False assumptions, not bad technology, are the biggest problem for logistics start-ups

A couple of weeks ago, something extraordinary happened. A well-funded logistics technology start-up decided to close down and return their remaining money to investors. They explained that although they had researched the market for their solution, they were shocked to discover that reality did not match their assumptions. Even more surprising was that this was on the eve of securing another million-dollar investment. 

The founders of the company in question, Palleter, had decided that they could not in good conscience take the new investment after realising that they would never be able to succeed to the degree they expected. Clearly, such honesty is to be applauded and while somewhat unusual, is not entirely unknown. But it does highlight how difficult some aspects of the industry are to ‘disrupt’.

They had identified the opportunity to bring efficiencies to the LTL trucking market across Europe, by matching spare capacity with customers needing transportation. This problem was initially identified years ago and there have been numerous attempts at solving it, all with varying degrees of success. Irrespective of what had happened previously, the Palleter team were determined that they had a better solution and would succeed were others have stumbled. This is not an unusual approach in technology circles; as an example, look at the large number of indexing and search engines that existed (Yahoo!, Alta Vista, Infoseek, etc.) before Google came along and captured the entire market.

The issue that derailed this effort wasn’t smart technology or an unworkable business model, it was that the market just didn’t care about either of those things. The basis of their assumptions were flawed as trade data is often very inaccurate (industry insiders have known this for decades). Also, the proposed solution required a number of small changes in behaviour that in and of themselves were tiny, but taken together resulted in big changes to the operations of drivers and shippers for marginal benefit.

This is something that is often overlooked when seeking to apply technology to the logistics industry. What appears to be an elegant solution to an inefficient and costly process may make perfect sense, but unless every aspect of the process and its interconnections are understood, it may be unworkable.

Over the past few years, technology start-ups have begun to examine the industry and recognised that it is still very dependent on ad-hoc communications mechanisms. There is a lack of seemingly simple solutions to consolidate, accelerate and improve the myriad of data exchanges that occur as products are manufactured and shipped. However, this is not because such issues have never been noticed; it is usually because such seemingly trivial problems are actually incredibly hard to solve.

Further complicating the situation is that logistics and supply chain management is, by definition, a collaboration between numerous parties, often in different countries, operating under different legislative regimes, informed by very different customs and practices.

Sharing data in a consistent and understandable way between systems could resolve numerous problems and increase efficiencies. But the will to do so must be there and the effort can sometimes be huge. Extracting data from older systems and cleaning it to see if it is usable and relevant to any future system is a big deal. Overstretched IT departments seldom have the time, budget or (whisper it) skillsets, to devote the resources required. They usually focus on keeping existing systems running and augmenting them with additional capabilities when they can.

This means that to change a business model and implementing new operational platforms is a huge, expensive gamble. There will certainly be disruptive solutions introduced into the market by start-ups, but when they require the collusion of existing players and a change in habits, don’t expect it to be a smooth or cheap transition.

Interested in this subject? The Ti report, Trends in Logistics Technology 2017, offers a systematic breakdown of the market implications for the most prominent emerging technologies in the business world, including cloud computing, blockchain, and artificial intelligence. For more information, please contact Michael Clover on [email protected] or call +44 (0)1666 519907.

Source: Transport Intelligence, April 27, 2017

Author: Ken Lyon