Sleeping Giants, Disruption And The Future Of Logistics

‍Sleeping Giants, Disruption And The Future Of Logistics

By Itamar Zur, Forbes Councils Member | Originally posted on Forbes.com, Sep 24, 2024,08:00am EDT

Years ago, I cold emailed the CEOs of two major logistics companies with a proposal to help them build the future of shipping. This was an audacious move, I admit; one never even replied. The other did get back to me: In a five-line email, they told me they were happy with their current approach, and that if they wanted to, they could build the tech I was suggesting in-house.

They never built that tech.

Meanwhile, I started my own shipping technology company. I also witnessed firsthand a truism I had previously only understood in the abstract: Success can make companies complacent. At a certain point, as the late Harvard Business School professor Clayton M. Christensen observed in The Innovator’s Dilemma almost 30 years ago, companies grow to the point where they stop innovating. This makes them vulnerable.

The (Shipping) Innovator’s Dilemma

I think the shipping giants, comfortable in their market dominance, exemplify Christensen’s argument. His book distinguishes between sustaining innovations, which incrementally improve existing products and services, and disruptive innovations, which create new markets and value networks, eventually displacing established market-leading brands. It is through disruptive innovations that most technological advancement is achieved.In the context of shipping, sustaining innovations might include continual incremental updates to package-tracking software or tweaks that lead to more efficient delivery vehicles. Disruptive innovations, on the other hand, could encompass entirely novel delivery models (such as “democratizing” shipping by replacing delivery trucks with crowdsourced drivers), new services that were not previously economically feasible (same-day or two-hour delivery), and radical advancements in robotics, automation and AI.

Shipping giants like UPS and FedEx have been focused on sustaining innovations, failing to recognize the potential for innovation and change in their industry. From my perspective, they underinvest in disruptive innovations or ignore them altogether because they fear change means the cannibalization of their core business or operating model, relationships and short-term revenue and profit margins. Established industry titans often think this way.When you look at the evolution of, for instance, telecommunication technology, the biggest leap-frog innovations of the past 20 years did not come from industry incumbents like AT&T, but rather from disruptors like Apple and Google. This is how smartphones, mobile apps and so on came to life.

When you look at the so-called “evolution” of shipping over the past 50 years, on the other hand, you’ll see a truck, another truck, another truck… Route optimization and package tracking has improved slightly, but there’s very little change. What some shipping goliaths see as a responsibly moderate approach of perfecting, streamlining and enhancing an existing process, I see as a passivity, lack of leadership and lack of vision that will ultimately mean they’re left in the dust.

The Enemy Of Innovation: 'If It Ain’t Broke, Don’t Fix It

'“If it ain’t broke, don’t fix it” is a cliché for a reason. One can see why a legacy company would prefer to improve established models that have historically been successful rather than go out on a limb by experimenting with something entirely novel—something unfamiliar and untested.

After all, why would you make a better, cheaper product when you can continue selling your existing product for a higher price? Many company leaders do not want to risk the predictable revenue stream they have today for some unknown future, especially considering how expensive it is to maintain bloated legacy systems (even as they grow outdated).

Take, for example, DHL’s creation of an Innovation Center and UPS’s launch of eQuad cycles (narrow delivery vehicles for dense urban areas). At first glance, these seem to be steps toward fostering innovation, but in my view, they are far too minor to make a material difference in serving the ever-evolving needs of the shipping industry.

History shows us that when an industry is already behind the curve, an incremental approach to innovation doesn’t work. Instead, it often leads to superficial gestures rather than inspiring genuine experimentation and risk-taking.

To foster true innovation, industry incumbents need to make commitments to step-change improvements, rather than to quarterly financial reports. Legacy shipping companies are often focused on short-term profitability and self-preservation rather than long-term advancement. No matter how much these companies claim to be forward-thinking, I think they would more accurately be described as crouching in a defensive posture, too low to the ground to see the path forward. They have learned to fear change.

Clinging to the “safe” and familiar status quo this way seems even more backward when you consider how rapidly and drastically the e-commerce sector continues to disrupt the status quo in every way possible.

E-commerce has fundamentally transformed consumer demands. Consumers want ever-faster delivery (as fast as two hours!); easy returns without having to print a label; complete visibility into the entire delivery process; the ability to control when, where and how a package arrives at their door; the ability to provide instructions and communicate directly with the delivery driver; and the ability to chat and troubleshoot in real time with customer service—and they want it for free.

The future of commerce is already here, but I think those who were supposed to bring this future to life—the shipping giants of the 20th century—are still stuck in the past. The only way to keep up with increasing expectations is by revolutionizing the logistics industry as dramatically as Amazon revolutionized retail. The technology to do so is evolving as we speak—but we must be ready to embrace it.

The Future Of Logistics

It’s likely already the case that the majority of those receiving packages are digital natives, consumers who have never known the months-long wait for a product following an order placed in a physical catalog. E-commerce giants have set new standards for delivery speed, customer experience and supply chain efficiency—and these heightened standards are now the norm. The shipping and logistics sector must innovate in bold, audacious ways if they want to meet and surpass these expectations, and overcome the innovator’s dilemma.

For more on disruption to the logistics indutry, follow Ita on LinkedIn.