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Front Line: Weighing the Costs and Benefits of Digitization

Although the pandemic accelerated growth in e-commerce, will companies continue to increase their investment in digital technologies?

Q4 2021
Many businesses have benefited enormously from digital sales during the pandemic. Not only did Covid-19 alter consumer buying patterns; digital platforms accelerated online consumption and redefined business models.

The trend has especially impacted companies once classified as traditional freight forwarders that now operate as integrated, third-party logistics (3PL) service providers. Consequently, 3PLs that traditionally are hired to partner with brands have even greater responsibility (and opportunities) to handle all aspects of the supply chain.

Consultants at Armstrong & Armstrong, Inc. earmark e-commerce as the most rapidly growing 3PL market segment and estimate U.S. 3PL e-commerce revenues reached $53.3 billion in 2020, producing a three-year compound annual growth rate (CAGR) of 28 percent as e-commerce purchases exploded during the pandemic. Adoption of digital platforms is at the heart of this growth.

“Digitalization is the driver that defines much of ‘the new normal’ in global forwarding,” observes Nick Bailey, head of research at Transport Intelligence (Ti). “This is true of both the incumbent forwarders who have added technology and technical expertise to their capabilities in recent years, as well as digital forwarding startups,” he says.

Industry observers maintain that e-commerce will continue to evolve in scale and demand, and types of services, innovations, and technologies. The reason, they say, is new e-commerce entrants, changing consumer behaviors and needs, new industries entering online trading, and emerging markets where e-commerce is growing exponentially.

A report published by McKinsey & Co. points out how the most notable sign that digital sales have come of age is the comfort B2B buyers display in making large new purchases and re-orders online.

Keeping Up With the Pace of Digitization
But will industry keep up with the fast pace of digitalization and continue to increase investment in digital technologies? A study by the OECD notes that although some online activity may decline as COVID-19 treatments begin to emerge and enable greater in-person interactions, it is likely to remain high in areas for which the pandemic has acted as a catalyst, including telework, e-commerce, e-health, and e-payments.

The emergence of 5G and the IoT will further fuel the production of data and add urgency to ongoing policy discussions around data governance, privacy, and security. Additionally, a recent report by McKinsey & Co. entitled “Can Companies Build on Their Digital Surge?” warns that while industries across countries and regions experienced an average of 20 percent growth in “fully digital” users in the six months ending April 2021, the acceleration into digital channels may be leveling off. The reason, it says, is this approach requires more than just “being agile.” It requires a commitment to trusting and using data, testing initiatives in real-world settings based on a flexible foundation, and accepting mistakes as the price for learning.

McKinsey & Co. further writes that with advances in technology, such as the growth of cloud and increasingly advanced analytics, companies can stand up whole businesses and channels in days and weeks once their strategy is in place. In short, “Digital is here to stay…and the pace of change is continuing to accelerate.”

Regardless of how the crisis and its aftermath unfold, OECD maintains there is no doubt that digital technologies will continue to transform the way we live and work. It particularly notes how the emergence of 5G and the IoT will further fuel the production of data and add urgency to ongoing policy discussions around data governance, privacy, and security.

“These issues may become even more acute as firms weigh the costs and benefits of increasing automation — especially in manufacturing facilities — to increase resilience against future health crises and, in doing so, boost the importance of data flows between firms,” OECD concludes.

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