Technology Providers Coming at Market in Numerous Ways, with Mid-Sized Shippers and  the Spot Market the Likely Sweet Spots

It could be tough times soon for traditional global freight forwarders. Already buffeted by low or even negative growth in global trade volumes, now these service providers are under growing market pressure from Cloud-based technology firms, as the sector may be on the verge of dramatic change.

That's the conclusion of a new report from the analysts at Drewry Shipping in the UK, which notes that "Disruptive new e-business models and innovative online platforms are gaining market traction and changing the way companies buy and transact international shipping services."

Supply Chain Digest Says... Drewry says increasingly "Transactional forwarding will go further into commoditization and there is no future for complex pricing models" from forwarders. What do you say? Click here to send us your comments Click here to see reader feedback

To start, shipper and importer needs are changing, Drewry says, observing that "Shippers expect a more agile supply chain to meet an "on demand economy" with shorter contracts and spot rate requests," a trend it says is greatly encouraged by the current freight rate volatility in cross-border shipments.

Shippers are looking for new tools to optimize their freight spend in a more dynamic way, Drewry says, as well as a shipment execution dashboard or so-called control tower. That even as most shippers have relatively middling systems today to manage global shipments, and often rely on systems from freight forwarders to gain visibility to international freight moves.

Drewry believes there is a large sweet spot for technology-focused solutions, like an Expedia for global freight moves, in mid-sized shippers and in spot market bookings. For many forwarders, ocean freight spot market business account for 20-30% of total volumes and about half of their revenue. Even large shippers may be interested in Cloud-based platforms to manage shipments in the spot market, Drewry adds.

Drewry says another factor in the mix here is the rapid growth of cross-border ecommerce. The cross-border share is estimated to have already reached 15% of total global ecommerce volumes.

"Sellers can sell to their overseas buyers with built-in on-line freight services powered by forwarding marketplaces or forwarders as part of their ecommerce suites." Drewry says.

Finally, as with other areas of software, the growing ranks of millennials in the workforce, who grew up in a networked and mobile technology world, are likely to naturally gravitate to these kinds of solutions for managing international shipping versus older generations.

Wide Variety of Solution Types

Drewry's analysis found that there are a number of different types of technology providers coming at the problem in different ways, as illustrated in the graphic here:

The eforwarding Ecosystem

Source: Drewry

Each of these categories of solution providers is summarized below, going around clockwise starting with "on-line sales platforms":

On-line Sales Platforms: On these neutral platforms, shippers can request instant simplified quotes and book like an Expedia or booking.com for freight. Forwarders can reach more customers in a cost effective way, get qualified quotes, order and payment, provide dynamic public and customer-specific rates.

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Cloud-based Freight Forwarders: These providers are built based technology developed from scratch. They aim to provide advanced customer experience through on-line intuitive solutions (including instant quote/booking and execution dashboards), extended customer service and cost efficiency through automation.

Large 3PLs Adapting to On-line Business: Drewry says large 3PLs are investing in two digital domains:

• Customer portals to gain productivity and reach small shippers and non-recurrent door-door business in a cost effective way (e.g., Kuehne Nagel)

• Ecommerce logistics platforms to serve the fast growing demand for cross-border ecommerce (such as DHL ecommerce or Panalpina's recently announced end to end ecommerce suite)

Drewry says "3PLs' investment in e-business will affect sales, first, before reaching the complete automated execution of all aspects of services. Customs and compliance remain complex. Moving to on-line sales requires automated competitive pricing and re-engineered sales processes which is not easy to achieve at global level."

Ecommerce and Tech Giants: Ecommerce giants have confirmed their ambitions in terms of global logistics, with Amazon filing as a non-vessel operating common carrier (NVOCC) and Cainiao (Alibaba) announcing a $16 billion of supply chain investment. Their goal of each is likely to first serve their own transport service needs, controlling the end-to-end seller-to-buyer process. Detailed strategies have not been announced, however. A potential scenario commonly discussed would be for these and other companies to operate innovative and cost effective integrator services as a one-stop multi-vendor logistics network with integrated financial solutions for shippers.

Technology-Driven Forwarder Networks: This group aims to provide their mid-size forwarder members with technology, network capacity or rates to compete with larger forwarding market leaders, combining their expertise and agility. Their development is not only based on technology but requires trust and liability obligations among the members.

Traditional Transport Management System (TMS) Providers: Large 3PLs are looking for end to end integrated solutions and connectivity. Business partner networks and collaborative solutions are also gaining traction, for example to handle local suppliers, Drewry says. Mid-size forwarders are migrating to Cloud-based solutions with pre-set connectors to marketplaces, port community systems, rate management tools and dashboards.

Rate and Service Information Technology Providers: Rate automation solutions facilitate the integration of carriers' tariffs and production of forwarders quote to shippers. However, Drewry says that "unlike in the travel industry, there is no sign of any "Amadeus" type of central distribution system to manage carriers' tariffs and capacity."

The Impact on Traditional Freight Forwarders

Drewery says "The implications of these developments for both current and new entrant freight forwarders are wide and varied, presenting both threats and opportunities as well as significant change."

Many in the industry see a strong continued role for traditional forwarders and global 3PLs, as "International freight is not as easy as booking a one-off passenger ticket or hotel."

That may be true, but forwarders should not think they have an impenetrable moat around their services, Drewry says.

Drewry notes, for example, that "The small and mid-size shipper, spot shipment and LCL segments will move o-nline extensively through complete web based forwarding services," and will succeed to the extent that process automation can be achieved.

While larger shippers will continue to tender their sea-freight (port-to-port or port-to-rail ramp) and land transport, directly with their core carriers and with their forwarders for some part of their volumes, many will use the new tools to access a simplified spot rate market. They will also use some combination of new platforms to achieve rate transparency, carriers' service schedules, shipment execution visibility and performances, Drewry says.

What's more, Drewry says increasingly "Transactional forwarding will go further into commoditization and there is no future for complex pricing models" from forwarders.

Further, Drewry predicts that "All transaction activities with relative high transaction cost relative to revenue will eventually move on-line from customer prospection up to freight settlement,' while "3PLs who miss their digital transformation may see their business limited to customs and documentation service or consolidation."

That said, "Technology can facilitate the emergence of "high tech" 3PL niche players (vertical market) who can provide shippers with tailored shipment planning, control tower dashboards and integration services," Drewry says.

Perhaps most interesting, Drewry says "The entry of a large tech one-stop multi-vendor logistics network operator, linking data, technology and people with integrated seller-buyer financial services and improved customer experience is a scenario being watched" - a reference to potential moves by an Amazon, Alibaba, or other major technology player.

Our take: The freight forwarding world is going to look very different in the next 5-10 years for both shippers and providers.

How do you see technology impacting the forwarder sector? Will the change in the next 5-10 years be dramatic? Let us know your thoughts at the Feedback section below.

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