Digital Transformation: Why the logistics industry is the next megatrend

You are a successful serial founder, Chairman of the digital forwarder freightHub and partner at the venture capital firm Earlybird, which focuses on European technology innovators. You’ve been making targeted investments in the logistics industry for over three years. Why?

We first became enthusiastic about the fields of logistics and supply chain technology in 2015. Before that, my brother Ferry and I had analysed the logistics market for over six months. While doing so, one of the things we focused on was digital value chains and the degree of process digitalisation. We ultimately concluded then that the technical possibilities available in the logistics industry aren’t being sufficiently exploited. Technologies like cloud services, mobile internet, the Internet of Things (IoT) and sensor technologies are only used in the logistics sector to a minor degree, if at all. This gap offers a lot of potential for young companies. In my view, the logistics industry will be one of the next megatrends.

You speak of megatrends. However, in some of the things you’ve written, you say that the logistics industry is still lagging behind in terms of digitalisation. How do those two statements fit together?

The things currently on offer in the logistics industry don’t meet the expectations of a Generation Y logistics manager. In this case, I see a gap between what the customer is used to today from his everyday life in terms of cloud interface, end-to-end service, real-time communication and cost transparency, on the one hand, and what the logistics industry on average is willing or able to offer, on the other.

In 2018, Hapag-Lloyd made its first step into the field of real-time pricing with the introduction of Quick Quotes. What do you think the biggest challenges for the logistics industry will be?

With this offering, Hapag-Lloyd is providing exactly what importers and forwarders currently expect. But real-time pricing is only the first step of an entire process chain. The spectrum includes booking, document and transport management with Track & Trace, delay notifications, real-time updates, push messages and supply chain analyses offering optimisation recommendations based on shipment data.

Where do you see the biggest challenge right now?

The challenge involves the issue of just how quickly the current players in the fields of shipping, air freight, road transport and freight forwarding will invest in digital transformation. All this must be done with the aim of leaving behind manual, slow and error-prone legacy processes – such as email, telephone and fax – and establishing cloud-based data processing in real time.

Do startups enjoy any advantage in terms of being forward-looking?

Not entirely. One major disadvantage that startups have is their low capital strength and their lack of physical access to ships, planes, warehouses and containers. For startups, it will be crucial to build up the necessary contractual relationships and networks with existing carriers. The required data can be generated using state-of-the-art technology, such as geofencing and real-time vessel tracking, and then they can feed this data to customers in their applications.

How will things develop in the logistics market in the years ahead?

To start with, the initial results will only become apparent in five to seven years at the earliest. The development will have less of an impact on transport, i.e. the core domain of Hapag-Lloyd and other market players. Due to the high level of fixed assets, this field is hard for venture-capital-financed startups to access. My hypothesis is that a dualism will develop in the booking and chartering business, and that it will be made up of some established champions who have succeeded in digitally transforming themselves as well as two or three startups.

What kind of influence will customers have on these developments?

A big one. After all, it’s the customer who ultimately decides. We’ve already noticed this in other industries, where we have repeatedly seen a cliff-like development.

Newcomers to the industry, such as Amazon, are also trying to gain more and more control over the entire logistics chain. After launching the freight airline “Amazon Air” and setting up its own storage centres, the mail-order company is now also investing in cargo shipping. What do you think about this development?

Since the 1990s, Amazon has grown from a traditional online book retailer into a platform for goods of all kinds. It did so by opening up its strong shop to external providers. Horizontal product expansion has been largely exhausted by now, and there are only a few niches that Amazon doesn’t serve. Amazon’s foray into logistics is ultimately a deeper integration of online trade into the entire value chain. For example, Amazon is starting to take control of the supply chain not only in its warehouses, but also in factories in China.

So, will Amazon will become a competitor to large shipping companies?

I don’t think we should expect to see that in the next three to five years. As I see things, Amazon isn’t ready to invest in its own ships. However, it’s already chartering a Boeing 747 to gain even more control over its business in the peak e-commerce season. This vertical integration is also smart from a communications standpoint, as this is how the company’s strategic success story can be convincingly updated for the capital market. But it’s also a sign that the paradigm shift will initially be faster in the air freight sector. In the parcel logistics sector, such as at DHL, I would prepare for the worst. In any case, given its financial strength, Amazon should be taken very seriously.