The logistics industry should heed past innovators as it grapples with Amazon and Alibaba’s clear desire to take greater control of their logistics processes, according to CoLoadX founder Fauad Shariff.
It’s good to study history. It reminds us of adage: “the more things change the more they stay the same.”
It gives us a way to learn from our mistakes, but also a blueprint for our future successes. In American history, no two names may be more synonymous with success than John D. Rockefeller and Andrew Carnegie. One was an oil tycoon, the other a steel magnate.
Both of them got into the shipping business.
Aside from Standard Oil, Rockefeller also owned interests in mining and needed to control the transportation of ore from the mines to his mills. Rockefeller’s Bessemer Steamship Co. grew to a fleet of 60 ships and carried not only the ore his mills needed, but also all the ore that Carnegie purchased for his steel mills as well.
Supply chain management is all about risk management and Carnegie saw the risk of relying solely on Rockefeller. So soon enough, he established The Pittsburgh Steamship Co.
Carnegie’s main motivation was to protect himself against possibly excessive freight rates. So the two leading business men of their times saw the value of controlling their own logistics and got into the shipping business.
Fast forward about 115 years to the age of e-commerce and internet billionaires like Amazon’s Jeff Bezos and AliBaba’s Jack Ma, and what do you find? A dire need to control logistics.
Amazon and AliBaba don’t rely on each other for freight services, but they both see that the single biggest threat to serving their customers is inefficiency in the logistics process. So Amazon has a fleet of planes and a network of couriers operating under the “Prime” brand. Their Chinese subsidiary recently became an non-vessel-operating common carrier. And they’ve even managed to do something other U.S. taxpayers couldn’t: get the U.S. postal service to deliver on Sunday.
AliBaba has invested significant resources into logistics as well, including freight rate boards, domestic delivery and warehousing inside China, and many other moves designed to speed the flow of their goods to customers. And last week we learned that their ecommerce technology will be used by Maersk to make online booking available to its customers.
So what does this all mean for the shipping industry? A lot actually. Let’s take a look at some of the more immediately affected:
• Freight forwarders & NVOs – When Amazon and AliBaba entered your industry they made their feelings perfectly clear: “You guys stink at this whole logistics thing. In fact, you stink so badly that, despite being a retail business, we’re going to invest our own money and show you how we can do it better.”
The fact is that “business as usual” and “that’s the way we’ve always done things” just won’t work for logistics businesses if they want to be relevant in the supply chain of the future. Much as Amazon and AliBaba have become platforms for commerce, the logistics industry needs to embrace such platforms of its own. Your value to customers is in your service and knowledge, but you’re applying manual tools to an increasingly digital business. Adapt soon or you’ll be running an office full of horse carriage drivers.
• ERP and logistics software companies – It’s great to have customers with massive IT budgets that will spend heavily on technology. Let’s call your customers the “Global 2,000.” That’s a nice spot to be in, right? Only 2,000 companies to focus on, with about 50 vendors capable of meeting their software needs. There’s plenty of high margin business to go around. Well, you’ve already seen what cloud computing has done to technology infrastructure costs (thanks in no small part to Amazon Web Services, mind you). Now imagine what happens when technology-driven businesses start using that cloud technology as a weapon against deployment costs, license fees, scalability and analytics suites.
• Carriers/Steamship Lines – Come on guys, EDI? Seriously? Follow Maersk’s lead, figure this one out or go the way of the airlines. At least they used their bigger planes to sell more profitable business class tickets. What are you going to offer? Roomier containers?
• Shippers – Amazon and AliBaba are B2C companies taking control of their logistics. It can’t be long before other retailers feel compelled to do the same. If you’re a B2B enterprise selling to factories or oil fields, does a broken part have to shut you down for a week when Amazon Prime can deliver a new smartphone to your house in a few hours? If you sell into a dealer network, is there any reason for inventory shortages, or price discounting for high volume dealerships? Does it make sense that a high value, high margin product going to a captive customer would take longer to deliver than consumer goods?
The supply chain of tomorrow is being built right before our eyes. A bill of lading from Amazon, or a booking slot arranged through AliBaba, is the first step in a complete transformation of the world’s logistics process. It’s a time of amazing opportunity and you should be excited. Unless of course you believe this is a relationship business that can never be automated. In which case, there’s a place in the history books for you, but it won’t be alongside Carnegie, Rockefeller or today’s innovators.
Fauad Shariff is co-founder of the digital ocean freight procurement platform CoLoadX.