Industry Expertise | April 2025 Technology is a powerful tool for managing a new freight cycle

The transportation and logistics (T&L) industry has experienced its share of fluctuations over the past five years. Starting with the pandemic supply chain disruptions and followed by drought conditions at the Panama Canal, the Red Sea shipping crisis, and geopolitical conflicts in Ukraine and the Mideast, it’s only now that the freight market is returning to normal as the Great Freight Recession draws to a close. The logistics industry expansion signaled by the February 2025 Logistics Managers Index (LMI)^* of 62.8^{Disclosure 1} combined with its steady recovery from mid-2023 lows provides additional evidence that a new freight cycle is emerging.

As the next freight cycle unfolds, T&L companies are likely to continue to experience margin pressure and an increasingly uncertain operating environment. Persistent cost inflation—including transportation equipment and maintenance costs, insurance premiums, and wages^{Disclosure 2} —will likely be a drag on profitability.  New tariff policies are injecting unpredictability into shipping patterns, the effects of which are already seen in businesses frontloading imports ahead of anticipated tariff increases and remapping of supply chains. Tariff-triggered inflation could lead to an economic slowdown that reduces demand for T&L services. Ultimately, accelerating the reshoring and nearshoring of manufacturing and production could even further reset domestic and global shipping patterns.

Deploying technology can help alleviate cost pressures and provide additional flexibility for businesses to manage through uncertainty. According to the Harvard Business Review, 89% of companies report undergoing digital transformation.^{Disclosure 3} For T&L businesses, investing in technologies helps them manage shifts in demand and stay competitive. By enhancing productivity, reducing labor costs, and enabling predictive planning, technology investments can drive profitability and equip businesses to navigate future challenges.

Demand forecasting, routing and capacity planning, workforce management, and performance reporting are some of the primary areas that T&L businesses look to transform using the latest technology, like generative artificial intelligence (GenAI). According to McKinsey & Company, logistics service providers are optimistic about Gen AI adopting it at higher rates and demonstrating greater ambitions to grow their use of the technology than their customers.^{Disclosure 5}

The technologies that offer the most promise will vary for each T&L business depending on its sector, the customer niches it serves, the strategies it pursues, and the value it delivers. Technology projects for the T&L industry typically break down into these three categories:

Digital solutions. Technology can connect your organization. Streamlining workflows and providing self-service information to customers and staff can help improve the digital experience and lower servicing costs. Investments can go toward updating or extending core warehouse and transportation management systems or can flow into modules that support skill development and training, safety monitoring, advanced resources planning, and a variety of other applications.

Sensing and automation. For some logistics and warehousing companies, sensing technologies like radio-frequency identification (RFID) tags and optical character recognition (OCR) provide tracking information that’s revolutionizing inventory and warehouse operations. For others, automation and robotics greatly simplify T&L processes and reduce the need for human labor. Exploratory pilot projects can provide learning that will steer you to the technologies with the greatest potential to impact your business. You don’t have to be Amazon—projected to have more robots than employees by 2030^{Disclosure 4} —to start benefiting from automation.

AI revolution. Generative AI can integrate large, disparate data sets and put them to work toward a range of business objectives. Early use cases find AI software can optimize routes, improve load planning, and provide predictive insights. Using AI to forecast supply chain trends and predict maintenance for transportation equipment and infrastructure—ensuring they’re serviced before issues become problematic—improves operational efficiency and reduces the risk of unexpected delays.

Leading industry players are racing to integrate Gen AI into their operations. McKinsey & Company research shows that large logistics services companies have already implemented Gen AI in at least three use cases, with the top use cases being service model and usage patterns analysis, fleet utilization assessment, and fraud detection. The companies surveyed anticipate expanding to seven or more use cases within the next three years.^{Disclosure 5}

Understanding how technology can enhance your business and developing a clear path for successful implementation and ROI can feel overwhelming.

It typically involves a three-step process:

Step 1 - Evaluate your needs to determine where technology can make a difference. Where do you want to take your company in the coming years? Identify the technologies with the greatest impact by aligning them with your strategy and company objectives. What metrics—operational, financial, competitive—are you looking to achieve? What technologies will deliver greater value to your customers? How can technology boost your company’s enterprise value? What technologies are needed to meet regulatory requirements?

As you formulate your plans for the technologies that are most compelling for your business, consider how each opportunity fits within your organization’s processes, your staff’s skills, and your legacy systems.

Step 2 - Use ROI to plan your digital transformation journey. Rank your digital transformation efforts by their expected ROI to help with prioritization. Projecting ROI can be challenging—73% of companies said they struggled to define metrics to assess the performance of a technology initiative^{Disclosure 6} . Estimating the cost of implementation along with the financial and operational benefits ensures your technology initiatives align with your strategic goals.

As you profile each technology initiative, consider expected implementation costs, skills needed to carry out the project, and provisions required for ongoing support. The cost of maintaining outdated technology can build over time, affecting your ability to adopt newer platforms. Investment in advanced technologies must also be paired with an intense focus on cybersecurity at a time when cybercriminals’ techniques are becoming more sophisticated, and the threat of attacks is on the rise. Consider these risks in the cost portion of your ROI model when staging technology projects and determining needed funds.

Step 3 - Evaluate funding flows and available capital. Whether you build a technology advantage or buy a company that’s already a leader, consider various scenarios now to enhance your future flexibility. Capital planning should include technology projects or assets needed to meet sustainability goals that are planned in the coming years. Explore your financing options today as you prepare for technology investments that are necessary to build and maintain a strong competitive advantage.