Special Coverage: A public pricing model for forwarders

Technology providers argue the pros and cons of a public pricing model for forwarders.    Ocean freight rates have long been considered the right purely of buyer and seller, a private piece of information not to be shared outside the boundaries of that commercial relationship.
   But there is an incremental movement in the ocean shipping industry toward more public availability of rates.
   Indexes and marketplaces proliferate, and while there is debate over how successful or useful those tools are, shippers and forwarders do have greater access to rates on a specific lane than ever before.
   Established forwarders, as discussed in last month’s issue (March 2017 American Shipper, “A growing challenge,” pages 28-33), believe this transparency has always existed, just not via an online search. But proponents of open platforms for freight rate bidding argue that the modern iteration of the Internet is what enables a different level of price discovery and consummation. At the Journal of Commerce’s TPM 2017 conference in Long Beach in late February, an interesting debate took place over whether the future of rates will go more public or remain largely private.
   To be clear, this is not at all a question of technology. Technology companies provide solutions that empower both private rate management and sharing with trusted networks of customers, as well as those that provide open, public rate sharing via marketplaces. And some companies provide solutions for both.
   The issue is a thorny one. Established rate management technology providers see their tools as integral in making freight forwarders competitive, but bristle at the idea that marketplace rate sharing would do anything but drag the market down and push forwarders out of business.
   Marketplace providers, on the other hand, see their platforms as a natural evolution in the freight industry, one that has taken place all over business-to-consumer industries and increasingly in business-to-business ones.
   “We need to keep our service providers around,” Neil Barni, president and founder of the freight rate management software provider CargoSphere, said at a debate panel on the issue. “They are important institutions. My company wants to see them prosper. We believe in technology that creates efficiencies for these companies, not kills them off.”
   But Zvi Schreiber, founder and chief executive officer of the freight rate technology company Freightos, believes it’s only a matter of time before freight rates are as transparent as other data points we once thought completely private.
   “Remember when real estate pricing was private?” Schreiber said. “Then Zillow came along. And salaries were private, until Glassdoor came along. Our industry is not immune. It’s just a little slower than other industries.
   “I acknowledge there are some concerns. Sellers worry about commoditization, but in this industry, the commoditization happened with the container,” he said. “Service providers do like to discriminate on pricing. But in the Internet age, there are no suckers anymore. You can get intelligence from indexes. Everyone will have perfect access to information.”
   Schreiber, whose company offers both a rate management system that competes with CargoSphere and an open marketplace, said the rationale behind keeping pricing private is flawed.
   “Buyers like to keep their rates secret, because they’re under the illusion that they have a competitive advantage,” he said. “But guess what? Half the BCOs (beneficial cargo owners) are paying above market. BCOs are not gaining nearly as much as they think by keeping things private.”
   For Barni, the proof is in market demand. He argues that there is little traction for pure marketplaces, and he’s got the scars to prove it. An attempt early in the evolution of CargoSphere to build a marketplace found little buy-in and ended up nearly sinking the company.
   Though that was more than a decade ago – perhaps too early for the market to embrace – Barni said there’s still a fundamental disconnect between the structure of marketplaces and how forwarders want to position themselves.
   “The price of ocean freight is only part of the forwarder product,” he said. “This is an oversimplification of the model. We’re conflating the transparency between parties of a shipment with truly public pricing, the disintermediating kind.
   “If you ask people, ‘should there be more transparency?’ most would say ‘yes.’ But that’s related to parties that are working together in a private setting. If you ask people, ‘are you okay posting your rates for everybody to see?’ what do you think their answer would be?”
   Barni also said the marketplace model is flawed as a way to connect buyers and sellers on a repeat basis. Once a deal is consummated on a platform, he reasoned, if the two parties are satisfied with price and service levels, they would simply take their relationship off the platform going forward.
   “Once a relationship is forged, you can’t compel providers to keep re-meeting,” he said. “That’s just not realistic.”
   He relayed a story of how a friend introduced him to his wife. He took his friend out to dinner once as a sign of gratitude for the introduction, but said, “I don’t keep buying him dinner.”
   Barni is a believer in the market driving service providers, and he noted many of the marketplaces are backed by venture capital firms that invest in companies that go against the grain.
   “You can’t bend the will of an industry through VC funding,” he said. “The market has to come to it.”
   But Schreiber insisted his marketplace is not designed to make forwarders obsolete. It’s designed to give them another sales channel to reach business they would normally never reach.
   “Carriers and forwarders today have a very expensive sales model,” he said. “Dinner and golf with shippers, with 100 other forwarders also playing golf. For small and medium-sized deals, this is a much more efficient way to sell the wonderful services you have. And it’s appealing to the next generation of buyers coming into the industry.”
   Schreiber has long advocated the idea that the next wave of ocean freight buyers will only want to conduct business in a transactional, digital setting.
   He also admitted that a marketplace might never appeal to certain types of shippers – those with large volumes, complex networks, or those that rely on specific service components that forwarders provide.
   “No one is talking about taking confidential rates public,” he said. “We manage confidential rates for companies and those aren’t going on the marketplace unless they want them to. But half the industry is spot quotes, and that’s growing over time. A big part of this industry is fairly commoditized and that service does not involve a lot of differentiation.”