Open digitalized marketplace – improving the performance of infrastructure investments in logistics?
Kim Wikström, Senior partner
Magnus Gustafsson, Partner
Large infrastructure investments in Europe are in average two years delayed and record a 60% cost overrun. However, even more worrying is the low utilization and delivery of value from the investment during its life cycle.
A hallmark example of this is sea logistics. Logistics locally and globally has a large impact on the competitiveness of organizations, countries and regions. In addition, the environmental impact is massive. Therefore, already small improvements have a significant positive impact on global warming. Yet, the continuous flow of new investments in ships, harbors and information management systems does not pay-off.
So what is the problem? In a comment from the global bulk carrier industry, Rickmers-Linie CEO Ulrich Ulrichs in an article in the Break Bulk Magazine says that much of the time ships are half-empty (link). The problem, according to Mr. Ulrich, is the short-sightedness of the freight market with decisions made on short notice. This is of course an information-flow-problem but what is the root of the problem – is it just a question of customers’ short-termism, are the customers wrong?
An obvious solution to a problem like this would be an open digitalized marketplace. What is an open digitalized marketplace? It is an automatized platform with defined algorithms for how information flow can be accessed and managed. It also optimizes the flows on a continuous basis based on real-time data. Similar marketplaces by platforms have been created in the consumer markets, well-known examples are Uber, Lyft, Hailo in the taxi business and AirBnB in accommodation, also the business-to-business trading place Ali-Baba. Less known are platforms in e.g. long-distance spot bus traffic. Common for all of these concepts is that by making information available and automatizing information that previously has been manually forwarded increases the potential to utilize the service, improves the customer experience and makes the overall flow more efficient. Summarized, assets are utilized more efficiently.
An open digitalized marketplace integrates the customers with the suppliers and makes the needed data more available. Customers can integrate the logistics marketplace into their production planning and thereby increase their efficiency and the value they provide to their customers. All involved actors can in real-time follow the movement of the available shipping slots, track dynamic pricing and review available shipping schedules. In other words, a marketplace revolutionizes the behavior of the involved actors, it also eliminates a large part of the manual work and minimizes the number of organizations needed to keep the cargo flowing.
Coping with the complex structure of a mature industry
But here lies the crux. An open marketplace is really just the face of a much more complex structure. In order to obtain the kind of Uber-like effect in sea freight requires much more than just a web-based trading platform. The industry ecosystem structure has to be in place as well. On this supply side it means not just ship operators but also technology providers, engineering companies etc. On the demand side it means more than just the logistics coordination or purchasing departments. Industries must be integrated with the market, starting from a conceptual level understanding of how the logistic flow integrates with sales and production planning. Once the different stakeholders are conceptually in line with the idea of the open marketplace ad its information flow they will start to act in a way that strengthens their competitiveness and thereby increase the productivity of sea freight.
Today this is not the case. Coming back to Mr. Ulrichs’ complaint that today sea freight is too short sighted one can only agree. Today’s ships, today sea freight is simply too slow and cumbersome to satisfy the needs of its clients. The organizational lock-ins are too voluminous hindering a friction-free seamless flow of material and information.
Revolution in managing information
Even if the standard shipping container revolutionized global cargo flows from 1950s onwards, it was mainly a physical innovation enabling a new behavior. What we now foresee through the digitalized marketplace is a new revolution with an emphasis on information flow in the core of the renewal. One of the largest obstacles in this game change is to foresee and adapt to the changing behavior of the different actors involved in logistics. This is not a single organizational change process but a systemic change process influencing on several actors taking into account the creation of the new marketplace. It is of foremost importance to understand that the open marketplace evolves partly as a result from the changing behavior of the actors. More importantly, the actors in the sea freight marketplace need to engage and work towards making the market work better. Nobody wins from having the ships run empty half the time.