· By Sangeet Paul Choudary, Marshall W. Van Alstyne and Geoffrey G. Parker ·
Major change is coming to the logistics and shipping industries – a transformation that promises to be even more dramatic than the move to third-party logistics a generation ago. With increasing digitization, platform-based business models will connect new players, wash away inefficient old ones, and harness the cloud.
Consumer-facing transportation and logistics have already seen the rise of platforms such as Uber and Deliveroo, yet business-to-business logistics pose different challenges. Where successful firms once coordinated just two parties’ assets — those of shippers and receivers –logistics hubs now coordinate multiple stakeholders, involving containers, finance, fuel, transport, regulatory approval, and more. Multi-party coordination of this asset-intensive industry adds to overall complexity.
At least three factors are driving the industry move to platforms: New infrastructure and technology, richer and more visible logistics data, and relentless pressure to reduce costs. Customers demand the increased functionality that platforms provide along with the cost reductions that come from better use of assets. Allocating spare capacity to its best use creates value, while platform business models allow value capture from links in a chain, without any one party having to own the whole chain.
Over the past decade, sensor-generated data from physical assets such as delivery vehicles, containers, and warehouses have vastly increased visibility across the logistics value chain. In addition to the benefits derived from such rich operational data, the emergence of blockchain and other distributed-ledger technologies enables public record-keeping and automatic coordination where digital and physical events can trigger one another. Data created by sensors, ERP systems, inventory palettes, and shipping events can automatically add records to the blockchain, which can launch cascading events farther along the value chain. Meanwhile, the blockchain’s open architecture allows multiple parties to contribute, share and co-govern their data at a single source, with an array of benefits: Public records increase transparency, with the result that all actors are held to high standards. Further, a blockchain’s ability to manage permissions, asset ownership, and accountability helps assure service quality. Trust improves because any individual performance lapses, which could be hidden among the complex systems in the past, become visible to all parties at every stage.
Facilitating this transformation, banks around the world are financing industry interoperability by partnering with logistics firms to leverage the blockchain. Greater transparency using the blockchain enables better investment decisions across a wider range of transactions.
Platforms in action
Consider how global shipping giant Maersk and IBM have partnered to launch TradeLens, a blockchain-based platform for managing global shipments involving multiple stakeholders. Events across the shipping life cycle – credit checks, contract signing, arrival at port, and payment – can be recorded publicly. On TradeLens, event data and document information are written on the blockchain, which creates a single source of truth that all can see. Contracts can also execute automatically on the blockchain. When a specific event is recorded — say a delivery at a port — the corresponding contracts encoded in the blockchain are automatically activated, removing human errors, delays, and lost documentation.
For example, customs clearance documents that must be completed during port entry can be automatically executed as smart contracts when data about the ship’s entry into the port are successfully recorded onto the blockchain.
Beyond the use of blockchain, another solution, Singapore’s Transport Integrated Platform (TRIP), connects distinct logistics stakeholders. This platform provides a single shared view of the logistics life cycle to independent players. TRIP includes fleet management and job allocation tools as well as data from diverse sources such as depots, port authorities, freight forwarders, and shippers.
Enterprise cloud technologies are also increasing coordination across the supply chain. As more companies move their digital processes and workflows to the cloud, they can share data with one other more easily through Application Programming Interfaces (APIs), software that allows two applications to talk to each other. Using APIs, supply chain events can be aggregated on central platforms that receive data from participating firms’ distributed systems in real-time. Supply chain efficiency can be continually optimized.
Logistics platforms like TRIP and TradeLens scale through a combination of network effects, learning effects, and coordination effects. As more fleets, ports, warehouses, and containers become instrumented, the value of these platforms increases via network effects as partners create value for one another. Value grows in multiple ways. First, greater availability and coordination of fleets, warehouses and containers leads to faster end-to-end shipment and better route optimization. Second, as different types of fleets and warehouses come on board, the scope of use cases logistics platforms can handle also increases. For example, fruit and meat have warehouse temperature and humidity requirements that car parts do not. Petrol has anti-combustion requirements that fruit and meat do not. As an expanding set of warehouses with different specifications join a platform, the platform becomes more valuable to more parties. Third, as the platform mediates more shipments, it learns which shipping lifecycle events and which actors create more delivery volatility and then uses this learning to hedge and buffer future operations. This learning not only enhances performance but also reduces cost as unreliable partners can be improved or dropped. Finally, creating a platform-based market for idle assets such as transportation and storage capacity allows them to be time-sliced and rented at increasingly fine grained and coordinated intervals.
While big companies like Maersk are early adopters, small and medium enterprises (SMEs) are also turning to logistics platforms to capture value from their spare capacity. They bring localized fleets and warehouses to the platforms while depending on them for advanced technology like blockchain. Cross-border SME trade is leading to more decentralized trade flows, which require superior tracking and logistics coordination. Alibaba’s Cainiao data platform, UPS’s Ware2Goplatform, and project44 seek to address these challenges by connecting e-commerce companies with logistics players to manage end-to-end orchestrat ion. Project 44 provides analytics and instantaneous 24/7 tracking to 25,000 firms. Cainiao offers smart routing and sorting services to delivery firms. The platform also provides integrated warehousing solutions to brands. All stakeholders are managed through one data platform, without any one company having to own all the necessary assets.
The Last Mile
Finally, decentralized last-mile delivery services are a growing industry that will interface with central logistics platforms and can be expected to do so even more as they become autonomous. Amazon’s delivery drones and Uber’s self-driving cars are not yet ready, but in time will offer autonomous, platform-enabled solutions for last-mile delivery. For example, a logistics startup, Dispatch, recently purchased by Amazon, is developing a six-wheeled urban delivery robot that will generate even more value when it connects with logistics platforms.
We believe that the convergence of rich logistics data streams; new cloud, platform and blockchain technologies; and strong market forces will give rise to new platform business models in the logistics, trade, freight, and maritime industries. There will be tremendous opportunity for new providers to connect but tremendous challenges for incumbents to adapt to the coming market structure. New capabilities will be required to leverage the potential these platform systems offer and to manage the threat they pose to existing revenue streams. While any move into platform-based logistics has its risks, the bigger risk would be to ignore the trend.
Sangeet Paul Choudary is a C-level advisor to executives globally on platform business models and an entrepreneur-in-residence at INSEAD. He has been ranked among the top 30 emerging business thinkers globally by Thinkers50 and selected as a Young Global Leader by the World Economic Forum. He is a co-author of Platform Revolution (W.W. Norton & Company, 2016) and the April 2016 HBR article “Pipelines, Platforms, and the New Rules of Strategy.” Follow him on Twitter at @sanguit.
Marshall W. Van Alstyne (email@example.com) is the Questrom Chaired Professor at Boston University School of Business. His work has more than 10,000 citations. He co-authored Platform Revolution (W.W. Norton & Company, 2016), the April 2016 HBR article “Pipelines, Platforms, and the New Rules of Strategy” and the October 2006 HBR article “Strategies for Two-Sided Markets,” an HBR all time top 50. Follow him on Twitter @InfoEcon.
Geoffrey G. Parker (firstname.lastname@example.org) is a professor of engineering at Dartmouth College and a research fellow at MIT’s Initiative on the Digital Economy. He co-authored Platform Revolution (W.W. Norton & Company, 2016), the April 2016 HBR article “Pipelines, Platforms, and the New Rules of Strategy” and the October 2006 HBR article “Strategies for Two-Sided Markets,” an HBR all time top 50. Follow him on Twitter @g2parker.