A wave of digital disruption is crashing down on freight forwarders and it’s imperative that the industry change its business model
Over the past couple of years, venture capital firms around the world have been very active in the freight forwarding industry, pumping billions of dollars into technology-based forwarders like Flexport, which received a whopping US$1 billion earlier this year.
Some established players scoffed at the news, commenting that the tech rival does not have a stellar performance record to match such lofty investor confidence. Still the investment reflects a broad belief that the logistics sectors, and forwarders at the heart of it, is ripe for a technology-driven transformation.
According to a recent survey by supply chain industry association MHI, projected investment in supply chain innovation is up 95 per cent this year, with 57 per cent of respondents planning to spend over US$1 million on new technology over the next two years.
Cathy Morrow Roberson, founder and head analyst of consultancy and research firm Logistics Trends & Insights, comments that the forwarding business is changing, driven by developments like the rise of e-commerce and changing global trading conditions. Forwarders invest in technologies to improve efficiencies and respond faster, she says.
“Technology has been on the backburner for a long time. This changed over the last few years,” comments Jon Slangerup, CEO of American Global Logistics.
At the same time, there is greater pressure on forwarders to beef up on technology. Ashok Thomas, president of Global Supply Chain Logistics, notes that ocean and air carriers have been pushing forwarders to use digital channels to communicate and book shipments with them.
Eight out of 10 respondents in the MHI report believe digital supply chains will be the dominant model within the next five years.
“From a TMS perspective, our value proposition is from TMS to digital,” remarks Steve Barber, vice-president of IT customer solutions at supply chain management solutions provider Transplace. “We’ve been in the digitization business for a long time but we’ve still in the early stages from a maturity standpoint of the industry.”
A good deal of the noise surrounding technology is hype from tech providers who look to sell their offerings. “Technology wants to sell us everything, instant and all in one,” comments Karl-Heinz Legler, general manager of Rutherford Global Logistics.
Without a doubt, air and ocean carriers have been pushing for digitization. From the shipper side, there is certainly a heightened interest in faster data flow to make them more responsive to developments in market and supply chains, confirms Jeff Cullen, CEO of Rodair International. However, he adds that no client has tried to force a purely electronic interface on his company.
Many shippers rely on the forwarder to take the lead in improving supply chain intelligence.
Roberson states that the rise of software as a service (SassS) has helped level the playing field for smaller forwarders by making tools available to them that previously only large companies with deep pockets could afford.
“Those that can differentiate themselves are the ones who are going to succeed,” she adds.
Thomas has some reservations on that front. Many low-cost offerings are not worthwhile, he argues. “To get really in you have to invest big bucks,” he says.
It is large players who usually take the lead. Last November Kuehne + Nagel unveiled its new ‘myKN’, its customer facing platform on its website that serves as a single access point to all its online services. Functionalities are built around four basic elements—an information section that holds schedules, transit times, service details etc.; quoting and booking for both air and ocean cargo; and tracking at three different levels, ranging from basic status information without details for users who are not logged in, over full shipment details and documents for registered users to a fully customized transparency and visibility tool for a number of clients.
Canada was one of the first countries where myKN was launched, says Jan Dreyer, vice-president of sales and marketing. It was designed on the basis of interviews with customer about their needs—notably improved visibility, better control, fact-based decision making and speed to market. According to him, 35 to 40 per cent of the company’s Canadian customers are actively using it.
Not everybody is convinced that online quotes are the way to go. Joe Lawrence, president of Airline Services International, notes that a forwarder with a sizeable shipment will send an e-mail blast to all airlines serving the route in question asking for quotes rather than check out all the airline websites.
“With the exception of regular volume traffic that moves under a specific rate agreement, cargo is tendered on spot rates. Of course, you shop around,” remarks Legler.
Arguably price portals can come in at this juncture. Thomas finds they mostly offer “old hat information,” besides being limited by the number of carriers they have on board. “All they are doing is collate what people transmit to them,” he says.
Like forwarders with carriers, some shippers like to foster some competition on the logistics provider side and want to compare different prices, says Barber.
Dreyer notes that there is a difference between regular traffic and ad hoc shipments. “Regular shipments are usually done via our freight tools. If they have a bigger shipment, customers will quote that out anyway,” he says.
There is a widespread suspicion that digitization often amounts to little more than cutting costs and commoditizing the business. Carriers’ moves to push customer interaction into digital channels have made it harder to get service and find somebody to talk to if there is an issue.
“Some people like personalized service and like to call us. That’s also fine, but when the office is closed they can use myKN to do their rate enquiry or booking,” comments Dreyer.
He stresses that Kuehne + Nagel uses digitization not to cut costs but in order to enhance the customer experience. These tools are designed to make it easier to deal with the company and to help its own staff.
“How do you differentiate your service? It’s all about having the best people in the front line,” he adds.
A key element in this, and high on shippers’ radar, is improved visibility. Transplace is looking to get a better handle on where carriers’ trucks are and traffic conditions for more accurate predictions of delivery times.
Such plans hinge on good connectivity with supply chain partners, which is too often an issue. “The biggest challenge right now is alignment of all parties,” says Barber.
Some large international shippers are establishing their own platforms where their logistics providers and carriers have to log in to access and move information, observes Cullen. He adds that this goes some way in the direction of a blockchain scenario, which probably reflects a broad cooling off on blockchain itself in the wake of the realization that it will take some more time and effort for that concept to mature and find broader acceptance.
Even within companies there are frustrating barriers between different systems. Rodair has multiple ERPs for different strands of business. One of the biggest challenges is to develop dashboard tools that would allow the company to extract data from the various systems and perform analytics for clients, Cullen says.
Digitization is improving data flows, but the issues around connectivity still constitute powerful roadblocks that limit their use. Meanwhile, companies are exploring what they can get out of those reams of data in their systems. Increasingly they are looking to machine learning to tap their potential. While interest in the blockchain has waned, artificial intelligence (AI) and predictive analytics are widely regarded as up and coming hot technologies. According to the MHI report, predictive analytics is forecast to reach an adoption rate of 87 per cent over the next five years, while AI is expected to rise to 62 per cent. The former looks set to overtake cloud computing and storage, the current front runner at 56 per cent adoption, which is predicted to climb to 79 per cent over the same period.
Barber sees promising potential with predictive analytics to get a better grip on flows through various hubs and what action should be taken to address issues. In addition, it may help with pricing predictions, he adds.
At this point Kuehne + Nagel is employing predictive analytics and machine learning mainly for internal use. Machine learning is deployed for data reading, converting all kinds of documents into digital format, while predictive analytics comes into play for risk assessment.
Rodair’s Cullen is not sure about predictive analytics at this point, noting that reality has repeatedly been throwing up surprises. “We work with a few large players in the retail sector. They have challenges around forecasting. Some of that has not gone well in the last years,” he says. “Often there is a large disconnect between marketing and logistics.”
As for AI, Thomas reckons it will take time to get full traction. Everybody wants to harness it, but it takes money and time to do it effectively, he comments. He also misses a concerted approach. “We’re all trying to do it individually,” he says.
For now, most operators train their technology sights primarily on productivity gains.
“We’ve focused on the manual processes, to kill paper as much as possible,” says Barber. Partnering with optical character recognition technology providers to capture invoices, PoDs, bills of lading and other documents directly from their websites has brought significant savings in clerical work.
Another big focus for Transplace is to speed up processes across the board. Barber anticipates much work on that front. We’re just getting started,” he says.
The disruptive force of tech-based entrants appears to have had little impact on Canadian forwarders to date.
“We haven’t bumped up against Flexport so far,” says Cullen. He reckons that the U.S. firm is geared for a different clientele that has other priorities than Rodair’s customers, with the latter being less focused on transactions and more on value-based partnerships.
“There are different players for different segments.”