Forwarders urged to fend off triple threat with technology

Forwarders urged to fend off triple threat with technology

Freight forwarding.

The triple threat of e-commerce retailers, logistics technology startups, and ocean carriers pushing into the logistics services space is creating pressure on forwarders to innovate in the way they adopt new technology and engage with shippers to maintain value in those relationships. Photo credit: Shutterstock.com.

To remain relevant in a fast-changing freight environment, global freight forwarders need to use technology as a means to drive business process changes and reduce fixed costs associated with serving shippers.

The triple threat of e-commerce retailers, logistics technology startups, and ocean carriers pushing into the logistics services space is creating pressure on forwarders to innovate in the way they adopt new technology and engage with shippers to maintain value in those relationships.

“Technology is the enabler, but it’s the business practices that are the true differentiator,” Zvi Schreiber, CEO of the freight marketplace and rate management software provider Freightos said in late October at the JOC Logistics Technology Conference in Las Vegas.

Non-binding bookings

Schreiber pointed, for example, to the way carriers provide a quote that’s then subject to a general rate increase (GRI) and doesn’t guarantee a slot on a specific sailing. Integrated systems now allow carriers to distribute their rates to forwarders to pass on to shippers, or direct to shippers, in real time.

“So the rates can go in real time, but then that’s got to go with the business practice of giving a rate that’s binding and a slot which is binding, which is a very basic business practice that other businesses have,” he said. “You book a room in a hotel, the price can’t change, [and] the room can’t be sold. But you book a container on a ship, the price may change, [and] the cargo might be rolled. So the technology has got to go with the change in business practices.”

Forwarders are wrestling with a number of areas of innovation, from dynamic pricing tools that allow instant quotes, digital freight forwarders that are building eye-pleasing user interfaces, to integration platforms that allow shippers to more easily move from one forwarder to another.

“I look at problems as challenges,” said Angela Czajkowski, director of supply chain at the Baltimore-based freight forwarder and customs broker Shapiro. “We all know we’re in transformative times, so we’re trying to figure out our role — what do we do next to stay relevant, to evolve. The first question is: what’s a wise investment of our tech spend? Where should we be developing? As a forwarder, it’s watching this evolution and what makes sense for our model.”

An area of emphasis for Shapiro is completeness of data it produces and receives. “So many customers come to us and we act as their TMS [transportation management system], and if the data is not good enough, the party managing that data is the forwarder more often than not. We’re looking at integrations more than ever. If I need to manage rates, I can turn to a CargoSphere, and if I need better visibility data, I can turn to an Ocean Insights. Where should we be integrating to provide that visibility to our clients?”

Hiring practices changing

The pressure on midsize freight forwarders such as Shapiro has also changed the way the company needs to hire, Czajkowski said.

“Where 25 years ago we might have been looking for someone who is a highly skilled and qualified freight technician who understands the logistics industry, now we recognize we still need that, but we have to pair it with someone who understands data analytics and adopts technology quickly.”

Fauad Shariff, CEO at the freight-forwarding marketplace CoLoadX, told conference attendees that innovation for forwarders has to address the way they look at fixed costs and operating profits. He argued forwarders are largely focused on the procurement of capacity that is largely out of their hands and isn’t as variable as they think it is.

“As a forwarder, say your top-line number is $100; that’s sales,” Shariff said. “Your cost of goods sold is $80; that gives you a $20 gross profit. The next $15 to $17 go in fixed costs. Your EBIT [earnings before interest and taxes] is $3 to $5. Every [forwarder] beats their brains out for the $80 and $20, and that’s never going to change because you don’t control the ships. You can hire procurement teams and do RFPs [request for proposals] and RFQs [request for quotes], but if you focus on that $15 to $17, that’s where innovation begins.”

Shariff said the demise of Sears and Toys “R” Us should be instructive to forwarders in terms of adopting a culture of innovation and injecting value into shipper engagements, whether relationship-based or transactional. He said the “broken” model of forwarding has led to the entrance of e-commerce giants and digitally oriented freight forwarders as viable competitors.

“If logistics doesn’t get fixed, we’re going the way of Sears,” he said. “If you don’t solve that, you don’t stand a chance. That begins to determine whether you work with a startup; do you build in-house, do you take the API [application programming interface]-first approach, [or] do you take pricing first? Any other part of your overhead — how can we do this differently?” Shariff contends that is the crux of the matter facing the freight-forwarding industry and why e-commerce companies have come in. “They’ve all looked at this industry and said, ‘We can do it better ourselves.’”

Change in internal view

He urged forwarders to think of their businesses as valued-added resellers, not brokerages, cautioning that “price is the road to commoditization.

“This concept exists in tech, in securities, everywhere else, and yet somehow there’s this concept that freight forwarders are the travel agents of cargo, soon to be replaced by a board,” he said. “That’s not happening. But the nature of the business is changing, with customer service, with attention to the complexity of the transaction, and a fundamental understanding of what freight forwarder value is. And it’s not a low price.”

As Schreiber notes, the global forwarding industry is highly fragmented, with more than 100,000 companies in operation. But he said there is room for differentiation for forwarders pursuing a less-worn path.

“There are three things to prepare for in the future as a forwarder,” said Schreiber, who said Freightos works with about 1,000 forwarders. “The back office has to be automated. You won’t be able in a few years to afford it, to mark up 15 percent and then spend 10 percent of that on your back office people. You’ve got to get the cost out of that. On the front end, shippers now expect a digital experience. The pricing, the payments, the track and trace, everything’s got to be online. That’s a huge potential differentiation for freight forwarders.

“The third thing is business practices,” he said. “Shippers want definite price, definite time. If you’re willing to model that out, and not pass on GRIs, give people the price you quoted, maybe a money-back guarantee on the transit time, that can be a differentiator.”

Technology can also be a threat to forwarders as they engage with shippers. Wiebe Helder, whose software company Cargobase helps shippers migrate their spot freight procurement away from forwarders to an automated platform, said technology such as his can help a shipper better understand its own behavior.

“We put a mirror in front of them,” Helder said at the Las Vegas event. “We’ve seen clients, when we talk to them about spot buy freight, first they say, ‘We don’t have spot buy freight.’ And then they say, ‘We actually do have spot buy freight — we spend about $4 million per year.’ And then they say, ‘Well, we actually pulled data from another system and it happened to be $8 million.’ And then two years later, we’ve looked at the last 12 months and they’ve spent $22 million. So it’s not that it’s actually increased so much, but the technology helps them understand better, and to be more in control of their supply chain, and their suppliers as well.”

Helder said new data-oriented platforms could also help shippers better understand the performance of their forwarders, rather than relying on those forwarders to supply data around their own performance.

“If you want to judge somebody on their performance, you collect your own data; you’re not going to ask somebody to provide that data about themselves,” he said. “I’ve worked for a freight forwarder. I’ve made reports on performance, tweaked it here and there to make myself look better.”

Meanwhile, the nature of how shippers look at their forwarders in terms of technological sophistication has changed, Czajkowski said.

“Transparency in process and pricing is implied now,” she said. “This is no longer some sort of shielded business that happens behind the scenes. They understand how it works and want to know how we can collectively make it better.

A holistic approach to the supply chain is needed, she said. “We have transportation, regulation, and geopolitics colliding in a way that makes it more important than ever that we consult with our customers and that we employ a partnership mindset.”

By sharing in a company’s outcomes and goals, everyone can win — the customer and shipper, she said. “If the customer loses, we’re willing to dig in and help that customer as well.”

Helder argued, however, that forwarders are often ill-equipped to serve customers because their own organizations are internally fragmented.

“If you look at the top 50 forwarders, they’re each one company, but there are hundreds of P&Ls [profit and loss divisions]; how do you find, as a shipper, the right solution out there in the market. That’s the true frustration. And that’s for the freight forwarder to look at internally. We are so fragmented ourselves; how can we automate those processes that are all done manually.”

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.