Is it a revolution, an evolution or simply technology oozing into an undeveloped segment of the economy – the Internet of Shipping is a real phenomenon that stands to completely rewrite how business is done in the logistics sector…and everywhere else.
In early 2017, a container traveling from Shenzhen, China to a fulfillment center in Greenville, SC, disappeared.
“It was a nightmare,” explained the center’s owner, John Monarch. No one knew where the container was. The forwarders were yelling at the transporters. Monarch was yelling at the forwarders. The client was yelling at Monarch.
Then, one day, the container magically appeared at the fulfillment center’s loading dock, along with a bill for demurrage. The container had been languishing at a Port for weeks. “We had no idea, because no one had ever communicated it to us,” said Monarch.
That misadventure led Monarch and a group of friends to create ShipChain, a startup that is attempting to use blockchain technology to bring some order, transparency, communication and analytics to the unwieldy and opaque world of freight-related transport. The company, Monarch said, has just completed a pilot project with Perdue Farms, which involves vehicle tracking, and expects to be fully operational next year.
Venture Capital Venturing into Logistics Tech
ShipChain is just one of the dozens of startups now competing with a few of the more well-established companies and the vehicles and vessels themselves in this arena of logistics technology.
“Before people didn’t see the freight industry as sexy, [a place for] tech startups,” said Monarch. “But now people are starting to recognize how important it is, the size of it, and how it really needs help.”
Venture capital is pouring into this corner of the technology world. According to Boston Consulting, venture capital invested in from early 2012 until late 2017 more than $3.3 billion in what the consultants called “digital shipping and logistics startups,” with a significant portion going into road freight-related technologies.
Some of these ventures are quite ambitious and aggressive. The online global shipping portal Freightos, for example, has raised a total of $94 million in venture funding from GE Ventures, ICV, Aleph and, most recently, SGX, the Singapore stock exchange. Project44, which in its own words “connects, automates and provides visibility into key transportation processes,” said in October that it had raised in its latest round $45 million from VCs, led by Sapphire Ventures. Two months later, it announced it had acquired the Danish technology company GateHouse Logistics.
Private equity, which has become increasingly enamored with logistics, is beginning to follow in venture’s footsteps. Insight Venture Partners owns the software company E2open LLC. In October, E2open acquired both Inttra Inc., the industry’s largest ocean vessel ship booking platform, as well as Cloud Logistics, a transportation management systems provider.
There are, of course, many elements of freight-related transport technology – hardware and software, systems that do everything from tracking a shipment to insuring that carriers are paid in a timely manner. Some of this new tech is land-locked, others are aimed at ships, while still others can span oceans, railroads and highways. Some are geography-specific. A few are attempting to enable technology and solutions that are global. Some try to tweak one part of the process, while others attempt to ride herd over the entire journey of a container from the time it leaves a factory until the time it is unloaded in a warehouse.
Revolution or Accelerated Evolution?
Over the next weeks and months, American Journal of Transportation will attempt to make sense of what’s out there, what is coming, what needs to be done, where the hype is, and where the resistance is as well. We plan to tackle the various technologies to give readers a sense of this fast-moving technology arena.
“We’ve got an industry that’s willing to change but also is being forced to change,” said Tommy Barnes, president of the transportation technology provider Project44.
Needless to say, this can be an unruly field, with lots of moving parts, some moving more swiftly than others.
“There are many different avenues. There are a number of different things happening at the same time,” explained Lars Jensen, the container shipping industry veteran who now heads SeaIntelligence Consulting. “There’s a difference between the tools and techniques being developed to help reduce costs and the tools and techniques being developed to actually try to move the sales process itself into the digital era.”
What’s astounding is just how far behind the systems technology curve much of freight transport finds itself. Sea-bound cargo pricing remains unbinding and subject to the whims of both shippers and vessel operators. Jensen said he likens this to horse-trading in the 1700s. “Can you give me a quote? That’s too high. I’m your best friend.”
Barnes, whose company provides technology to shippers, freight forwarders and transporters alike, agrees that this is an industry which remains stuck in antiquated methods and procedures. “It started with people chiseling in rock that bill of lading,” he quipped. “Today, it feels like some people are using a chiseled rock for bill applications for shipment. There are a lot of things that are still very old.”
“It’s very strange,” added Zvi Schneider, Freightos CEO, who cited the paradox of air cargo. “The airlines were good innovators on the passenger side. American airlines started electronic booking of passengers in the 60s. [But] they’re still booking cargo with paper.”
Many shippers find that gap incomprehensible, especially in this age of digital ubiquity and of Amazon, when all of us can so easily track where that Christmas gift is we just ordered for our favorite niece or uncle. In almost every other industry, invoicing, for example, has been digitized for years; online sales are old hat.
As supply chains have grown ever more complex, far-flung, interactive and sophisticated, the software managing all these tasks has matured as well. Yet, in the middle of all this detailed data tracking and predictive analytics is a container voyage that is a weeks-long leap of faith, “a black hole,” according to E2open’s CEO, Michael Farlekas.
Many shippers are pressuring for, at the very least, more transparency. Most may not care about the intricacies of the journey, but, more and more, they want to know more than just the overall cost and the proposed length of time. They increasingly want to have a detailed breakdown of expenses and immediate access to where a shipment is and in what condition. And, they’re most concerned with what Barnes terms “the exception information,” expectations of how many containers will be late, by how much and how that will impact inventory.
“Information is one thing, but how do you use it more effectively rather than talk about it,” said Barnes.
That is easier said than done, with shipping lines or trucking companies often standing in the way, not because of an inability to track a container, but the difficulties in communicating all that data.
Add to that the fractured nature of shipping itself. A single container can pass through multiple vehicles and vessels, none of which are necessarily linked. A freight forwarder or 3PL is supposed to keep track of the process, but they’re limited to what they’re being provided by the carriers.
Shippers “increasingly have an expectation that their suppliers, including freight suppliers, provide the relevant data and functionality that can be fed into systems,” said Jensen. “That requires the shipping companies to review a lot of their systems so they can comply with that functionality. This is where many of the carriers have a challenge because their backend systems are antiquated.”
Add to this a huge information bottleneck – the ports. “Seventy plus percent of the delays are in the ports themselves, not on the water,” Barnes pointed out, adding that port management systems make surface transportation-related systems “look simple.”
“The good news is that the amount of waste that exists in that port network is massive,” Barnes said. “So the opportunity for folks to be more efficient quickly is there, once you hop over that first hurdle.”
Drowning in Paper
As those in logistics are well aware, freight-related transport continues to drown in paper. The startup Vector has developed a mobile app that automates reporting from a truck driver to the back office and another app from the back office to the customer.
“Because trucking is so fragmented, when a guy shows up at the docks, the easiest thing to give him is paper. That paper can go back to the back office for further invoicing. It’s the lowest common denominator,” said Will Chu, Vector’s co-founder and CEO. Chu discovered this in conversations with a friend who was being groomed to take over his family’s flatbed trucking business. “I was surprised, but I saw an opportunity to add more value to enable the automation that everyone wants.”
Transportation tracking technology is certainly widespread and available. Yet, shippers, who are pressuring for change, have been frustrated in efforts at obtaining that information in any kind of timely manner.
“The shipper says [to its freight forwarder] ‘I need to know where is my product. And I want my invoice electronically. And I want to read directly off the Web site. I want to be able to keep track of every transaction with you. And I don’t want to call you anymore,’” said David Lemont, the CEO of transportation management systems developer Kuebix.
That’s where these technology providers see a huge opening, not only in supplying shippers and their freight forwarders with data and in a timely fashion, but in interpreting that data.
“Systems like ours provide analytics and dashboards that accumulate all this information for analysis,” said Lemont. “Then you can also add a planning function. We have modules that allow you to consolidate shipments, optimize the routes that are taken, the least expense, least amount of mileage, scheduling its arrival and managing it. We keep track of the costs every step of the way.”
The Final Link?
Creating the technology to link all these disparate elements isn’t easy. Take Freightos, which now offers pricing automation software to freight forwarders as well as provides shippers with an online marketplace and instant price comparisons on international shipping. Freightos just announced that CMA CGM will be the first ocean carrier to list on the online service, which offers guaranteed pricing and capacity.
“There’s no standard way to get all the rates from the ocean liners, the airlines, and the trucking companies. What we’ve had to do is collect well over 100,000 Excel sheets, in different languages, different currencies,” said Schneider. “Collecting the data, the business rules for all the prices and the fees and the surcharges is a very, very complex job and we’ve raised a lot of capital and take on a big task like that.”
Resistance is beginning to melt away. It’s expected that technology in freight-related transport and its acceptance will accelerate, although it will take some years for online shipping to fully resemble, say, online airline booking. And then?
“If you look at this five, eight years down the line, I’m pretty sure that everything that can be automated and digitized will be automated and digitized. The ones that don’t they will cease to exist because they won’t be competitive on cost. It’s as simple as that,” concludes Jensen.
But that, he believes, creates its own dilemma, a lack of differentiation between services.
“The real question is: What is it that we can’t automate and why? That will be the source of the value-add. That will be the source of the profit.”