Opinion Pieces

While you might find this statement a bit overly dramatic, it is nevertheless true. The worldwide crisis induced by Covid-19 has not only changed the way we look at risks from new viruses and travel-accelerated global pandemics, it has also changed the way we will live, work, communicate and drive business going forward. Although we have to be a bit more specific: The virus is not the reason these changes occur but rather the catalyst that makes them happen right here and right now. To be successful in this “brave new world”, leaders and business managers will have to take a hard look at what these changes mean for their industry overall--and for their business in particular. Our world is the world of Transportation & Logistics--particularly digital container logistics. Our business is--by its very nature--a digital one, but it has very strong links to the actual operational processes that make up our clients’ businesses. To help other business owners (primarily in logistics) with their thought process, we have decided to share our thinking below and actively encourage discussion around this. We are very much looking forward to hearing from you, where you see flaws in our logic, where you get to different conclusions, or if there is something that we have missed! Overarching trends in the world “due to” and “post” Covid-19 When looking at the overarching trends that were induced and accelerated by Covid-19, we see three main themes. People got used to working remote We have all seen the screenshots of zoom calls with kids crashing that important board meeting or interrupting the live TV interview--and we suddenly all know our colleagues’ home-offices, basements and living rooms. What was previously something extraordinary and oftentimes only seen as a perk for selected employees, has now been forced upon us as the new normal. And you know what: It actually works! Business still runs, meetings get done, decisions are made and customers served. And businesses that either enable or directly benefit from this staying-at-home experiment have soared--just think of zoom where daily users have jumped from 10M to 200M in April and Amazon which suddenly needs to hire 100k+ new workers. However, as online presence and virtual relationships become “the new normal”, it has proven to be a challenge to keep business “personal” without the occasional handshake, chat and a beer at one of the many trade shows that had to be cancelled. Those trade shows and personal business meetings will certainly resume in the future--but it remains to be seen to what extent this will live up again. Transportation value chains become more flexible, distributed and nimble Ever since the end of World War II, and particularly since the fall of the Berlin wall, globalization and global trade have been the main drivers of worldwide growth and increasing prosperity. However, as supply chains have become ever more complex and global (which was a great trend for all you transportation companies out there!), there was also a trend to maximize efficiency along these value chains and focus on economies of scale and scope. As a result, many value chains became inflexible and one-dimensional--e.g., shippers relying on one main forwarder with one main carrier, in order to bundle volumes and decrease freight prices. Or purchasing departments relying on one main supplier of a critical component in one single country of origin, discounting the risk of a major disruption to this supply chain. Covid-19 has changed that perspective. Suddenly businesses scrambled to find new partners, new suppliers and new service providers that could still serve them at the height of the crisis. Even governments joined in and created a global rush for equipment as basic as face masks. We believe that we will see more of that going forward: To be successful and resilient, businesses will need a broader set of partners to manage risk and diversify their exposure. And standardized processes will become more important than personal relationships. As we will outline below, service provision continues to move from vertically integrated fullstack (and fragile!) providers towards more nimble and flexible “plug & play” solutions across a broad set of partners. As a direct result, companies’ risk management functions also need to evolve in line with more complex and distributed partnerships. It will be interesting to see what new technology is to emerge in the wake of this--helping businesses retain a grip on where their main operational risks lie. Transparency on performance and reliability will become key differentiator During the crisis, as businesses scrambled to find new partners and suppliers to work with, it became painfully clear that the existing approaches based on personal recommendations, long due diligence cycles and personal meetings to create trust, break down quickly. Having transparency on who can provide which service and who is actually still operational, was key to survival. Going forward, we will see these reliability assessments and recommendations move from personal information towards “hard metrics”. Ratings and online reviews--something that is already very normal in consumer-facing businesses with examples like Yelp, Google Ratings, AirBnB--will become a major force on the B2B side as well. Is this really due to Covid-19? Or has this started before? If you’re asking yourself whether all of this is really due to Covid-19 or whether this is the continuation of an existing trend, you are not alone. Of course already pre-crisis, digitization drove efficiency gains through disintegration of the value chain. To name a few examples: Freight booking: Booking freight (be it ocean-, air-, or roadfreight) has started to move to digital platforms such as FreightOS.com and Cargo.one--and digital forwarders such as Freighthub.com and Flexport.com have gained traction. The advantages of immediate visibility on price and availability has significantly sped up the booking process and shaved countless hours off quotation processes. Of course, complicated bookings still require actual “manual” communication but this is driven out more and more. Freight rate benchmarking: Finding out how your freight rates compare to the market, optimizing when to issue tenders, and using information to your advantage in rate negotiations used to be more an art than a science. Freight procurement was often shrouded in darkness and information oftentimes based either on anecdotal evidence or on a highly aggregated industry-level which was of limited usability. Services like Xeneta.com or Shipsta.com have changed this and drive transparency through digitalization. Container management: Owning, leasing and managing container equipment used to be something that every company did individually--oftentimes resulting in high fixed costs, low asset utilization and limited equipment availability where boxes were urgently needed. Services like Container-xChange.com have changed this and use digital technologies to allow companies to collaborate on equipment management. Other examples within the logistics industry certainly exist--but the point is: Digital technologies are increasingly leveraged to drive efficiency, usually reducing the market power of integrated industry players. This is what we call the disintegration of the logistics value chain. At the same time, personal relationships are still a source of value but the way these are managed is changing and becomes more “online”. Covid-19 as a catalyst: The pace of change is picking up Let’s take a closer look at the value generated by those “personal relationships” and think about the impact that Covid-19 has as a catalyst. As an example, we focus on freight forwarders and how their business is going to evolve. Why freight forwarders? The business model of a typical forwarder is highly dependent on its relationships with other forwarders and agents around the world. So any changes in how these relationships are formed and managed is highly visible and provides a great ground for study. This is how a “typical“ export-oriented forwarder has previously managed its business: Forwarder forms local relationships with shippers, suppliers and shipping lines in order to find and manage export cargo Forwarder joins a freight forwarder network to find reliable agents abroad. These agents need to manage the “import” leg of the booking Forwarder aims to have 1-2 agents per country that he exports to. The goal is to have a steady and reliable business Going forward (fuelled by Covid-19), those three elements will change as follows: Building local relationships: The negotiation, booking and execution of logistics services will increasingly move online. The initial trends and services discussed above are only the beginning, as the majority of the “execution” is still offline and extremely manual. Local and “physical” relationships with shipping lines and other suppliers will become less important as the speed of quotations and negotiations does not allow for lengthy personal discussions anymore. At the same time, the local supplier base of a typical forwarder (those service partners that he works most frequently with) will broaden significantly and relationships will become more transactional. Finding reliable agents: The importance of forwarder networks for the sole purpose of finding new agents to work with will notably decrease. Identifying, vetting and testing new partners can be performed much more efficiently online. Networks will certainly still play an important role but more to catch up, small talk and solve disputes than to find new partners originally. Many forwarder networks also offer value-added services such as improved insurance rates or peer-2-peer payment protection--these will help the networks retain their place. By a similar token, measures of reliability are going to change from personal recommendations to “hard” metrics and data driven insights. Online platforms/information brokers will provide those metrics the same way we are checking e, dass out restaurant ratings on tripadvisor.com! Aiming for limited number of agents: In the future, forwarders work with a much broader set of partners to improve their risk management capabilities. As technology increases the efficiency with which a larger number of business partners can be managed, diversifying freight across more agents allows for significant op-risk reduction. Interestingly, this will not only hold true in the relationship between a forwarder and his overseas agents but shippers/BCOs will follow the same urge. The result is the same business spread across more forwarders and split across even more overseas agents. If you follow the argumentation above, it is easy to see that businesses (particularly freight forwarders in this example!) have to re-think their business models and technological set-ups. Don’t get us wrong: There will always be the need for a personal contact, a friendly chat and face-to-face issue resolutions. But technology will significantly change the underlying way of doing business. If you want to remain competitive and outgrow your peers, you have to adjust. Where do we go from here? We’re living through an age of unprecedented changes. Covid-19 has not only shut down major parts of our economies for weeks at a time, it has also acted as a catalyst to a revolution in the making. The underlying drivers (i.e. new technologies) for that revolution were already there, but we needed the virus to set things off and accelerate the change. In our everyday lives, things will slowly get back to normal. We will be able to travel again, whether for work or for pleasure. We will go back to working in offices and protest our coworkers annoying habits. We will visit our relatives near and far and enjoy our mother-in-law’s cooking. But some things will have changed forever--so better prepare and adjust to this brave new world.