Digital Freight Forwarders like Freighthub, Flexport or marketplaces such as Freightos were founded in the last five years. They have cumulated millions of dollars in funding and built fancy technological platforms to acquire beneficial cargo owners. Why? Because venture capitalists and entrepreneurs find the global freight market interesting! It is highly fragmented (DHL, as the market leader, has a market share of only 13%) and huge with a valuation of $130 billion USD. That’s why investors put more than $3.3b USD into digital shipping and logistics from 2012 to 2017 – but what does new competition mean for you and how do you counterpart as a traditional freight forwarder? We compare digital freight forwarders with traditional forwarders and help you to stay ahead of the market. Read this article and know everything you need to know about your new digital competitor!
Why do digital freight forwarders exist?
New players enter the freight market by developing innovative business models that will improve customer experience and operational inefficiencies. Did you know that it can take up to 100 hours to finally get a price quote for your cargo? That’s how long it takes most freight forwarders to fill out and check shipping documents within several interactions via email. Would you wait one week for a quote if you could get it in seconds?
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Lackluster customer experience and manual processes are two entry points for new competitors nowadays. They automate back-office and operations to save costs of approx. 40% through digitalization. Yet some traditional freight forwarders still rely on emails, personal handoffs and even faxes! It is reasonable that potential customers already switched to digital competitors such as Flexport, isn’t it? They already made $226 million in revenue in 2017 so you should definitely take them seriously. Let’s have a look at what they do different than most other NVOCCs/ Forwarders!
How do digital freight forwarders leverage technology?
According to the Boston Consulting Group, there are seven ways digital freight forwarders use technology to increase customer experience and make business operations more efficient. With higher customer satisfaction, lower unit costs and greater profitability that’s how digital freight forwarders plan to increase market share looks like:
Instant price quotation
Freightos, for instance, developed an instant freight quote engine to provide pricing within seconds instead of days and hours. Freightos “Annual mystery shopper” – report found out that only 25% of the world’s top 20 freight forwarders are able to provide LCL online quotes. It took them on 57 hours on average to receive a price and got offers with a spread of 58% meaning there is no transparency at all.
Freightos provides their customers now with 100% transparency and lets their customers now instantly book a shipment on their website. Thats why instant freight booking is now similar to booking a hotel or a flight:
Seamless end-to-end documentation handling
Instead of time-consuming paperwork they now offer to collect all documents within their secure cloud. This also enables collaboration so that you can share documents such as the bill of lading, invoices or a packing list with third parties. This is how digital document handling at Twill, another digital freight forwarder that belongs to Maersk, looks like. They have all the important documents in one secure place and avoid sending emails with attachments back and forth … that’s cool, isn’t it?
Automated tracking which updates customers and freight forwarders where their cargo is no enables parties to directly respond to required actions and sends tracking notifications. Thereby everyone is on the same level and customers always know where their cargo is to communicate with their customers or whoever awaits the shipment.
Automated invoicing through integrated financial systems
Shippers and Forwarders could win significant cost savings through automating the auditing of freight payments and invoicing. Thereby they could save between $15 and $50 per invoice and make sure each invoice is correct which is a huge step according to SWG who claim that 20% of the invoices in freight and logistics are incorrect.
Enhanced forecasting through big data and analytics
Who wouldn’t want to know if it makes sense to ship your cargo this week or next month? How do market prices develop? We at Container xChange developed an index to forecast the availability of containers and Freightos developed their Baltic Index to forecast rates.
Automated shipping process
Loadsmart for instance offers instant booking and thereby saves their customers hundreds of hours a month. On their blog they describe instant booking like this:
“Through an algorithm our system automatically identified the best carrier to move the load – among thousands in our roster – and sent an electronic request to the carrier’s dispatcher (which we internally call a “live job”) with an offer at $525.00. With one click the dispatcher accepted the job electronically and the rate confirmation was distributed automatically. The carrier’s driver was notified and downloaded the Loadsmart app. GPS tracking and driver updates followed from pickup to delivery, where the driver submitted the Proof of Delivery via the Loadsmart mobile app. Loadsmart made no calls, wrote no emails and had no human contact with the shipper, carrier or driver. No sales or operation workforce was needed to capture the margin of $40.62.”
Most prominent digital freight forwarders
Freightos is like a marketplace, they match demand with supply – shippers in search of cargo space find capacity providers such as carriers and freight forwarders. They enable users to instantly book freight and book capacity online immediately.
Flexport and Freighthub are different and more like a traditional freight forwarder, just digital. They offer a broader range of logistics services than marketplaces and build der core value proposition around a seamless user experience of shipping goods from one point to another. That means they act like a “normal” freight forwarder and do not connect freight forwarders with potential clients.
What should you do as a traditional freight forwarder now?
Now you read about fancy new technologies and digital freight forwarder that want to increase their market share, but what about traditional freight forwarders?
We think technology is not enough
to stand out of the competition!
Generally speaking, there are four areas freight forwarders need to be good at: Technological product, customers, knowledge and network. Of course, a digital freight forwarder might be ahead of the competition when it comes to technology – but what about the rest?
Of course, automation, standardization and digitalization bring benefits, but what happens at the moment something goes wrong with a shipment? In that case, people revert to most analog technologies, speaking to another human (at least on the phone). There isn’t a logistics professional that wants to rely on a website when their export submission got rejected or something else “non-standard” happened. Most people prefer to talk to a logistics expert, someone who really knows what to do in import/export and what the situation is – good customer service. A website sometimes is not enough … what would you want to do in this case?
As of now, most digital freight forwarders can only offer a one-size-fits-all model. They lack value added services such as purchase order management, buyer’s consolidation or transload where there is physical plant and know-how required. Of course, digital freight forwarders can also hire smart people with logistics knowledge … but you as a traditional freight forwarder already have got this knowledge within your team! The moment supply chain becomes more complex and shippers want services such as inland movements, need licenses or access to capacity and warehouses, a dedicated expert team and knowledge is a huge advantage.
A global network
Digital freight forwarders haven’t been around for long and therefore not able to open offices in every key market … as a result, they have to work with local agents. Most customers in logistics space though prefer to work with forwarders that have a global network. A partner who really can help if something goes wrong at a port on the other side of the world.
“Being digital or not, every Freight Forwarders core function through which they really add value to their client is to properly guide and advice their client on the requirements related to a shipment”, Hariesh Manaadiar says to perfectly summarize it.
What should you do now as a “traditional freight forwarder”?
We think that a sustainable long-term collaboration between digital and traditional freight forwarder would allow the customers to access both the traditional knowledge and top-notch technology. But the reality might look different: There is a race between both type of forwarders. Can digital freight forwarders build up their knowledge quicker than traditional freight forwarders build up their digital platforms?
We think that traditional freight forwarders have a fair chance to build up their digital knowledge to stay ahead of the market. There are companies such as Kontainers that build digital platforms for NVOCC/ Freight Forwarders, which includes a digital Bill of Lading …
Of course, it is not enough to buy a digital platform and then successfully compete with digital freight forwarders. It is also about mindset, company culture and much more. That might be a challenge, but also an opportunity! It’s not only about the technology, but sure that is what customers are used to nowadays. Now that you know about the differences between both type of companies, what are your strategies to acquire new customers and deliver great service in the future? How will the freight forwarding market look like in 2050 … still fragmented, or similar to other industries, that have one or two companies owning huge market share such as Amazon in e-commerce?
About Container xChange
We connect users and suppliers of container equipment in a neutral and open platform. NVOCCs/ Freight Forwarders use xChange to find SOC containers in more than 2500 locations. Thereby they benefit from low demurrage & detention charges and increase flexibility in their freight bookings. Contact us if you are interested in a quick demo!