What Payroll Processing Can Tell Us About Logistics
Welcome to the 117th edition of The LogTech Letter. TLL is a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I looked at the what I dubbed “the duality” of the venture logistics technology market heading into an uncertain second half of ‘23. This week, I’m exploring how the payroll headaches experienced by some SVB and Signature Bank-backed startups provides hope for the logistics industry.
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@spglobal.com or on Twitter at @LogTechEric.
I know, I know…last week I said I had no hot takes on the SVB situation. But, it turns out I have a sort of lukewarm take on it after all, but only by using it as a cypher to better understand where logistics technology can go from here. And it all has to do with payroll.
As everyone knows by now, the immediate impact of large deposits being locked up in the SVB and Signature Bank turmoil was that businesses had trouble meeting payroll. The banks were seized by regulators about five or six days before most companies’ March 15 payday. But companies have to send money from their deposit accounts to payroll processors a day or two prior to payday. It’s not simply a matter doing direct withdrawals from the company bank account - it goes in a lump sum to the payroll processor. Now I’m out over my skis on this a bit, having never actually had employees or owned a business, much less facilitated payment processing, but I had a LogTech CEO explain to me how it worked.
It’s not even just that money is withdrawn from a deposit account and sent to the payroll processing company - there are layers in between that as well. In all, there are seven entities involved in the process of the money being debited from the company bank account and it being deposited in the employees bank accounts: the company; the company’s bank; the third party payroll processor’s bank; the payroll processor; the employee’s bank; the employee; and sitting above all of that is the HR software where employee information and deduction preferences reside. But here’s the thing, and where this all relates back to logistics: all of those entities are connected electronically, and many of the steps take seconds to process.
Not having any experience in payroll or HR, when I first heard the description of that process, I thought to myself, “that’s a lot of entities.” Then I thought to myself, “that reminds of me of another industry.” Indeed, coordinating the international movement of physical goods requires even more entities - customs agencies, drayage, ports, terminals, shipping lines, NVOs, forwarders, customs brokers, freight brokers, truckload carriers, and on an on. The goods themselves can’t move as fast as a payment is processed, obviously, especially since the currency itself is now effectively digital. But can the data move as fast? Theoretically, yes.
All the entities involved in a cargo shipment, and the third parties and software systems they use, can be connected in such a way that shipment data moves in seconds between all parties. The technical constraints aren’t so vast that they can’t be overcome. It’s more of an incentive constraint that prevents instant data exchange. Is the exporter properly rewarded for inputting data (never even mind if it’s complete and accurate) into the forwarder platform used by the consignee? Is the container terminal at destination properly incentivized to share data with the local drayage community (and not just on a one-to-one basis, or even a one-to-many basis, but rather a many-to-many basis, since importers and their dray providers work with more than one terminal)?
And these are literally just two discrete examples of the underlying connectivity needed for data sharing to take seconds. But let’s take a quick step back. The company needing to make payroll has funds withdrawn into the third party processor’s account one to two days before payroll is disbursed. So while it is all seemingly instant, it actually still takes days, not even hours, much less seconds. And there’s another element here. An ocean shipment that goes via rail and then truckload to an inland US destination will take multiple weeks to complete its physical journey. It’s not really that data needs to move instantly all the time, just at key points, especially handoffs between service providers, when ownership of goods changes hands, and when regulatory documents are filed (this already happens en masse in some countries).
The commitment in February by nine of the top 10 ocean carriers in the world to digitize bills of lading is a key signal that progress needs to be made here. As Thomas Bagge, CEO of the Digital Container Shipping Association (DCSA), put it to me when the announcement was made: “The vision is that in five to seven years, we’re exchanging data, not documents.”
When participants in a shipment begin to think about data exchange as a chain that resembles payment processing, we might start to think about the power that technology can unleash on the industry. But until those reflexive tendencies to share data electronically only when mandated by regulation or commercial desperation disappear, we’ll be held captive by the status quo.
Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):
I spoke to WiseTech Global CEO Richard White about their 2023 acquisition of US landside logistics software vendors, and he hinted there is more where that came from.
And here are some recent discussions, reports, and analysis I found interesting:
Nice perspective here from Vishnu on the durability of freight markets. Down is not out.
Last week, I posted about Freightos’ first earnings report as a public company, so only fair to link to this in-depth look at what their financial metrics say.
I was in Houston this past week at S&P Global’s World Petrochemical Conference, where my S&P Market Intelligence colleague Mark Fontecchio and I dug into his research on logistics technology (which he first presented at TPMTech last month). The two of us were also guests on S&P’s Next in Tech podcast, where we broke down the study and sentiments from TPMTech. The episode is available here.
My guest on last week’s LogTech Live episode was UCLA assistant professor Miriam Posner, mostly to talk about her research work on supply chain data and an essay she posted in December called Ghost Ships. She just posted another great essay, this time on how and why “agile” is a remnant of a low interest rate environment. Both essays and our talk last week are definitely worth your time.
Some upcoming events I’ll be involved in:
I’ll be leading two sessions at the Journal of Commerce’s Breakbulk and Project Cargo Conference April 19-21 in New Orleans. The first is a session on understanding what the energy revolution means to breakbulk and project cargo shippers. And the second looks at technologies helping to make the industry more efficient. Check the agenda here. And register here. New registrants can use the code ERICJ25 to get 25% off registration.
Our Journal of Commerce webcast on the future of freight procurement has been moved to May 23, so mark your calendars now. Details on speakers TBA, but you can already register for the free event.
Disclaimer: This newsletter is in no way affiliated with the Journal of Commerce or S&P Global, and any opinions are mine only.