Third-party systems and back office arrangements allow intermediaries to focus on core customer-facing functions.
As most offices are shutting down for the evening, activity at the headquarters of Info-X Software Technology is reaching a crescendo.
Set amidst a bustling industrial office section of Gurgaon (a suburb of New Delhi, India) Info-X’s offices glow with light as night sets in. That’s because the bulk of Info-X’s work is handling the IT and back office needs of freight forwarders and non-vessel-operating common carriers in Europe and North America.
Info-X, like a handful of other global technology and managed services providers, helps forwarders and NVOs manage aspects of their operations that they either can’t or don’t want to. Sometimes that means providing IT solutions to a forwarder unable to invest in a specific piece of technology, like rate management. Sometimes it means providing import/export documentation or contract management services. Sometimes it even means helping an NVO run its own IT system more efficiently.
Where all this falls on the spectrum of outsourcing is up for discussion. Outsourcing has become a sort of dirty word in economic circles, the implication being that jobs are being stripped from one economy to be sent to another.
The reality is, in terms of trade and transportation, outsourcing generally means freeing up strapped staff to take on other strategic roles in lieu of data entry.
“It’s all how you look at it,” said Michael Troy, chief executive officer of the neutral NVO Troy Container Lines. “Outsourcing is a broad term, and it’s one that’s misunderstood. I consider it a partnership. We’re an international company, and to me they are our partner overseas.”
Troy has worked with Info-X for more than a decade, using the company at first to provide manpower for import documentation (which Troy said used to bog down his U.S.-based staff) and now additionally for maintaining sailing schedules and track-and-trace functions, as well as doing the line-item entry of its contracts.
Info-X staff essentially takes over before and after Troy’s U.S. staff arrives and departs each business day, keeping documentation and data maintenance workflow continuous for its globally-minded customers. It’s a complementary relationship.
The important distinction, Troy said, is that Info-X is not replacing manpower, merely augmenting what he can realistically ask his U.S. staff to do.
“There’s data entry that doesn’t affect our day-to-day with clients, but is critical for maintaining our processes,” he said. “There’s a barrage of docs you get at 4 or 5 or 6 p.m. at night. So I asked, how does this make sense to pool our resources (with Info-X)? It improves our turnaround time and enhances our customer service. From our standpoint, we work along side in two eight-hour shifts. And whatever comes in after 5 p.m. gets processed overnight. You’re not waiting until the next day to process that. We looked at it from a turnaround standpoint.”
Info-X has allowed Troy to deploy his U.S. staff in more customer-focused positions.
“If we had five (less-than-container load) documentation people, now we have two, but we moved those other three to customer service,” he said, adding that his U.S. staff has increased by 50 percent since the economic downturn. “It’s non-revenue producing stuff. It’s maintenance. We’re not having phones answered in India or Manila. Some are, but I don’t see competitive advantage in doing that.”
Troy Container Lines has long run on its own proprietary software system, one Troy feels is integral to the success of his company, which is one of the largest U.S-based NVOs. He doesn’t need Info-X to provide software solutions, or even for help to run his own systems.
But other companies do need that help, said Rishi Parti, director and founder of Info-X. In fact, Parti started his company as a pure technology provider. He was working for a general purpose programming company in the early 2000s when he was asked to build an IT system for a forwarder. He used that exercise to dive deep into the world of shipping and forwarding, eventually taking his experience and building out enterprise solutions for NVOs and forwarders.
Providing back office services was a natural offshoot after customers began asking for such help. India has, of course, made a global name for itself providing so-called business process outsourcing services, based largely on a well-educated, English-speaking labor force that’s willing to work for a fraction of what workers in western countries expect.
Parti’s company aspires to a higher standard than average BPO companies, with intense training and limited staff turnover contributing to a workforce that innately understands the logistics world, not just the binary numbers lurking under the code.
That means when an Info-X staff member notices something unusual about a sailing schedule or a rate (say, if the rate for a 40-foot container comes in at $25,000 versus $2,500) they have the expertise to recognize the inaccuracy and drill deeper into the issue on behalf of the customer.
Options Aplenty. Info-X, of course, is not the only one providing such services. Catapult International, which provides ocean rate and contract management solutions, similarly attracts customers through its technology, managed services, and in-house expertise.
“Many NVOs don’t have time to keep track of their rate changes, which carrier has changed their surcharges, or sailing vessel information,” said Matt Motsick, CEO of Catapult. “Catapult has a team of ex-steamship line personnel that know how to apply surcharges to the contracted rates. Customers can choose to select software only, rate management only, or both.”
Motsick called their ability to help forwarders and NVOs as an extension of the software “managed data services.”
And like Info-X, Catapult uses an office in Asia to help NVOs keep workflow continuous.
“Two years ago we made the decision to build our own employee office in the Philippines,” Motsick said. “The chief reason for this move was to make our software and services more price-competitive in the marketplace. Now, we are able to offer an economical scale of our offerings. Having said that, we did not replace any of our valued U.S. talent. Instead, they serve a critical role in applying surcharges and auditing rates—which ensures our high accuracy in our data.”
Indeed, where you stand on the issue of outsourcing depends largely on the definition you use. Some NVOs consider using outside technology an outsourcing of their IT needs, and by a strict definition, that’s accurate. Any area where a company feels its investment is put to better use by employing infrastructure or human resources of another company can be considered outsourcing.
And, it doesn’t have to be outsourced to another country. Buying an off-the-shelf IT system from a U.S.-based solutions provider can constitute outsourcing part of the IT function. And, to some, that’s the appropriate path to take for small and midsized NVOs.
“There’s a clear trend, from the huge players to the local players to the guy working out of his garage, and the clear trend is cloud-based outsourced,” said Dan Gardner, president and co-founder of the consulting firm Trade Facilitators. “It’s essentially private label. The clients may or may not know someone else has actually built the technology. Most don’t even care. A big time NVO—you’re going to want that contract management capability. The ability to convert [purchase orders] into commercial invoices. Now you’re talking the big time. The best way to do that is outsourcing, because most companies, no matter how big they are, can’t keep up. The [return on investment] has been clearly demonstrated, over and over and over again.”
Gardner said while neutral NVOs (or wholesalers) can use outsourced technology or back office arrangements to quote faster and more accurately throughout the day, it’s almost more important for retail or forwarder-affiliated NVOs.
“Because they’re in a client-facing situation, they need to offer additional things besides a quote,” he said. “Purchase order management, vendor management at origin, consolidating equipment at origin, ISF filing, shipment tracking, customs brokerage at destination. It’s not just managing contracts and generating bills of lading. And it’s very complex for an NVO to develop contract management, so imagine how hard it is to develop these other systems.”
Differentiating Dilemma. The reality is that NVOs constantly wrestle with a critical dilemma—what makes their businesses unique in a crowded marketplace? For many, it’s the intimate customer service they provide to shippers, and a big part of that is maintaining staff and IT that serves those customers in a dynamic way. For others, using their own proprietary technology is a differentiator, but even those companies, like Troy, can likely find ways to leverage outsourced arrangements.
For Zvi Schreiber, outsourcing means providing technology to forwarders that allows them to rethink their model. Schreiber is chief executive officer at Freightos, a technology provider to the forwarder/NVO market.
With a background in technology, Schreiber also experienced firsthand the shipper experience as it relates to receiving a quote from a forwarder.
“I was amazed,” he said. “I would call my freight forwarder for a rate to fly something from Shenzhen to a Chicago construction site. I was shocked that it would take me two to three days to get the quote back.”
So, back in the software world, he set about building a tool that let forwarders quote in minutes rather than days. Indeed, many of the outsourced technologies that exist for forwarders and NVOs focus on rate management, contract management, and quoting capabilities. They help an NVO see all the rates from its contracts, including the changes, surcharges, and other amendments, instantly.
That constant level of being updated is often what characterizes the most effective outsourced arrangements. If an NVO has no technology, it can buy off-the-shelf customizable IT to help with that ability to quote. If it has a system but needs help maintaining those quotes—literally the manpower required to update contracted rates—it can contract with companies to provide outsourced help.
“When we work with NVOs/forwarders, it’s not about outsourcing back office,” Schreiber said. “It’s not about outsourcing drudge work, it’s about changing the way they sell. In the end, it’s cultural. Freight forwarders and carriers are not used to sharing data, even between their own offices. That’s from carriers to the forwarder, from forwarder to forwarder, and even between offices of the same forwarder. The technology issue has really been solved, now it’s about working with the forwarders on the cultural issues. If you want up-to-date data, you need to share data.”
Schreiber did say Freightos, which counts CEVA Logistics among its customers, handles rate management for its clients, and “for the forwarders that are ready to adopt software like ours, the majority (maybe 80 percent) want to outsource rate management to us.
“I do think the majority of larger forwarders have some sort of rate management solution in place now,” he said. “The word is getting out that forwarders who get their quotes faster are doing better. It’s all about the next generation of buyers, the ones who use Netflix and Amazon, and they don’t wait for anything.”
Schreiber also said he has noticed a shift on the build vs. buy question for forwarders.
“There’s definitely been a change,” he said. “I mean, it’s been many years since you’ve seen someone try to build an accounting or [a customer relationship management] system. There are a couple forwarders who have their own accounting or TMS, but I think we’re now moving toward off-the-shelf. Developers are expensive today. It costs millions of dollars to develop a system, and it’s complex algorithmic work.
“I did speak to one top 10 forwarder who is developing their own system. I was sort of incredulous. They said they wanted to be differentiated, that they want a different product than their competitors,” Schreiber said.
Technology Or Its Use? The question is whether base technology is the differentiator, or is it the application of that technology?
“It’s a legitimate concern,” Gardner said. “It goes to the philosophical roots about whether you believe in outsourcing or not. You have to vet out your vendor, how they manage IP (intellectual property), what their references are. You are relinquishing that expertise and IP to a third-party vendor. It’s a question about losing control, but it still comes down to judgment. All the [business intelligence] and technology won’t be anything if you aren’t picking up the phone. You can’t ignore the human analog component.”
Gardner agreed with Schreiber that quoting quickly is a true differentiator these days, whatever technology vehicle an NVO uses to get there.
“More often than not, the business goes to the NVO that quotes the fastest,” he said. “The ability to quote quickly is what gives a competitive advantage. And then to be able to take the information and automatically convert it into a bill of lading. Can an internal system do that? I don’t know for sure, but there are certainly external systems that do that. And in a cloud environment, you’re not taking on all kinds of fixed costs in terms of hardware and servers. The only fixed cost is a subscription, but it’s mostly variable, based on the number of transactions.”
So which type of forwarder is most apt to take advantage of an outsourced IT or rate management arrangement?
“Rate management is typically for the mid-market and large companies,” Motsick said. “If an NVO or BCO (beneficial cargo owner) has more than five carrier contracts, numerous origin/destination pairings, or has multiple modes (air, full container, LCL, ground), rate management is an important service to measure the cost structures. Companies can manage their own rates as well, depending on the knowledge of the staff. However, knowing the terminology of carrier contracts is an acquired skillset.”
Motsick said rate management software is what he called an “enabling technology.”
“NVOs arrange freight and take care of their customers — this is what they do best,” he said. “Software companies stick to their core competency – developing technology to drive ROI for customers. Catapult is a decision-making software that helps NVOs and BCOs answer the questions ‘which provider should I use for ocean, air, or ground-based on the combination of rates/surcharges and transit times?’ Software like ours helps the NVO/BCO make better decisions without them piling up IT resources to build it on their own.”
For Troy, investing in both the proprietary technology and the partnership with Info-X is less about upfront cost savings than it is about serving the customer better, which has its own long-term payoff.
“The investment [in IT] up front would be so minimal if you’re a smaller NVO, but from our perspective, we’re not going to give that up,” he said. “Has it saved us money? It’s made us more competitive, but saving money was not the goal going in.”
‘Who Can Do It Better?’ Many NVOs are not in a position to decide to just invest in IT, though.
“The question commonly asked is ‘Who can do it better?’” Motsick said. “If the company feels they can do it better, that’s the decision that they make. Catapult has built proprietary technology that houses all of the carriers’ surcharges in a database, so we have an edge on other processes. Just this past year, we built an easy rate upload function for Asian agents to upload their rates. This is why every software company is in business to constantly improve the ROI that the customer reaps.”
Parti said the benefits of outsourcing specific non-core elements of a business is an established practice across most business functions, and one that NVOs are wise to take advantage of.
“We have been providing outsourced back office data entry services and software solutions to NVOs and freight forwarders who are as small as one person in a small office in New York to a company which is global with offices all over the world,” he said in an interview with American Shipper at Info-X’s headquarters in India. “All these customers, big or small, have benefited by outsourcing.”
As an example, Parti has found his clients have reduced relevant staff time spent per day on rate management from 15 percent to 5 percent, on track-and-trace documentation from 40 percent to 10 percent, on auditing accounts from 25 percent to 10 percent, while time spent on sales has gone from 15 percent to 30 percent.
The implication, again, is that outsourcing non-client-facing administrative work frees up staff to focus on client-facing activities, it doesn’t give NVOs a reason to cut staff.
“But that’s not the only differentiator,” Parti said. “Cost saving is an important factor. For example, one of our U.S. clients had 16 employees working on admin functions, and now it’s down to four, while the rest of the employees are working more efficiently on core processes generating more revenue for the company.”
He said some clients have seen cost savings of 40 percent: “any business would cherish that.”
Among the most frequently used services by NVOs/forwarders, Parti said, are:
- Continuously updated ocean carrier contracts.
- Export or import shipping documents like house bills of lading, master bills of lading, warehouse receipts, and purchase orders.
- Custom filings, like Automated Export System, Automated Manifest System, Importer Security Filing, and the Japan 24-hour advanced filings.
- Cargo tracking checks for on-board and arrival statuses.
- Accounts payable and accounts receivable.
- Uploading of documents.
For Troy, using outsourced services is a way to better leverage the technology the NVO owner has spent years developing to keep pace with its growing global network and customer base.
“We’re doing 700 quotes a day out of our New Jersey office, plus 400 done online,” he said. “There’s no way I could afford to employ the people to manually do the quotes. You need the technology. You can’t have customer service without top-notch technology.”
This article was published in the March 2015 issue of American Shipper.