Whether the freight forwarders like it or not, the year of the pandemic has not brought any more clarity to their future.
In light of the many stresses experienced by the supply chain and logistics planners, no freight forwarder managed to distinguish themselves by modifying their services or attempting to differentiate themselves from their competitors in the eyes of their customers. As a result, for all the freight forwarders’ talk of agility, flexibility and differentiated customer care, no shipper changed their view of the value of the freight forwarders to their supply chain operations. Unfortunately for the freight forwarders, finding the cheapest way of getting cargo from A to B is getting easier and easier by the day.
For the clues on their future, the forwarders should be looking forward to the disappearing act performed by the travel agencies. The pandemic conveniently provided proof of superiority of digital marketplaces over physical presence in the game of finding the lowest price of something. Just walk through your neighbourhood and look at the abandoned offices of the travel agencies, while investors in Airbnb and Booking are gleefully rubbing their hands.
While the incumbent freight forwarders attempted to replicate the low cost, low overhead simplicity of the digital marketplaces, they also hang on to their legacy business model and all its limitations preventing significant cuts to unit costs. How difficult that is, just look to the value of Amazon and Walmart over the period of the pandemic. Both attempt to provide commerce at the lowest cost, but the digital platform play with tiny attachment of hard assets is clearly much more valuable than the brick-and-mortar play with its small digital commerce attachment.
That is also the reason why venture investors keep piling into logistics digital marketplaces, where demand and supply is aggregated, transaction costs are low and revenues per employee far exceed what even the best traditional freight forwarder can ever generate. The freight forwarders’ argument for survival is of course that the B2B business is too complicated for digital platform players, but the message, if any, has not discouraged the disruptors from chipping more customers off the incumbents’ old block. Countermeasures in form of updated digital portals are too simple “me too” tools to build significant moats against the digital invaders. Ossified internal processes requiring awkward and expensive retrofitting of digital solutions are also proving a major challenge, as demonstrated by widely publicized write-offs of IT investments by major logistics companies.
If digital plays are not enough to ruffle freight forwarders’ feathers, even more pressure will continue coming from the seafreight carriers building up freight forwarding capabilities through acquisition of both digital and hard assets. They will keep cutting freight forwarders to size, as they were much faster appropriating the most important asset in the service game: the data. While the freight forwarders are still debating value of a common, shared data store, their data is already being leveraged in the two platforms owned by the carriers: Datalens and GSBN. As if the threat from the carriers was not enough, watch DP World building out from their traditional port business into hinterland logistics and seafreight lines. DP World is behind in the digital race, but that is just the matter of finding right acquisition target in possession of integrated digital platform.
As the pressure builds, expect more consolidation among the freight forwarders in 2021 and inevitable job losses as the acquirers fund their acquisitions by cutting people and asset-related expenses. That is an inevitable price to pay for hanging back and hoping for the best.