#shipafreight

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[hudsonespie]

The Rise of Technological Moats in Global Freight Forwarding

The future of any industry is shaped by the hands of its most forward-looking incumbents. Dominant businesses able to combine the boldness of their visions with deft execution tend to gain and hold pole position as captains of their domain, and one of the best ways to retain a dominant position is to build a moat.

Moats in medieval times were constructed around the perimeter of castle walls to keep enemy troops at bay long enough for the deployment of counter-artillery and archery attacks. Evidently, moats by themselves are not impenetrable obstacles but they serve to buy valuable time for the defending force to execute their next moves.

In the same way today, one of the major imperatives of global forwarders is to maintain that gulf between what sets them apart from the rest. Often this moat is technological, and more forwarders are starting to rely on this to gain market share as they reach the limits of the network effect and labor cost efficiency, which are finite. After all, there is a limit to the number of network country offices one can set up and there is only so much productivity that can be extracted from relatively cheaper labour costs. Yet as an industry, we have only just started our ride on the technological curve.

The technological moat can be seen in many industries such as the semi-conductor, aircraft and weapon manufacturers where slowly but surely, competitors dwindle in a winner takes all game until two or three players remain. Google and Apple battling over Android and Apple iOS market share globally is a telling example of how this entrenchment within a business eco-system reduces the chance of a customer migrating to another software ecosystem.

In similar fashion, the large global forwarders have launched their own digital booking platforms as technological moats to lock in their captive market share within their own ecosystems and the race is now on to onboard as many small & medium enterprise (SME) clients as they can onto their platforms first with the belief that a customer would become so comfortable with their freight management platform that the inertia to migrate to an opposing platform would extract great switching costs.

Multinational companies (MNC) are rarely the best target client for customer-facing platforms, mainly because of the form of high level business integration through multi-layered decision making, 4PL contracts, control tower set-ups and staff implants that may be required to win over their business. The technology embeddedness here comes in the form of electronic data interchange (EDI) linkages, multiple and complex relationships based across varied geographic sectors and a working timeline most often shaped by periodic global or regional tenders. Development of a customer-facing technological platform can accommodate some of their needs but it is not the best tool to engage them due to the level of sophistication and complexity required. The process is entirely different when it comes to engaging with SME business.

At this time, the battle taking place across the forwarding landscape pits the biggest players using their technological superiority in competition against the rest of the market, which still relies on the traditional ways of doing things without leveraging technology platforms. As the investment to developing a proprietary technology ecosystem from scratch is high, smaller players may partner with a bevy of middleman platform developers such as Freightos, Kontainers, Shipafreight, Cargobase and Flexport. The outcome of this battle will create a chasm in the market between the customer SMEs that are already on a technology platform and those that remain out of it. The real battle for disembedding a customer from the holds of an incumbent’s ecosystem will then take start to take place between the industry giants. All of this points to only one long-term and sobering trend: the current highly fragmented market will become more and more consolidated as the drive for technology adoption grows, and forwarders who do not have such a moat will lose market share.

Setting up an online platform is not the end all of the strategy. Several entry barriers specific to successful on-boarding and successful customer retention include complicated set-up mechanisms, slow and cumbersome on-boarding processes during the initial or trial shipment phases. The investment in dedicated product experts that guide newcomers will be significant at the onset but the increased retention rates and conversion of ad-hoc clients into long-term dedicated ones will pay off eventually.

On a tactical level, the best way to spread this migration is to establish a dedicated sales and marketing force focused on driving SME business onto the platform as quickly as possible. One effective way to measure a salesperson involved in on-boarding and platform embedding of a client is to focus on incentivizing the quantity, retention and recurring revenue of accounts on-boarded instead of the size of the business or gross profit of the account—typical metrics used to measure performance. The emphasis here is on speed to market (sales channelling deep and fast) and speed to user adoption (growth).

The likelihood of a customer that has tasted the benefits of “the forbidden fruit of technology” once - and experienced the exhilaration of getting and booking quotations instantly, tracking their shipments when they want to and not being limited to the typical working hours of a traditional forwarder - to want to return to the pre-historic days of manual quotations and bookings is unlikely, but there will always remain a few laggards on the technology adoption curve.

Luke Robert consults for SME and MNC clients in navigating trade tariff agreements and advising on industrywide regulation and the impact of political and economic trends on their supply chains. He is currently with one of the largest logistics MNC’s in the world. The views expressed here are entirely his own. 

from Storage Containers https://www.maritime-executive.com/article/the-rise-of-technological-moats-in-global-freight-forwarding via http://www.rssmix.com/

[hello-shipafreight-blog]

[hello-shipafreight-blog]

[hudsonespie]

The Rise of Technological Moats in Global Freight Forwarding

The future of any industry is shaped by the hands of its most forward-looking incumbents. Dominant businesses able to combine the boldness of their visions with deft execution tend to gain and hold pole position as captains of their domain, and one of the best ways to retain a dominant position is to build a moat.

Moats in medieval times were constructed around the perimeter of castle walls to keep enemy troops at bay long enough for the deployment of counter-artillery and archery attacks. Evidently, moats by themselves are not impenetrable obstacles but they serve to buy valuable time for the defending force to execute their next moves.

In the same way today, one of the major imperatives of global forwarders is to maintain that gulf between what sets them apart from the rest. Often this moat is technological, and more forwarders are starting to rely on this to gain market share as they reach the limits of the network effect and labor cost efficiency, which are finite. After all, there is a limit to the number of network country offices one can set up and there is only so much productivity that can be extracted from relatively cheaper labour costs. Yet as an industry, we have only just started our ride on the technological curve.

The technological moat can be seen in many industries such as the semi-conductor, aircraft and weapon manufacturers where slowly but surely, competitors dwindle in a winner takes all game until two or three players remain. Google and Apple battling over Android and Apple iOS market share globally is a telling example of how this entrenchment within a business eco-system reduces the chance of a customer migrating to another software ecosystem.

In similar fashion, the large global forwarders have launched their own digital booking platforms as technological moats to lock in their captive market share within their own ecosystems and the race is now on to onboard as many small & medium enterprise (SME) clients as they can onto their platforms first with the belief that a customer would become so comfortable with their freight management platform that the inertia to migrate to an opposing platform would extract great switching costs.

Multinational companies (MNC) are rarely the best target client for customer-facing platforms, mainly because of the form of high level business integration through multi-layered decision making, 4PL contracts, control tower set-ups and staff implants that may be required to win over their business. The technology embeddedness here comes in the form of electronic data interchange (EDI) linkages, multiple and complex relationships based across varied geographic sectors and a working timeline most often shaped by periodic global or regional tenders. Development of a customer-facing technological platform can accommodate some of their needs but it is not the best tool to engage them due to the level of sophistication and complexity required. The process is entirely different when it comes to engaging with SME business.

At this time, the battle taking place across the forwarding landscape pits the biggest players using their technological superiority in competition against the rest of the market, which still relies on the traditional ways of doing things without leveraging technology platforms. As the investment to developing a proprietary technology ecosystem from scratch is high, smaller players may partner with a bevy of middleman platform developers such as Freightos, Kontainers, Shipafreight, Cargobase and Flexport. The outcome of this battle will create a chasm in the market between the customer SMEs that are already on a technology platform and those that remain out of it. The real battle for disembedding a customer from the holds of an incumbent’s ecosystem will then take start to take place between the industry giants. All of this points to only one long-term and sobering trend: the current highly fragmented market will become more and more consolidated as the drive for technology adoption grows, and forwarders who do not have such a moat will lose market share.

Setting up an online platform is not the end all of the strategy. Several entry barriers specific to successful on-boarding and successful customer retention include complicated set-up mechanisms, slow and cumbersome on-boarding processes during the initial or trial shipment phases. The investment in dedicated product experts that guide newcomers will be significant at the onset but the increased retention rates and conversion of ad-hoc clients into long-term dedicated ones will pay off eventually.

On a tactical level, the best way to spread this migration is to establish a dedicated sales and marketing force focused on driving SME business onto the platform as quickly as possible. One effective way to measure a salesperson involved in on-boarding and platform embedding of a client is to focus on incentivizing the quantity, retention and recurring revenue of accounts on-boarded instead of the size of the business or gross profit of the account—typical metrics used to measure performance. The emphasis here is on speed to market (sales channelling deep and fast) and speed to user adoption (growth).

The likelihood of a customer that has tasted the benefits of “the forbidden fruit of technology” once - and experienced the exhilaration of getting and booking quotations instantly, tracking their shipments when they want to and not being limited to the typical working hours of a traditional forwarder - to want to return to the pre-historic days of manual quotations and bookings is unlikely, but there will always remain a few laggards on the technology adoption curve.

Luke Robert consults for SME and MNC clients in navigating trade tariff agreements and advising on industrywide regulation and the impact of political and economic trends on their supply chains. He is currently with one of the largest logistics MNC’s in the world. The views expressed here are entirely his own. 

from Storage Containers https://maritime-executive.com/article/the-rise-of-technological-moats-in-global-freight-forwarding via http://www.rssmix.com/