The Transport and Logistics Industry: Is it time for a new model?
For many years the movement of freight and its impacts on society and the environment were of little concern to the population in general; businesses and consumers were concerned only that the goods they wanted were available where they wanted them. Of course, price was an issue, so this became the focus of anyone managing a transport operation. Innovations such as containerization, groupage operations, automated warehousing operations, high volume sortation, automated material handling, etc. helped those in the freight movement business to at least keep up with the increasing volume of freight movement and the attendant pressures to reduce cost while speeding deliveries. Now, the ability of logistics companies to further improve the performance of their operations given the increasingly severe pressures of customers for lower cost, faster deliveries, less congestion and less environmental impacts appears to have reached a limit.
From an academic perspective the problem faced by transport and logistics is one that many industries have faced before as traditional technologies and business methods reached plateaus in performance. As an example, at the turn of the 20th century most businesses were organized around the founder who made almost all major decisions. This model worked well when the business was relatively small and geographically concentrated. However, as businesses expanded to address increasing consumer and geographic demands, the ability of a single executive to address the needs of the organization began to break down. New organization models evolved in which professional managers assumed the role of agents for the founders/owners in carrying out their strategies, relieving these individuals from the unmanageable task of making all operating decisions for the now extremely large, geographically dispersed firm.
Today, the transport and logistics industry faces the same type of challenges that the industrial entrepreneurs of the late 19th and early 20th centuries faced. How can the industry continue to serve its customers, grow profitably and still accommodate the increasingly difficult demands that society and the environment place upon it?
The current response to these demands is to place one’s hope in the advance of technology and technological solutions. There are good reasons for this hope. Technology is certainly advancing at an impressive rate. New digital technologies (the digital revolution or disruption depending on your organizational position or industry), cloud computing, data analytics, artificial intelligence, automation and autonomy, industry 4.0, supply chain 4.0, etc. are all the rage today. Transport and logistics executives can hardly be blamed for believing that somehow all this technological advancement will remedy the difficult situation in which they find themselves. Unfortunately, this technological optimism, this hope in a technical solution to the problems that the industry faces may be ill placed.
The transport and logistics industry, and frankly business organizations in general, are facing one of those historical inflection points where past approaches to solving problems may not be good guides to how to solve the problems facing business in the future. Pressures brought about by demographic change, online consumerism, environmental damage, shifting global power centers, and new technologies argue that solutions to future problems will most likely not be found by looking at history. What is needed is a willingness to try new solutions that may be uncomfortable to many but are necessary to ensure the viability of the industry in the future.
So just what solutions might address the problems faced by the transport and logistics industry? One potential solution is to begin to question the business models employed by industry players. The business models utilized by most industry players trace their history back to the 19th century where vertical ownership of industry assets was required to assure that proper coordination and control would arise when customers required movement of their goods. While asset ownership requirements have lessened over the past century (the rise of third- and fourth-party logistics operations, freight forwarders, etc.), the industry is still one in which asset ownership is an important component of successful business operations. International service providers in the parcel, container, bulk and air freight industries have built their businesses (and their business success) on the fact that they own their own transport equipment and thus can reliably assure their customers that deliveries will occur when and where contracted.
But how well does this model fit the needs of the future? Current asset fill rates are below what could be considered efficient operational levels which indicates an over-capacity in the industry. And as automation in industry increases and 7x24x265 day operation of transport assets becomes a reality, this excess capacity will become more problematic. Following current practices excess capacity would result in industry consolidation; the big getting bigger and the small being marginalized or eliminated. An outcome good for some, but of questionable value for society overall.
Another model, not so popular in industry today, but one being examined by forward-looking companies, focuses on collaboration and sharing. This model follows the concept that assets can be pooled, profits shared and services rendered in such a manner that social, environmental and economic goals are achieved. Following such a business model, systems and assets, costs and profits, and networks are shared. What is not shared is the organization’s relationship to its customers and additional value-added services that it wishes to provide. In such business models it is not the ownership of assets that is important, but access to capacity and networks. It is a global trading network in which asset and network “ownership” is pooled and operational efficiency arises based on the economic interest of the global partners in not having capacity anywhere in excess of demand.
How might such a new business model be managed and operated? That is the big question, one that industry will need to contemplate and manage. However, there are examples that can be looked at to see how they have worked. Modern groupage networks operate in a manner like the model outlined. Individual closed networks, such as those being developed by Amazon, JD.com, and Maersk also operate in this manner (although they point to the highly consolidated model that could be an industry future as well).
Much work needs to be done to determine how to address the demands of the future. However, these demands provide industry with an opportunity to look forward and determine whether true change is needed, and whether new business approaches will be required, for industry to continue to grow in an economically, socially, and environmentally sound manner.