Post Date : July 29, 2022
Platform-based business models will likely disrupt the Logistics Industry. Asset-light tech startups will generate value through innovating services on this model. It’s time for dominant LSPs to invest in tech start-ups.
Long before Uber came and disrupted the mobility industry, traditional automotive manufacturers focused on selling automobiles as a product and related services to customers. Uber came and disrupted focusing on providing mobility solutions without manufacturing or owning a single car. Clearly, the focus shifted to solutions from the product, aptly enabled by a platform to support it, creating an entirely new business model away from traditional marketing to customers to connecting the relevant stakeholders of the ecosystem.
Automotive companies were forced to change gear in the face of this disruption and many now focus on mobility solutions. How will the Logistics Service Providers (LSPs) adapt to such disruption in the business model in the logistics sector?
Some trends are emerging. The first one is the shift in focus towards providing solutions rather than offering discrete services and a platform based on technology to enable it. This will open secondary opportunities like technology-based solutions on the platform which will ultimately move towards servitization i.e subscription-based services.
Offering solutions necessitates Logistics companies to tap into their service offerings. Many have embarked on integration across value chains to gain the assets necessary to render a bouquet of services. Customisation, as seen in the automotive industry where companies are investing in products and services customized to the end customers’ requirements, underpins the goal of solutions in the competitive market. Logistics companies will have to make efforts to understand the processes and pain points of the customers to design customized solutions.
There are two issues associated with this solution-based strategy: companies tend to outsource a particular service, not in their offering but crucial for the solutions package and the second is incomplete utilization of the capacities of other services which may not find enough buyers. Just like Uber, the solution lies in aggregating enough stakeholders on a single platform where buyers and sellers interact for services. Not only does this ease search for a particular service (many niche offerings may gain traction due to better visibility), but with the proper design of the platform, sellers would be able to customize their services just like Lego blocks. Further, it will optimize asset utilization and ensure that no single service is unduly burdened and everyone enjoys the benefits of cost reductions that come from better use of assets in this connected marketplace.
Logistics industry in India is characterized by fragmentation and huge inefficiencies which have resulted in high costs. Post-COVID, as companies focus on supply chain reliability and resilience, more and more of them demand higher efficiencies with end-to-end visibility. Long overdue investments in digitization of the supply chain will eventually help them overcome these inefficiencies. This digitization trend will be the key driver for the emergence of platform-based models in the future.
Connecting the supply and demand side efficiently is just one of the outcomes of this trend toward solutions. Not only will the platform serve as an aggregation of all services, but it will also provide flexibility to pick and choose services and the service provider of choice. Just like Uber, it will connect the supply and demand side efficiently with the added advantage of the flexibility to choose. Such platforms also have the ability to scale through a combination of network effects, learning effects, and coordination effects.
Network effects kick in once there is a critical mass of services and customers, who gain immense value as more and more participants log onto the platform. Long tail business models evolve as different scopes and varieties (including niche services) are added and members gain value not possible in traditional business models.
Technology will impact Logistics Industry in more ways than one. Key technologies like IoT, and Blockchain are already impacting the Supply Chain and the industry is on the threshold to amass enormous benefits from these emerging trends. Harnessing these will open plethora of opportunities when integrated into the platform.
As the application of technology into the Supply Chain increases, in addition to core services, LSPs
can expand into technology-enabled services which can be seamlessly integrated into the platform. For example, data on vessel tracking can be collected from various liners and integrated into this. Value-added services will gain prominence as operators provide peripheral services to many small and medium LSPs who otherwise cannot invest in huge IT packages. Such information can also be disseminated through APIs and incorporated into their VAS offerings. This also opens opportunities for servitisation (subscription-based economy) where premium users can be provided with information and insights on a real-time basis for a fee which will ensure loyalty.
Asset-light companies like technology start-ups will likely jump into this model and drive innovation in the offerings. Backed with the knowledge of the underpinning technology and the ability to develop solutions expeditiously, they will be best suited to capitalize on the unique features of the platform-based models.
As the competitive landscape changes in this platform-based model, driven by unique collaborations between some nimble LSPs and Technology start-ups, incumbent large LSPs who are dominant in the traditional business model will face challenges. With only 10-15% of the USD 250 billion Indian logistics market in the organized sector, a large number of small and medium LSPs will be the early adopters eager to forge alliances with tech start-ups to gain a share of the pie. Large LSPs, on the other hand, can easily foster network effects (and enhance it too) and are hence well poised to embark on platform-based strategies through the acquisition of tech start-ups, before it is too late.
This article is authored by Jayant Athawade, Head Of Supply Chain Management, International Business at Tata Motors.