Could digitalisation actually harm your profitability?

August 28, 2019

What is the biggest threat to business from digitalisation? Disruption from outside or dislocation from within? Or could it be something more prosaic; that the pace of change itself reduces a company’s degree of profitability, especially if they cannot source the skills they require.

Virtually all assessments of the ability of the maritime to improve its short term performance and long term sustainability, make much of the need to enhance connectivity between shipping, ports and logistics sectors.

The efficiency mismatch between ports and shipping in particular is the reason that new technologies are being targeting towards a number of logistics processes, including automated scheduling, the consolidation of cargo from multiple shippers, on-demand trucking and carrier-based data analytics.

The flow of investment in itself shows the scale and speed of this change. But it is the pace of innovation and the uncertainty it brings — including the threat of new start-up competitors — which explains why some CEOs are sanguine at best about prospects for their own businesses in the immediate future.

Questioned as part of consultancy PwC’s 22nd Annual Global CEO Survey, chief executives in the transport and logistics sector, confidence expressed in their own organisation’s revenue growth over the next 12 months was at a five-year low. Only 29% stated they were ‘very confident’ while in 2017, 45% were safely in the confident camp.

PwC itself is not short on advice for transport companies looking to get on the first rung of using technology to defend or build market share and improve margins.

One technology that it believes is relatively unexploited yet holds meaningful potential for transport and logistics is Blockchain to solve bottlenecks in the logistics arena due to a lack of transparency, red tape or legacy paper-based systems.

Blockchain has the potential to eliminate most of these roadblocks because it can serve as an encrypted digital ledger, tracking the movements of products from warehouse to customer and linking documentation directly to the shipment as it makes its way to the destination.

Its biggest impact could be in reducing the inefficiencies in last-mile deliveries, driving up profit margins in a part of the transport business that is notoriously thin on returns and costly to manage.

Transport companies should also consider the use of Artificial Intelligence to help them distinguish themselves from competitors, provide a higher level of service, cut costs and enhance day-to-day operations, it believes.

For instance, fleet management could be greatly improved by the greater use of sensors onboard ship connected to AI programmes that monitor fuel consumption and recommend ways to minimise usage of consumables. AI can also power programmes that drive proactive maintenance activities before expensive and time-wasting major breakdowns occur, something that leading class societies are already examining.

For traffic scheduling, AI can tap networks of fleet sensors to forecast demand and organise shipments while providing precise delivery times. This not just improves efficiency; it opens up the possibility of dynamic pricing.

Just as travel companies adjust prices based on demand, seeking to generate the highest possible return for each ticket, transport companies could adjust their charges on the basis of pickup, shipment and delivery volume. While new in a landside logistics context, something similar happens in the charter market already as supply responds to peaks and troughs in demand.

Often lost in discussions about improving performance and results with digital tools is the positive, catalysing effect that new technology can have on non-technical parts of the business, including how workforces are deployed.

Just as technology will allow companies to track and consolidate shipments, transport firms could use the more robust and extremely granular location-by-location supply-and-demand data to develop flexible scheduling programmes for workers.

Partnerships or alliances linking start-ups with innovative technology ideas and established transport firms may become more routine in the future, especially as a way to recruit talent that is able to conceive new ways to implement advanced technology both in operations and in improving services offered to customers.

The need for these more technologically savvy employees is evident to CEOs responding to the latest survey; 55% said they were ‘extremely concerned’ that this skills gap does not allow them to innovate, 53% said that it is causing them to miss their growth targets, and 49% said that it is preventing them from pursuing a market opportunity.

But these sentiments are not yet resulting in much M&A or joint venture activity among technology firms and incumbent transport businesses, and virtually none among direct competitors in the industry. Indeed, only 37% of survey respondents anticipated entering into a strategic alliance or joint venture of any sort, and a mere 26% said they expect to collaborate with entrepreneurs or start-ups.

To survive in the midst of so much new competition and new technology simultaneously hitting the transport and logistics industry, executives must be prepared to adopt new strategies more than they have been in recent years, says PwC.

Everything — including how operations are structured and managed, the way digital technologies are adapted for creative uses and approaches, and how the workforce is hired and deployed — is ripe for change.

From the outsider perspective at least, the transport business is generally not known for its technological agility or its propensity for rapid reinvention. But to remain competitive and to grow their businesses in future, companies today shouldn’t grow too comfortable with familiar ways of doing business.