varieties in use are endless. At the same time these platforms offer an easily accessable platform to launch latest technologies to millions of end users across the world without having to overcome hurdles in physical distribution- and sales channels. If we follow this logic, the future of disruptive new applications in logistics will be born from a platform proposition.
A platform to keep an eye on is Danish-founded Tradeshift, that started as an e-invoicing company in 2009 and raised more than 129 million euros of funding, and is one of the fastest growing supplier collaboration platforms in the world, all connected via cloud technology. Their proposition is based around suppliers, and particularly the streamlining of procure-to-pay processes. As such Tradeshift takes care of the vendor management processes from the buyers’ perspective, but also creates value for suppliers by speeding up their payments processes. Tradeshift’s ambition goes further. It is their vision to connect all suppliers all over the world, making it possible to create circular supply chains. While many companies talk about becoming green and build sustainable supply chains, Tradeshift believes it has the platform to enable the transition to circular chains. By means of its platform, all partners in the supply chain have access to the same data, e.g. carbon footprint, origin data of materials. When partners agree on common approach to deal with end-of-life cycle materials, the buyer may even become the supplier and feed its waste as raw materials into the chain again. It this realistic? Recent history has shown that it is possible to connect at least 1.2 billion people to mobile internet in less than 10 years time. As long as it is scalable, the truth is out there.
It is not just a hype, it is disruptive innovation
What can we learn from all of the above? Logistics apps are being developed and are scaling up in such a fast pace that the industry is undergoing disruptive changes. These changes are mainly driven by start-ups companies, in line with Schumpeter’s theory of entrepreneurship and innovation.
Which apps will have most impact? Applications in the first two categories will primarily bring efficiency gains on a transactional level for shipper and logistics company. Applications such as CargoMatic and FlexPort are tapping into unexplored markets (3rd category innovation) and if they manage to scale up their business models they will become more dominant and a threat to existing freight forwarders. However I believe most impact will come from category 4 and 5 innovations, because these initiatives search for optimisation of the network by means of collaboration in planning of resources, materials and assets.
If chain partners really can get their acts together and use platform-based technologies to its full potential, this can lead to real impact to economy and society. Who knows, it can turn capitalism from a zero sum into a positive sum game after all. If that happens, Schumpeter would have been proud of his entrepreneurs, the true heroes of capitalism.
Company websites, investor platforms Dealroom.co (Europe) and Angel.co (USA), various sources on Joseph Schumpeter’s theory of innovation to the original text: Capitalism, Socialism and Democracy (New York: Harper, 1942), pp. 84-85.