Travel, Logistics & Infrastructure Practice

Combining human
expertise with
state-of-the-art
logistics technology
New algorithms are improving logistics, but the human touch remains
important. Here’s why.
Guest author: Michael Wax, chief commercial officer and cofounder of Forto (formerly FreightHub)

© af_istocker/Getty Images

May 2020 | Commentary

 There are different opinions about whether wage European markets such as Germany, the
containers will be shipped without any direct human highly skilled logistics workforce can spend their
involvement in the near future. What is indisputable time on exception handling, rather than processing
is that the new frontier of tech-enabled operations repeatable and standardized tasks. A recent report
will bring about a leap in productivity if paired published by Novosensus stresses that freight-
with deep logistics expertise. According to the forwarding employees feel only moderately valued
Economist, “removing administrative blockages and and recognized when pursuing standard tasks; by
outdated practices would, by some accounts, do contrast, they feel appreciated when involved in
more to boost international trade than eliminating exception handling, which contributes to overall
tariffs.”1 We know, for instance, that shipping job satisfaction. 3
flowers from growers to retailers involves up to 200
documents and sign-offs from more than 30 unique Algorithms, on the other hand, significantly improve
organizations. Manual processes, such as spot daily operations for both customers and digital
quotation to booking, might take around three days forwarders while simultaneously pushing efficiency
on average.2 Thus, there is significant potential to gains to new frontiers. At Forto, we have already
capture additional value from the $150 billion global seen efficiency gains double by switching from
forwarding market, with Drewry estimating current traditional to digitized processes in our transport-
“waste” at over $500 million. management system. An internally developed
system gathers all data along the supply chain
Is it really realistic to ship containers with almost centrally and notifies logistics experts when
no human involvement? How important will human algorithms detect unusual shipment activities,
expertise in logistics be? allowing exceptions to be handled proactively.
Our SCAI [supply-chain artificial-intelligence]
Traditionally, logistics firms aim to optimize system serves as a single source of truth, provides
four contradictory goals: customer satisfaction, checklists, and applies artificial intelligence to
employee satisfaction, supply-chain reliability, improve efficiency by ensuring leaner and more
and efficiency gains. Given strong industry-wide reliable processes, as well lower costs. This is only
cost pressure, the focus tends to skew toward one of multiple algorithm-enabled enhancements.
efficiency gains while the other three goals get In addition to improving exception handling, we
overlooked. This occurs because of the strong focus have also automated many manual steps, such
on optimizing individual process steps that run on as bookings through application programming
asynchronous and dispersed systems, preventing interfaces (APIs). Finally, we have automated
proactive communication between the customer and customs-clearance processes and developed
the forwarder. Eventually, the greatest value added e-documents that will change how shipments
by the forwarder is its ability to apply deep logistics are handled. There is still plenty of room to
expertise while handling exceptions for customers. improve further.

For customers, tech-enabled operations do not only

Humans and algorithms at Forto result in cost advantages. They also allow companies
We believe that the best logistics systems combine to maintain “one face to the customer” without any
human input and algorithms. People are the most efficiency loss. Only one contact point is needed
natural contact point for customers, and their from shipment booking until arrival, and customers
logistics expertise enables proactive and solution- can take full control of their supply chain. Overall, the
orientated exception handling. Especially in high- algorithms ensure three main customer benefits:

1
“The global logistics business is going to be transformed by digitisation,” Economist, April 26, 2018, economist.com.
2
“How long does it take for your freight forwarder to provide you with a quote?,” iContainers, March 11, 2016, icontainers.com.
3
Study of the human side of the logistics, freight forwarding and shipping industry, Novosensus, January 2020, novosensus.org.

2 Combining human expertise with state-of-the-art logistics technology

The best logistics systems combine
human input and algorithms.

1. Customer-satisfaction surveys show that a — The availability of centralized, high-quality

platform’s ease of use leads to customer- data allows supply-chain professionals to use
satisfaction higher than the typical new software-as-a-service (SaaS) solutions.
industry standard. Customers get improved visibility into their supply
chain, resulting in working-capital savings of
2. Tech-enabled operations reduce the work steps up to two to five days of inventory outstanding.
required before successful booking, as well as The improvements primarily result from better
the steps required for further documentation, forecasting, which optimizes order frequency, and
tracking, communication, and monitoring. from adjustment of safety stock. LogTech firms
can thus access an additional revenue stream.
3. Companies can offer customers new solutions,
such as purchase-order management, that The SaaS business models originated in Silicon Valley
significantly improve supply-chain visibility and and quickly spread around the globe. Today, they
go beyond simple container tracking to product- can be found in fast-growing startups not only in the
specific tracking and steering. United States but also in Asia and Europe. But how
do the advantages of SaaS differ in magnitude and
In addition to the customer benefits, the algorithms effect across different regions? According to the
also add significant value from a logistics- report Startup funding in logistics by McKinsey, the
technology (LogTech) perspective. These value majority of LogTech investment flows into Asia and
gains stem primarily from two sources. First, they the United States. However, we expect the European
optimize efficiency by improving operations. Second, LogTech scene to catch up for three main reasons.
they increase the quality of data, thereby creating
additional monetization opportunities. Consider First, the presence of incumbents in Europe yields
the following: a unique talent advantage. In 2019, over 30 percent
of global forwarding revenues came from European
— Automation can streamline internal operations incumbents such as Kuehne+Nagel and DHL Global
and lift earnings before interest and taxes (EBIT) Forwarding, signaling the importance and expertise
margin by up to 5 percentage points. This EBIT of European forwarders. Europe’s reputation
uplift can subsequently be shared by all partners for deep logistics expertise also allows LogTech
in a transaction, creating a win-win situation. startups to find and hire the right talent relatively
easily, compared with other regions. The strong hub
— Algorithms allow companies to optimize available structure in Europe, which is concentrated around
rates and pricing instantly—a capability that major ports such as Rotterdam and Hamburg,
is especially important for dynamic spot- contributes to the easy access to talent. (The top
market pricing. three European ports account for 16 percent of

Combining human expertise with state-of-the-art logistics technology 3

 gross weight of goods handled.) At Forto, many to respond rapidly to dramatic shifts in consumer-
of our recent top-management hires have long- demand patterns, increase the scale of medical-
standing logistics experience. equipment imports, or adjust to rapidly changing air
freight markets.
Second, the European logistics market is sufficiently
large and still growing. Manufactured goods Overall economic developments will also affect
represent a disproportionately high GDP share of the VC [venture capital] market. In the aftermath
15 percent in Europe, compared with only 11 percent of the financial crisis of 2008 to 2009, global GDP
in the United States. The European economy thus decreased by single-digit percentage points and
has a greater need for efficient logistics services. global VC deal volumes declined by approximately a
quarter. On the other hand, the effect on European
Third, the funding time gap will close. Many startups deal volumes was rather modest, with declines
in Asia and the United States recently raised later- of about 10 percent seen. Earlier-stage funding
stage funding, while their European counterparts was more affected than later-stage funding. In
are predominantly in earlier stages. Furthermore, contrast to 2008, and for the first time in history,
the perceived underfunding is likely biased, since governments are now also discussing protection
incumbents have made notable investments into mechanisms for young ventures. As of today, we
internal, digitized solutions that are not incorporated expect COVID-19 to have the greatest impact
in the overall funding perspective, such as DHL’s on earlier-stage startups and industries that are
marketplace, Saloodo. directly affected. Logistics and trade remain the
essential backbone of all economies, and these
We believe that the symbiosis of algorithms and large markets will provide established LogTech
humans will create a significant opportunity to startups continuous growth opportunities.
improve supply chains during COVID-19. The
algorithms are designed to fix complex and In conclusion, we believe LogTech will maintain
broken processes while people with logistics its momentum. despite ongoing challenges, and
expertise can handle exceptions. We already see become an even more interesting opportunity
increasing demand for digital and flexible logistics for investors. The European market, with German
solutions that allow global trading companies to startups such as Cargo.One, Forto, and Sennder,
adapt their supply chains quickly as circumstances coupled with continuous innovation by incumbents
change. For instance, companies may now want such as Maersk Spot by Maersk, is constantly
growing—and it will be exciting to see what’s ahead.

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4 Combining human expertise with state-of-the-art logistics technology