Early this year, I joined a logistics company. I’ve been working in technology for the whole of my professional life. This was a welcomed change. I was eager to see how different a conventional industry, such as Logistics, is like. The company is Courex. It does ecommerce logistics in Singapore.
Logistics is an old industry. It is huge. It is a trillion dollar industry. The number of publications on logistics is close to hundreds. Every region has its own publications. Publications is a good barometer as they mean readership. If you’re interested to read, I can recommend Journal of Commerce. There are many different types of logistics. Fundamentally, logistics solves the problem of getting a thing from one place to another.
Logistics is a service business. It is also a capital and labour intensive business. The margins are low. Often in single digits. Why? Because logistics is a commodity. There isn’t much difference from one service from the next. The result is the same. Your thing gets delivered from one point to another. Or gets stored at a place. The difference is consistency of service. A good provider delivers at a high consistency. When the result is the same, you can only compete on price. That is why you have low margins.
When the price is the same, you compete on relationships. I had a chat with my friend who works in the chemicals industry. It is the same. They sell the same products and can only compete on price. It is possible for the sales person to jump off with your customers to start his own company, selling the same products. It doesn’t affect the customer. They get the same result. That is usually unthinkable for a technology product. Even something as simple as online chat, there are multiple variants. No sales person can jump off with the customers as it is non-trivial to replicate a technology product.
Which is why there is little transparency in the logistics industry. Holding on to these information(ie, customer’s contacts, shipping contacts) is their only barrier to entry. Low margins with high capital expenditure leaves in little room for innovation. It makes it difficult for new entrants to come in. I think the same applies for other conventional industries.
It is easier for a service to differentiate when the subject is a human. It can become an experience which can be delightful or frustrating, depending on how good you are. When the subject is an object, what room is there for differentiation? A parcel cannot experience the more gentler handling of your workers. Logistics companies end up competing on consistency and efficiency. Which is why eventually, it will consolidate. Economies of scale allows the company to compete on price.
Strictly speaking, you do not need technology to fulfil a logistics service. It can be done on pen and paper. Technology’s role in logistics is to help maintain consistency and improve efficiency. It helps to enforce people follow processes. Every step in the process is recorded. If a step is not followed, the system sounds out. That is how consistency is maintained. A lot of work in logistics is repetitive and boring. Humans are not good at performing repetitive tasks. Machines are.
It is a breath of fresh air to get out of the echo chamber of technology. We’re often building technology solutions for technology problems. I got to see how technology can amplify what a worker can do. It make a worker more productive. So why isn’t technology more widely adopted in the industry? It is a human problem. There is a learning curve for people. I’ve witnessed one company who refuse to use a modern inventory management system. They opted to use plain spreadsheets. Why? Because they don’t want to learn to use the product, despite the advantages it brings. People in the conventional industries are definitely not the early adopters when it comes to technology. Human problems are much harder to solve than technical problems.