Welcome to “Expert Insights” – an interview series where we talk with industry thought leaders and experts about different topics surrounding logistics and supply chain – gathering their insights and experience firsthand.
We continue with Mike Bogen, Supply Chain Collaboration Evangelist and Industry Expert. Mike is the Managing Director of digi-trust.eu, a newly formed venture with a focus on legally compliant horizontal transport collaboration supported by purpose built digital tools; and CEO of Giventis International BV, a Netherlands-based company that develops and deploys information management and BI digital tools to facilitate logistics collaboration. He’s also the founding member and pilot case leader for the NexTrust EU funded research project. digi-trust.eu was created as the commercial extension of the NexTrust project and is now a subsidiary of Giventis. Mike’s industry experience spans the U.S., Asia and Europe in logistics software technology and transportation management.
This is the last part of four-part series with Mike. To provide context to the current climate, the entire interview was conducted in late February 2020, prior to the worldwide spread of COVID-19. You can find Part 1 here, part 2 here and part 3 here.
PART 4
What’s your impression of the increasing role of 4PLs to shippers?
I think they play a very important role. If it’s a true 4PL, they are there to manage the process, take waste out, create a more efficient type of situation for the shippers. They’re not taking a margin on transportation, so their focus has to be on creating more efficiency by managing and improving the process, and not pushing their own agenda.
What do you think is driving it? [the increase in outsourcing to 4PLs]
Well, you’ve always had this swinging pendulum. Over time, shippers want to take control of their own operations, or they’re in cost cutting mode…‘let’s outsource it. Let’s have somebody else do it, that's their core competency’. So, there is definitely a trend towards using more 4PLs, but at the same time you have large shippers that want to create their own control towers to manage the operational process, and those control towers can be managed by 4PLs or you have shippers that manage their own. So, I think all of those are positive developments.
The only thing that’s lacking in the 4PL model is the ability to promote horizontal collaboration across shippers. Because a 4PL is essentially contracted to work with one shipper, period. And if you have a 4PL for example, that’s also controlled by a major transport company -- I’ll give you DHL for example because they have a fairly successful 4PL business unit. But those 4PLs are structured to operate independent of the rest of DHL. To the extent, and this has been explained to me by people at DHL, to the extent that they will not even necessarily do business with the carrier side or the freight forwarder side of DHL because they’re supposed to be neutral. But at the same time, a 4PL has to be able to look at, say, the business they’re doing with Shipper X, and see what kind of synergies can be developed if they have a client, Shipper Y, and see what can be done to put those two pieces together. And I haven’t seen a lot of evidence that this is happening because the majority of 4PL operators are not thinking outside the box.
And yes, there is a technology component to that, but it exists. We’re not talking about something that must be newly invented. The technology to create horizontal collaboration between shippers in a 4PL environment exists today. However, you also must have the innovative management side of it too, and that’s what’s lacking. It goes back to vision and innovative thinking. We could be seeing a lot more of that today than we are.
What do you think shippers and carriers need to be thinking about for tomorrow? For the future? That they maybe aren’t thinking about today?
Well, I think that they’re very transactionally oriented. If you look at shippers today, the way they source transportation - they’re chasing the market. This goes back to what I said earlier, where you’ve got procurement not necessarily synchronized with logistics operations. And procurement is chasing the market. ‘How much can I squeeze for next year when I do a tender?’ The whole tendering business is designed to chase the market and squeeze the market. And carriers know it.
Carriers don’t necessarily quote for new business. If they’re smart, they quote based on their ability to execute properly, efficiently, and at the right service levels. But carriers will also chase market share if they must, and then figure out how they can squeeze cost out of it to make money. They’re being forced into that situation. We’ve been hearing for 20 odd years about carrier/shipper partnerships. Shippers will say ‘they [carrier] are a strategic partner, blah blah blah’ and that’s all well and good, but shippers – because of the nature of their business and the way procurement works – their mission is to squeeze cost out of the supply chain. And they do it with competitive bidding and pitting one carrier against another. There’s not a lot of thought process that goes into looking at the operational side of the business.
I’m thinking about one shipper in particular, I’m not going to name them obviously, but the procurement people do their jobs, they do their annual tender, they spend months on it, and then they take the results of that and turn those results in the way of carrier awards over to the operation side to make it work and deal with it. It’s a vicious circle. Because every year, ‘I’m tasked with squeezing another x% out of my budget, and I have to squeeze another x% the next year and the next year…’ and there is only so much that can be done. You’re not innovating. You’re not coming up with a solution that’s going to change the market dynamics.
And that’s what collaboration is all about. Because at the end of the day, carriers all have to pay their drivers the same amount of money, they’re all paying the same amount for fuel, they’re paying the same amount for their equipment, paying the same amount for tolls and road use – or “maut” taxes. So, where are you going to cut waste? And driver costs are going up, fuel is market driven...where are you going to cut cost? You are going to cut costs by making the transportation process more efficient. And that means using technology in a smart way to enable collaboration. Because that takes cost out. And it takes greenhouse gas out. You reduce the number of empty kilometers you’re driving, you reduce the amount of time driving empty in terms of actually burning fuel – then you’re making the process more efficient and you’re creating a more sustainable situation from an environmental standpoint. It’s that simple.
And people don’t get it. They’ll all say how tough it is. ‘It sounds good on paper but not operationally.’ Too many people are looking at reasons why it doesn’t work as opposed to figuring out how to make it work! Carriers will always say, ‘I’m already optimizing and I’m already doing all this…’ Well, they’re not because for one thing, they don’t have all the business, they don’t see all the opportunities to optimize their networks at the procurement level. Logistics procurement people buy into that. Not all of them, but many of them. It’s an unfortunate situation because transport collaboration is evolutionary, and it can work when you take the first steps and stay with it.
In Europe right now, if you look at this from a carrots and sticks perspective, it’s all carrots right now. Incentive to do this, incentive to do that, innovation research funding being thrown at the problem…but eventually it’s going to come to the point where government is going to have to step in and say ‘we’re going to force you to become more efficient; we’re going to tax you and make you pay when you’re not’. I don’t like that way. I think the market should always be the one to take care of situations like this, but if the market can’t, somebody at least has to come in and give the market a kick in the ass.
What do you think are, or should be, the issues keeping logistics and supply chain leaders up at night?
Capacity shortages. Congestion in urban areas is becoming much more of a problem. And driver shortages. Those things alone are enough to create a lot of headaches. When you start looking at delivering into metropolitan areas, whether it be in Europe or the U.S., it’s only getting worse. And infrastructure has not kept up. In Europe, city delivery has become a real problem. Last mile delivery is a challenge.
People’s buying behaviors have changed dramatically in the last 5 years. People are buying more frequently and in smaller quantities. You want something now, you buy it on Amazon, and it gets delivered in 3 hours. You’re not even waiting overnight. That has an impact on logistics infrastructure, physical infrastructure - highways, streets, roads, whatever. And it’s even worse in Europe because intermodal as a share of the transport market has not grown at all in the last 10 years. And that’s a shame.
But there is a lack of business innovation, and if there is a lack of business innovation, all the best technology in the world is not going to help you if you don’t get somebody to adopt it. That’s the challenge. And it’s not going to change unless we really start getting some smarter ways of doing it than we are today.
