NASHVILLE, TN -- While disruption may be a current buzzword, it’s as old as capitalism itself, said Thom Albrecht, president of Sword & Sea Transportation Advisors, a securities analysis firm. Speaking at the PeopleNet and TMW in.sight User Conference + Expo Aug. 15, Albrecht said that when there’s real disruption market leaders are displaced.
The examples are legion: the horse and buggy vs. the automobile; ice boxes vs. refrigerators; and more recently the example of Kodak, which held the first patent for a digital camera, but couldn’t see the real value of the technology or how it would affect its core business of making film. And of course, everyone knows about the disruptions that Uber and Airbnb created in taxi cab and hotel markets.
And of course, there is Amazon and other retail e-commerce sites, which have totally disrupted the retail industry in terms of brick and mortar stores. Albrecht argues Amazon is the latest disruption in a trend affecting retail. Before that, he said, catalog sales took a bite out of department stores, big box stores took another bite, and Amazon and similar ventures put the big box stores down.
Albrecht predicts malls will continue to contract – their numbers will decrease until only a few are left. Even now, 28% of malls account for 70% of mall sales. What that means for retail is that much of the free labor and transportation they had once relied on is gone.
Before Amazon and direct shipment of goods to consumers, they had to drive to the store and pick up their goods, he said. Now, we demand delivery and in many cases demand it the next or even same day we order. As a result, Albrecht said projections call for 20% more brick and mortar stores to close with the next five to eight years. In fact, Amazon’s sales growth in many consumer segments has far outpaced each segment overall growth. For instance, e-commerce’s share of the beauty care market is 28% with year-over-year sales growth of $1.6 billion, while brick and mortar stores’ sales growth was minus $170 million.
Every retail category is gaining momentum in e-commerce, as we have begun to buy things online we wouldn’t have three to four years ago, he said, paced by millennials buying much of their goods online.
That includes food items, which along with a few other trends is changing food logistics. For instance, this year 31% of online shoppers were willing to make at least one food order online. Last year that figure was 19% and in 2015 it was 8%. Online spending on food and alcohol is expected to grow from $14 billion in 2016 to $125 billion in 2020.
The popularity of online food kits may have something to do with that, Albrecht said. Another trend affecting food logistics: changing tastes. Year-to-year sales growth at independent restaurants grew 6-8%, while chain restaurants saw about 1% growth.
What does that mean for trucking? Albrecht thinks there will be fewer full truckloads, more transparency, and compression of rates. Autonomous vehicles could add capacity and electric trucks could reduce operating costs, he said. But both of those trends may depress rates. On the bright side, however, is that with more transparency, good service can win out over lower rates if the rate spreads are smaller.
He also foresees dry van shipments going down while refrigerated shipments will increase; fewer Class 8 trucks and more medium-duty trucks, although not everyone in the industry agrees with that assessment.
To manage your company in disruptive times, Albrecht suggests a few principles. First, see change properly – be ready to change your operation if necessary. Second, being the biggest and the smartest may not protect you, since leading companies rarely see disruption coming as they are focused on what they have always been doing.
Don’t be afraid to hurt a part of your business if need be. For instance, Amazon was the leading seller of books but they developed the Kindle anyway, knowing that e-books would eat away at regular book sales. Watch out for the low margin, low volume parts of the business, as that’s where disruptors get a toe-hold. As an example, Albrecht cited how parcel carriers siphoned off small and mid-sized shipments from LTL carriers until the FedEx’s and UPS’s of the world became LTLs themselves.
And to tackle disruption, it may be better to establish an autonomous unit outside of the “home-office” culture, he said.