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

Freight forwarding services are commissioned to organize the transport of goods and offer additional logistical processes, such as customs clearance and warehousing, which arise during transport processing. They do not own any ships or aircraft for this purpose. The freight forwarding industry is largely a brokerage and organizational business: the task of the freight forwarders, the planning and coordination of the transport of goods, is separate from the physical movement of the goods. This is done by the freight forwarder. On the road, this is the transport company, on the sea route, the shipping companies, and in the air, the airlines. But since AirBnB and Uber, everyone knows that the logistics processes of freight forwarding services can be very easily digitized.

A number of startups have begun to drive digitalization in logistics. They have established digital freight forwarders or logistics marketplaces like Amazon and are putting massive pressure on traditional logistics forwarders. But what distinguishes the new challengers from the established players?

Algorithms are increasingly handling supply chain processes that were previously handled by freight forwarders 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 phone 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. Based on this information, customers are shown a specific offer 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 with 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 that offers may not be created quickly enough or in a customer-optimized manner. The electronic connection of airlines and shipping companies and the creation of offers using algorithms have clear advantages in terms of speed and accuracy for customers.

Online freight forwarders, 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 have recognized the weak digitization in logistics and built their logistics processes from the beginning using software and algorithms. This is a clear advantage over traditional freight forwarders, who were usually founded decades ago and therefore have to rebuild and modernize their IT systems and software during ongoing business operations. The online freight forwarders have the clear advantage here that they do not carry around old logistics processes and therefore do not have to fear losing customers and sales. They had the opportunity to design their logistics processes and structures using the latest software technology and thus directly attack the business of the established freight forwarders.

The high level of attention that online freight forwarders receive is also due to their good marketing and clever communication. In many respects, the offerings of digital and traditional freight forwarders do not differ significantly from one another. The freight forwarding services that shipping companies can use are more or less almost identical. However, digital freight forwarders have been very good at highlighting the weaknesses of their competitors, namely the low level of digitization of their logistics processes. The “new” digital freight forwarders such as Flexport or Freighthub have managed to portray themselves as progressive modernizers of an old industry that still works exclusively with email, telephone, fax and Excel. On closer inspection, however, this portrayal seems exaggerated and inaccurate. The large international freight forwarders in particular have invested heavily in their IT systems in recent years and want to use them to compete with online freight forwarders. It remains to be seen whether this will be noticed by the shipping companies and the public in the near future.

Many of the world’s largest freight forwarders were founded at a time when there were not even computers and telephone calls cost the equivalent of several euros per minute. Over time, new technical possibilities became established. In recent decades, Excel lists and telephones have played an increasingly important role in the value-added processes of freight forwarders. But in recent years, many of the large international freight forwarders have been investing heavily in expanding their IT systems. This is necessary in order to integrate airlines and shipping companies into their complex service structures. If freight forwarders have a globally standardized IT system, the step to automated processes is not far away.

Recently, many of the traditional freight forwarders have also set up tools, platforms and portals where customers can submit freight enquiries and book freight online. Thanks to this range of services, the large freight forwarders are becoming digital freight forwarders.

For some transport companies and freight forwarders, such online booking means that they have the opportunity to offer their capacities on online platforms with little effort and to reduce the previously usual brokerage surcharge.

While even some traditional freight forwarders now compare their transport offers online, many shippers 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 are almost always more advantageous in terms of price than those made online.

Another success factor is the complexity of the transport orders. Online bookings usually work perfectly for simple services. However, logistics processes that go beyond normal transport and storage often require specialist know-how to find suitable, functional logistics solutions.

Shippers can now obtain quotes online from almost all “classic” or “digital” freight forwarders. However, the sheer number of portals and logistics platforms is a major problem. This makes submitting quote requests almost as inefficient and cumbersome as obtaining quotes from freight forwarding services using Excel and the telephone.

For many shippers, it is very important to maintain control over the relationship with their logistics partners and their own supply chain processes. Nobody wants to become dependent on a single freight forwarder who then gradually increases prices. Shippers also want to avoid becoming operationally dependent on a logistics service provider. It will therefore always be necessary for them to stay in contact with several freight forwarders, whether online or traditional.