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Global News Change management key to unlocking AI’s productivity potential for 3PLs

Registration dateAUG 09, 2023

Eric Johnson, Senior Technology EditorJul 28, 2023, 10:57 AM EDT
Articles reproduced by permission of Journal of Commerce.

Eric Johnson, Senior Technology Editor
Jul 28, 2023, 10:57 AM EDT
Articles reproduced by permission of Journal of Commerce.

Change management key to unlocking AI’s productivity potential for 3PLs With labor accounting for 70% of its total costs, DSV is using AI to automate customs compliance work and is eyeing similar opportunities in ocean booking and tracking. Photo credit: OleksandrShnuryk / Shutterstock.com.
Using artificial intelligence (AI) will be a key component in helping forwarders meet their financial targets in future years, allowing them to reduce headcount while increasing their efficiency, according to a range of industry participants who spoke to the Journal of Commerce.

But in the short term, balancing the need to incorporate AI while keeping current employees happy and engaged will be a challenge.

“Clearly, AI and its potential impact on headcount is out there,” Rob Petti, CEO of forwarding software provider Prompt, told the Journal of Commerce. “The reality is that every company implementing any sort of AI technology is doing it in order to improve margins. Otherwise, why do it?”

Jens Lund, COO of DSV, said the cost of managing the transition from a human workforce that accounts for nearly three-fourths of its overall costs to automated AI-based systems is already “baked into” the global third-party logistics provider’s (3PL’s) financial targets.

“If we then do it really well, we can outperform [the market] a little bit,” Lund said in the company’s earnings call Tuesday. “We need to produce more volume for less money, which has been the case for more than 20 years.”

Both Lund and DSV CEO Jens Bjørn Andersen acknowledged on the call that AI initiatives will result in changes to the company’s headcount, as processes currently handled by people will eventually be executed by programs.

“The computer can do more work than it could before, but then we will eliminate people in [places like] Manila and Warsaw,” Lund said.

Andersen noted that headcount costs represent about 70% of the forwarder’s overall expenditures.

“This is something that we are super excited about that can really move the needle going forward,” he said. ‘Winners’ will embrace AI first Lund was asked during the call to frame the need for DSV to adopt AI across its business as a means to cope in a highly competitive and cost-sensitive industry.

“I don’t know any service industry where you don’t have to produce [more] for less,” he said. “This is also the case here. The winners, they are going to be the ones that embrace [AI] and adopt it first. And the losers, they are going to be the companies that miss out on the opportunity.”

What’s often lost in the discussion, Petti said, is that AI should ideally enable a forwarder to handle a higher volume of services without adding people.

“Headcount doesn’t need to go down if the business continues to grow,” Petti said. “Companies can do more with their current headcount if they attract more sales. This, in the DSV case, would bring total labor expenses down [as a percentage of total costs] but not headcount.”

Petti said the trickier process is explaining the impact to employees.

“Where it becomes harder is overcoming the skepticism,” he said. “There’s the job security part, but we’ve also now ended a period where ‘log-tech’ can solve all logistics problems and blockchain can solve all logistics problems. Companies and employees have been burned twice, and will AI make it three times unlucky? AI can and will do a lot to make logistics more efficient, but it’s not going to magically do everything.”

Thad Bedard, president of APL Logistics, said fears of massive headcount reductions due to the implementation of AI were premature.

“I am not sure how anyone could make a prediction about AI and headcount reductions in our industry,” Bedard told the Journal of Commerce. “Yes, it could have an impact, but hard to say when, how large or to offer any specifics. AI is already changing the industry, and all industries, and has been for some time.

“Sometimes the discussion about AI starts off with the incorrect assumption that it is new, which is not true,” he added. “What has changed is the accessibility of it.” Understanding the ‘why’ Service providers in the trucking industry are grappling with the same questions around adoption of AI.

“Artificial decision intelligence is at a point where it can take over the large majority of human decisions today,” trucking automation platform Optimal Dynamics and transportation consulting firm Metafora said in a July white paper, Effective Change Management for AI-Driven Business Transformation in Trucking. “Without proper change management, it can be difficult to realize the full value of the solution.”

Ryan Schreiber, chief growth officer at Metafora, said helping employees understand the decision to invest in AI is a critical step.

“As organizations embrace AI technology, change management takes on a new level of significance,” he wrote in the paper. “This explanation of ‘why’ becomes increasingly important to communicate to the team.”

Lund noted customs as a specific area in which DSV is advancing its application of AI. DSV has established an internal capability it calls AI Factory that can automatically fill data fields in various customs systems.

“You can use the system to acquire the data, but you could also use the system to enhance the data,” he said during the earnings call.

For example, a shipper could query the system to determine what HS code would be applicable on a specific SKU, and thus what duties would need to be paid.

“In many situations today, this is done by human intervention,” Lund said. “On customs formalities, I think we have a breakthrough because we really have an opportunity to consolidate some of this. This is not only in relation to us, but it’s also in relation to the [customs] authorities. The authorities in certain countries now can receive customer clearances via API [application programming interface] and that’s what we need in order to really capitalize on this.”

In the next iteration of AI Factory, DSV is looking to extend its capabilities into core ocean customer service processes.

“There are two main types of questions that our customers have,” Lund said. “One is the booking, or the work in relation to the booking, and the second question is ‘where's my cargo?’ You can use the technology to eliminate some of that work.”

He said the productivity gains of automating that work only come when there’s a “high integrity of data” and a “consolidated [technology] infrastructure.”

“If you have a scattered system landscape, it’s very difficult to get the benefits from AI tools,” Lund said.
· Contact Eric Johnson at eric.johnson@spglobal.com and follow him on Twitter: @LogTechEric.