A tech ‘golden age’ awaits supply chains limping out of the pandemic

WHEN the pandemic arrived in the leafy lakeside town of Holland, Michigan, office furniture company Haworth needed more than hustle to avoid a supply-chain meltdown.

Global logistics director Crystal Feasby and her team hurried to set up an e-commerce platform to meet surging demand for the US$2 billion company’s products. With trucking in disarray, its dealers needed real-time information about their deliveries. So Haworth started using software from FourKites to pinpoint truck movements to help customers plan around the disruptions.

Feasby said: “Just like you want to know where your product is coming from when you order from Amazon, our dealers want to know when it shipped, they want to know where it is in transit, they want to know if the driver hit bad weather or traffic or whatever.”

The granularity Haworth sought was not just a Band-Aid in a crisis – it is now a permanent feature. C-suite executives across the world are increasingly convinced that such upgrades are needed after the pandemic exposed supply chains as rife with tech deficiencies and lagging in their embrace of digital commerce.

As supply snarls recede this year, they are giving way to a different kind of disruption in the US$10 trillion global logistics industry: a tech transformation, where everything between an assembly line and a store shelf will be tracked in real time, fortified with artificial intelligence and automated. The long-term economic upside of the shift will be a disinflationary force after three years of price pressures from the supply side.

The smart money is betting it will not be just a fad. Venture capitalists and other private equity investors have been funding logistics tech companies at a rate of US$9 billion a quarter since late 2020. The number of unicorns – startups valued at more US$1 billion – has doubled to more than 60 in just 18 months, said CB Insights, a New York-based tech market researcher. 

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Online shift

From newcomers like Chicago-based FourKites to mainstays such as shipping line AP Moller-Maersk, the companies leading the upheaval are racing to move all stages of a transaction online.

That is because so much in logistics still runs through middlemen and is done manually – pricing handled over e-mails and telephones, visibility tracked on Excel spreadsheets, backbreaking work done by humans that robots can now do. Investment banking firm Cowen notes that less than 10 per cent of warehouses globally are fully automated. 

“What worked 30 years ago is not going to work going forward,” said Corey Tollefson, president of worldwide field operations at Blue Yonder Group, a digital supply chain solutions provider. Panasonic bought the Scottsdale, Arizona-based company in 2021 for about US$7 billion. “This is just the first step of a multi-year, probably multi-decade, transformation of many supply chains.”

Daniel Swan, co-head of McKinsey & Company’s global operations practice, said: “I do think we’re in a kind of golden age over the next three to five years of companies reinventing their supply chains.”

The opportunities are huge, said George Sutton, a senior tech analyst at Craig-Hallum Capital Group and an early supporter of Amazon. At the FreighTech 2022 conference in Barcelona in September, he said: “This marketplace has not really been disrupted yet.”

In a separate interview, he said that supply chains have many characteristics that make the industry ripe for a full digital upheaval: global scale, enormous complexity, multiple unconnected sectors and a plethora of available data that lacks transparency. 

“You literally have a world where fax machines are still used in many cases,” he said. “This is an absolutely enormous, totally addressable market bringing together all of this demand and supply, and all these different modalities with all the valuable data involved. To us, that smacks of a really big opportunity.” 

More unicorns

CB Insights found that there were 64 supply-chain tech companies valued at more than US$1 billion as of October. This was almost double the number of unicorns in late 2020, and they brought the group’s total valuation to US$173 billion.

Funding in the sector reached US$37 billion in 2021, nearly twice the amount in 2020, and totalled US$9.4 billion in the first three months of 2022.

Sutton saw parallels in logistics services between now and 25 years ago, when consumers who wanted to book flights had to go through travel agents. 

“I really think that this market, 10 years from now, could look very similar. You can just imagine the efficiencies that could get created.”

Some have credited Covid-19 with accelerating the industry’s shift from analogue to digital. Julie Gerdeman, chief executive of supply-chain risk analytics firm Everstream Analytics, said: “The pandemic demonstrated that digitising supply-chain operations was far less expensive than absorbing the financial and reputational costs of constant disruption.”

Sacks of cash

The pandemic push to modernise has also extended to payments.

It was not long ago that cargo owners in some emerging markets were turning up with sacks of cash, despite the availability of online payment options, said Christian Gonzalez, executive vice-president of Manila-based International Container Terminal Services.

“Unfortunately, it required a global pandemic to get people to adapt to what were very simple, basic forms of payment,” he said. 

He said the company, which operates 34 ports in countries including the Philippines, Mexico and Madagascar, planned to roll out a digital application in some markets that would send push notifications to customers about the whereabouts of their containers. The initiative would provide instant visibility and perhaps contribute revenue eventually. 

There would be productivity gains too, especially in a port like Manila’s, where containers might sit for seven days. He said: “If we can bring that down to what it was pre-pandemic, which is five days, simply by giving someone free information, free transparency, that increases our capacity tremendously and reduces the need to reclaim more land, build more quays. It’s free capacity as far as we’re concerned.”

Pradeep Desai, chief technology officer of DP World, said the Dubai-based port operator responsible for handling about 10 per cent of global trade had hired about 500 engineers over the past year and a half, “specifically to focus on a variety of supply chain problems”. These included “providing end-to-end logistics solutions, tracking and visibility”.

He added that there was a “long road ahead” industry-wide to create online systems where there is better forecasting, detailed planning directed by those predictions, and capacity that increases as a result.

Among the disruptors is Flexport, a San Francisco-based digital freight-forwarding company that hired Dave Clark, the former worldwide consumer chief at Amazon, as its new co-chief executive in September. 

Flexport planned to double the size of its engineering team this year by hiring up to 400 software programmers. “It’s probably the best time in the last few years to hire technical talent,” Clark said.

He added that the digitisation of supply chains still had a ways to go – and data transparency alone would not be enough to get there.

Early innings

“We’re in the early innings still, or maybe the late innings of the first phase, where people are starting to get their data digitised and have visualisation of their data,” Clark said. 

“Today, we’re getting data in a better condition to humans who are doing analysis on it. Where we need to be is automating much of the decision-making along the way so that people can focus on how to add other incremental value to the process.”

Some container lines are jumping on the digital bandwagon. Germany’s biggest carrier, Hapag-Lloyd, is adding sensors to its fleet of three million 20-foot containers and will offer customers “full visibility of any container movement worldwide” this year.

Last month, Maersk Growth, the venture arm of Danish shipping giant Maersk, joined a group of investors providing US$20 million in funding to Pactum AI. The Silicon Valley-based firm offers software that helps big corporations like Walmart automate thousands of routine supplier negotiations.

Maersk had used Pactum’s algorithms to expedite contract talks with truckers in 2021, as rates moved quickly at the height of the driver shortages then.

Pactum co-founder and chief executive Martin Rand said that such time- and labour-saving technology would bring broad economic dividends.  “If we’re able to create a bit more value in those negotiations, we can basically raise the world’s GDP. This is value for the whole economy – this is a counter-cyclical force to combat inflation.”

Weeding out another form of waste in the system – carbon emissions – is another big driver of data transparency. “Companies that can’t see their extended supply chain can’t accurately calculate their total emissions, let alone improve them,” said Gerdeman of Everstream Analytics.

Lessons learnt

The industry’s tech initiatives have not all stayed on track. Maersk is dropping its previously-hyped, blockchain-based platform, TradeLens, after it failed to catch on.

The lessons from all the disruptions since 2020 have underscored how the term “supply chain” itself is something of a misnomer, because it suggests that global trade is seamless and unbreakable.

“The fact that we can get freight from one place to another does not mean that we’ve already created those digital connections,” said Ruthie Amaru, chief product officer of Freightos, which is set to go public this year after its merger in 2022 with blank-cheque company Gesher I Acquisition. 

“Today, we’re still in a situation where much of the pricing is manual, much of the booking is manual – rate sheets, e-mails, faxes, telephones,” she added.

That is changing quickly, though, as boards of directors and chief executives now believe that their supply chains are overdue for investment rather than as mere cost centres, said Chakri Gottemukkala, chief executive and co-founder of o9 Solutions, whose software helps identify supply disruptions and forecast demand. 

“The past three years have accelerated the importance of what we do for companies and elevated it to boardroom situations,” he said. “Everyone is saying, ‘How do we deal with all the complexity and variability and uncertainty on demand and supply that every company is facing?’” BLOOMBERG