The Freight Wars Have Begun

The Freight Wars Have Begun

It’s a new year, full of promise, potential and new opportunities. Is your three-year plan on track? Is your 2018 strategy in place and communicated throughout the company? Great. Now throw it all away because everything you thought was going to happen has changed.

Mark your calendars: 2018 is the year the “Freight Wars” began. Here’s a look at the beginning of a full-fledged assault on the market for logistics and transportation services, and what it means for your business.

Ecommerce Companies Have Had Enough

If you’re still unclear on why Amazon is an NVOCC, or AliBaba is spending $15 billion on a global freight network (sounds a lot like a freight forwarding business doesn’t it?), then let’s be clear: it’s not for the 5% EBITDA. It’s because ecommerce companies are fed up with the current system of logistics, which slows down their ability to deliver in a faster, more economical way. They took matters into their own hands with the last mile, but now they’re focused on solving the “first mile” of logistics.

  • How this will play out: Instead of building teams for quoting, booking, documentation, and billing, the ecommerce companies will use digital technologies such as API’s to manage their captive cargo. Over time, they’re going to turn their freight traffic into a profit center. That would be a far greater disruption than the freight industry has ever seen. Rather than dabble in the typical “shared services” approach to managing procurement, the ecommerce companies are going to make it so that contracting with freight forwarders is something they do as a last-available (and least-desirable) option.
  • What this means for logistics companies: In the short term, ecommerce-driven traffic volumes will create growth in the freight markets (which is why you’re having a few good quarters right now). Then, as ecommerce companies get more efficient at handling their own traffic, the volumes available to logistics companies will stop growing and will eventually disappear. Ultimately, industries with logistics needs like those of ecommerce companies will apply similar approaches to their captive cargo, and wider swaths of the freight market will simply become inaccessible to freight forwarders and NVOCC’s.

Don’t think it can happen? Still think international shipping transactions are “too complex” to manage without a personal relationship? Well, innovative ideas and technologies don’t always start with their primary beneficiaries. Consider the fact that “One-Click Checkout” wasn’t invented by credit card companies; free domestic shipping wasn’t “part of the plan” at UPS; 365-day return policies weren’t created by Foot Locker; and no retail store provides a voice-based assistant that can bring groceries to your front door.

The Big Chains Are Forming

No, we’re not referring to Best Buy or Walmart here. We’re actually talking about Blockchain. Although it’s a nascent technology, think about what’s already being planned around it.

As we recently mentioned, IBM and Maersk have committed to a Blockchain-enabled trade platform that could reach deeper into the freight forwarding & NVOCC markets than ever before.

Aside from the big Maersk/IBM news, there was the more quiet -- yet staggeringly important -- decision made by the government of South Korea to build a national logistics infrastructure on Blockchain. So while the days of Blockchain being a full-fledged standalone technology are still a bit aways, it’s clear that there’s significant momentum and “buy in” from the right stakeholders.

  • How this will play out: While much of the focus of Blockchain applications is towards trade finance, it’s also clear that multiple carriers are going to join or compete with Maersk/IBM. It’s likely just a matter of time before Hapag Lloyd, CMA-CGM, and others look for their own Blockchain-based solution.
  • What this means for logistics companies: Shippers who concentrate their ocean-freight procurement with one carrier may be choosing to negate a key value component of freight forwarding: the ability to source transportation services from the best available carriers in the market in exchange for greater speed and visibility. Locked to one carrier, there's no guarantee a freight forwarder can offer their customers the best terms possible. That's a vital value-add for traditional freight forwarding companies that they'd be voluntarily forfeiting.

The key similarity between both scenarios is the use of technology to simplify existing shipping processes to increase transactional speed and efficiency.

Are the Freight Wars Winnable?

For freight forwarders, the answer is both yes and no.

If the industry sticks to “business as usual,” covers its eyes, and hopes the threats from technology will go away, then the answer is a resolute no, for all the reasons stated above. Forwarders and NVOCC’s, in their current forms, will become a dying breed.

But let’s say you’re game to explore new technologies and business approaches. That sounds like an obvious solution, and it might even be a necessity, but can you compete when Amazon and Maersk decide to squeeze you out of business? Well, yes. But it won’t be easy. Here are a couple of things to remember:

  • The big guys are still only testing approaches, and we get to watch and learn for free: Remember how Barnes & Noble stumbled in the online bookselling business, the first of many victims of you-know-who? Well, we’re not praying for the big guys to fail here, but we’re basically getting a front-row seat to watch them experiment...on their dime! Before we throw in the towel, let’s see what we can learn from them.
  • Remember the law of unintended consequences: Sometimes, the biggest advances create unexpected gaps in the marketplace -- gaps that can be solved by forward-thinking innovators. Just because you may be a well-established forwarder doesn’t mean you can’t be one of those innovators. Once again: watch, listen, learn. Be aware of inefficiencies and cognizant of opportunities.

We’re still at an early-enough stage in the logistics-disruption process; the current industry stakeholders can do something aside from being bystanders. The answers are not simple, and the issues require closer inspection and informed discussion.

In the coming weeks, we’ll be releasing a series of in-depth posts culminating in a whitepaper that will provide a thorough analysis and some helpful approaches to make sure freight forwarders have a fair shot at winning the Freight Wars.

By: Fauad on Feb. 8, 2018, 5:27 p.m.