Going Somewhere Fast: Why Logistics Tech Is Surging

The industry looks a lot different than it did three years ago.

Written by Tammy Xu
Published on Aug. 25, 2021
Going Somewhere Fast: Why Logistics Tech Is Surging

Three years ago, when logistics tech company project44 was making the rounds on the investor circuit to raise capital for its Series B and C, there were a lot of blank looks from the other side of the table.

“A lot of people were like, ‘What is supply chain technology?’” said Vernon O’Donnell, chief product officer at project44. “‘Digitization of the what?’”

Most tech investors weren’t familiar with the logistics industry. They didn’t know the industry’s challenges and opportunities, and didn’t see how logistics could intersect with technology to give returns on their investments.

But the industry had long been ready for change. Amazon’s two-day shipping guarantee upended expectations for how goods are delivered and put pressure on other companies to handle shipments more quickly and transparently.

It wasn’t until 2018, though, that logistics tech really started to take off. The industry has seen incredible growth over the last few years — especially during the past 18 months, as consumers abruptly shifted their shopping online and countries closed their borders due to the pandemic, throwing supply chains into confusion.

Project44 specializes in end-to-end visibility tracking. That means the company provides retailers insight into their shipments’ journeys. Project44 tracks shipments in real time from the manufacturing floor to freight airplanes, cargo ships, railways and trucks until they are delivered to their final destinations.

“In 2018, we started to see growth, real growth. But [customers] were still like, ‘Eh, yeah, we see it, we were gonna need it eventually,’” O’Donnell said. “And then [during] COVID, everybody who hadn’t done it, [they] were like, ‘Oh, no, we’ve got to do it now.’”

O’Donnell said that these days, when tech investors are approached by logistics tech startups, the conversations are quite different.

“They’re jumping straight into the nitty-gritty. They’re like, ‘How are you doing this? How are you automating this workflow?’” he said. “The savviness of the investor community and of the marketplace in general is lightyears ahead of where it was three years ago.”

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Tackling Industry Fragmentation Through Tech

One of the biggest challenges facing the logistics industry today is its fragmentation and complexity. O’Donnell said project44’s rapid growth is due to its platform’s simplicity — retailers can monitor all their shipments from a single endpoint, instead of piecing together disjointed shipment data on their own.

The industry is complex because of its size and the number of different specialties. O’Donnell described the industry as defined along two axes: one based on the mode of transport and the other on geography.

The major modes of transport are shipping, air, trucking and rail, but each of those categories can be broken down into subcategories. Trucking, for instance, is differentiated based on whether the vehicles are hauling goods for a single customer, called “full truckload,” or for multiple customers in the same truck, known as “less than truckload.” There are also small but essential pieces of the supply chain that don’t fit into any larger category.

“For example, a typical ocean move will go from the Port of Shenzhen [in China] to the Port of Los Angeles. And then there’s what’s called a dray carrier and that dray carrier’s sole responsibility is to pick up the container at the port, and then get it to the warehouse or the distribution center at the next stop where it’s going to be unloaded and reloaded,” O’Donnell said. “That’s a very niche and highly specialized mode of transportation.”

In order to have an accurate understanding of where goods are throughout the entire shipment process, packages need to be reliably tracked at each point in the journey. That can be affected by geography because not all locations have the infrastructure to track large volumes of items reliably.

 

Automating the Freight Matchmaking Process

Until recently, the trucking business relied entirely on people to match trucking companies with businesses that needed freight services. There were so many factors that went into the decision that many in the industry believed it could never be successfully automated.

“The going theory at the time was, ‘Technology doesn’t match freight, it’s ultimately humans that match freight,’” said Ziad Ismail, chief product officer at Convoy. “There’s so much context around which routes a truck likes to do — maybe this truck likes to drive from Seattle to San Francisco, but they won’t drive the other way.”

But Convoy, a digital matchmaker for trucking shippers and carriers, eventually figured out a way to automate it. By 2019, the company was matching 95 percent of all their freights without humans needing to do any calls.

There are some advantages that come with being able to automate this kind of matchmaking. On average, Ismail said, trucks are driving empty 35 percent of the time because they’re not finding jobs that fit their return trips. But when Convoy makes automated matches, it’s able to use standard computer science algorithms to find more efficient routes.

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“It’s your classic traveling salesman problem — how do you get people to visit multiple stops and eliminate downtime?” Ismail said. “If you just have a thousand shipments that you’re looking at as a driver and you’re trying to pick three of them to do this week to fill up your schedule, that’s a billion different combinations you’re evaluating — it’s a thousand cubed. And we deal with much, much more than a thousand shipments on any given day. It’s just, computationally, a very, very difficult problem for humans.”

He gave the example of a driver that needed to head back to Seattle after delivering a shipment in San Francisco.

“They’re like, ‘Okay, I don’t have a job back from San Francisco, but maybe there was a job from Portland back to Seattle, I’ll settle for that,’” he said. “But our computers might say, ‘You’re in San Francisco, maybe you can take a job to Salt Lake and then from Salt Lake City, there’s a job back to Seattle.’ That would just not be found by a human being saying, ‘I need to drive along the I-5 corridor to get back.’ [People] use all these simplifications that miss out on a lot of optimization.”

 

Enabling Small E-Commerce Brands

Dhruv Saxena, co-founder of ShipBob, an e-commerce fulfillment platform, said recent changes in the industry have bolstered the growth of small and mid-sized e-commerce companies. Smaller sellers used to have trouble affording the extensive infrastructure needed to get products to potential customers.

“These direct-to-consumer e-commerce brands that you see on Instagram, for example, their consumer base is a hundred percent overlapping with Amazon Prime’s consumer base. As U.S. consumers, we have gotten used to fast, free shipping through Amazon,” Saxena said. “These e-commerce brands, they don’t have the infrastructure nor the capital to build out this network of fulfillment centers across the country, to provide their customers with two-day, next-day, same-day shipping experiences.”

ShipBob abstracts these problems away from sellers by providing the fulfillment centers and dealing with packaging. Every logistics decision is transformed into a software decision, right down to the sizes of boxes that products are packaged into.

“We have this machine, think of it as an X-ray machine, which measures the dimensions of products,” Saxena said. “Then when somebody goes to your website and places an order for five deodorants, our system can figure out what would be the smallest box that would be able to fit that order of five deodorants.”

Automating simple steps like that can save sellers money because carriers like UPS and FedEx charge based on how much space each box takes up. ShipBob is also able to give each brand’s customers a consistent experience, regardless of where the product is shipped from.

“If the software running inside each one of those locations is the same, then the merchant will have a consistent experience no matter where that inventory is across the entire world,” Saxena said. “The software becomes this unifying layer of decision-making, which is then implemented across each one of those fulfillment centers.”

Data science teams also play important roles at the company, allowing ShipBob to advise sellers on inventory distribution. Saxena said that by consolidating and analyzing data on the sellers’ customers, ShipBob can advise sellers on the best way to store products across ShipBob’s fulfillment locations.

“If I am selling snow jackets, it’s unlikely for me to store this inventory close to my office location in Texas, because nobody is going to buy those snow jackets,” he said.

The company also uses data science teams to streamline operations within fulfillment centers. Teams analyze the layout of fulfillment centers and look for more efficient configurations for the packaging crew.

For instance, it’s more efficient for packers to snake through fulfillment centers rather than doubling back to the same locations and shelf placement matters because popular products should be easiest to reach.

“If our data science team can improve the efficiency of the pickers and packers and the operations inside the fulfillment center, it directly ties into the profitability of the fulfillment center itself,” Saxena said. “And you can then share those profits back to the merchant. And then the merchant can offer cheaper shipping to their customers, which indirectly means more customers will now buy more orders.”

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Applying Tech Solutions to Real-World Problems

Another technology that’s enabling changes in the logistics industry is the networks of sensors and scanners that collect data from shipments and transmit them to companies thousands of miles away.

O’Donnell said project44 has over 800 IoT integrations and the company also gets data from thousands of transportation carriers. In North America, for example, laws mandate truck drivers to use electronic logging devices to monitor different aspects of driving, such as the length of time on the road, tire pressure and refueling. Logistics companies like project44 use that data, along with information such as GPS coordinates, to help track shipments.

Access to that information has changed the logistics industry’s relationship with retailers and consumers.

“Supply chains used to just be a cost center, like, ‘How do we just take as much cost out of this as possible?’ — negotiate costs down, get freight rates as low as possible, just hammer carriers to improve bottom line,” O’Donnell said. But as the industry has seen what O’Donnell calls the “Amazonification” of distribution, that kind of thinking has evolved.

“More and more companies are starting to think of supply chain as a differentiated way for them to drive revenue,” he said. “If I can deliver faster, on time, in full, it’s worth it for me to pay an extra 50 cents a mile, or an extra couple hundred dollars for the container, because I’m able to generate more revenue and retain a larger share of wallet.”

Improved supply chain visibility is important for customer service. If shipments are expected to be delivered late, companies can let their customers know ahead of time and keep them updated with the estimated time of arrival so customers have more time to change their plans.

“For Halloween, if supplies aren’t going to get there by October 31 — guess what? They’re not going to sell,” O’Donnell said. “We can provide that visibility to make sure they’re buying in the right time. If there’s an exception for them to manage — maybe they don’t have time to wait for the container from China or Vietnam or southeast Thailand, and they need to go buy it from Mexico and ship it over land.”

As logistics tech grows, it could attract more tech workers to the logistics industry and may even attract more diverse workers into the tech space.

“The cool thing that’s happened in the past couple years is that tech has moved into the real world,” Ismail said. “This creates an opportunity to not just work on optimizing websites, but actually work on problems that affect the big things in society — things like healthcare, things like transportation. And in the case of transportation, there is a very big environmental impact. … So I do think that that is one thing that’s going to pull a lot of people out of traditional, pure tech, and into these companies that are using tech to transform the world.”

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