The Digital Freight Forwarder: Fake News or the Real Deal?

Amidst supply chain technologies that include Predictive Analytics, drone deliveries and warehouse robotics, it is the Digital Freight Forwarder that has stimulated the lion’s share of debate between industry pundits. Whereas few people dispute the myriad applications for drones or robots, opinions on digital forwarders range from “Industry disruptor” to “Tempest in a teacup.”

Given the above mentioned diversity of opinions, the purpose of this article is to present the Pros and Cons associated with the international digital freight forwarding business model. Let’s start with what the digital forwarders have working in their favor…

-The founders of many digital freight forwarding companies share a similar profile…they are young, smart and entrepreneurial. That means that they have the enthusiasm and energy to take on any challenge, they have no fear of risk and that they can compensate for a lack of experience in traditional freight forwarding with innate intelligence.

-The digital forwarders have figured out that during the life of an international shipment the same information is used over and over again, and that this information can not only be automated, but re-used for different purposes. Whereas less sophisticated forwarders re-key information for quotes, bookings, bills of lading, ISF filings, et al., the digital forwarders have written code that re-purposes the same information for each phase of a shipment. In the end, this feature, along with tracking & tracing capabilities, is the essence of the international digital freight forwarding model.

-Because the majority of digital forwarders are relatively new entities, they don’t have to deal with legacy operating software that was never intended for the Internet Age. Painting on a “blank programming canvas,” they can write code in the most modern of languages, using every tool at their disposal to enhance their own utility, as well as the customer experience.

-At the risk of offending some industry professionals, it can be reasonably stated that the digital forwarders attract better programming talent than more traditional 3PL’s. Notorious for being mired in forty year old technology like EDI, the established forwarders have been less successful at attracting cutting edge software talent, and that is not likely to change.

-Another factor that favors the digital forwarders is related to demographics. As more and more “old-school” forwarders and shippers (like the author of this article) cycle out of the industry and younger people assume positions of authority, the more prevalent the use of digital forwarding will become. Simply stated, youngsters that were born in the Digital Age are more amendable to fully automated solutions whereas industry veterans are more likely to pick up the phone to make a booking.

-From a monetary perspective, the high profile digital forwarders are well funded by non-traditional investors. With support from Venture Capital and Private Equity firms known more for hanging out in Silicon Valley than at port terminals, today’s digital forwarders have serious money behind them from organizations that are willing to place big bets.

-Finally, the digital forwarders are more sophisticated at marketing than their more stodgy competitors. Partly due to the access to mainstream media that their well-connected financiers can secure, the digital forwarders are just better at crafting a brand message and Value Proposition that is intuitively appealing.

With the above positives laid out, let’s move on to the challenges that digital forwarders face:

-The international digital freight forwarding model is most adaptable to ocean freight shipments where the steps in a shipment take longer to execute, and tracking capabilities across multiple hand-offs are more beneficial. While adaptable to air freight shipments, there’s no doubt that digital forwarding works better in the maritime trade, thus limiting its appeal to a single mode of transport.

-For certain, the digital forwarders optimize their technology when they handle an entire ocean transaction from quotation to booking, through documentation generation and even Customs clearance. So, if a BCO has its own ocean carrier contracts, works with other NVOCC’s or uses a different Customs Broker, the value of the digital model is diminished considerably. In that type of environment, the digital forwarder is just another booking agent that is stuck serving small customers that don’t have the container volumes to negotiate their own ocean contracts.

-Another important point to make is that within the realm of ocean freight, the digital forwarding model is best suited for full container, factory loads. Value added services like P.O. Management, Buyer’s Consolidation or Trans-Load are well outside the digital forwarder’s model and require both technology and skills that are beyond their current capabilities. Again, this one-size-fits-one model limits the number of customers that the digital forwarders can service.

-A close look at the track and trace capabilities of the digital forwarders shows that their capabilities aren’t much different from other forwarders that are also connected to Value Added Networks like INTTRA. In the end, ocean container tracking is based on the sharing of status messages through a VAN… not exactly cutting edge.

-Taking the above point even further, once a container exits an arrival terminal, visibility is decreased or entirely absent. This is especially true when tracking containers beyond a terminal where thousands of drayage owner/operators are picking up loads and have no GPS capabilities. The same is true when containers are transferred to long-haul, over the road carriers or worse yet, intermodal transportation. For the most part, the reality is that the traceability of ocean containers is reduced (or ends completely) when it out-gates a terminal.

-From a physical-world perspective, the digital forwarders haven’t been around long enough to open their own offices in key markets and as such, they have to work with agents. We won’t debate the merits of owned-office vs. agent networks here, but what is common knowledge in the logistics space is that many shippers prefer to work with forwarders that have a global network of owned offices.

-One internal factor that the digital forwarders have to control is the expenses that they incur while building out their models. Although it’s true that digitization reduces the expense of human intervention, the trading of operational salaries for those of high-end programmers is a losing proposition, every time. Also, a number of digital forwarders have taken up residence in the more ritzy parts of town where the rents are considerably higher than where most forwarders reside. While stylish and sexy, bloated payrolls and exorbitant rents can make it mathematically impossible for a digital forwarder to make money.

-From an external perspective, one has to wonder about the competitive advantage that the digital forwarders can sustain over the long term. Basically, the matter comes down to how difficult it is for other forwarders to replicate what the digital forwarders are doing with on-line quoting and booking, track and trace and supply chain analytics. Because it is relatively easy to build an on-line tool for booking and quoting, and track and trace can easily be achieved through VAN’s like INTTRA, the level of Early Entrant’s Advantage enjoyed by the digital forwarders cannot last.

-Perhaps one of the biggest challenges for digital freight forwarding can be said about the forwarding industry in general…it is a highly competitive and very low margin business. For example, with over 5,000 NVOCC’s in the U.S., forwarders are lucky to earn $50 or $100 per container in the TPEB trade. With those kinds of gross profits, and technological bells and whistles notwithstanding, forwarding is a high volume, low margin affair on its best day. The investors behind the digital forwarding movement have surely figured this out and won’t put up with paltry profits or net losses for very long.

-In the end, the greatest challenge faced by the digital forwarder is the most obvious one…An over-reliance on digital forwarding. Whereas automation has a definite appeal, the moment something goes wrong with a shipment the technology goes out the window and people revert to that most analog of activities, speaking directly to another human. Clearly, there isn’t a logistics professional on the planet that is going to rely solely on what a website is telling them about a rolled container or a rejected AES submission. When things go awry, shippers want to talk to another human, and the person on the other end of the line better know what they’re talking about.

So, as one can see, the digital freight forwarders have a lot going for them, but they have by no means unraveled the DNA helix that is international shipping. This does not mean that the traditional forwarders should take these organizations lightly. Quite the contrary. To accurately quote Charles Darwin, he wasn’t as enthralled with the idea that, “only the strong survive,” as he was with, “the ability to adapt to change” as a precursor to avoiding extinction. When it comes to digital forwarding, all players in the global 3PL space would be well advised to heed those words.