Digital freight forwarders and logistics marketplaces - algorithms and marketing for the classic freight forwarding service

Freight forwarding services are commissioned with the organization of the transport of goods and offer additional logistical processes, such as customs clearance and warehousing, which are incurred during the handling of the transport. You do not own any ships or planes for this. The freight forwarder is largely a brokering and organizational business: the task of the freight forwarder, the planning and coordination of the transport of goods is separate from the physical movement of the goods. The carrier does this. This is the transport company on the road, the shipping companies by sea and the airlines in the air. But at least since AirBnB and Uber everyone has known that the logistics processes of freight forwarding services can be digitized very well.

A number of startups have started to drive digitalization in logistics. They have established digital freight forwarders or logistics marketplaces à la Amazon and are massively adding to classic logistics forwarding agents. But what distinguishes the new challengers from the established players?

Algorithms are taking care of more and more of the supply chain processes that freight forwarding merchants could previously perform with the help of their wealth of experience and manual processes. Customers can now query prices online and handle their transports without having to make calls or write emails. The systems of carriers, airlines, transporters and customs offices are connected via an interface and algorithms automatically query relevant data within seconds. Customers receive a concrete offer based on this information and can book the transport. Transport management is then also carried out online.

International freight forwarders have also relied heavily on Excel lists and telephone communication to connect airlines and shipping companies. This manual form of data exchange means that they can only determine prices and offers slowly. The creation of transport offers is based on incomplete information, so offers may not be created quickly enough or not in a customer-optimized manner. The electronic connection of airlines and shipping companies as well as the preparation of offers by algorithms has clear advantages in terms of speed and accuracy of fit for customers.

Online shipping companies such as Flexport or Freighthub have positioned themselves in recent years as an alternative to traditional freight forwarding services such as Kühne & Nagel or Schenker. They recognized the weak digitization in logistics and set up their logistics processes from the start with the help of software and algorithms. This is a clear advantage over traditional freight forwarders, who were mostly founded decades ago and consequently have to convert and modernize their IT systems and software during ongoing business operations. The online forwarding companies have the clear advantage here that they do not have to carry around old logistics processes with them and thus do not have to fear a loss of customers and sales. They had the opportunity to design their logistical processes and structures with the help of the latest software technology and thus directly attack the business of the established freight forwarders.

The high level of attention that online shipping companies receive is also due to their good marketing and skilful communication. To a large extent, the offers of digital and classic freight forwarders do not differ significantly from one another. The shipping delivery that loading companies can use is more or less almost identical. However, the digital freight forwarders understood very well how to highlight the weaknesses of their competitors, namely the low digitization of their logistics processes. The “new” digital freight forwarders such as Flexport or Freighthub have managed to present themselves as progressive modernizers in an old industry that still only works with email, telephone, fax and Excel. On closer inspection, however, this representation appears exaggerated and inaccurate. The major international freight forwarders have invested heavily in their IT systems in recent years and want to compete with online freight forwarders. It remains to be seen whether this will be registered promptly by the shipping company or the public.

Many of the largest freight forwarders in the world were founded at a time when computers did not even exist and telephone calls cost the equivalent of several euros per minute. In the course of time, new technical possibilities became established. In recent decades, Excel lists and telephones have played an increasingly important role in the value-adding processes of forwarding agents. But for some years now, many of the large international freight forwarders have been investing heavily in expanding their IT systems. This is necessary to include airlines and shipping companies in their complex offer structures. If forwarding agents have a globally uniform IT system, the step to automated processes is also not far away.

Recently, many of the classic forwarding companies have also set up tools, platforms and portals where customers can submit freight inquiries and book freight online. Thanks to this range of services, large freight forwarders become digital freight forwarders.

For some transporters and carriers, such an online booking means that they have the opportunity to offer their capacities on online platforms with little effort, and to reduce the usual commission for brokerage.

While some traditional shipping companies are now comparing their transport offers online, many senders remain critical. A major disadvantage of the online process is that it leaves no room for individual price negotiations. Experience shows that, especially in cases of existing business contacts, personally negotiated offers were almost always more affordable than those in online agencies.

Another factor of success is the complexity of the transport orders. Online bookings usually work perfectly with simple services. For logistics processes that go beyond normal transport and storage, however, specialist know-how is often required to find well-suited, functioning logistics solutions.

Shippers can now obtain offers online from almost all "classic" or "digital" freight forwarders. However, the sheer number of portals and logistics platforms is a major problem. Submitting quotation requests is almost as inefficient and unwieldy as obtaining quotes from freight forwarding services using Excel and telephone.

For many shippers, it is very important to keep control of the relationship with their logistics partners and their own supply chain processes. Nobody wants to become dependent on a single shipping company, which then gradually increases prices. Shippers also want to avoid becoming operationally dependent on a logistics service provider. That is why it will always be necessary for them to stay in contact with several freight forwarders, whether online or classic.