Why tech could shake up the $8.1 trillion global logistics industry
Innovation will be critical to avoid being left behind (a Microsmallcap.com News Commentary)
Legacy systems are a significant problem for the logistics industry. Despite the industry being worth more than $8.1 trillion, companies continue to rely on outdated platforms to manage their operations. These systems are inefficient and costing the industry. Innovation is a key driver of future growth, and many companies are already working on new technologies to replace existing legacy systems. Tesla Inc. (NASDAQ: TSLA) CEO Elon Musk famously blamed his company's failure to produce and deliver the Model 3 car on the fact that they had gone "from production hell to delivery logistics hell." Alphabet Inc. (NASDAQ: GOOGL) has bet big on this problem, investing $185 million through a Series C round into trucking startup Convoy, which valued the company at $1 billion. Third-party logistics (3PLs) company J. B. Hunt Transport Services Inc. (NASDAQ: JBHT) invested $500 million into developing an internal cloud-based platform for their data, while competitor C.H. Robinson Worldwide Inc. (NASDAQ: CHRW) is focused on improving their Navisphere software, which relies on predictive analytics. Meanwhile, LiteLink Technologies Inc. (CSE:LLT) (OTC: LLNKF) is set to deploy its innovative 1Shift platform, which aims to solve the biggest logistical problems faced by shippers and carriers.
Logistics companies overlooked tech - now it's costing them
Technology has always existed in the logistics industry, but many companies chose to overlook it. That decision has resulted in severely outdated legacy systems being the norm in the industry. With costs on the rise, 3PLs have no choice but to upgrade their systems. J.B. Hunt Transport Services Inc. warned in 2017 that costs were set to increase by 10% as a result of regulations, a driver shortage, fuel prices, and shrinking margins.
Existing legacy systems are expected to handle everything from managing driver availability, route scheduling, payments, regulatory oversight, shipment tracking, and delivery. Fragmentation poses a challenge in this industry, with the top four companies commanding only 15% of the overall market share. In the United States, a large portion of logistics companies is smaller carriers with six or fewer trucks. Fragmentation of the industry, combined with rising costs, are two problems that legacy systems cannot cope with at scale. These systems are highly inefficient, costly to maintain, and are counterproductive to growth.
Empty trucks comprise nearly 20% of all miles driven, while 36% of non-empty miles are unoptimized. This wastage is not only avoidable, but it costs companies billions every year. LiteLink Technologies Inc. (CSE:LLT) (OTC: LLNKF) is looking to solve this problem through its new 1Shift platform. 1Shift offers 3PLs a more efficient logistics process, by leveraging the power of data to enhance supply chain procurement, sales and operational planning, and customer service. These enhancements should affect shipping routes, delivery timeframes, driver availability, paperwork, and offer reliable tracking for trucks. As the platform adapts, it will optimize existing routes and provide improvements that could save logistics companies billions.
We've already seen advancements in just in time deliveries, connectivity through the Internet of Things (IoT), warehouses that utilize robotics, and predictive analytics similar to C.H. Robinson Worldwide Inc.'s Navisphere platform. There is legitimate interest in the logistics industry from large companies in the tech sector. Alphabet Inc.'s investment wing, Capital G, raised $150 million through Series C funding for trucking startup Convoy, which valued the company at $1 billion.
Software as the solution
The logistics industry is made up of shippers, carriers, and brokers (3PLs). Shippers are companies with products, carriers supply the labor and trucks, and 3PLs act as the middleman that facilitates the relationship between the two. This is how the industry has existed for decades.
A smaller broker can typically schedule between three and four shipments per day due to the large amount of inefficiency that exists in this industry. Tesla Inc. is looking to solve this problem through autonomous trucks. However, the $150,000-$180,000 price - more than double the cost of a diesel semi - may be too expensive for smaller carriers to afford. Additionally, the company's inability to produce its electric cars at scale is an issue that they will need to overcome first. There's also the regulator problem. Regulations for autonomous vehicles do not exist at the federal level and will need to be created before autonomous vehicle technology can receive the green light from governments and insurance companies.
C.H. Robinson Worldwide Inc and J. B. Hunt Transport Services Inc. are two large 3PLs that have the resources to develop internal solutions due to their combined market capitalizations of $24 billion. If most smaller brokers are unable to afford a Tesla semi, then they do not have enough capital to build their own internal systems. In an industry that's worth more than $8 trillion, smaller 3PLs will need internal software like LiteLink Technologies Inc.'s (CSE:LLT) (OTC: LLNKF) 1Shift to survive.
LiteLink Technologies Inc. (CSE:LLT) (OTC: LLNKF) has already built a platform that directly solves these problems through data-driven work task efficiency improvements. 1Shift streamlines the broker process by providing carriers with a marketplace to find new jobs, reducing overall downtime and the likelihood that a truck sits empty. It accomplishes this through an artificial intelligence system that analyzes and optimizes data points. For shippers, 1Shift simplifies the process of finding drivers, allows shippers to use GPS to track shipments accurately, reduces paperwork, eliminates human error, and the availability of real-time data makes it a reliable tool for dispute resolution.
By focusing on internal efficiency, the platform should earn the trust of all three parties in the industry. Shippers and carriers will benefit from the cost-savings, while 3PLs should reduce wastage and improve the efficiency of their scheduling systems and routes.
Companies innovating the logistics industry
Tesla Inc. (NASDAQ: TSLA): Tesla Inc. is the world's leading manufacturer of electric vehicles. Their product line includes the Model S, Model 3, Model X, and Roadster. The company revealed that they are interested in creating a Tesla semi truck, but have yet to release any concrete details regarding the trucks availability.
Alphabet Inc. (NASDAQ: GOOGL): Alphabet Inc. is the parent company of Google. In Q3 2018, the company invested $150 million into logistics startup Convoy through their investment wing Capital G.
J. B. Hunt Transport Services Inc. (NASDAQ: JBHT): J.B. Hunt Transport Services Inc. is one of the largest 3PLs in the world. In 2017, their gross logistics revenue was $6.8 billion. The company invested $500 million into developing an internal cloud-based logistics system that should allow them to streamline their processes.
C.H. Robinson Worldwide Inc. (NASDAQ: CHRW): C.H. Robinson Worldwide Inc. is the world's largest 3PL company. In 2017, their gross logistics revenue was $14.8 billion. The company's Navisphere platform is designed to improve logistical efficiency to shippers and carriers.
For a free research report on LiteLink Technologies Inc. (CSE:LLT) (OTC: LLNKF), visit Microsmallcap.com.