Drowning in a digital sea

The digital forwarding revolution is well underway but not everyone will get sucked into the abyss    In September, the Adam Smith Project sister publication American Shipper broke the news that Ed Feitzinger, former chief executive officer of the freight forwarder UTi Worldwide had joined Amazon as vice president of global logistics.
   It was an unmistakable signal that Amazon was intent on developing a domain expertise-based approach to the development of its in-house logistics capability.
   Over the weekend, I came across a listing of available jobs at what is now being identified as Amazon Global Logistics. No code names anymore.
   The development shouldn’t send shockwaves through the industry, because the industry should have already been anticipating such moves, to be frank. For freight forwarders, Amazon has teetered on the unsteady ground between customer and competitor, friend and foe, for a long time. Just as it did (and still does) for retailers.
   I took note of the commotion about Amazon Global Logistics taking shape because earlier in the week, Damco, one of the larger forwarders in the world, launched a digital offshoot call Twill Logistics. That initiative is meant to help Damco reach a category of smaller shippers it had never really targeted before.
   These are essentially two parts of the same story. Logistics is being digitized and automated, but above all, it is being democratized. And that democratization is happening through easier transactional tools.
   Amazon the logistics provider has no interest in forming backslapping relationships with its customers. It wants scale, and will use automation to make the transaction as easy as possible to achieve that scale. Twill is Damco’s attempt to reel in the customer that doesn’t have the clout, knowledge, or need to put together a big quote package across multiple trade lanes.
   These both rely on a world where the logistics customer is less concerned with hand-holding and more concerned with reducing the time it takes to engage in efficient transactions. Of course, Amazon and Damco aren’t the first ones to this party.
   Myriad companies have attempted to redraw the terms of global logistics in recent years, to structure the process more effectively, to reduce data entry. And in some cases, expand price discovery.
   So forwarders find themselves in a really interesting spot. It feels like they either need to digitize themselves (a huge gamble from a cost perspective) or accede to Amazon’s eventual dominance. But there’s a third way out: bank on this stuff not being as easy as it’s been in other industries where digitization has taken hold.
   And if you’re a traditional freight forwarding optimist, here’s a tale that should warm your heart.
   Märt Kelder is the chief executive officer of a European startup called Palleter. Kelder’s goal was to develop technology that would maximize the use of latent trucking capacity in Europe by linking extra capacity with sources of demand. An analog in the United States would be Convoy.

They either need to digitize themselves (a huge gamble from a cost perspective) or accede to Amazon’s eventual dominance. But there’s a third way out: bank on this stuff not being as easy as it’s been in other industries where digitization has taken hold.

   The company stopped operations in April, even with a venture capital offer on the table, because Kelder’s and his co-founder’s hypotheses didn’t match the reality of how the market worked. Simply put, Palleter’s ability to offer drivers the ability to pick up cargo to maximize capacity was offset by driver unwillingness to pick up that cargo, or by the fact that “unused space” in a truck wasn’t necessarily usable due to the weight of certain shipments.
   These practical realities were not just setbacks, according to Kelder, they were fundamental behaviors that even the most clever technology couldn’t overcome.
   “Even if the trucks have spare space and are close to the pickup location of the cargo they more often than not are not willing to pick up the loads in reality,” he wrote. “That was a big and nasty surprise. The trucks are running on such a tight schedule for their existing clients that they just cannot afford to spend time on extra loads. They might miss a deadline and lose a loyal customer.”
   That story reminded me of a recent conversation with Abtin Hamidi, chief executive officer of Cargo Chief, which until recently was a startup that focused on being a technology-forward freight brokerage.
   Hamidi, who spent formative time at Echo Global Logistics and XPO Logistics, felt there was a way to implant modern, intuitive technology and machine-learning into the brokerage business.
   But he hit a roadblock, he told me. After a while, no matter how sophisticated your system is, you’re held hostage to the price in the market. You can only make a defined band of margin in a business with certain uncontrollable variable costs like fuel. And that was hard to scale into a huge technological play.
   So in March Hamidi sold the brokerage part of his business to a logistics provider in New Jersey called Genpro to focus Cargo Chief back on its root: technology development. Cargo Chief will now develop, in a neutral fashion, applications and analytics to help brokers get better at finding capacity and demand.
   The move, taken in tandem with Palleter’s demise, is interesting to note because it suggests that while technology undoubtedly has a huge role to play in the future of logistics, it won’t necessarily upend the traditional model in the way most people assume.
   Digital freight forwarders and brokers aren’t going to replace traditional counterparts in the way Expedia and Kayak have uprooted travel agents. They’ll likely take the transactional business away from the industry because that’s the most footloose and fancy-free business, and also because a simple transactional model will lure new customers to the table.
   But that model is low-margin and only works at scale. And it also doesn’t account for operational realities on the carrier (in any mode) and shipper sides. Those operational realities are what have kept traditional forwarders and brokers in business all these decades.
   That’s not to say that those traditional forwarders can bury their head in the sand and expect to survive, but their imminent decline isn’t a foregone conclusion. Not when there are so many potential customers out there, and so many logistical obstacles for most shippers to overcome.
   Amazon will undoubtedly take a share of the market, and digital forwarders will take some too, but it’s a big pie, and there’s enough for everyone, provided they bring the right utensils to the table.