Fasten Your Seatbelt! Digital Transformation is Driving a New Era in Transportation

Fasten Your Seatbelt! Digital Transformation is Driving a New Era in Transportation

By Christopher A. Boone

Rarely has the importance of transportation been more evident or acknowledged as during the first few months of 2020. The COVID-19 crisis elevated stories of logistics issues from the warehouse floor to front-page news. It also highlighted the essential services provided by logistics and transportation professionals. The added and well-deserved attention allowed many from outside the industry to understand and appreciate the impact logistics and transportation have on nearly every facet of our lives.

Transportation is a vital part of the supply chain that underpins and enables the lifestyles and conveniences we have all come to expect and on which we rely. Transportation is also an essential component of our economy. Total business logistics costs in the United States were more than $1.629 trillion in 2019, accounting for approximately 7.6 percent of gross domestic product. More than 65 percent of this cost ($1.059 trillion) was spent on transportation.¹ The trucking industry alone moved an estimated 11.8 billion tons of freight in 2019, and 7.95 million people were employed in trucking-related jobs.²

For those within the industry, the COVID-19 pandemic served as a catalyst, accelerating the focus on digital transformation efforts. The 29th Annual Study of Logistics and Transportation Trends, completed in partnership with Mississippi State University, the University of Tennessee, Georgia College and Logistics Management magazine, surveyed more than 290 logistics and transportation professionals to gain added insights into how their organizations are responding to the new pace of digital transformation.

The study revealed a number of interesting and timely insights.

The COVID-19 Crisis Is a Pivotal Moment in Digital Transformation

Some have suggested the COVID-19 crisis vaulted consumer and business adoption of digital technologies five years forward in only eight weeks.³ The sudden need for better asset and product visibility, skyrocketing e-commerce demand, the shift to remote work environments and requirements for contactless interactions certainly had a profound effect on transportation-related digital transformation efforts. Over 74 percent of carriers and 78 percent of shippers agreed the conditions created by the COVID-19 crisis were a catalyst for transformational projects.

Transformation Is Not (and Has Never Been) Just About Technology

While technology is certainly necessary for the digital transformation of logistics and transportation, history has shown technology alone is rarely sufficient to deliver the desired value. In the early 1900s, companies that had made significant capital investments in horses and wagons were skeptical of transitioning to motor trucks. Those that did adopt trucks often committed what an anonymous writer in 1914 called the “horse-pace-blunder.” As cited by Traffic World:

“Many businesses committed the ‘horse-pace-blunder’ or ‘the application of motor trucks to conditions especially developed for horse pace.’ Motor trucks, he wrote, ‘must be operated at truck pace.’ That meant lengthening the distance between stops and increasing the number of daily runs to get the most productivity out of the truck.”4

Organizational strategy, structure, processes and technology all must be aligned to create new value and avoid the horse-pace-blunders of the past. To gain insight into the current state of alignment between strategy and technology, study participants were asked to characterize their organizations’ overall strategies as well as the tactical and operational objectives of their business areas during the last year.

The majority of respondents (55 percent) characterized their organizational strategies as a mix, balancing cost and service. This aligned with a significant shift in the tactical and operational objectives. Over 36 percent of respondents reported “maximizing profitability” as their primary objective, a 29 percent increase from 2019. We believe these shifts highlight a growing focus on cost to serve and adoption of technology to gain operational efficiencies while meeting rising customer expectations.

Visibility Is Essential to Digital Transformation

When asked which types of technologies would prove to be most important in the next three years, the clear number-one response was visibility. From a logistics and transportation perspective, visibility refers to having near real-time access to quality customer, product or supply information. Many survey participants referred to the “Amazon Effect” when describing the visibility needed to satisfy customers’ increased expectations regarding the location and expected delivery of in-transit shipments. Others referred to the potential value and impact increased visibility offers for improving asset utilization and increasing operational efficiencies.

Other technologies rated highly in this year’s study included predictive analytics, artificial intelligence, warehouse automation and digital shipping documents (i.e. electronic bills of lading). When viewed collectively, these technologies highlight a couple of important trends. First, the emphasis on predictive analytics and artificial intelligence points to efforts to make better and faster decisions. Second, the focus on warehouse automation and digital shipping documents reflects continued efforts to leverage technology to reduce costs and increase the efficiency of processes that have historically been labor intensive and time consuming.

Nearly 81 percent of those surveyed believed the increased digitalization of transportation will lead to a greater reliance on robust digital platforms. Digital freight-matching platforms and mobile apps from well-known providers (e.g. C.H. Robinson, J.B. Hunt, etc.) as well as those from popular startups (e.g. Convoy & Uber Freight) stand to benefit carriers and shippers by helping increase revenues, reduce costs and generate real-time data insights. Other platform-based models look to enable greater collaboration and even fleet sharing.

Successful Transformation Requires the Right Skills and Talent

Digital transformation requires different skills and new types of talent. This is not unique to the transportation and logistics industry. However, study participants indicated that recruiting, developing and retaining the right digital talent was especially challenging for transportation companies. Most felt this was largely due to a lack of awareness among recent college graduates regarding the increasingly digital nature of the industry and the rewarding opportunities for career growth and development.

When asked about the types of skills needed, participants indicated a balance between soft and hard skills was most desirable. The model new employee would possess core knowledge of the industry, be able to work with and analyze data, have strong critical thinking and communication skills, be flexible and adaptable to changing environments and have a strong work ethic.

In summary, the timing of the 29th Annual Study of Logistics and Transportation Trends provided insights into a thriving industry navigating its way through unprecedented circumstances. While there are still many challenges and changes ahead, the future of industry is bright and exciting. There has never been a time when we were prouder or more grateful to be part of the logistics and transportation community.

¹ 31st Annual Council of Supply Chain Management Professionals State of Logistics Report

² American Trucking Associations American Trucking Trends 2020

³ https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-COVID-19-recovery-will-be-digital-a-plan-for-the-first-90-days

4 “From Horse to Highway,” Traffic World Celebrating 100 Years 1907-2007 by William B. Cassidy

Dr. Christopher A. Boone

Christopher A. Boone

Dr. Christopher A. Boone serves as an Assistant Professor of Supply Chain Management in the College of Business. He received his PhD from Auburn University and previously taught at Texas Christian University, where he served as Director of the Master of Science in Supply Chain Management Program. Boone is an award-winning teacher and researcher with articles published in some of his field’s most prestigious journals including the Journal of Business Logistics and the Journal of Supply Chain Management. His current research interests include logistics and supply chain strategy, decision making and digital transformation. Previously, Boone served for 22 years in the U.S. Air Force, in a career that included a variety of logistics and leadership positions.