The Importance of Digital Transformation for Logistics Service Providers and Carriers

If there is a silver lining to the Covid-19 pandemic, it’s that the pandemic has raised the general public’s awareness of the critical role of supply chain management. It has also underscored the importance of digital transformation, especially for logistics service providers and carriers. Why is this so important? How can LSPs and carriers overcome the barriers? What is their business case for digital transformation? Those are some of the key questions I discussed with Graham Parker, VP Digital Freight Solution Sales at Descartes Systems Group, during a recent episode of Talking Logistics.

Digital Transformation for LSPs and Carriers

While digital transformation has been a hot topic for some time, I began by asking Graham how this applies to LSPs and carriers. Graham responds that, “The entire supply chain is going through a once-in-a-lifetime digital transformation. If you look at everything from shippers to carriers and freight forwarders, so many of the major players have gone down the digital transformation path. If you look at logistics service providers and carriers today, so many are running their businesses on cloud-based applications. And the expectations of shippers are becoming digital-centric. There has also been a huge investment from venture capitalists that are moving the needle. Amazon’s logistics practices are also putting pressure on expediting digital transformation for existing players. The ecosystem has changed.”

Overcoming Barriers

With logistics today as much about information flow as it is about freight flow, I asked Graham about the hurdles logistics service providers have faced in moving up the digital transformation curve. Graham points out that LSPs have always had to work in a competitive, low-margin environment and that has made it difficult to fund budgets for technology. “As a result, many LSPs and carriers still have legacy systems,” says Graham. “Moving from these legacy systems to a cloud-based environment, particularly for their critical systems, is a huge, costly, multi-year endeavor for them. But you’re seeing many pure software specialists coming into the industry who are bringing a different mindset to support this transformation. With Covid, you hear people saying that 5 years has happened in 5 months and that’s certainly true in many pockets of the freight technology sector as well. At the end of the day, the LSPs and carriers who overcome these barriers and embrace digital transformation will be the ones to flourish.”

Cost Justification

Graham mentioned the difficulty LSPs have getting funding for new technology, so I next asked him how they can go about cost justification to their management. Graham notes that there are many types of technologies out there for LSPs to consider, but he recommends starting by considering the cost per file. “What does it cost from the time you pick up the phone or receive an email asking for a price to transacting the shipment to managing the shipment to getting it released and delivered? You could have five to ten human touchpoints there and they are really expensive. If a customer can have access to this information digitally, how many of these touchpoints can we take out? We can measure the cost of those touchpoints and calculate the potential savings.

“Once you have that digital platform in place, you can start to offer customers add-on services such as ‘tick a box’ for financing or landside services or maritime insurance. Once you go digital, it opens up a whole new world of revenue streams. That’s where the value starts and can grow very quickly.”

Graham went on to comment that a lot of these digital applications have the same easy-to-use look and feel as consumer applications, with help just a click away. That makes it easy for customers to adopt and use these applications. “This is critical for improving the customer experience.”

Real-world Savings

I asked Graham for some examples of real-world savings his customers were experiencing with digital transformation. He described how ocean carriers have prospered during the chaos of the pandemic and how freight forwarders have improved services. He also gave some useful tips for how LSPs and carriers can get started on their digital transformation journey and how to prioritize the many options. Therefore, I encourage you to watch the full episode for all of Graham’s insights and advice on those topics and more. Then keep the conversation going by posting your own thoughts and experiences.