The state of Logistics Technology in 2023
Logistics Technology is both exciting and controversial. Right now in early 2023, logistics technology, also called LogTech, has exited a period of easy funding and founder freedom. Today’s landscape is more sinister, with only the most experienced logistics professionals potentially receiving funding for their big ideas.
As runways shrink, funding dries-up, and investors see their logistics technology ROI rates tumble, you have to ask yourself what is happening in logistics technology in 2023?
What is Logistics Technology?
Logistics Technology or Logtech refers to the use of software and hardware systems in the process of moving goods and the information that accompanies them. It encompasses a broad range of technologies, including transport management systems (TMS), warehouse management systems (WMS), freight management systems (FMS), and various other software platforms designed to enhance visibility, efficiency, and cost-effectiveness across logistics processes.
The hardware side of logistics technology refers to the physical devices and equipment used to support logistics processes. This includes tools such as barcode scanners, RFID readers, GPS tracking devices, and the myriad of other sensors and gadgets available today. You can dive deeper and talk about the use of robotics and autonomous vehicles in logistics as part of Logtech.
Ultimately, logistics technology boils down to any software and hardware that plays a role in enabling automation, optimization, and integration of logistics operations across the supply chain.
Why is Logistics Technology important?
As logistics processes evolve, so do customer expectations and needs. Simply agreeing to move goods from one place to another and then delivering on that promise is not enough. In our everyday lives, technology is everywhere, and contributes to making things easier. We drive smarter vehicles, our refrigerators can talk to us, and our homes know when to switch on the aircon. This technological revolution has leaked into many industries, and logistics has not been spared.
As fewer people enjoy picking up the telephone for a chat, customers need other ways of tracking their goods in real time. Today’s expectation is immediacy. Everyone wants immediate access to the information they seek, or to the purchase they’ve just made online. This makes logistics technology that much more important, because without it, we could never meet expectations.
How does Logistics Technology work?
There isn’t a singular way that Logtech works. It improves the entire logistics process in different ways, with different technologies. Here are some examples of what you can achieve with logistics technology:
- Increase efficiency: logtech helps automate and optimize manual processes involved in supply chain management. AI and machine learning enhanced data entry and document scanning saves time and reduces the need for manual data input. Data warehousing and data lakes improve the structure in which data is stored, making it both more accessible and actionable, improving decision making with a trickle-on effect across entire logistics processes. These are just two of many ways logistics technology can improve efficiency.
- Improved visibility: visibility is a hot topic in logistics right now. Logistics technology can provide real-time visibility down to the sku level, helping companies make the right decisions and respond quickly to changing conditions. Real-time tracking of goods in transit is possible depending on the mode of transport, and is often oversold by the data providers. As a growing industry, logistics technology is far from perfect, and you need to exercise caution when choosing software or hardware.
- Competitive advantage: there are reasons that top 3PLs using industry leading platforms are outperforming the competition of similar size and headcount. Companies that invest in logtech gain competitive advantages over those who do not. However, as the gap narrows and more companies gravitate towards the same solutions, how will logtech remain a differentiating factor?
Logistics technology for freight forwarding – what does it look like today?
Freight forwarding has its fair share of logistics technology available, but just how healthy is the current scene and are you as a forwarder getting the best deal?
The brief answer is no. Freight forwarders are not getting the best of logistics technology today, as we are in the middle of a battle between the old guard of big ERP solutions and the new generation of forwarding logtech that has appeared with the rise of Flexport.
How are new logistics technologies competing with the old guard in the freight forwarding space?
With the likes of Magaya announcing their intent to acquire customs compliant logtech solutions in Europe, Cargowise expanding into landside logistics stateside and releasing a global customs platform, and BluJay seemingly disappearing from the 3PL space, the old guard are a mixed bag right now.
Cargowise continues to push their big and bold strategies, and with them will come further price increases to the basic license cost, leaving small and medium forwarders having to either count pennies or choose a different platform. WiseTech’s “industry leading” solution appears to dominate at the top end, although some global 3PLs remain on self-built solutions. They will either set the trend for others to follow, or continue to build a monopoly that only self-built solutions can compete against.
What do older software solutions look like for freight forwarding?
Magaya, Riege, Softlink, BluJay, Cargowise, Descartes… These names are the usual go-to group when freight forwarders are looking for software solutions to move international freight. The platforms are rather dated, with an emphasis on functionality over optimized UX flows or fancy UI designs. Some solutions are more regional, others global, and rarely do they come cheap.
You would be forgiven for saying each platform is quite similar. The only differentiating factors in freight forwarding logtech from the early 2000s and 2010s are usually regional compliance and workflow capabilities.
These solutions rarely excel at connecting with third parties, often requiring bespoke EDI connectors to be built by third parties at the customers’ expense. As the solutions only run a single version, paying to fast track development of functionality that will become available to all your competitors is commonplace.
Overall, the pre-existing logtech scene for forwarders was rather stale, with Cargowise’s meteoric rise to the top at the expense of the likes of BluJay who have all but disappeared from the 3PL space, now preferring to focus on TMS and BCO facing solutions.
If anything, healthy competition and real innovation available to all small, medium, and large forwarders will be a welcome addition.
What do freight forwarders really need?
When you see companies like Flexport raise over two billion dollars, you realize that this is a multi-billion dollar question. International freight forwarding extends far beyond simply moving goods from one port to another by air or ocean. We’re talking about a complex patchwork of stakeholders and processes, with a large number of milestones, not to mention customs and other regulatory compliance issues to factor in.
Freight forwarders need a solution that empowers them to tackle these issues, and more. As previously mentioned, customers are not content with their goods moving from A to B. Enhanced customer experience is now a need, not a want, meaning logtech for forwarders needs to evolve in the way they handle data, visibility, BI, and interactions with third party solutions.
Aside from Cargowise who are attempting to do this through acquisitions and software development, the other providers with smaller budgets and fewer hands on deck to rely on, may start turning to new logtech players for help.
What will logistics technology look like for forwarders moving forward?
We’re going to see a shift in the way small and medium sized forwarders use software. Instead of taking on the sticky solutions of yesterday and having to bend their processes to the logtech’s capabilities, the opposite will happen. Forwarders will be looking for platforms that fit their processes. They may achieve their goals through a combination of different forwarding software options, including older established names and a number of new niche products.
Focus on processes and efficiency first: you can’t polish a turd
As rates are low and look to remain so for the foreseeable future with demand in the toilet and a potential recession around the corner: processes and efficiencies will be the key to surviving, and potentially thriving.
Technology that enables forwarders to optimize their existing logistics technology stack will most likely see huge success throughout the year, as forwarders will not be able to bear the cost of lengthy operating platform switches.
There will be room for some switch for those who need it most. This is particularly true for SMB forwarders using Cargowise, as the price continues to rise and activity levels fall, the platform no longer makes sense for a money conscious company looking to remain profitable. There will be a need for smart logtech solutions that allow simple transition from one platform to another with minimum disruption, as freight forwarding operations do not pause for the weekend.
Can logistics technology for freight forwarding optimize and empower without replacing?
Logistics technology today will need to deliver real value without replacing existing software already in place. This is one of the major challenges that new software solutions will face in 2023. The use of technology in logistics is established, but this is a recent phenomenon. Forwarders will not be looking to change operating systems shortly after going through a potential multi-year implementation. This is true for SMBs as well as enterprise forwarders. It takes years for a company to truly implement a new solution, uprooting processes and staff in the process.
There is a belief today that logistics technology is shifting away from broad solutions like Cargowise which provide breadth and depth of functionality usually beyond what any SMB forwarder needs. The new format of logtech for forwarders is a best in breed model, held together with a smart net providing data sharing and simple document pass through.
This model can be achieved today with relative ease, using the likes of Prompt’s CWDW solution to consolidate data from multiple sources, before pushing it in real time to Prompt Visibility. This will provide the forwarder with an overview of their operations, and their customers with a visibility portal to both track and interact with shipments, in near real-time.
Other platforms like Magaya are turning to third parties to build the connections between their logistics tech and third party platforms used by partner agents or BCO customers. We’re also seeing forwarders purposefully using third party solutions for functionality already included in their platform, because it is simply better, or more in-line with their processes.
So the answer is yes. Logistics tech for freight forwarding can deliver huge value without turfing-out existing solutions and causing huge disruptions. Moving forward this will be a requirement for providers to survive.
Choosing the right software providers will make or break forwarding operations seeking stability
Our industry is in a weird place right now. The influx of funding has created an overwhelming amount of logistics technology companies hoping to cash-in on what they believe is a new market. This market has existed for decades, and the extra attention, although welcomed, is not doing it any favors yet.
The majority of solutions we’ve seen appear over the past few years will no longer be around by the end of 2024. Be it through bankruptcy or consolidation via M&A activity, we’re seeing a contraction in the number of logistics technology companies and it will worsen as the year progresses.
If you’re looking for solutions today to improve your forwarding operations, dig deeper than just what the product does. You need to know if the company has longevity in it, or if you will be going back to market in less than a year because they no longer support the product. Freight forwarders need to seek profitable companies with founders who come from the industry, rather than funding chasers who do not understand the complexities of this industry. Why? Because those funding chasers will be the first to go as the money tap continues to tighten, potentially impacting your operations in a big way.