Really? The Unsexiest Trillion-Dollar Industry?

A TechCrunch article published this past week (June 6th) starts with this paragraph.

Steve Jobs went ballistic when public shipping manifests leaked the existence of the iPhone 3G. That’s about the only time something exciting happened in the freight forwarding business. The circulatory system of the global economy is a trillion-dollar industry, yet no one really talks about it, or builds tech for it.

If you think freight forwarding is sexy, exciting, and not fairly represented feel free to like or share this post.

Really WTF?   We don't talk about it and don't build tech for it?

The general discussion around the article is a company called Flexport which is a freight forwarder with a new internally built system platform.  What I want to address is the following question raised in the article:

Is Software the Differentiator for Freight Forwarders?

No!

I get pretty angry about this question and when the statement is made that technology is a market leading differentiator in this space because some new startup has a new software system.  Mad enough that I'd like to throw a few containers around but then I remind myself that experience and facts overcome hyperbole and hubris.  The concept of software as a differentiator that will be market leading at this time is mostly BS!

I remember sitting in the board room at UTi Worldwide www.gotuti.com back in 2013 as we were investing in new technology with the objective of this technology make us different and I made a statement that I didn't think it was a differentiator but more about parity.  The look I got from our CEO at the time can only be described as one of those "WTF" looks that we cringe at.  We had really believed that we could differentiate on technology at the start of a business transformation.  

The short story of it was that 4 years into a project to refresh systems (using Ruby on Rails and other contemporary tools) it was becoming clear that the market differentiation just on technology alone is not that big a deal any more.     See the picture of the world with pretty little lights on it in the article?   As a shipper do you find this pretty?  I do!  Now think do you find it useful?   You can form your own opinion... I think I  know the answer of the majority.  A few of the companies mentioned in the article and in my post have done massive research on that question. 

Why isn't fancy user picture track and trace special (and a few other things)?   Well because everyone that has a global connected approach can do this.   A team I am still very proud of from Emery Worldwide (now part of UPS Supply Chain) built the system they use.  It isn't DOS but is Microsoft and Mainframe based and can easily be configured to display what is shown is this article... if that is what customers want.   It tracks by the same real time as the Flexport system and supports a business in 60+ countries.  Optimization technology, someone might want to sit down with the engineering teams at a few large forwarders... nice pictures but optimize 1 million TEUS... not a few hundred or perhaps 5000 air shipments in a single day not less than a few hundred moving globally through freight forwarding hub and spokes called gateways.  At FedEx Trade Networks they purchased a system and it operates globally, this is an organic growth story so the organic growth story isn't new.

I am not advocating UPS as a freight forwarder or FedEx, I have worked for both and they are truly great employers and great service providers.  My point is they have invested in technology that solves very large problems in microseconds even if they don't live in Silicon Valley arguing over platforms or appliances. So has Expeditors, DB Schenker, Geodis, and others. (can't mention them all here.. sorry)

The other area to look is the software providers like WiseTech Global. DSV, Geodis, and many others use this system.   There are other systems that can be purchased as well that can give end to end capabilities.   Likely a whole article on this topic because it is like deciding if you want to buy SAP, Oracle, or one of the other ERPs out there.  For those in the IT world, this is the build or buy decision.   As the business owner and CIO for these types of projects my experience covers both build and buy.

A system that is green screen as compared to having a web UI also doesn't make running the internal business of a freight forwarder any better.  Expeditors is consistently in the top end of financial performance, so what if they have green screen, their customer side is secured and customers love it.  In fact, ask an Industrial engineer and they will tell you that tabs and shortcuts make data entry faster...  using a browser when you have high volume sucks.   The forwarders I have worked with have had up to 1,000,000 unique customers that get an invoice at least 1x per year, 700 doesn't tick the blip on the scale of the top 25.  All have process or engineering teams that drive automation and digital initiatives. This is a nice startup story because traction is important, but it is a long road.

Digitization?  What gets automated and digitized in a Freight Forwarder?   Yes tracking gets digitized, one of the first.  There was a trucking company in the US called CF (Consolidated Freightways, they started in Portland Oregon which happens to be where I'm located) that had the first computer tracking system.. not new stuff.  The "Hard Thing" isn't always what the customer sees, Ben Horowitz can probably relate to this.   In a freight forwarder it is about the back end.  Think iceberg!

Simple illustration of the "Iceberg" of a freight forwarding operating system:   One shipment and three businesses need to get invoiced for services, the shipper, the consignee, and the buyer of the goods.   All three are in different countries.  Think about the finance, tax, invoicing, cash settlement, and other fun accounting activities that occur when that invoice is created.  Now add on top of that the service providers that need to be cost associated for cost accounting to determine if you made money... digitize this for 10,000 transactions a day, I have seen this occur with 15 payers on a single freight forwarding transaction.  

The point is tracking is the easy part of freight forwarding.  Optimization gets really hard as you scale.  Talk to a few freight forwarders about optimizing carriers in their systems in their gateways or CFS locations. Back office gets even harder.  

Why do some system upgrades fail as mentioned in this article?     If you read DHL's investor releases you can see this mentioned in theirs, years of data integration and customers make it really hard.   You can also read about Expeditors investing and hiring a rather large IT staff in the past few years to update their systems.  They already have a global system, DHL Forwarding did not.   There are many that are investing in systems.  The failures are change driven rather than because technology isn't good.  I have had successes an failures personally in this area.  Leadership is what enables the success of these projects and there are stories of success and failure.  

The one thing that is realistic is that a business starting with a system base and building will have an easier time of it.   But they still need to acquire the tens of thousands not hundreds of customers to hit scale to compete with those mentioned in the TechCrunch article. 

If technology isn't a differentiator why do I buy?  Most customers in this space  buy because of price, service, and relationship.  In that order the majority of the time. 

So back to the topic, freight forwarding for Air and Ocean is a commodity business.  There are three paths to competing, first is be the low cost operator and compete on price, second is to specialize and compete in a niche, and the third is to compete because you have some great technology.   If there are already low cost operators, niche and specialty players, and the largest forwarders have tech that does what is mentioned in this article what is so special?   Maybe someone like DHL will buy it for the tracking globe... but the business problem is in the back office not customer facing with almost everyone of these in the freight forwarding space.  Pretty dots don't solve that problem.

Marketplaces solve competitive issues when there are thousands or providers and the source of the value is in a commodity that all providers have to use.   Fuel, air, water, and earth... 

I'm not addressing the entire article, I do know that I don't have "Schlep blindness" and I do think there is something sexier than this article portrays about shipping.   Think African Queen or On the Waterfront..  that is why I have been in it so long.  If you don't think its sexy... why would anyone find you exciting enough to make a change?

About Ron (Me):

I started typing bills of lading for a freight forwarder over 30 years ago while attending university getting a marketing degree.  After realizing I needed to eat I went into selling freight forwarding, then operated multiple branch / service locations as a general manager.   I have swept the dock, built containers, driven trucks, entered data into systems, prepared letters of credit, spoken to thousands of customers, and understand this business as well as anyone and better than most.  I have led 3 business transformations and 4 global system implementation projects in the freight forwarding industry.  I also have been executive board level leadership for top freight forwarders.  There isn't much in this industry I haven't literally touched.  I also agree the solution is in change but have met some compelling leaders in these companies, they are not sitting around talking pretty dots on a globe.

Please throw on your comments... if you agree that international freight forwarding and logistics is sexy give the article a like or a share! (doesn't hurt to ask)