Welcome to the 36th edition of The LogTech Letter, a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I looked at how the range of venture-backable businesses in logistics and supply chain has expanded. This week, I’m exploring a concept I’ve been thinking about often lately: the challenge of coupling individual optimizations.
As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.
For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.
Let me paint a scenario: a shipper has millions of dollars of freight spend but manages its domestic transportation network using an antiquated transportation management system (TMS).
Its network is large and complex, with dozens of carriers and brokers and more than 100 lanes. The system it uses isn’t good enough anymore along a few different dimensions, including connectivity to capacity providers, access to outside sources of data, and, most of all, optimization capability. Simply put, the system works in a single-dimensional fashion while the shipper’s network is multidimensional.
So the shipper buys a state-of-the-art TMS, a big part of which is intended to help that shipper optimize its network in real time. The system does that to great effect, recommending to the shipper’s transportation planners the ideal mode and route for every shipment on a near-real time basis. The TMS takes into account outside signals, like weather, traffic, and benchmark rate data. Its continuous optimization engine takes into account native access to digital freight brokers and their capacity networks. It’s great.
But, there’s a problem. Those internal optimizations somehow don’t quite hit the mark when loads are tendered to the recommended carriers on the recommended lanes. It’s a huge upgrade over the previous system and process, but it feels somehow less-than-perfectly optimized to the planners.
The problem the planners and the new TMS face is one I’ll call optimization friction. That is, the subtle lack of alignment between the internal optimization of a shipper’s TMS with the optimization of outside systems with which the TMS interacts. Because, as the shipper was upgrading its internal ability to optimize its own transportation network, the carriers and brokers it uses were doing the same, buying or developing TMSs or other network optimization software that enhanced their own abilities to be profitable.
There has been a proliferation of TMS software for small carriers and brokers over the past 18 months. That has broadened the number of capacity providers that now operate in structured environments. This is good for shippers - more capacity is available digitally, whether through load boards or more easily accessible via a shipper TMS. But connecting capacity is not the same as connecting optimizations. Each carrier or broker TMS first and foremost seeks to optimize the network of the company that invested in the system. I wrote a bit about this in September, the idea that TMSs ultimately are designed to serve one master.
Overall, the environment is positive. More available capacity accessible in digital platforms is a net gain. But it’s not perfectly optimal. The plan for a day’s loads spit out by a shipper TMS is perfect until it encounters the real world, at which point it may conflict with the “perfect plan” spit out by one of its carrier’s TMS.
The situation is similar in warehousing, especially given the rise of on-demand warehousing platforms that seek to provide more efficient options for shippers while allowing facility providers to monetize unused capacity. A shipper’s storage and distribution needs might be perfectly optimized within its own system, but guess what? The physical space needed to execute that plan may not be available at the right time.
So how to solve this problem? Is a multi-party, optimization-focused TMS a reality? In theory, it is, but can that theoretical super TMS lure enough of a highly fragmented industry, from carriers, to brokers, and to shippers that all have hundreds of TMS options at different price points and levels of sophistication? That seems hard to visualize.
Do the transportation and warehousing industries need a middleware layer in between optimization systems designed to suit one party? If that is the answer, who pays for the middleware? Maybe the TMS providers need to pay for that? Or do the individual TMS providers need to solve this by developing the adaptors that connect their optimizations to any outside optimizations? I’m not a technical person, so I’ll leave it to those that are to figure out the most realistic way for this to happen.
In the meantime, the industry gradually progresses through individual optimizations that are not optimally optimized with one another.
🚨 LogTech Market Map Project
So I’ve been involved the past few weeks with some of the brightest minds in the LogTech space to develop something that I think has long eluded the industry: a map that categorizes startups in the logistics technology arean in a way that makes sense for practitioners and potential software buyers. Most maps I see struggle to properly contextualize early stage providers in the space. It’s because the landscape is inherently confusing (everybody says they do more than they do, everybody says their strengths are more numerous than they are).
So Nick Chubb of Thetius, Brian Laung Aoaeh of Refashiond VC, Ben Gordon of Cambridge Capital, Radu Palamariu of Alcott Global and I have set out to build the defining LogTech Market Map, one that highlights companies along a number of key buying categories, one that prioritizes significance based on customer traction, funding, and size, and one that properly contextualizes startups in a highly fragmented space.
We are collecting submissions for companies that want to be considered for the map here, and thanks for your support in helping us build something that we believe will benefit the entire industry.
Here’s a roundup of pieces on JOC.com the past week from my colleagues and myself (note: there is a paywall):
Can digital freight marketplaces influence behavior in the industry? I spoke with Freightos and ECU Worldwide about how SOPs can align with an online procurement platform to shift that behavior, especially around quoting and booking cancelations.
DP World, like other global terminal operators, has been trying to expand beyond pure port operations. I chronicled its effort to stoke emerging market-to-emerging market trade through Dubai via a loyalty program that has already lured Pfizer, UPS, Samsung, and LG, among 450 private companies and 11 countries.
Another visibility provider has gotten VC funding, but Paxafe’s target is a bit different than pure transportation tracking. The company wants to help reduce the risk of underwriting cargo insurance.
My colleague Bill Cassidy with a fantastic look at how some industry luminaries plan to turn Roadrunner into an LTL powerhouse.
This look at how shippers need to reorient their transportation networks to support a shift to DTC, by Cathy Roberson, is well worth a read.
WebCargo has added Turkish Cargo to the list of airlines that can directly quote digitally. My colleague Greg Knowler, JOC’s airfreight editor, had the story.
And here are some recent discussions, reports, and analysis I found interesting:
My IHS Markit Maritime and Trade colleagues have been building some really cool metrics around port performance the last few months and you can hear about it at a May 5 webinar.
Some sage (and brief) advice from Alison Cusack about cargo insurance in the wake of the Ever Given situation.
Fun to go down memory lane and read through these landmark white papers on digitization in the shipping industry. This was five years - seems a lifetime now!
Another event worth your time - Arviem explaining how visibility can impact the upstream parts of a shipper’s supply chain.
Some solid suggestions from K+N on how to mitigate poor ocean reliability.
Everybody used Earth Day to promote their green initiatives, but found this list from Slync.io pretty useful.
Finally, not logistics-related, but this piece on the unseen plumbing of the internet was fascinating to me.
Some upcoming events I’ll be involved in:
The JOC Breakbulk and Project Cargo Conference is happening May 25-26. Check the agenda here. I’ll be moderating a session on project logistics digitization.
Registration is open for the IAPH World Ports Conference June 21-25. I’ll be involved in various technology-related elements of the program. MSC CEO Soren Toft and Hapag-Lloyd CEO Rolf Habben Jansen will both speak. Don’t miss out!
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.
Nail...meet head! Spot on observation on the friction issue. The BIG BIG BIG problem is the 90%+ of the market are just NOT tech savvy (and they simply cannot afford "big boy" type TMS systems, anyway).
That's why lot's of smart shippers, brokers, and 3PL's are giving away TMS tech to this audience to get them INTO their own digital freight networks. It benefits the giver (the shipper or broker) AND it benefits the receiver of the free TMS software.
AscendTMS has brokers, 3PL's, shippers - and now FACTORS (after the TriumphPay / Hubtran merger) giving away AscendTMS to their vendors. Why? To get those vendors digital and to be pre-configured to do business digitally with them going forward.
You are right that NOBODY wants to use these hyped "collaboration" type TMS systems where everyone shares it. None of those systems are gaining traction because people need a TMS system that can work independently and in ANY situation (not just with one or two specific customers / vendors).
What people WANT (and they tell us this) is simple plug and play connectivity (like a USB port lol) between each other...along with the power to DISCONNECT from each other when they need or want to.
That's why AscendTMS is working with literally hundreds of partners today that give away AscendTMS to literally anyone to enable digital commerce between each party.
IT'S WORKING LIKE A CHARM!!!! The market hunger is clear - and our growth has never been higher.