The COVID-19 pandemic is forcing international shippers to reckon with an increased volume of both business-to-business and business-to-consumer goods being purchased online. That’s reshaping the way third-party logistics providers (3PLs) serve their customers.
Forwarders are having to provide logistics services that help shippers support the migration of sales transactions to an online environment. That places the onus on 3PLs to provide inventory management, visibility, and fulfillment solutions, particularly for shippers that want to build internally managed online sales channels in lieu of using marketplaces such as Amazon and Alibaba.
This development is giving logistics providers an opportunity in a world more defined by e-commerce, but it also means they are having to adopt new technology to enable their customers to meet the challenge of profitably fulfilling rising online sales of goods. Invariably, that leads to a choice for intermediaries: use third-party technology or develop an internal platform.
For those who choose the former, there’s a further choice to be made: invest cash in a solutions provider; use a hybrid partnership of multiple software providers; or acquire their own technology, an avenue that has the added benefit of keeping the solution out of the hands of competitors.
Growth in e-commerce sales in 2020 has accelerated this trend, but forwarders and 3PLs had been gearing up for this migration long before the COVID-19 crisis. And a large part of their focus has been on helping shippers sell products via their own websites.
“Brands, irrespective of industry, that are going online, they have a requirement to sell more through their own website instead of marketplaces and aggregators,” Ashwani Nath, global head of e-channel solutions at the 3PL Geodis, told JOC.com. “Marketplaces create the purchase experience, but the e-shopper is owned by the marketplace and the brand doesn’t have visibility to the final shopper. There are also commissions paid to the marketplace on those sales and for fulfillment.”
A two-part shift
Nath said shippers should break the transition to online selling into two parts — the purchase experience and the delivery experience — and that logistics providers are best equipped to handle the latter once a shipper has built its own online sales platform.
“That’s what we’ve taken upon ourselves,” he said. “When a brand wants to expand their geographical reach for online orders, they have generally turned to marketplaces that have developed fulfillment sites, order management, and visibility. What we have done mirrors the marketplace model of middle-mile orchestration and the inventory management for brands that want to take control of the end-to-end parcel and sales journey and have an alternative to the marketplaces.”
Nath said Geodis won’t be getting into the business of developing purchasing platforms, leaving that to e-commerce providers such as Shopify, Magento, and Woo Commerce to work directly with brands, and then connecting to them to manage and fulfill the orders. “All these are web platforms that are necessary, and they have seemed to move into some part of the logistics journey,” he said. “They would be good collaborative partners to work with us to create a whole journey.”
Some forwarders have long been focused on the opportunities e-commerce represents, going beyond just technology investment by setting up physical distribution and final-mile networks to extend their value to shippers.
“3PLs play more of a critical role for retailers and direct-to-consumer brands with e-commerce versus traditional retail or wholesale channels, because we’re likely doing the fulfillment, but we’re also often delivering to the consumer or managing the outbound carrier program on the brand’s behalf,” said Brian Bourke, chief growth officer at SEKO Logistics.
Bourke said SEKO has changed its “build-and-buy” approach to technology to one of “build, buy, or partner” because “no one company can do it all by themselves. We’re seeing opportunities where we can partner with more technology companies, update our own tech stack, and in some cases, looking at strategic acquisitions.”
He pointed to SEKO’s January purchase of forwarder Air City, which focuses on westbound air freight and cross-border e-commerce trade for goods going to China. SEKO, meanwhile, has also established partnerships with e-commerce technology providers EasyShip and ShipStation to enable pricing and management of international parcel shipments for its customers.
The decision to license, build, invest in, or acquire online fulfilment technology goes beyond rising e-commerce sales induced by the COVID-19 pandemic, but there is a legitimate argument that the pandemic has accelerated merger and acquisition activity that was likely to happen at some point.
“Any direct-to-consumer brand that has a commodity on backorder right now — from bikes to hot tubs — needs to quickly pivot,” said Bourke. “Basically, all retailers, especially where e-commerce was previously less than 20 percent of their total sales, have had to quickly pivot as well, and that is a large number of retailers.”
A few notable acquisitions this year by major forwarders or logistics software providers include Expeditors International acquiring the digital forwarder Fleet Logistics and turning its platform into an on-demand less-than-truckload (LTL) marketplace, and the software provider Descartes acquiring digital quoting software provider Kontainers. Another acquisition that flew under the radar prior to the COVID-19 pandemic was Agility’s acquisition of Spain-based digital forwarder iContainers in 2019.
In one way or another, all these acquisitions are set up to tap into demand for instant quoting capability that fits neatly into the spectrum of e-commerce logistics. That’s also where the e-commerce marketplaces come into the picture. Whereas logistics providers have traditionally enabled freight movement and are now working to supplement e-commerce sales channels, the large e-commerce marketplaces started with sales transactions and are moving downstream into logistics.
That development will empower smaller sellers to become international shippers, but it is also forcing mid-sized and large shippers to decide if they want control of the journey from product purchase to delivery or are willing to hand off the sales transactions — and some of the logistics processes — to the marketplaces.
The international freight marketplace Freightos, for instance, set up a partnership with Chinese e-commerce marketplace Alibaba in June to enable sellers to manage freight procurement and customs compliance. Freightos chief marketing officer Eytan Buchman told JOC.com the marketplace saw a 70 percent year-over-year increase in B2B shipments in the second quarter, driven largely by small sellers. “It’s not just B2C e-commerce that got the uplift,” he said.
There is a through line between the uptick in e-commerce and the direction 3PLs and forwarders have pointed in recent years to digitize their internal operations and customer interfaces; one feeds into the other. Even if the bulk of large shipper customers today don’t want a self-service experience, the 10 percent or so that do are driving innovations that will percolate through the entire industry, multiple forwarders have told JOC.com.
One forwarder who asked not to be identified said every 3PL today is cognizant of the challenge before the industry, but most also recognize that they’re in a position to control their own destinies through investment in technology.
“We’re all exposed to a hundred exciting companies, and it comes down to whether we would take an equity position, buy them, or license it from them,” said the forwarder. “I think the major incumbents have to deal with it.” He said digitally native forwarders have 20 percent of what they need to serve shippers, but incumbents have 80 percent of what they need.
The forwarder said the future state of the industry is “built around a customer interface and freight- and mode-agnostic capability, with this ‘ozone layer’ of visibility over everything. Whoever has that will have a significant leg up, and M&A is the way to get there in a lot of cases.”
A ‘bullwhip effect’
The rapid growth of e-commerce, which long predates the coronavirus disease 2019 (COVID-19), is having a “bullwhip effect” on logistics providers, with customer preferences reverberating back into the decision-making of those service providers, said Ben Gordon, founder of the supply chain private equity group Cambridge Capital.
“Small changes in end-market demand cause huge changes throughout the supply chain, leading to larger disruptions at the beginning of the cycle,” said Gordon. “In the technology arena, we are seeing a step function increase in adoption. Logistics companies and enterprises are accelerating their adoption of technology that boosts productivity.”
Multiple logistics companies also spoke to JOC.com about the need to provide shippers with “scalability.” While “resilience” and “adaptability” have been key focuses of shippers throughout the COVID-19 crisis, scalability is a more meaningful metric, the companies say, because it refers to the ability of logistics providers to help a shipper manage its fixed costs as demand swings up and down.
That is what led Stord, an early-stage technology-based contract logistics provider in North America, to acquire Cove Logistics, a domestic transportation-focused 3PL, in June.
“We’re trying to drive a seamless distribution network, and freight is a key aspect of that,” Jacob Boudreau, chief technology officer of Stord, told JOC.com. “We started growing our freight services organically, and we saw customers were heavily interested in it. It grew to be a significant part of the business, and we wanted to scale it. We wanted to double down on shipment capabilities as part of the platform.”
Stord chose to acquire a freight transportation provider, rather than simply partnering with one, because the company wanted “ownership through that entire vertical integration,” Boudreau said.
“We provide the software and service capability,” he said. “Being vertically integrated, we think about that a lot, in terms of shippers thinking beyond that load, that lane, that warehouse. Instead of thinking, ‘I’m paying $50 more on that load,’ we want them to think about being more profitable. We want to help them think about taking a more vertical slice.”
Geodis similarly said its e-commerce capability is designed to help shippers scale up as their online volume grows, primarily through the use of Geodis’ network of distribution centers to better manage inventory. Nath said shippers have traditionally segmented inventory according to sales channels, which is an inefficient approach to omni-channel retailing.
“We are trying to give one view of suppliers, in-transit cargo, and inventory in-store — a single inventory view,” Nath said. “You can guide the brand in terms of the number of SKUs and the quantity of SKUs that’s as close to the customer as possible.”
For instance, Nath said a brand might have used one distribution center for Europe and one for North America prior to the COVID-19 pandemic, but it will now need to position inventory in smaller pockets closer to customers to orchestrate orders within two to three days, all with “a complete, and real-time, inventory view.”
Bourke, meanwhile, said forwarders and 3PLs have been responding to the surge in e-commerce demand by acquiring new distribution space and adding labor and carriers. But they have also been turning to old strategies to complement investment in technology, such as distribution center (DC) bypass, in which goods are routed directly from a manufacturer or vendor to an importer’s stores or consumers.
“We’ve implemented in real-time DC bypass strategies because shippers are realizing that they do not need to ‘touch’ or ‘see’ their cargo,” he said. “DC bypass is an old concept, but it is expanding quickly with shippers as they see the immediate benefit in cost savings.”