Shipping’s digital future takes shape

Online logistics platforms are changing the way cargo companies buy services

Freight forwarders and customs agents handle about 65% of all cargo transported by ship in Europe, and so have more interest in connecting supply chains in a holistic way than vessel operators.

It is no surprise, therefore, that forwarders are among the leaders in developing online platforms and systems that can change the way companies buy international shipping services.

New e-business models are gaining market traction, according to a Drewry Shipping Consultants’ white paper that assesses the implications for forwarders, ocean carriers and others investing in technology to enable seamless transport networks. Although no single factor is easily identifiable as the principal driver behind the trend, Drewry says the nature of the spot rate shipping business and e-commerce logistics are encouraging the development of online forwarding.

Drewry associate Philippe Salles says customer expectations are moving towards the greater simplicity, transparency, control and flexibility that new technology makes possible.

“Shippers expect a more agile supply chain to meet an ‘on demand economy’ with shorter contracts and spot rate requests,” Salles said. That trend is encouraged by freight rate volatility.

Most shippers use a basic transport management system to manage their logistics and look for easily packaged solutions. But eroding margins in commoditised and fragmented forwarding services have made it harder for third-party logistics providers (3PLs) to increase their sales, Drewry says.

Cross-border trade is estimated to be 15% of global e-commerce and, by 2020, half of the workforce will be millennials who are more comfortable handling activities in a mobile, instant and network connected way.

“New entrants [to forwarding] are starting to make an impact and established businesses are either resisting change or adapting,” Drewry said.

The medium-size customer and spot shipment markets are at the core of the digital transition, says Drewry, with sea freight spot rates for these clients accounting for 20% to 30% of the volume and about half the revenue of many 3PLs.

Neutral online platforms, such as Freightos, Fleet, SeaRates and Transporteca, target particular markets, such as less-than-containerload (LCL) and trades like Asia to the US.

They allow shippers to request instant quotes and book freight in a similar way to travel on Expedia — while forwarders can reach more customers in a cost-effective way and get qualified quotes, order and payment.

“Aimed at midsize shippers and spot shipment transactions, these online sales platforms are being increasingly used by larger shippers in order to access spot rates,” Salles said.

His report also describes a group of freight forwarders built around technology developed from scratch, like Flexport, iContainers, Kontainers, often also focused on specific trades and segments where they address the small to medium shipper’s door-to-door market.

“They aim to provide advanced customer experience through online intuitive solutions [including instant quote/booking and execution dashboards], extended customer service and cost efficiency through automation,” the report said, adding that their shipper size target has been increasing and now reaches the low end of the large forwarders’ core business.

Forwarding transactions can rapidly go digital, particularly in these specific target areas, Drewry believes. But existing forwarders and 3PLs remain confident about a continuing role. International freight is not as easy as booking a one-off passenger ticket or hotel, Drewry says.

Drewry predicts that large exporters and importers will continue to tender at least part of their sea-freight volumes directly with core carriers and forwarding groups, although e-commerce giants may move into their territory.

Amazon has filed as a non-vessel-operating common carriers (NVOCC) and Cainiao (Alibaba) announced $16bn of supply-chain investment.

Their strategy is not yet known, but “their drive is first to serve their own transport service needs, controlling the end-to-end seller-to-buyer process”.

“Change is easier for those 3PLs that have a single IT system and are ready to combine internal rethinking of their processes, strong engagement across the organisation and investment in resources,” Drewry concluded.

But those who miss the digital transformation may see their business limited to customs and documentation service or consolidation.