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The Digital Freight Ecosystem

Digitization allws carriers and forwarder to handle more shipments of export cargo and import cargo in international trade.

The Digital Freight Ecosystem

Carriers literally do the heavy lifting in international freight. Ocean carriers have sold directly to BCOs for a long time but avoided direct relationships with small and mid-sized shippers. Which makes sense. Customer acquisition at scale is a messy process. Customer management can be expensive and hands-on, especially in an error-prone industry like freight. Value-added services like customs brokerage, insurance, and reverse logistics add layers of complexities well beyond the scope of a carrier’s core competence. In the meantime, airlines have shied from selling directly to shippers of any size.

But as of late, two changes have been upsetting the status quo.

Dropping profit margins. Hanjin’s bankruptcy in late 2016 capped a difficult year for carriers and 2017 hasn’t been much better. With 22,000 TEU mega ships exacerbating surplus capacity, the situation is unlikely to improve any time soon. By expanding to new (smaller) businesses, carriers can unlock some of the margin currently lost to forwarders and NVOCCs. This is exactly where Maersk is headed, in their quest to become a global FCL integrator.

Scalable technology. Some new technology is changing the cost/benefit equation of user acquisition, encouraging carriers to expand direct sales to small and midsize companies. One recent example is CMA CGM’s recently-launched Freddie platform. Another direction is digital integration. For instance, in early 2017, Maersk Line natively integrated with Alibaba, enabling online booking instead of the more traditional route of high-touch sales via a separate customer-facing platform. With companies like Amazon betting big on B2B e-commerce sales (and backing it up with Prime shipping for businesses), this trend will only strengthen.

As a result we expect to see more carriers using digital channels to sell directly to shippers, even to small shippers.

In 2016, the top twenty global forwarders accounted for a 60 percent of the freight forwarding market. While not always polished, these behemoths have outstanding operational experience, volume, and tools that provide support to midsize shippers. But, for the most part, they rely on some incredibly expensive manual back office processes, with much of their sales and service provided offline.

While Freightos’ annual mystery shopping survey shows that most top forwarders still take days to respond to quote requests, the second half of 2017 saw a surge in forwarders moving online, with DHL Global Forwarding (air only) and Agility amongst them.

Forwarders need to keep an eye on at least three new threats.

First up, a new breed of forwarder, the digital freight forwarder (discussed below), who interact with their customers online and aim to fully automate back office procedures.

Second are the capital rich tech giants like Amazon and Alibaba, both of whom are increasingly moving into the logistics space.

And third, (as discussed above), are carriers selling more directly to shippers.

Interestingly, some larger forwarders see capital-rich logistics companies like Amazon as more of a threat than digital forwarders. For example, Expeditors’ 2016 Investor Statement warns of the risk of technology-based competition, and specifically cites, “many of these competitors have significantly more resources than Expeditors”. That’s a lot of resources, because Expeditors has a current market cap of $11 billion. C.H. Robinson, on the other hand, calls out industry competition from both “internet matching services and internet freight brokers” in its 2016 annual report.

As a result we expect to see more carriers using digital channels to sell directly to shippers, even to small shippers.

Digital Forwarding

The new breed of digital freight forwarders ply wares similar to traditional freight forwarders but use technology stacks designed and built bottom-up with the aim to better serve customers. The combination of customer service and automated process means that companies like Flexport are taking enterprise forwarders head-on, to the point of now expanding to asset-based activities like warehouse management.

Traditional forwarding leaders are experimenting with this too, in the form of Damco’s Twill Logistics (with Damco itself, of course, owned by Maersk).

These startup digital forwarders still have significant hurdles ahead. They compete with larger forwarders that leverage volume for lower carrier prices, making it harder to win on price. In addition, as traditional forwarders and carriers steadily digitalize, the competitive edge provided by tech may be eroded.

As a result, we expect to see more carriers using digital channels to sell directly to shippers, even to small shippers.

Collaborative TMS Systems

As supply chains become more complex, with more players and faster information movement, collaboration remains a central challenge for international freight.

Some startups are trying to introduce efficiencies in this space by creating collaborative workspaces where suppliers, manufacturers, logistics providers and other service providers can synchronize activities and planning. One example, albeit in the domestic freight space, is Turvo, which closed a $25 million series A round in March 2017.

Freight Market Intelligence

One hallmark of the modern customer is the ability to self-educate and research. Google research shows a 900-point digital customer journey when choosing a leased car, with over 70 percent of these points taking place on mobile devices. A similar process is mirrored in the B2B space, with information-rich users heading online to make better decisions.

With the shroud of secrecy lifted, this places more onus on logistics providers to provide clear value upfront. While our Freightos International Freight Index provides this type of visibility for free, there are a number of companies using Big Data tools, artificial intelligence, or crowdsourced data to help bring more transparency to freight.

This list was by no means fully comprehensive. From rate management tools to domestic trucking, freight networks, and slot booking, the logistics technology space is an incredibly vibrant one that is showing no sign of slowing down. But let’s talk about Freightos for a second.

How Freightos Is Bringing Freight Online

Eight years ago, I ran a company that imported electronic components from China to the US and Europe. While this is the world’s most heavily used trade route, the process was a nightmare. So I set out to change it. Simply put, Freightos is on a mission to power frictionless trade between the people of the world by bringing global shipping online.

We’ve spent six years building and refining the technology to digitalize international freight routing, pricing, and sales. Along the way, we’ve worked with over 1,000 freight forwarders around the world, including many of the top 20 global 3PLs. Since we still live in a world where most data is offline, we’ve needed to ingest over 100,000 big Excel sheets from around the world into our Big Data database, so we created the tools to automate that process and repeatedly scaled up to handle yet more, and with far less effort.

Then we turned around and created transparency tools like the free Freightos International Freight Index, to help players across the supply chain improve efficiency.

When we acquired WebCargo in 2016, that set the stage for even more automation so that we could connect airline carriers directly with forwarders (more exciting news coming on that soon).

Next came the mid-2016 launch of the Freightos Marketplace. It hasn’t stopped growing since and is now servicing thousands of global shippers while generating many millions of dollars of bookings. More importantly, it’s eliminating core aspects of friction from international freight, making importing or exporting easier and more efficient than ever.

The end result is that Freightos is creating the freight data pipes where prices, capacity, bookings, and visibility metrics can easily flow between carriers, forwarders, and importers/exporters. Whether by API, third-party sites, or on our digital assets, we’re bringing the entire ecosystem online, unlocking the transparency, visibility, and speed of service required for modern global supply chains.

Zvi Schreiber is CEO of Freightos.

Freight forwarders need to digitize when handling shipments of export cargo and import cargo in international trade.

The Digital Freight Ecosystem

Two years ago, I predicted 2016 would be the year international freight moves online. I was right and wrong.

2016 was the year the seeds of change were planted. We had more conversations than I can recall with corporate boards from logistics providers and carriers, all reaching out to test the waters. But 2017 emerged as the year when digital freight broke out and 2018 is set to be the year when it starts to take off.

Freightos has played a major role in making digital freight a reality. In the past year, Freightos powered over 300,000 searches across the Freightos Marketplace. Over 1,000 logistics providers and carriers generated over one-million instant quotes with Freightos AcceleRate and Freightos WebCargo. But we’re not the only ones that are bringing freight online.

2017 saw a handful of top forwarders selling online. Kuehne + Nagel has offered some modes online since 2016, while UPS has offered air freight alone. In 2017 they were joined by Agility (all modes) and DHL Global Forwarding (air), while Panalpina has announced that they plan to sell online in early 2018. Maersk, CMA-CGM, and Hapag-Lloyd have all soft-launched online ocean container sales in 2017, joining Delta Airlines with air cargo.

Buckle up. This is heavy stuff.

Digitization is Hard

Let’s call a spade a spade. International freight is incredibly complex. There are dozens of people involved in each shipment; Maersk estimates an average of 200 interactions from 30 people in shipping a single container. Visibility of a shipment is limited to the lowest common denominator of involved carriers, making even the most advanced provider struggle with real-time reporting.

Here are just some of the hurdles in fully digitizing the supply chain.

Pricing and Routing

It starts with standardization and rate management.

Millions of truckers, hundreds of airlines, and dozens of ocean liners each use different formats for pricing. A dizzying array of surcharges and fees means that a typical door-to-door spot freight quote will have over 20 line items, all further complicated by archaic pricing rules.

Some attempts to solve this has caused even more problems, by companies using locale-specific rate management systems rolled out on regional or departmental levels (e.g. air departments in the DACH region) to manage specific rates. This makes rolling out rate updates a nightmare, cross-border/ cross-office coordination difficult, and it increases the likelihood of manual errors.

Lack of standardization isn’t a new problem but more agile supply chains certainly are. Transport Intelligence found that in 1990, two-thirds of global trade moved on the top 50 routes; today, that’s dropped to one-half of global trade. Shipping patterns change more often than they once did as product cycles speed up, consumer tastes become ever more fickle, and in response to unplanned events – whether a Hanjin Bankruptcy or a Hurricane Harvey. Today, shipping patterns must respond in hours or days, not weeks or months.

Hurdles to Freight Sales Automation

Even where rate management has been automated, freight sales largely remain offline, held back by cultural and technological limitations. Increasingly agile supply chains mean that sales and pricing teams need to quote far more often, and on a broader variety of lanes. But poor standardization and rate management make it difficult to generate accurate quotes on-demand. And the sales processes themselves still lag, with international communication at the mercy of international time zones and holidays, and by slow dissemination of promotional rates or notification of changing capacity. In one example from 2015’s mystery shopping survey, a Top 10 3PL managed to quote port to door in just hours, but adding origin charges loaded another three days on the turnaround time.

These challenges are magnified by changing customer expectations. The traditional sales model relies on account managers drifting from company to company with their book of business, relying on their personal relationships with shippers. However, BCOs are increasingly searching for reliability and price, not that handshake and game of golf. Millennials entering the industry prefer speed and transparency over relationship every time.

Even when sales are finalized, freight remains one of the only industries were business contracts are informal and regularly breached. Poor enforcement means that rolled shipments are common – hurting shippers. No-show containers are equally common – hurting carriers.

Unless these poor capacity management practices are eradicated, real-time booking of specific slots will remain elusive. Even in the more-technically advanced air sector, eight years into its lifecycle, only 13 percent of IATA member freight forwarders actively support XML booking messages.

Challenges in Scalable Freight Customer Services

Nearly 75 percent of all forwarders believe that customer service in freight is shifting towards full automation, with personal involvement limited to exception management and backup communication (much like self-service banks, backed up by human tellers).

That same research shows manual transportation management as being the norm, with some 50 percent of shippers relying on spreadsheets as their primary transportation management tool. Logistics providers are as loath to engage in phone calls about shipment statuses, as their customers. Yet millions of phone calls every year start with “Where is my container?”

The Offline Document Management Process

Documentation management continues to be a nightmare. According to IATA, an individual air shipment can require up to 30 paper documents, meaning there’s about 7,800 tons of paper documents created each year. Eleven years since eAWB’s launch, industry penetration is still below the 50 percent mark. I was amazed to see a major airline where someone has the job of trollying physical airway bills from one side of the office to another.

On the ocean freight side, solutions like essDocs and Bolero can push electronic bills of lading through the trade chain in only three minutes. But this method is struggling to gain traction. EssDocs, the market leader, can only count 17 percent of the global container line fleet as using their solution. Add in more complexities around POAs, import licenses, bonds, and more…and you’re left with an unholy, manual mess.

Freight Billing

Several aspects of freight billing are frustrating. Take, for instance, when booking an urgent shipment is held up for several days while a credit check is completed on a new shipper.

But invoicing is a major can of worms. It’s actually quite rare for an invoice to exactly match the original price quote. That’s partly because ocean carriers base their charges on time of gating container, not on time of booking.

Sometimes shippers don’t help, as the actual dimensions and weight of a shipment often differs from what was provided at booking.

All this increases the incidence of manual billing adjustments and the risk of error. No wonder, then, that mistakes are commonplace. In fact, the magnitude of freight billing errors has spurred a whole secondary industry – freight invoice auditing – which annually corrects an estimated $684 million in errors.

Zvi Schreiber is CEO of Freightos. In the second part of this article, he evaluates the digital freight sales ecosystem, from carriers and forwarders, to other new tech companies.

Electric trucks will carry more shipments of export cargo and import cargo in international trade.

The Tesla Semi Truck Will Change Freight Industry

Freight innovation frequently focuses on moving data better – like visibility, e-bookings, and the new generation of forwarders and brokers.

But changing infrastructure is no less critical. Which is why one of technology’s most respected minds is now fundamentally overhauling land freight (and he’s not just stopping at an electric truck).

Coca Cola, UPS, and others already use electric delivery trucks. Now it’s turn for the big rigs. Many major truck manufacturers are now investing in electric rigs, with one projection having them reaching a 25-percent market share by 2025.

But Tesla’s Semi Truck launch on November 16 is bigger. It’s tangible evidence that Elon Musk, the brains behind PayPal, Tesla, SpaceX, and more, has a transportation infrastructure play, with the power to disrupt both domestic trucking and international freight.

So far, Tesla Semi’s pre-launch has been widely heralded by the sustainability media. That’s understandable, given the US Energy Information Administration estimates that large trucks consume nearly seven percent of all energy in the US.

Tesla Semi’s clean technology will certainly reduce emissions, but for most truckers, it’s cost and power that matters. The cost of power that these trucks will take from the grid is 70 percent cheaper than diesel. On top of that, the Tesla Semi has more grunt than diesel, with Musk boasting that it will out-torque any diesel semi uphill.

For now, range is the biggest constraint. However, a third of all semi truck trips are regional, with travel distances within the truck’s current capability. And Tesla are working on making long-distance electric trucking feasible too.

But in the long term, the more trucking is automated, the more attractive it will become for tech giants like Amazon and Uber to extend their operations into freight. Amazon and Alibaba already have last mile and international freight in their sights;  trucking is likely there too. With half a million carriers –  mostly small operators –  moving 82 percent by value of all US freight, the industry is ripe for the picking by capital-rich company that bring their own supply and demand.

And beyond just the trucking industry, electric rigs becoming commonplace may even impact port behavior. More transpacific imports due for the Midwest may pass through US West Coast ports (where freight rates are some 60 percent cheaper) once long-haul trucking is more affordable.

There are two other types of electric vehicle needed: heavy-duty trucks and high passenger-density urban transport. We believe the Tesla Semi will deliver a substantial reduction in the cost of cargo transport, while increasing safety and making it really fun to operate.

Elon Musk recently described his motivation: “I’m just trying to think about the future and not be sad.”

Electric rigs, autonomous vehicles, and everything else he plans to introduce may be driven by sustainability principles, but he must also prove that they are being cheaper, better, and/or safer than their eventual replacements.

Standing in the way of Musk’s vision of tomorrow’s transportation infrastructure has been congestion and delayed transit time on long-haul trucking. Overhauling the US Interstate system is due, being built over half a century ago, when US vehicles drove a sixth of their current three-trillion miles per year. And the case for overhauling urban transport goes without saying.

So he’s going underground.

Musk is slashing tunneling costs as he digs The Boring Company’s first tunnel. Combined with pressurized capsules and vehicle elevators, this new infrastructure will literally shoot vehicles across the country. He’s received provisional approval to start digging in Maryland, in what might potentially become part of a DC to New York link, in turn potentially part of a massive underground Hyperloop network.

Such a grand plan, if he can pull it off, is still many years away. But investors, bolstered by his success with Paypal and the Tesla electric car, have showed they believe in his big ideas.

The Tesla Semi launch on November 16 is about much more than just batteries. It’s about how real innovation (not the hyperbole that often passes as such) combines vision, capital, technical know-how, and drive to make a vision reality.

Henry Ford famously preferred to give people a car, not a faster horse. Seems like the car’s replacement may not be so far away.

Zvi Schreiber is CEO of Freightos.