Large forwarders feel they are aware of the threat that digitally-focused startups present, and have the network, experience, and deep customer ties to ward them off.
The global freight forwarding and non-vessel-operating common carrier (NVO) industry is vast and fragmented.
But if there’s a unifying theme to discussions among these intermediaries, large and small, it’s what the current tech revolution in logistics means to the industry at large. And more specifically, what do the rise of tech-first forwarders and digital platforms mean for the companies that make up this crucial sector?
To be sure, there is no single answer for all companies. Digitization will surely affect the industry in uneven ways. Forwarders and NVOs that have loyal customer bases in certain regions or within certain verticals are bound to remain relevant. It will be hard to replicate the advantage that the top 50 forwarders have with their vast physical networks and scale.
It’s clear that the industry from top to bottom is wrestling with their place in the larger freight ecosystem, and that upstart software providers, across a range of functions, are causing that soul-searching.
And the industry has some structural transformation to undertake in its middle and smaller tiers (as these smaller companies accede to digital process efficiency and customer-facing systems imperatives). But what’s also interesting to note is the defiant tone the top forwarders and NVOs have struck in the face of this challenge. It’s a sentiment American Shipper noted a year ago in this very examination of the NVO industry, and something that came up again and again in discussions with major forwarders and NVOs in recent months.
Digital Response. The large forwarders feel they are aware of the threat that digitally-focused startups present, and have the network, experience, and deep customer ties to ward them off.
To wit, one of the more notable developments in the past year was global forwarder Damco’s introduction of Twill Logistics, its digitally-focused division. The website for Twill looks more like that of a startup than a long-established forwarder backed by the parent of the world’s largest shipping line. And that’s sort of the point. Twill is an attempt by Damco to provide a digital storefront for customers seeking that type of experience. And it’s emblematic of the way larger forwarders aren’t letting the challenges presented by upstarts put them on the defensive.
“We have developed Twill 100 percent together with our customer base,” Klaus Rud Sejling, Damco’s CEO, said in an interview with American Shipper. “So, it is a product that evolves exactly as the customers are giving us feedback to evolve on where they would like to see the product evolve. And that has been successful. We are signing up new customers on Twill every day.”
Sejling noted that Twill is currently live on the Asia-to-Europe trades and in a few specific countries, and the digital forwarding entity is expected to expand to cover at least another 20 countries in 2018, including North America.
“The customers, they like the simplicity, the ease, the control, the visibility they get and certainly the document management is a critical component—and this where we see Twill has a great strength,” Sejling said.
“Of course, the other thing with Twill, it is important to say that a great digital platform is not enough in itself,” he added. “The fact of the matter is that behind the platform there is a real world. And in that real world there are disruptions—a typhoon in Southern China; you have delays on a vessel that breaks down; you have strikes or whatever it might be that disrupts your supply chain. You may even have the manufacturing that doesn’t get done in time. And it is there that you need the ability to handle exceptions. And this is really where I feel Twill has a unique position in the market.”
Sejling said positioning Twill is based on a modern digital interface with customers, “but behind it is the whole strength of the global Damco team.”
“So when something happens somewhere in the world, we have boots on the ground that know how to handle exceptions,” he said. “And this is where, I think, some of the more pure digital players are running into challenges already now and even more so as they scale.”
happens somewhere
in the world, we have boots
on the ground that
know how to handle
exceptions. And this is where,
I think, some of the more
pure digital players
are running into challenges.”
Klaus Rud Sejling, CEO,
Damco
Network Control. In a conversation with DHL Global Forwarding CEO Tim Scharwath, this message of an existing physical network also came up.
“I strongly believe the most important asset is the network you control yourself,” he said in a briefing after DHL released a new trade index product (developed with Accenture) aimed at providing the market with a forward measure of trade growth.
“It’s the only way to control quality,” Scharwath said. “In order to manage the network, you need to have good technology. That means one operational system for air or ocean or maybe a combined system, but one source of data.”
Of the digitally-focused forwarders, DHL Global Forwarding is well aware of the pressure they’re applying to the industry.
“Their problem is they have the application, but not the network,” Scharwath said. “We’re the opposite. So we need to learn from them.”
That might come in the form of using some of the emergent technologies in the market, or developing competitive features in-house. Either way, DHL is in a rapid learning phase, and should be a driver, not just a user of other’s technology. “We’re the market leader, so we need to have our own innovation,” he said.
the most important asset is the
network you control yourself.
It’s the only way to
control quality.”
Tim Scharwath, CEO,
DHL Global Forwarding
Yet another cog in the global container shipping industry is the consolidator (of which DHL is one), often called neutral NVOs. Claudio Scandella, the new CEO at ECU Worldwide, the world’s biggest neutral NVO, pointed to the inherent advantage of the network when it comes to the digital challenge facing his company.
“If you look at digitalization, the people who have an actual operation have an advantage,” Scandella said in an interview with American Shipper. “There’s an existing footprint, an existing network, you have volumes.”
Scandella said he came to ECU after two separate stints at DHL because he saw opportunities to use that established network to think differently about service, and a big part of that is investing in technology to improve the customer experience.
“You leverage your core capability, but the margin pressure is there,” he said. “You cannot just stand still. So we’re focusing on improving cost leadership. We have a great network already, with offices and trade lanes. There’s a good base already. The more we can improve the value that you provide to the customer, the better we’ll be.”
Continuous Transformation. Scandella said digital initiatives will be where growth occurs because of structural differences in the market.
“The business is tougher to grow today than it used to be,” he said. “But there are so many opportunities. It’s not just about the size of the company, or a great brand. It’s more about how you’re able to transform your company to take advantage of these opportunities. Especially our industry because there’s so much catching up to do. I believe there are opportunities for everybody, for companies that are willing to transform their business models.”
What will that transformation need to look like? Scandella was honest in his appraisal.
“It’s sometimes difficult, even as an expert, to say what will happen,” he said.
But he did note that ECU Worldwide’s position as a consolidator might provide it an advantage.
“Some companies don’t really touch the cargo, so it’s really all about adding service value,” he said. “But we actually touch the cargo. And we have some control over volume. The consolidator is a bit different than the general broker, who is just buying and selling. So, it’s important for us to improve our cost structures, aim at cost leadership, but innovate, in a way, the services we provide.”
Speaking directly about the new entrants attempting to transform the forwarding and NVO markets, Scandella said ECU Worldwide will focus on two areas: better use of data, and evolving to reach customers in new ways.
“The new entrants coming in don’t work with the same companies and competitors,” Scandella said. “They compete differently than our traditional customers. So, we have to think about how to talk the same language. The question is not so much about the traditional price, but really streamlining the service.
“Everything today is much faster. You can’t analyze everything for too long. You have to be more entrepreneurial and try things, like the startups do. Speed is very important there. But it won’t always be perfection,” he said.
is much faster. You can’t
analyze everything for too long.
You have to be more
entrepreneurial and try things,
like the startups do.”
Claudio Scandella, CEO,
ECU Worldwide
Dominating Data. In terms of data, Scandella said that’s an area where ECU Worldwide can use its position more effectively.
“We have a lot of data in our system,” he said. “If you use that data, you’re also in a position to show how trade is performing. There’s a lot of data we already have that could be used better.”
Damco’s Sejling, meanwhile, cited analytics as a key differentiator going forward, also noting that customers are driving initiatives in that area.
“We see the application of advanced analytics and artificial intelligence is going to become more and more prominent in order to give our customers certainly more predictability and more flexibility in their supply chains,” Sejling said. “We are working with one of our large, amazing customers on a solution that allows for a much more dynamic change of modes of transportation during the transit—even down to the SKU level—to more dynamically reroute products if they sell more in a certain area than they expected. And I think all of those rely on technology.
“So, at the end of the day, my most important message is that everyone talks about digital, but digital doesn’t solve anything in itself. Digital has to be applied to solve customer needs,” he said.
A final area of emphasis for Damco is blockchain, which is little surprise given parent company Maersk made a recent announcement with IBM to create a joint venture aimed at developing solutions in that area.
“So I think as I see it, blockchain is one of many exciting new solutions and technologies that will benefit the global supply chain,” Sejling said. “I think with blockchain, it holds great promise to simplify the global paper flow.
“As you know, we did a study on exporting avocados out of Africa to Europe and it took more than 200 documents to get done—a lot of them physically printed. That’s obviously not going to cut it in the future,” he explained. “There is a simplification opportunity. And there is obviously a great opportunity to increase, let’s say, the credibility of the information that is flowing through the supply chain—proof of origin, more visibility, more milestone visibility than what you have today.”
To be effective long term, Sejling said blockchain will need to be combined with other technology, such as artificial intelligence, the application of advanced analytics, the use of big data, and the internet of things.
“If you just look at blockchain as an isolated evolution you are not going to get the full benefit,” he said. “At least in our company, we see these as interplaying technologies and development and it is very exciting. We are committed to investing in this area and are deeply engaged.”