A Look At the Top 5 Challenges Facing the Freight Forwarding Industry Today

Freight forwarders are as nervous about the future as any other type of company these days – and for good reason. It’s hard to think of another industry facing more uncertainty with many of the macro-trends happening in the world right now. These challenges include everything from the impact of technology and the state of the global economy, to how newly elected U.S. President Trump is promising to shake up global trade.  

Macro-economic reasons aside, there is also plenty going on within the industry that freight forwarders should be watching. Here are 5 of the most crucial ones.

Competition

Freight forwarders are up against more competition than ever. Part of the reason is that many logistics companies that traditionally defined themselves as something else (say an as ocean carrier, or even a warehousing company) are now providing forwarding and NVOCC type services. And of course, everyone is talking about how even Amazon is getting in the game as well – which leads us to the next challenge.

Commoditization

Many, if not most, shippers view transportation as a commodity. All they care about is that the delivery gets made. Meaning, they place little value on service and a lot on price. This makes it hard for forwarders to differentiate themselves from other providers – especially when there are always those who’ll try to win on price. Some forwarders are learning they can better compete and maintain margins by offering new or better technology that improves the customer experience.

Ocean Volatility

Ocean shipping is a big part of what forwarders do. It’s also a very unstable business, based on complicated rates and contracts that take an expert to understand. Many times this makes it hard for forwarders to understand their cost structure – which obviously makes it even harder to provide accurate and reliable quotes to customers. The seemingly random nature of GRI’s and surcharges only adds to the problem. There have been recent calls to simplify the complexity of all these things but there won’t be relief for forwarders any time soon.

Tender Management

A big part of most forwarder’s business comes from responding to tenders. Because the volume of these bids is so high, and each is usually so complex, they are a big drain on resources. Smart forwarders are focused on improving their tender management process to make sure they are bidding accurately and fast, but also on the best types of business for them.

Rate of Change

There are constantly new market challenges for forwarders that need to be accounted for. A recent example is the trend for ocean carriers to form alliances. With almost no notice, these can affect the rates and contracts forwarders have with the carriers, as well as service. The aforementioned effect of technology is changing how forwarders (and their competitors) can manage their business – as well as service their customers. Lastly, market expectations continue to focus on ever faster and cheaper deliveries.

For all these reasons, freight forwarders need to work harder than ever to differentiate themselves in their business – while continuing to focus on service. What the best forwarders know is that just as important as competitive rates are giving customers better service options and technology to support decision making.

Do Freight Forwarders Lag When It Comes to Technology Adoption?

The logistics industry gets little credit when it comes to the adoption of technology. It seems like there is a new technology startup appearing every day promising to “disrupt” the $3 trillion shipping industry  – while at the same time criticizing shippers and logistics companies everywhere as luddites.

Maybe the perception comes from the tough nature of the work logistics companies do. Freight can be a dirty business, literally and figuratively. The attitude for most people in the industry is that, in the end, all that matters is the delivery gets made and style points don’t. Or, at least they didn’t in the past.

This idea is perhaps also a broader statement on the industry itself because at least parts of the shipping process remains manual and paper-based for everyone – through no fault of the service providers or shippers. There has clearly not been a compelling enough reason for things to change more than they already have.

If shippers had demanded more, providers would have to make more changes to make the process better – like adding technology. The bottom line is that up until now the pain being felt by anyone has not been great enough to inspire change for everyone.

Today, we argue that the industry has reached a tipping point and this is no longer true. Freight forwarders and other logistics companies who have not invested in or using technology are now feeling a negative impact on their business – and this is finally inspiring action.

There are several reasons it’s happening. For one, companies leveraging the correct technology operate more efficiently – this is a pretty simple idea. Track and trace, rates and cost data, and other information flow through their operations and to customers better. A thing as seemingly simple as how technology can eliminate the need to rekey important shipment information saves time and eliminates errors. It also helps to create a more consistent, repeatable workflow that enables easier sharing.

The benefits extend beyond just operating better too – Read About That Here: Logistics Technology Is About More Than Process Automation

Freight forwarders using technology are able to provide a higher level of service and customer experience. The aforementioned benefits of track and trace, as well as reporting are two important examples. From the customer’s perspective, forwarders using technology are simply better to do business with.

Technology also makes forwarders better customers themselves. They are able to provide more accurate and timely information to their carrier partners. This is rewarded with more competitive rates and preferential treatment when problems come up – and they always do. We are talking about shipping after all.

As a final note and speaking of issue resolution, technology digitizes much of the paperwork in the shipping process which is especially important to international logistics. Documentation that gets lost is replaced faster when it’s digitized and available through a central technology platform.

The perception that the whole logistics industry is behind the times when it comes to using technology is often over blown. Yet, there are a lot of companies that could be doing a lot better – many of them freight forwarders. These companies would be smart to start seeing technology as a requirement of doing business and a key way to serve customers better and make that part of their own ROI equation.

3 Things Top Freight Forwarders Do Better

The line between what one kind of logistics company does and any other is more blurred than ever. Take the term 3PL – this is used by freight forwarders, carriers, and even warehouses as a way to describe themselves. None are wrong be each largely do very different things. This shows that logistics companies have expanded their capabilities to provide a whole range of services to clients when in the past they were narrowly focused on just one.

This makes sense because, as the supply chains of companies become more global and diverse, they need logistics partners who can better align with their needs. This has increased competition in the marketplace, and none more so than that for freight forwarders. Even Amazon.com is taking steps to enter the logistics market – a clear sign that any boundaries about what a freight forwarder can or should do are gone.

There are still best in class freight forwarders that lead the marketplace however, and there is a lot to be learned from them by smaller forwarders looking to grow their own market share.

Here’s the Top 25 Freight Forwarders as ranked by Armstrong & Associates. The exact list isn’t important, there are plenty of “top” lists for all things logistics – but what is important is what the majority of these companies are doing to be among the best. Here are 3 things:

Technology

These companies understand the importance of process automation and technology in their operation. Logistics is an industry often criticized for being behind the times with how it fails to use technology enough. This is not a fair criticism of most companies on this list – most are on the leading edge of logistics technology. Many are on the bleeding edge compared to any company in any industry.

They also recognize the value of technology as not just a way to eliminate manual processes, but also a key decision support tool for complex decisions that have too many inputs for just one person to make (like route optimization or freight rate calculations).

Sourcing

Many of these companies are asset based, meaning they operate their own trucks and boats, but also leverage the value other partnerships can provide. Doing so allows them to offer them more flexible solutions (where they are acting as a 3PL) through partners which includes better rates and service options for their customers. In logistics, scale leads to better rates, and these companies are good at combining volume to build it.

Marketing and Sales

Branding and the marketplace’s perception of these companies is something they also invest in. Each has a clear vision of what types of businesses are the best for them. In other words, they are not trying to be everything to everyone – which is a common mistake for small and medium sized logistics companies. When you project a clear vision on what your company “is”, the best customers for you will seek you out.

The top freight forwarding companies don’t become that way by accident. They do it by investing in the areas they understand will give them a competitive advantage and provide the best return on their customers’ experience – like technology that makes them more efficient and marketing that attract the ideal customers.

Logistics Technology Is About More Than Process Automation

There are benefits to using technology that freight forwarders and carriers often overlook.

The common selling points for technology are usually about eliminating manual tasks and cutting down on paperwork. Obviously anything a forwarder can do to eliminate unnecessary phone calls, as one example, can be big time savers. These are all important benefits, especially in a process as paperwork intensive as that of international shipping – but these type of tactical advantages are not the whole story.

Technology provides more significant and strategic benefits, starting with its ability to support better decision making.

For example, the first step in arranging any shipment is deciding on the mode. For international logistics the options are generally FCL, LCL, or Air Freight. All are straightforward enough in what they are, but many shipments fall somewhere near the line between which is really the best option – in terms of cost and transit time. Assuming a shipment of a few pallets is always better shipped LCL and not FCL can be a mistake. Sometimes paying for the whole container, even if there is extra space, can provide cheaper and faster service. In certain parts of the world, the Middle East for example, the economics of air freight often make the mode competitive with ocean cargo options as well. Both these ideas are counter-intuitive to many logistics professionals.

Here’s the point: deciding on the best mode for a shipment is not always clear cut. The inputs and factors that need to be considered are often too great to calculate manually. Technology that helps support faster and correct decision making – like the best shipping mode – provide important value to the shipping process.

There is also the decision of which carrier to choose. Routing is a complicated decision. Finding the best carrier at the best price and service level require too many details to be considered manually. The ability to access all the available rates for a given shipment enable better decision making. Again, supported by technology, complicated decisions become simple.

Looking further up the supply chain, similar types of routing decisions should also impact choices on where to source products in the first place. The cost of shipping is a big cost component of product sourcing. Smart and accurate decision making, supported by technology, helps to optimize supply chain costs by enabling accurate shipping costs to be factored into sourcing decisions on a global scale.

On a more local basis, supply chain modeling can also help to determine where to store inventory that optimizes transit times to customers from warehouses and distribution centers. This benefit is especially important in the current retail market where consumers demand for fast and cheap delivery is only increasing.

When companies like freight forwarders are considering adding logistics technology it is important consider the less immediate and tactical advantages it can provide. Saving time and eliminating paperwork are important benefits, but it’s also the strategic ways that technology can support decision making up and down the supply chain where technology can provide the best value.

Catapult provides a complete suite of rate and contract management solutions for freight forwarders and shippers that supports the complicated decision making process of determining shipping mode and carrier selection. For more information visit our website at www.gocatapult.com.

4 Ways Freight Forwarders Can Prepare for RFQs

RFQs are an interesting thing – how so depends on your perspective. As a freight forwarder issuing a bid, they are actually a chance for you to be the customer for once. Instead of dealing with shipper problems and customer service issues, you are in the position of having something other logistics services providers and carriers want – new business.

Despite having that leverage, it’s still incumbent on you to properly manage each RFQ event. Bids are only ever as successful as the quality of the planning put into the bids themselves. This responsibility lies with you and requires a lot of planning and preparation – here are our tips to help.

Clearly Explain the Business

Any supplier you invite to a bid needs to know what they are bidding on. This is obvious enough and a simple concept. Yet a common mistake issuers make is providing an incomplete picture of the business. With so much of shipping RFQs revolving around cost and volume data, providing a complete shipping history over a long period of time is the bare minimum responders will need. Don’t be one of those issuers who force vendors to extrapolate or annualize volumes based on limited data sets.

Plus, you want the participants to have a clear vision of your business beyond just volumes. Most shippers have product and industry specific requirements – from unloading to special handling to lead times. Providing carrier partners this information upfront is a must.

Keep It Simple

In addition to a clear vision of what they are bidding on, you want participants to be able to provide accurate responses with a reasonable amount of effort. Over complicating the requirements for a carrier will make it difficult for them to respond with their best offers and can sometimes prevent them from responding at all.

This is understandable because responding to bids is a big investment in time for logistics services providers, with no guarantee of earning them any new business. Many quality carriers will refuse to participate in bids they think are poorly or unfairly built. If this is happening to you, take note.

Establish a Process

Once the responses start coming in is where the real work begins. A well-structured bid, and organized tender process is necessary for you to have a process for receiving and analyzing the responses in a constructive way.

In the end, it’s in your interest to pick the best qualified suppliers and optimize costs – which includes all the less quantifiable factors like service and technology. Creating a process to consider and compare each part of the bid and all the responses in an “apples to apples” way is important.

Find the Right Suppliers

Inviting as many suppliers as possible just because you can is a waste of your time (not to mention the carriers’). The business you are bidding out is not right for every company. Like preparing and structuring the bid properly in the first place, finding and inviting the correct types of carriers is vital. The right carriers provide the best service and rates – which is what you want from your bid in the first place. The best (and smartest) carriers can tell when a bid will be a waste of their time. Letting them know what to expect during the bid will give them confidence in your company. This includes setting expectations for how you’ll provide feedback and if there’ll there be a round two, for example.

Successful bids build successful carrier partnerships and it’s always important for forwarders and shippers to have diversity in their carrier portfolio. By all means keep them on their toes and negotiate hard – but a well-run RFQ needs to show potential suppliers you have your act together too. Smart companies will always recognize you’ll be good to work with and will try extra hard to win your business.