Syncing New World Trade Networks

A wide range of free-trade agreements (FTAs) has facilitated trade with the United States in the recent past, and that trend is expected to gain momentum if the Trans-Pacific Partnership (TPP) is finally ratified and if other deals—such as the Transatlantic Trade and Investment Partnership (TTIP)—come to fruition.

However, researchers for the Economist Intelligence Unit (EIU) note in a recent report that logistics managers face a slew of additional complications that will require today’s freight forwarders to come up with new and innovative solutions.

According to EIU analysts, most multinationals are optimistic about future trade activity with the United States. Indeed, the United States accounts for 13% of global imports and 9% of global exports and will continue to remain a key market for companies in Europe and Asia. In fact, two-thirds of respondents in the EIU survey anticipate that their company’s trade with the United States will increase over the next five years, with over 43% expecting an increase of 10% or more. This means that freight forwarders will have yet even more pressure to perform in the future, add analysts.

“Companies face a number of issues in trading with the United States, but none of these are perceived to be insurmountable,” says Andrew Siciliano, practice leader for trade and customs at advisory firm KPMG, U.S. “Exchange-rate volatility presents the largest issue for companies, with 41% of respondents citing this as a concern.”

Siciliano also observes that close to one-third of EIU survey respondents cite transport costs and delays, trade-related infrastructure, and making payments as their top challenges. Other challenges cited by close to 30% of respondents are access to trade finance, unfair competition, communication challenges and cultural hurdles.

“However, many of these are challenges that companies experience in other markets as well,” adds Siciliano, “and the overarching consensus is that these challenges are not viewed as deal-breakers when it comes to trading with the U.S., given the sheer size of the market opportunities there.”

Embracing complexity

In the meantime, freight forwarders will be expected to help shippers identify and navigate premium trade lanes as well, says Cathy Morrow Roberson, president of research firm Logistics Trends and Insights.

“The main takeaway from recent studies and surveys is that forwarders must add much more value to their services by mapping out a sustainable distribution strategy even when the transport infrastructure is less than entirely reliable,” says Roberson.

New forwarders meeting challenge

Meanwhile, the supply-chain consultancy Armstrong & Associates estimates that global freight-forwarding market has grown at an average rate of about 12.3% a year since the 1990s. It amounted to about $238 billion in revenue in 2015, but that surge has slackened by almost 5% in recent years, coinciding with a slowdown in China’s economic expansion.

“Given this reality, the economies of scale still favor the mega forwarders,” says Evan Armstrong, the firm’s president. “They have the economies of scale to leverage ocean and air cargo rates that smaller players simply don’t have.”

But forwarding upstarts like San Francisco-based Flexport takes issue with this, noting that technological breakthroughs are rapidly changing the landscape. According to Ryan Petersen, the startup’s founder and chief executive, shippers have been paying too much for simple services that can done with a lean and responsive staff schooled in the nuances of digital commerce.

“Because no company is big enough to have all the assets required—trucks, container ships, cargo planes, trains, warehouses, and more, in every country on earth—freight forwarders have to use multiple asset owners on any given shipment,” he says. “That’s what we do.”

Andrew Lubin, who currently teaches a variety of logistics management and international business courses at Rosemont College, agrees, contending that small and nimble companies like Flexport “are the new wave” of the forwarding future.

“While the giant forwarders continue to buy and resell container space at a huge profit, new business models are competing by building global databases,” says Lubin. “By doing this, they reduce their overhead and save shippers money.”

Israel’s Freightos is another rising star, Lubin points out, noting that it too offers software that provides Customs clearance while booking ocean and air cargo seamlessly through the internet.

Dr. Zvi Schreiber, CEO of Freightos, maintains that the forwarding industry is moving on two parallel paths, with most major transport carriers continuing to work with the larger established players while striking up relationships with new companies like his. “This is a delicate ecosystem for the time being,” he says, “comprising companies of all sizes and influence.”

Adam Compain, founding CEO of the “predictive logistics” forwarder ClearMetal in San Francisco, says that deep math and cloud technology are transforming the industry. “In today’s world, a lot of forwarding inefficiencies can be addressed without costing the shipper any more money,” he says. “The big ocean and air carriers are moving toward digitization, too. There’s not much more room for bankruptcies or more alliances in the global marketplace.”

Old guard response

While scores of venture capital upstarts threaten the forwarding status quo, the giant freight intermediaries are beginning to work with them while investing in their own technology.

Kuehne + Nagel, for example, recently launched KN FreightNet, a digital product providing instant quotation, online booking as well as track and trace for air and sea shipments. In the scope of its venture platform, the mega forwarder engages with startups and explores new business opportunities broadening its digital offering and customer base.

“Using our core competence and scaling-up our digital mind set, especially in the area of data management and analytics, we develop products designed to bring additional value,” says Dr. Detlef Trefzger, CEO of Kuehne + Nagel Group. “We consider digitalization not as disruption, but as part of our ongoing business evolution.”

Building on its market intelligence, Kuehne + Nagel created “global Kuehne + Nagel indicators” providing estimates for key economic figures, such as trade balance and industrial production, based on the forwarder’s insights into markets and data of global trade flows.

This digital revolution has not been without its mishaps, however. DHL’s freight forwarding division has been struggling for the past two years to recover from a failed IT modernization program—the costly and infamous “New Forwarding Environment” initiative that led to a shakeup in the company’s management structure.

Tim Scharwath, the newly named DHL Global Forwarding CEO, hopes to reverse that fortune. “What is clearly needed here is a unified global technology platform that can help deliver online quotation and booking,” he says. “Everyone is moving in that direction, and logistics managers will come to expect it from all forwarders—regardless of size.”