The Heat Is On Logistics Companies. Here's How to Avoid Getting Burned

The Heat Is On Logistics Companies. Here's How to Avoid Getting Burned

International trade grew strongly in 2017 and is projected to continue on the same trajectory in 2018 and beyond. This trend will favor Freight Forwarders in the near-term since their business models rely on the aggregate flow of trade volumes.

We wrote about this dynamic in a recent blog post.

But despite global growth, all is not well for the world’s logistics companies. As mentioned in this recent Journal of Commerce article, carriers such as Maersk are seeking to assert more control over logistics, and win back market share that was lost to NVOCC’s in recent years. And, as we’ve been reporting in recent months, e-commerce retailers are increasingly positioning themselves as the logistics companies of tomorrow, in many cases establishing themselves as potential competitors to Freight Forwarders and NVOCC’s.

So, why are carriers and e-commerce companies alike taking on the risk and expense of expanding their focus to tackle a broader range of the supply chain? Carriers are solving their need to grow beyond the commodity businesses of fuel, containers, and vessel slots, while e-commerce companies are trying to increase the velocity of goods so that they can grow sales even faster than their current pace.

Combine the two, and we begin to see a future where the pressure is on logistics professionals like Freight Forwarders. The heat is on from both ends of the supply chain.

The Shrinking Pie

Digitization of logistics processes is the approach both carriers and e-commerce companies are using to realize their growth ambitions. For steamship lines, digital solutions that enable faster and more dynamic price-discovery would allow them to go after business from small and mid-sized shippers, which has traditionally been the domain of Freight Forwarders and NVOCC’s.

To put this into perspective, in the United States alone, 98% of companies that export are small- to medium-sized businesses, according the U.S. Chamber of Commerce. Clearly there’s a lot of market-share opportunity, and digital processes can eliminate the cost of customer acquisition, making it easier than ever before to go after this market segment. If successful, this would lead to a “shrinking pie” available to Freight Forwarders and NVOCC’s.

From the opposite end of the spectrum, we find that e-commerce companies such as Amazon, AliBaba, Rakuten, and many other vertical-specific retailers have acquired NVOCC licenses and are keen to take control of their logistics. As with steamship lines, these companies are looking to use the digitization of logistics to speed up delivery to their customers, increase their share of fulfillment revenues from sellers on their platforms, and turn logistics into a profit center. This leaves only complex or less-profitable shipments for outside Freight Forwarders and NVOCC’s. And again, the pie shrinks for both.

There are some comforting rationales that we in the ocean freight business tell ourselves. Namely, that if we just keep showing up and doing our jobs, everything will be okay. This is still a business that, in more than a few cases, requires highly personalized service and demands specialized expert attention (not so easily reproduced by an algorithm). And it’s still a personal business built on trust, where, with good reason, we prefer to buy and sell from other professionals we know. Those are all valid, and we’ve written about them extensively.

But they may not be true forever and, in the long run, they may not be sufficient.

Breaking the Silo Model

To reclaim, and even grow, our share of the pie, we need to reframe the challenge in a new way: The fundamental problem with the logistics business is the existence of a silo model in which all the benefits of tech or innovation are set up to accrue to one beneficiary.

A closed, proprietary approach is merely an extension of that. For example, the carrier (Maersk) business model is inherently built to drive efficient asset utilization. Whereas the forwarder business model is a pure play service model built to be customer driven.

In contrast, think about how travel aggregators have invented a whole new model and are thriving in the digital era: If you need to get from New York to London, no one goes to Delta's website to search just one airline. You go to a site like Expedia or Kayak to view your full range of travel options and prices across all carriers. In the case of logistics, Maersk can put all of its lanes up on its own platform, but it still accounts for only a small percentage of global capacity.

Getting to the Table

Freight Forwarders can win this fight by breaking (or at least spanning) the silos and embracing innovative technology that allows them to offer a comprehensive slate of shipping options in a neutral manner - an approach that favors transparency and puts well-informed choice in the hands of the buyer.

But that’s just the table stakes: that’s when the specialization advantage comes in. A Freight Forwarder’s ability to facilitate movement of goods, customs clearance, warehousing, overseas deliveries, trade services, and a wide range of other high value demands is unsurpassed, and is actually what others are looking to duplicate, only faster. Reimagining the freight business model and focusing it around speed of execution and wide-scale application of value while avoiding the pitfalls of routine rate shopping and manual processes is key to benefitting from these advantages.

As we’ve often said, your value as a Freight Forwarder is in your service and expertise, NOT in your ability to shop for rates.

Sure, the headlines make it seem like Freight Forwarders are about to be burned. But we’re not in the boiling pot just yet. By recognizing the challenges and innovating in a strategic way, Freight Forwarders can get off the stove and grab a spot at the table instead.

To see more trends in logistics and e-commerce, download out our new infographic, "Retailers Who Are Winning at Logistics (and How)" today.

By: Fauad on Jan. 18, 2018, 12:29 p.m.