Natalia Jakubowska, Trans.iNFO: According to the digitalisation index, the digitalisation of the economy in Germany has stagnated. So how digital is the logistics industry today?
Dr. Tim Brühn, CEO, Cargo Digital World: Here we have to differentiate. There are tech companies like Amazon in our industry with more outstanding technological substance and efficient digital business models. The high level of digitalisation here is also the result of the willingness and ability to invest. In 2022, for example, Amazon invested more in research and development than all DAX companies combined.
In my observation, the digital transformation in large, established logistics companies is being driven forward with more rigor than in the past. Let’s think, for example, of the digitalisation projects at Dachser.
There is a shared perspective on digital transformation among medium-sized companies. The challenges lie in developing a clear target image and mapping out the necessary investments.
Investors and partners of Cargo Digital World have this vision – both in terms of digital business models that meet the needs of logistics customers today and tomorrow, as well as the necessary operational and technical skills necessary to scale the value proposition. CDW bundles necessary investments and transfers them to innovation projects and start-ups from the existing portfolio.
For small businesses, digital transformation is certainly even more difficult…
That’s right. This particularly applies to companies that are not embedded in larger collaborations.
When you’re a small business on your own, the mountain you have to climb is already very steep. Our shareholder base consists primarily of large, medium-sized companies.
Why is that?
Our investors are selected after assessing the strategic potential that our investors bring to the overall structure. We generally develop business models with the customer in mind, but we also pay attention to the assets and skills of our partners. Typically, digital services in our industries are primarily associated with physical transport or storage.
Added to this is the entrepreneurship and specialisations of our partners. Start-ups in the Cargo Digital World are usually closely supported by advisory boards from medium-sized logistics companies so that technological know-how is optimally combined with operational expertise. This is how we quickly develop substance and reach.
We currently have around 50 partners in Germany. Even if not everyone invests with CDW, they still benefit from the fact that we generate transport and warehouse orders via our digital platforms and import them into the network. In addition, they benefit from the provision of state-of-the-art technology for operational logistics control.
As CDW combines start-ups with logistics partners, how common are such collaborations in the market? Are young companies seen as direct competition to medium-sized companies?
In this special form, we are unique in the market. The CDW concept is based on our access to operational partners, but results from a humble analysis of our strengths and potential.
We first took a close look at the differentiation advantages of our network and existing technologies in order to then focus on specific areas of innovation, digital solutions, and our own customer segments.
In terms of business models, this means that in the Cargo Digital World, we develop solutions that our partners cannot build on their own and that at the same time increase their added value. This creates trust and strengthens the partnership, as cannibalisation effects are typically not very large.
In the Cargo Digital World, experienced logisticians meet ambitious founders who use business logic from Uber and Airbnb to replace individual components of established processes and existing service promises using these methods.
Anchoring these new approaches in the market is exciting, inspiring and, above all, necessary. In the implementation, we combine the substance from the ‘old’ world of logistics with the technologies from the world of start-ups. With this symbiosis, we achieve the critical mass for anchoring our digital business models in the logistics world.
What gaps exist between 'classic’ freight forwarding or logistics providers and digital providers?
As CDW, we don’t want to close gaps so much as offer solutions. For our digital start-ups, working with recognised partners in the industry is an opportunity to sharpen their respective offerings on a daily basis. In return, these established companies benefit from technology transfer with new market access.
One of your spin-offs is a digital freight forwarding company, but recently, we have seen that digital freight forwarding companies are increasingly struggling with difficulties. Recently, Convoy in the US and Instafreight in Germany filed for bankruptcy. Has the concept of digital forwarding been devalued? Are we dealing with a market shakeout?
Yes, there is a market shakeout in the digital freight forwarding market, in which our subsidiary Cargoboard is also active. We see that very clearly. It results from the enormous costs required to build resilient partnerships and networks. This often leads to high levels of over-indebtedness. If logistics start-ups initially lack access and trust to established partners, it is a fragile matter to qualitatively integrate their own business model into the partner network in the long term.
Which digital concepts are particularly in demand today?
A lot of things currently revolve around digital market access and flexibility in logistics projects. Customers expect high-performance offerings with a high level of user-friendliness and transparency from new market participants. We have just entered the market in this segment with our start-up Warespace.
Large companies have the opportunity to rely on the storage capacities of medium-sized logistics companies across Europe. Warespace is the initial contractual partner and coordinator, rolling out standardised processes decentrally and making them scalable. Algorithms behind the application take care of which locations the goods can be distributed to most efficiently.
How do you keep the threshold for companies in platform services low so that as many companies as possible can participate?
That’s a very good question to which I can give a simple answer: eye level. At CDW, we consistently involve our partner companies in the development of platform services. Our portfolio includes service providers such as our seed investor CargoLine, with whom we have been cooperating for many years.
Together with the companies, we try to determine which strategic fields of activity and innovation match our digital capabilities. We then organize conception workshops and test the concepts on the market. We invite practitioners from different companies to evaluate the business opportunities and their implementation in depth.
If we come to the conclusion that we create substantial value, we invest and support in organizing capacities and aligning the market strategy.
What technical requirements must be taken into account when connecting to a platform?
The technical requirements sometimes differ between the platforms and the partner companies, but essentially the connection takes place via IT interfaces.
The more modern the partners’ systems are, the easier the integration is. We have gained a lot of experience here over the last few years. Both in the area of general cargo, cargo transport, but also in warehouse logistics. Especially when individual logistics concepts need to be mapped and there is volatility in the supply chains, we achieve major efficiency advantages through system integration.
What other advantages are there, apart from a gain in efficiency?
Transparency and reduction in complexity for clients. Logistics service providers also value technology transfer within projects. For many medium-sized companies that have invested in CDW, we offer very tangible access to technological innovations.
What are the weak points of platform services? What about data security, for example?
We rely on the highest safety standards. Cybersecurity is a topic that constantly concerns us and will continue to concern us in the future. We focus on building secure IT infrastructures that can reliably withstand attacks. This applies to cloud-based and non-cloud-based business models.
On the point of general weaknesses:, the disadvantage of platform services is that most of them rely on a critical mass of operational partners who guarantee high service quality and reliability.
If the service quality does not exist, platforms are quickly penalised through negative reviews. For these reasons, in my opinion, the concept of platforms has not yet been fully established or, in many cases, there is still a lack of successful implementation.
Which trends and topics in logistics will come into greater focus in the future?
Start-ups, like those under the CDW flag, will provide more and more services with the support of AI in the future. Be it to increase process efficiency, but also to improve reporting ability on the topic of sustainability. This seems to me to be a very central point given the challenges of climate change.