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.

The Implications of e-Business Disruptions in Global Freight Forwarding

Innovative technology and e-centered business models are changing the international shipping industry drastically.  In their white paper, e-Business in Forwarding – Threats and Opportunities, Drewry Supply Chain Advisors examine the effects of technological advancements in online forwarding on freight forwarders and ocean carriers. They argue that the move to more technology based platforms and tools creates both threats and opportunities in the industry.

Causes

According to Drewry Supply Chain Advisors, the move toward e-commerce in the logistics industry overall is impacting the freight forwarding segment as well. New entrants to the market are beginning to have an impact on established companies who are slow to adapt to the change. Shippers are in search of a flexible supply chain that will offer shorter contracts and on-demand spot rate requests, which is driving the need for automated processes.

Technology is allowing customers to use online forwarding to enjoy a simpler, more flexible, and transparent shipping experience. In a competitive shipping market, where it is difficult to differentiate from other companies, many shippers are looking to increase sales by improving the customer experience through automation.  Overcapacity in the market, coupled with volatile freight rates, allow new entrants to get better rates from carriers, especially when compared to those shippers who are not embracing available technological advances. 

Implications

These technological developments for current and new freight forwarders create both threats and opportunities in the market. Most likely, small and medium-sized shippers will move completely to web based forwarding services and online sales platforms, with customer profiling and market segmentation playing a large role. Larger shippers will be able to offer more procurement options and customer insights. All shippers will have better access to information with big data solutions and be able to provide greater transparency to the customer with increased shipment visibility. 

API technology will enable shippers to provide automated rates with simple quote applications, schedule information, as well as shipment tracking services. The use of Transport Management Systems (TMS) allows for comprehensive and detailed processes with flexibility to integrate with other partners, creating a faster and more cost-effective supply chain process overall. 

Freight forwards, both large and small, will need to reassess their business models to make sure they are optimizing their supply chain and providing customers with the lowest cost possible as well as a decreased impact on the environment. Medium-sized forwarders specifically will need to expand through specialization in order to stay competitive with new entrants. 

Advantages

By using online sales platforms, freight forwarders are able to offer more cost-effective solutions to customers with accurate, specific quotes with dynamic pricing. These online sales platforms are being used by both large and medium-sized shippers in order to gain access to spot rates, dashboard tools, and API interfaces. Automated rate solutions include carriers’ tariffs to create a more realistic quote to shippers. International shippers who are able to re-engineer their sales process, are able to give customers a comprehensive package of pricing customized to fit their needs.  

The changes bought about by e-commerce will continue to reshape how freight forwarders conduct business as these providers look to cloud-based applications for end-to-end solutions and connectivity. The demand for TMS indicates that this technology will only continue to expand in the industry. Those business who have not adopted it will not be able to compete with those who are utilizing it.

3 Tips for Optimizing Your Profit Margins as a Freight Forwarder

Maintaining healthy profit margins as a freight forwarder is the most important part of running the business. The increasing commoditization of all types of logistics services and general market instability (like the Hanjin crisis and volatility in ocean shipping rates) are two big challenges that make this easier said than done.

This is nothing new to any LSP, but many still think about profit margin in too simple of terms. Margin is more than the difference between buy and sell rates and accounting for other hard costs like payroll and overhead.  

As a forwarder, you only have so much influence on the rates you are paying to carriers – your buy rate. The market rates are pretty much ‘what they are’ and based on the buying power you have as an organization – there is little, besides getting bigger, that can change this.

To be competitive on price, forwarders and NVOCCs need to work smarter in other ways because it’s here where margins are really made or broken.

The biggest expense for most service businesses (and that’s what forwarding is) is people’s time. And, with forwarding being such a data and process intensive operation, this expensive resource is often spent performing manual tasks and doing things that are easily automated.

Using technology and creating efficiencies in your forwarding operation not only saves on people costs, but will also reduce errors and improve service to customers. The amount of data related to details like freight rates and shipment documentation involved are a big part of what makes the process of freight forwarding so messy. Automating complicated functions like these go a long way to free up people’s time and help any operation work better.

The risk of errors has a big impact on margins too. A sloppy process for quoting customers, managing rates, or responding to RFQs can leave any forwarder exposed to low or even negative margins. A misquote due to an error with a rate calculation or mistakenly underbidding a lane on large tender will cost you new business, or even worse, win business you don’t really want.

Another opportunity for forwarders to improve margins is to be smart about the new business they go after. This means understanding the types of customers that are a good fit for your business. These are businesses who respect the value and service you provide, and are not entirely price focused.

And, sometimes protecting margins is about saying no to the wrong customers.

When you have the right types of customers, it also pays to look for cross selling opportunities with them. The line between brokers, carriers, other third parties and what forwarders do is forever blurred. These other types of companies are trying to steal your business – you need to look for ways to do the same to them.

Logistics is a competitive market place and sometimes you have no choice but to compete largely on price. Often times you can only push your carriers so far on price, so make sure you are doing the little things inside your operation that save time, money, and improve your margins.