The pandemic showed us that internet technology is not the only thing that kept America functioning. The entire shipping industry did. From rail to road, commercial shipping kept us fed and kept warehouses stacked. Now the two sectors are coming together. One place to watch it happen is Chicago.
The months of March and April were a “stop the world” moment for most Americans. Two sectors kept it from a fullstop. Other than hospitals and government, the two sectors that kept the U.S. economy from complete destruction were: anything linked to the internet and the shipping industry.
The internet allowed people to shop for groceries, for example. It also allowed millions of people to work full time from home. That digital backbone kept the country upright, for the most part. However, there is no point in B2C or B2B e-commerce if sellers can’t reach their buyers. In this regard, e-commerce is still dependent on a different kind of backbone. That’s the transportation and logistics industry. Trains were still transporting fuel and grains during the shutdown. Trucks were still transporting food and, supposedly, toilet paper, though none of us could find any.
If the pandemic taught us the importance of basic hygiene and emergency preparedness, it also showed us which businesses are truly indispensable in national emergencies. NBA we can live without. Bars, we will survive without them. But the internet can’t be turned off. The logistics industry cannot stop. When that happens, that’s when you get a true “stop the world” moment. That’s Mad Max.
Now, the two sectors of digital tech and transportation are merging. It’s peanut butter meet chocolate time in the entire logistics business, setting the table for business and investment opportunities in a sector still considered to be living in the “stone ages,” Ed Rom, the CEO of Chicago Intermodal Transportation said. For Chicago Intermodal Transportation’s, new technology, such as the internet-of-things (IoT), is transforming the industry.
“Right now, the transportation, or the trucking industry in general, is (in) the 1990s of the dot.coms,” said Chicago Intermodal Transportation’s CFO Alan Vodovoz. “It’s technology that’s disrupting this industry. Outside of newer trucks and better equipment, I think things are still done in the stone age.”
Chicago is a logistics hub and the largest inland port in North America. The freight sector employs over 190,000 and generates around $23 billion in regional GDP. Chicago metro is a national leader in employment and output in truck, air, and rail. Warehousing and storage account for an additional 38,734 jobs and $2.9 billion in annual output.
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New trucks and better equipment are being linked up with IoT devices to drive efficiency. Think about it: that kind of tech-led efficiency is why inflation is so low despite rising demand. It just costs less to ship things these days, whether it’s from China’s fully automated ports in Qingdao that has robots running gantry cranes, or DHL delivery vehicles tracked by data collecting devices helping streamline travel times and improve safety.
Safer vehicles mean cheaper insurance. Shorter travel times means less fuel. Costs fall. It’s data collecting technologies that have made that possible. “It’s all about the analytics and the clouds,” said Vijitha Kaduwela, CEO of Kavi Global. “Everybody is looking for cheaper, better, and faster ways.”
A lot of this change started with regulation in the Obama years. The industry totally hated it. The Federal Motor Carrier Safety Administration forced commercial trucks to install electronic logging devices. Nothing is done on paper anymore. This is relatively new, having gone into effect maybe four years ago.
The data collected by those devices, where logistics operators can see exactly where the trucks are and how long their wait times are, as one example, means companies can be more efficient. The new technology being employed is showing shipping companies how long a trucker is taking to load and unload.
Mobile devices and private mobility services are disrupting traditional public transit. State agencies in Chicago are adding enhanced trip planning, real-time availability, and mobile payment capabilities which requires new technology.
Invest in Transit 2018-2023 report by Illinois’ Regional Public Transportation Authority
Trucking companies hated it, but they learned to love it. “If you’re willing to invest in the technology…you’re going to create that confidence in your business partnerships where they’re going to say, ‘Man, these guys are here to give us that service,’” said Rom.
Old Transport Hub Gets an Upgrade
It shouldn’t be lost on any shipping industry executive that Obama is also a Chicago man. Although some industry executives think the entire tech-centric regulation was a boon to big players like J.B. Hunt, it also served as a shot in the arm for Chicago. It got city planners to revamp its transportation systems and pay much more attention to the technology underneath.
The interest in venture capital and new tech startups in the logistic space is in its early innings there. The Chicago Metropolitan Agency for Planning approved $475 million for 70 transportation projects across metropolitan Chicago in October 2019. One month earlier, DHL picked Chicago to open its newest logistics innovation center, one of just three DHL Innovation Centers in the world and the only one in the U.S.
Uber announced in September 2019 it would refurbish the vacant Old Post Office building for around $200 million to turn it into its headquarters for Uber Freight. That project has been pushed out to 2021 because of the pandemic, however.
“Chicago is a super attractive place to do business in a lot of ways. It’s easy to get anywhere around the country from here,” said Tim Helenthal, chairman and CEO of National Van Lines. “Having two airports is a great advantage. It’s a great place to do business. And the key is the talent—the talented young innovators want to live here.”
Chicago’s history is closely linked with the history of America’s railroads. It’s an import part of the global supply chain. It has access to the Great Lakes and the Chicago River, which links up with the Mississippi River and out to the Gulf of Mexico. It has 10 interstate highways running through the Chicago area. Chicago O’Hare International Airport is the second busiest in the U.S., with a staggering amount of freight going through it 365 days a year. The movement of containerized cargo via multiple transport methods such as rail, trucks, planes, and ships equates to about 7.8 million freight cargo containers, or nearly 16.3 million 20-foot equivalent units. That makes the region the largest point of origin and termination for intermodal shipments in the U.S., outpacing other large freight hubs such as Los Angeles, New York, and Seattle. To track progress on improving the region’s freight network, Chicago’s “ON TO 2050 ” plan serves as a guide to the kind of investment the city and region is making in transportation, including how it views technology to meet those transportation modernization goals.
The growth of same-day shipping, online shopping, and faster, cost optimized supply chain management —all enabled by new data processing and communications technology— has pushed growth of intermodal facilities in the state, according to the ON TO 2050 plan. Chicago needs massive investment. A lot of it will depend on the state. The innovation will come from the market.
IoT represents an $1.9 trillion opportunity in logistics. Only a few IoT applications in shipping are in use today due to high cost of deployment, cyber security concerns, and lackluster standards in the fragmented logistics industry. The global connected logistics market is estimated to substantially grow to $27 billion at a CAGR of 7.6 percent until 2023, DHL
Logistics CEOs See the Future
For Mike Wychocki, CEO of EagleRail Container Logistics, the two biggest innovations are system-wide automation and blockchain. “Port automation is big. People are trying to make as many things automated as possible to increase productivity and decrease handling time. But that is now spilling outside the gate onto the roads and railways through automated intermodal as well,” he said.
Blockchain ledgers are also being employed, particularly private-public blockchains being built by the likes of IBM for the high-volume shippers. “Everyone is looking for a solution in blockchain to digitize and secure documentation and payment,” Wychocki said.
Automated vehicles are further out. It’s not viable on highways like it is at some shipping ports. But the technology to make autonomous vehicles is getting money thrown at it by large corporate investors, including Google and Tesla.
“Venture capital is disrupting our industry now,” said Douglas Waggoner, CEO, Echo Global Logistics. “We are seeing a lot of tech startups that frankly know nothing about our industry but are good at building tech. They’re making a lot of noise. It causes us to step up our own investment and never lose sight of our own technological goals because some of these players are willing to lose money, and for a long time, too.”
Industry executives are seeing increased competition from tech firms who now consider the sector a place to build the next big “solution.” Whether it’s a railroad operator, a trucking company, or the warehouse that depends on them for deliveries, the supply chain business accounts for maybe 10 percent of GDP, said Waggoner. “It’s a very fragmented industry. Business is conducted on a telephone and on a white board. There’s a lot of opportunities to automate. A lot of people look at this industry and see all the transactions done every day and wonder why it’s not all automated, like the stock market is automated,” he said, adding that he thinks the sector will get there eventually.
