What's More Important: The Tool or the Carpenter?

Welcome to the 31st 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 explained my controversial view that 3PLs shouldn’t be using tech to spend more time with customers. This week, I’m dissecting what makes for true system differentiation in logistics.

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.

Here’s a fun thought experiment: do you consider technological differentiation to be more about the system a company uses or the way it uses a system? This question has hung over the logistics industry seemingly forever.

Basically, the issue boils down to whether a white-labeled solution, married to a company’s internal expertise and other systems, constitutes differentiation in the same way that wholly proprietary solutions would.

Let’s explore this along a few different dimensions:

• Are we talking about a 3PL or a software vendor using an outside solution?

• Is the company bootstrapped or venture backed?

• Is the solution customer-facing or operational?

First, the 3PL vs software vendor question. Decades ago, 3PLs frequently thought building their own systems was a form of differentiation. And it often was, because it meant providing a process-specific solution when the only other options might have been spreadsheets or generic “business” solutions customized to work in a logistics environment. Those advancements drove value and created customer loyalty, over and above a 3PL’s ability to effectively serve its customers in traditional ways like securing capacity and managing origin services.

Over time, that differentiation eroded for two reasons: first, more companies developed their own versions of the same type of system, so the “nothing versus something” argument dissipated; and second, the internet. Browser-based systems, especially multi-tenant ones, spread quickly because they lowered the barriers to entry and created an environment where system modernization was not solely dependent on a 3PL’s internal resources. 

But in 2021, is proprietary software really an advantage for a 3PL? Possibly, for those that have continually invested in keeping the underlying architecture, the user experience, the hosting, and the edge capabilities as modern as possible. For most, though, buying off-the-shelf and executing the hell out of it is a better use of resources.

I reflexively reach for this example: 3PLs spend much of their existence explaining to customers that they are better suited than carriers to serve those customers’ needs, because 3PLs are, if nothing else, service organizations. But, they are often hypocritical when it comes to the other side of the equation, the technology. Is a 3PL best placed to constantly innovate, or is that best left to software providers, just as 3PLs are able to focus nearly 100 percent on service?

For software providers, the issue of white labeling others’ software is thornier. It’s harder to justify the use of outside software if you are a software company yourself, but in lieu of white labeling, there has been a proliferation of strategic partnerships in logistics technology. This is almost wholly built on the rise of better system connectivity, and that’s due largely to more use of APIs and integration specialists that act more like consultants than plumbers. These partnerships allow complementary providers to focus on their niches, but amplify value for a broader set of users. By jointly selling combined capability, they paint a bigger picture that they don’t have to fully develop themselves.

Let’s turn to the second dimension: who is investing in the company, whether 3PL or software provider? Whether or not the company has outside investors - especially venture investors seeking fast growth and a defensible market position - it can be hard for a company to sell its value if part of that value is reliant on another provider’s software. Imagine a venture-backed digital forwarder explaining to its investors that it needs to use an outside visibility solution and an outside instant quoting tool and an outside analytics dashboard. Guessing the response is going to be: did we just invest in you to subsidize near-term market share growth, or to build tech that will be hard to duplicate and will thus yield long-term market share ownership?

Thus, the pressure to “build it all” or to acquire a company that provides a missing piece is especially intense on venture-backed companies. As one non-VC backed provider put it to me: “The money has to go into people and their own tech. So, in a way, they are limiting themselves, as building the value of the company is preferred above working more efficiently.”

The last dimension to consider is whether it impacts customer-facing elements of the business, or operational ones. It’s likely that a technology-forward company does not want other logos crowding its customers’ mindspace. And yet, areas like user interfaces, self-service dashboards, and visibility tools are red-hot when it comes to the point solution market in logistics. Operational aspects like tendering, allocation, route optimization, asset management, and invoicing are easier places to pull an outside provider in and shield that use from customers. 

Of course, every company uses outside software, whether Microsoft Office or Teams, Slack, Zoom, Zapier, Airtable, Salesforce, Hubspot, or the million other business support systems out there. The question, more broadly, is where a company draws the line under what it can sell and what it needs to either enable that sale or to simply keep the business ticking along.

There is no single answer for any organization. If I was more artistic (and not so lazy), I’d design a cool matrix that would help navigate these dimensions. But alas, you’re stuck with my hazy thoughts in word form. However, the high level takeaway should be: a company needs to block out the external noise and simply consider whether using an outside piece of software is a facilitator or inhibitor to its ultimate success. 

Here’s a roundup of pieces on JOC.com the past week from my colleagues and myself (note: there is a paywall):

• Hard to keep project44 out of the news these days. I found their partnership with SupplyStack very interesting, because it mirrors integrations they’ve made with North American TMSs, but also seems designed to position them against Transporeon’s partnership with Sixfold in Europe. 

• I’m fascinated by the idea of programmatically optimizing freight between modes, not just within a mode, and GlobalTranz believes (perhaps rightly so) that big brokers that have a certain scale of business across modes are best placed to utilize such technology. I wrote about GlobalTranz’s work with MIT to migrate volume from LTL to truckload, similar to Flock Freight’s pooled truckload approach. What may be most interesting is that certain shipper-oriented TMSs have long been able to optimize for the right mode, but brokers are in the best position to actually find capacity that aligns with that optimal mode.

• Flowspace, an on-demand warehousing software platform, got a sizable funding round this week. It’s a sign that there remains huge appetite for new warehousing and fulfillment approaches to cope with surging e-commerce growth. Also, it’s a signal that there can be more than one player in this market, alongside Flexe, which pioneered the idea and has gotten several rounds of investment to build its own network.

• I combed through some interesting blogs to see what freight audit and payment vendors were advising for 2021.

• Cathy Roberson with a nice recap on parcel visibility, why it fell down during the holidays, and what shippers need to do to paper over gaps that remain.

• Portchain, a Danish software provider that focuses on better coordination between vessel operators and container terminal operators, landed a new customer this week.

And here are some recent discussions, reports, and analysis I found interesting:

• Re-upping this story I did last August on linking trade finance to logistics in the wake of Greensill’s insolvency. Many more details here in this FT story.

• Interesting visibility report from Drewry.

• And yet more on visibility from Charley Dehoney, albeit before project44 acquired Ocean Insights.

• Some cool visuals around the future of supply chain here.

• It’s impossible to link to a story that I have not written and I don’t want to link to stories that have been written because they’re all speculative, but the rumors of Panasonic’s supposed acquisition of supply chain software provider Blue Yonder are instructive. Major news outlets reported the rumored deal, basically as fact, and that led a ton of other publications, including many logistics trade publications, to re-report it. Some characterized it as rumors, or imminent. Some reported it as a done deal. I have no inside information about whether negotiations are ongoing, or what the state of negotiations are if they are ongoing. All I know is that I’m exceedingly hesitant to report on unattributed speculation, and you as a reader should be just as hesitant to believe in reports based on unattributed speculation. The fact there have been crickets since the initial report is also telling.

• Weekly moving update: still not moving to Florida or Texas.

• No weekly Keith Rabois update (jeez he’s been mundane of late), so making a guest appearance is Hawaii-based “vibe capitalist” Geoff Lewis. Hell if I know.

  

Some upcoming events I’ll be involved in:

• I’ll be moderating a free JOC webcast March 30 on a pertinent topic: The New Frontier in Global Logistics Technology: Linking Customer Expectations to Customer Promise.

  

• Registration is open for the IAPH World Ports Conference June 21-25. I’ll be involved in various technology-related elements of the program. And MSC CEO Soren Toft was just added to the agenda. Don’t miss out!

• I’ll be participating in Transporeon’s Visibility Day 2021 April 15. The focus will be on real-time visibility opportunities and challenges in Europe.

Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.