While a bevy of high-tech outfits have threatened to disrupt the current freight forwarding marketplace with their digitized offerings, established players are hardly standing still as far as innovation is concerned. By Patrick Burnson
The modern freight forwarder must become a logistics “orchestrator” as new technologies are introduced and adapted by all modes in the supply chain, contend the thought leaders and analysts who are watching what is perhaps the most dynamic segment of global logistics management.
“Service reliability, space allocation guarantees and a multi-carrier platform have become much more important to spread risks and to avoid supply chain disruptions,” says John Klompers, global head of freight forwarding for long-time player Damco, the third-party logistics subsidiary of Danish shipping conglomerate A.P. Moller/Maersk.
To that effect, Damco has positioned itself to compete with scores of upstarts by introducing “Twill,” which enables logistics managers to book, manage and monitor shipments online with a simple keystroke. Analysts say that this response is well timed to address the challenges posed by an emerging class of “digital-first” forwarders, such as Flexport, iContainers, Freighthub, Kontainers and Freightos.
“The forwarding market today is characterized by innovation,” says Cathy Morrow Roberson, president of the research firm Logistics Trends and Insights. “But at the same time, it’s very fragmented. While we see more consolidation likely, only the smaller companies that are constantly upgrading and investing in their services will continue to challenge the mega-forwarders. It’s survival of the fittest right now.”
The top global forwarders are hardly idle observers while this Darwinian scenario plays out. For example, Swiss freight forwarding group Kuehne + Nagel is looking for further acquisitions to accelerate its growth even though the company is recording record profits.
“The logistics business is going through a period of change with mergers and acquisitions on the one hand and digitalization, creating new competitors and new business models, on the other,” says Kuehne + Nagel’s chairman of the board Joerg Wolle.
In the case of Kuehne + Nagel, which is succeeding even in a fractured transport market, it may be easier to imagine a greater level of achievement once new efficiencies are added.
“Looking for more acquisitions falls in line with our goal of boosting innovation, resilience and IT competence,” says Wolle. “The ability of older firms to recognize the value of new technology is vital. With it, we can address the demands of a customer base increasingly accustomed to instant price availability.
Another example of the evolutionary path being staked out by digitization came about when DB Schenker, a forwarder founded in 1872, invested $25 million for a minority stake in uShip, an online freight marketplace. The deal between the two companies comes in the wake of an arrangement made last July, where uShip agreed to develop “Drive4Schenker,” an online trucking platform.
Solving the global puzzle
Because most high-tech forwarders originally concentrated on the domestic markets of the U.S. and EU, management of shipments was relatively simple. But it’s an entirely different story when they expand into the global arena, observes Albert Saphir, president of ABS Consulting.
“Going global involves a very complex and extensive count of underlying moving pieces,” says Saphir. “This puzzle gets even more complicated when you consider all the new and ever growing security requirements and export control regulations now in place.”
According to Saphir, there are currently more than 40 U.S. regulatory agencies that have an “interest” or a stake in various commodities managed by today’s forwarders. “When the transaction merely means a simple transit from one port to another in an ocean container shipment, the logistics are not so bad,” says Saphir. “But the compliance piece becomes much more difficult when the supply chain is segmented.”
Saphir notes that UPS, FedEx and DHL have been doing this for a long time now with packages, but larger pieces of freight face more restrictions in many trade lanes and across borders. “This presents a whole new set of challenges for both the shipper and forwarder,” he says. “And there are far few choices if the forwarder want’s to keep the logistics ‘in house.’”
Analysts also recall when Deutsche Post-DHL abandoned its new forwarding environment (NFE) IT renewal program with a $400 million write-off two years ago.
At that time, the storied forwarder was trying to integrate SAP “middleware” into its existing system and encountered compatibility problems too large for them to adequately address. However, that doesn’t mean that big forwarders should stop trying to digitize their operations, says McKinsey & Company.
“The digital revolution has profound and specific implications for the transportation and logistics sector,” says McKinsey. “In order to survive and thrive as they transform into digital businesses, companies in this sector need to consider each step of the value chain, from acquiring and satisfying customers, to increasing operational efficiency.”
Hausmann adds that by drastically reducing the marginal cost of acquiring a new customer, digitization has radically increased the speed at which new transportation and logistics players can grow.
For McKinsey analysts, simpler, safer, and better operational processes are best. “Digitization will transform the back end of any forwarding and logistics business,” McKinsey says. “In fact, digital solutions are capable of reducing costs and adding more value to services in all facets of operational processes.”
McKinsey found that partial or full automation can reduce freight transportation costs by 25% to 40%, delivery time by 30%, and the number of accidents by more than 50%. Access to new insights through exploding amount of information generated (Big Data) also enables transportation and logistics companies to optimize customer-facing and internal processes.
The importance of data as an input is accelerating, enabling new possibilities and information-based business models, says McKinsey analysts, who maintain that Big Data lays the groundwork for completely new levels of optimization and easier quality evaluation.
“Predictive modeling will, for example, become much more accurate and thus greatly improve capacity planning,” says McKinsey. “On the other hand, there will be a growing need for transportation and logistics companies to collaborate with the data providers to gain market insights. Moreover, data security and system reliability will be increasingly differentiating factors for industry players.”
Elephant in the room
Industry analysts and e-commerce forwarders have also identified one outstanding exception to the “collaborative model” in today’s forwarding marketplace. Rather than partner with prominent freight intermediaries, Amazon has shown a marked preference for going it alone, thereby controlling as much of its supply chain as possible.
Late last year, Amazon began handling its own shipments by ocean to its U.S. warehouses, officially marking its classification as freight forwarder and rattling the nerves of traditional providers worldwide.
In light of this revelation, Dr. Zvi Schreiber, CEO and founder of the logistics technology platform Freightos, notes that this move alone may transform the forwarding marketplace. “Logistics companies had been eyeing Amazon suspiciously for years before this announcement was made,” he says. “Their fears were confirmed, with the revelation that Amazon has been quietly arranging U.S. ocean shipments to China without using a forwarder.
Amazon’s deep pockets—the company spends an estimated $12 billion per year on shipping—means the trillion-dollar freight industry is now coming up against the very same disruptors that changed the name of the game for retailers, manufacturers and computer storage. According to a Freightos industry survey, top forwarders average 2 days to 4 days to provide freight pricing, exposing them to competition from more automated, online services.
“The options are pretty clear: Adapt or control-alt-delete,” adds Schreiber.
Nurturing the relationship
Shippers who abandon their trusted freight forwarder for “the next great thing,” however, do so at their peril, warn many analysts. Customs clearance and regulatory compliance are often the most complicated pieces in any international transaction, and risk is best mitigated by remaining with a trusted middleman.
“Established forwarders continue to provide creative solutions to even the most complex logistical challenges since they’re not bound to one system for transporting cargo,” says Brandon Fried, executive director of the Airforwarders Association. “Flexibility and creativity remain the cornerstones of forwarding success in assisting shippers to execute their business plans.”
At the same time, says Fried, thanks to Cloud computing, automation in the freight forwarding industry has never been less expensive. He notes that forwarders are enhancing their technical assets to provide better end-to-end visibility to the shipper, but that the challenge continues to be designing systems that can work across many platforms.
“The most significant advancement in automation continues to be CBP’s Automated Commercial Environment system that allows one portal for import and export trade-related filings,” says Fried. “The agency has made considerable progress in this area, but there is work to be done. When complete, the system will be one of the best single window trade portals in the world.”