I think a lot of functionality could be implemented to caravans to make them far more interesting and useful. I agree that they have great potential and instead of being removed, should just be heavily revamped.
For one, it would be nice if they could also be used to transport multiple items from one city to another. A player could stock up a caravan with armor and weapons in one city, and transport them to units stationed in another city, or simply to units out somewhere along the road. This way, caravans could also go to another peaceful faction's city to purchase items not found in the player's cities, and your vital military units wouldn't have to waste time just for tedious item retrieval (something I really don't enjoy).
A potential setback to this, would be if a caravan gets plundered, so would the items being transported in it -- with a chance of being acquired by the one plundering it. Perhaps not a setback at all, depending on your perspective.
Just the first ideas to come to my mind, but surely there are many ways that caravans can be improved upon.
I think you are onto something.
I would also like to be able to transport population (or food) from a high grain city to a low grain city that I am using as a fortress, in order to help that city gain levels. Maybe a random portion of the people traveling will die or some of the food will go bad, so you can't just spam population in a city to help a low grain fort gain levels (that would kind of defeat the compromise of having tiles be low/high grain versus low/high materials). There could also be an addition to the tech tree to research heartiness for the travelers or preservation for the food.
It would be nice if caravans on trade routes between two differing kingdoms/empires could be disrupted as well. Place an emphasis on protecting the routes, making sure they are clear of the AI monsters (the Syndicate, Bandits, etc) and not near opposing/warring factions. Maybe have a rapid response unit that travels along the trade routes patrolling.
I think you have the seeds of a good idea, here.