The logistics industry is a fragmented and inefficient industry comprising of shippers, carriers, and brokers (3PLs). It’s the backbone of e-commerce and is an industry that reached over $700 billion in the United States alone in 2016. The biggest problem in the industry in its current state is the human-to-human interaction for contracts, shipments and payments. The paperwork involved could take days to complete to send a shipment off. Tesla’s (NASDAQ:TSLA) CEO Elon Musk who infamously revealed that the company has gone “from production hell to logistics hell”. Alphabet Inc.’s (NASDAQ:GOOG) has recognized the problem, investing in logistics startup Convoy. Logistics companies such as Descartes Systems (TSX:DSG) and Drone Delivery Canada Corp (TSX.V:FLT)(OTC:TAKOF) are updating their operations to address the issues plaguing the logistics industry. Litelink Technologies (CSE:LLT) is taking a more technical approach with its 1Shift Logistics by utilizing A.I. and biometric technology to increase efficiency, transparency and reducing costs.
Empowering A Low-Tech Industry
The shipping industry is currently worth more than $8.1 trillion according to a Transparency Market Research report, and yet the majority of business is conducted using outdated systems that involve a lot of paper, pens, and human error. With the shipping industry projected to jump to $15.5 trillion by 2023, there is a clear need for logistics companies to embrace technology in their effort to improve business practices and efficiency.
Innovative companies outside of logistics have already begun to recognize these inefficiencies. Amazon alone saw its shipping prices increase by 31% year-over-year in 2017, which resulted in a net loss of $5.99 billion in a single year. For companies such as Litelink Technologies (CSE:LLT) these losses represent a unique opportunity to capitalize by introducing A.I. technology to this low-tech industry.
The logistics industry at a glance:
1) Shippers represent demand in the industry. These large companies such as Amazon, Walmart, and Costco create demand for products to be shipped from place to place. While some companies do have their own fleets, the majority of shippers rely on brokers to interact with carriers and ensure delivery.
2) Carriers represent the supply in the industry. These companies supply shippers with the trucks and drivers necessary to complete shipment. There are an estimated 3.5 million drivers in the U.S. alone, over 700,000 companies, with 90% of them having six or fewer trucks. Carriers are the backbone of this massive industry.
3) Brokers (3PLs) are the middlemen in the logistics industry. They connect shippers with carriers and take a cut of the profit along the way. The average broker will book around 3-4 shipments daily. They typically charge a 15-20% commission on every order, pay drivers early, charing them a 3-5% fee, and generate more than $150 billion in revenue each year.
Beyond this, there are several notable problems that exist as well:
1) Fragmentation: There is a lot of disconnected between the major parties. The top 20 brokers only account for 4% of revenues. A large portion of the industry is fragmented between many smaller brokers.
2) Inefficient systems: Outdated systems are the norm in this industry. Paperwork is plentiful, human error is commonplace, and manually tracking trucks can be extremely difficult. A technological change is needed to fix these problems.
3) Human error: Shippers, carriers, and brokers all rely on human interaction. Shipments are manually logged and can only be tracked when they arrive at key checkpoints. This often results in human error as brokers book drivers that are unavailable, schedule shipments with too little time, and create disputes with one another.
4) Time loss: Time is money in the logistics industry. Shippers, brokers, and carriers all suffer when time is wasted at any stage of the logistics process.
5) Rising prices: Costs are going up throughout the industry. To compensate, companies are raising prices. This translates to higher consumer prices and larger commissions for brokers.
Innovative technology has the power to change all of this in the logistics industry. In a modernized system, all parties will know exactly where a shipment is, how long it will be until it arrives, an accurate time estimate for a shipment, how much fuel is required to reach a destination, documents will be processed quickly, and the entire system will be streamlined to actually work.
Rising Stars Leading With Innovation
When you purchase something, it’s likely changed hands several times. That product was manufactured, processed, packaged, brokered, shipped, received, and sold. That’s the level of inefficiency that currently exists in the logistics industry and what has to change.
Technology is the logical answer to the problems the logistics industry is facing. If shippers and carriers want better prices, and brokers want to survive, they will need to adopt new technologies like Litelink Technologies’ (CSE:LLT) 1Shift platform.
Major changes are knocking at the door of the industry. Venture capital is flowing into the industry, having increased by 1100% since 2013. In 2015, $71 million was invested, with that number reaching $1 billion in 2017. In mid-2018, CapitalG, Alphabet’s investment firm, bet big on disruptive technologies in the logistics industry when they led an investment round of $185 million into Convoy at a $1 billion valuation. Prior to that, Jeff Bezos and Bill Gates also took positions.
Uber Freight’s run rate will hit $500 million in 2018. It’s parent company, Uber Technologies had a valuation of $72 billion back in February 2018.
Litelink Technologies (CSE:LLT) is a rising startup that raised CAD $14.9 million in a public offering earlier this year has a market cap of CAD $28 million. The company will be demonstrating their flagship 1Shift platform at the BiTA conference on November 14th. The platform is capable of collecting a variety of data points giving all parties the ability to select the most affordable and efficient jobs and routes. Brokers will be able to white label the platform to book loads and manage their business more efficiently. Carriers can manage their bill of ladings and gain instant access to a multitude of loads based on location, lane preference, truck type and load history using artificial intelligence technology allowing them to earn more. Shippers can post their loads and gain access to their truck driver network that is connected to the mobile app. Smart contracts are built with Quorum blockchain technology to create an immutable agreement that is posted on the blockchain to validate contracts. Shippers can also rely on 1Shift’s verifiable ratings engine to give them insight on which carriers are the most reliable to get their shipments delivered on time.
Both shippers and carriers desire a sensible long-term solution because it may lead to the eventual elimination of costly brokers as their networks get absorbed into these logistics platforms.
We’ve already seen the value of data and modernized systems when it comes to smart technology, marketing, and other industries. While the logistics industry may be outdated, it is on the verge of a technological breakout that could change the way the entire industry functions.
Companies Innovating Within the Logistics Industry
Tesla (NASDAQ:TSLA): Tesla is the world’s premier electric car company. With a wide range of products, including the Model S, Model 3, Model X, battery technology, and solar panels through Solar City. The company is rapidly investing in logistics through the creation of its own line of self-driving semi trucks. However, unlike other car companies, Tesla continues to struggle with production issues as it tries to mass produce its new Model 3 car.
Alphabet Inc. (NASDAQ:GOOG): Alphabet Inc. is the parent company of the world’s most popular search engine, Google. The company also provides investment capital to innovative companies. Recently, they led an investment round of $185 million in the logistics company Convoy, valuing them at $1 billion. The company seems focused on improving the logistics industry using disruptive technologies.
Descartes Systems (TSX:DSG): Descartes Systems is a logistics solution company that is developing dedicated platforms to help logistics companies overcome current bottlenecks. Their platforms include routing, mobile, telematics, transportation management, customs and regulatory compliance, global logistics network services, and broker and forwarding systems.
Drone Delivery Canada Corp (TSX.V:FLT)(OTC:TAKOF): Drone Delivery Canada Corp is looking to innovate the industry through the use of drones. Similar to Amazon’s concepts, the company is aiming to develop a platform offering drone delivery services. With rising fuel prices and congested roadways becoming the norm, the company feels that drones will prove to be a sensible solution to the logistical problems that we face.
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