Efficient data management increasingly determines which NVO gets the freight.
Track and trace? There’s an app for that.
Online sailing schedules, booking and documentation options? Check, check, and check.
Or by now at least most major non-vessel-operating common carriers, whether they’re neutral or freight forwarder-affiliated, should have these capabilities in place if they want to participate in the big leagues of logistics service offerings.
“It used to be that an NVO just had an office and a phone,” said Michael Cadden Troy, owner of Troy Container Lines, a neutral NVO based in Red Bank, N.J. “Now some of us NVOs are more technologically sophisticated than the liner carriers and agencies that we deal with.”
NVOs are masters at buying container space wholesale from multiple liner carriers and retailing it back to customers at slightly marked up rates. However, while developing information technologies is a costly complex barrier to entry in the marketplace, it increasingly determines which NVO gets the customer’s attention and ultimately its freight.
Information technologies “are a source of productivity because they provide the opportunity to analyze and streamline our processes,” said Dan Wall, senior vice president of ocean and cargo management services for Seattle-based freight forwarder Expeditors, the largest forwarder-affiliated NVO in the U.S. inbound transpacific trade. “This gives us the ability to provide more competitive pricing and more comprehensive services to our customers.”
Nathan Pieri, senior vice president for sales and marketing at industry systems developer Management Dynamics, said NVOs are under intense pressure to quickly provide rate quotes and services so customers don’t become frustrated and call another NVO. How NVOs manage this process often defines how fast they’re able to close on sales, he said.
“Customers are looking for better, more convenient service whenever possible without too much paper,” said Albert Saphir, president of ABS Consulting, a Weston, Fla.-based consultant to the NVO and forwarder industry. “NVOs realize that it is not only less expensive over time than simply adding people to an old process, but so much more efficient, more compliant and better to manage their business.”
“If you walk into one of our ocean departments today, you will see work flow process monitors which display shipment information in real time,” Wall said. “Different statuses correspond to several transportation milestones, indicating whether or not the shipment is moving within the agreed upon timeframe.
“We are constantly tweaking the data elements we monitor to improve visibility and enhance efficiency, which ultimately benefits our clients,” he added. “These IT enhancements allow us to handle higher volumes of more complicated shipments without diluting our customer service capabilities and without our having to increase headcount.”
Overall, the implementation of new technologies has even changed the way NVOs view themselves as service providers.
Owen Glenn, chairman of Carson, Calif.-based Vanguard Logistics Services, recently said in a meeting to his senior management that the large neutral NVO has essentially become an IT company. “It was an off-the-cuff remark, but it touched on how much our business has become IT centric,” said Biju Kewalram, Vanguard’s chief operating officer, in an interview.
While the global recession of 2008-2009 squeezed budgets within the ocean freight transportation industry, many NVOs still attempted to invest in IT. Now that the economy is showing signs of improvement, budgetary allocations for IT are on the rise.
Many NVOs interviewed for this article aim to spend in the millions of dollars to ensure their IT meets current and future customer demands. For example, Miami-based neutral NVO Econocaribe Consolidators has budgeted $7 million for IT development in 2011 to 2013, while Vanguard spends about $10 million a year and forwarder-affiliated NVO Hellmann Worldwide Logistics in Miami will allocate “several million” dollars annually towards its systems.
“It has long been the belief at Expeditors that NVOs who are not making significant investments in technology will have a difficult time competing in the current and future environment,” Wall said.
“The question is can you afford not to invest in IT?” Pieri said. “With bigger, more profitable shipper accounts, you can’t avoid investing in those new types of services. As the saying goes, if you can’t run with the big dogs, you better stay on the porch.”
More NVOs are looking to third-party systems and software providers for either complete IT packages or pieces they can effectively add onto existing systems, an acquisition process known as “software as a service” or SaaS. (A related industry development in the use of Internet-based technologies and software platforms is the collective reference to “cloud computing.”)
“This is where I see it going,” Saphir said. “The IT infrastructure and staff needed on the NVO side is minimal and you always have the latest and greatest edition of the solution available without having to worry about upgrades.”
“Vanguard follows a competitive advantage/supporting service model for determining whether we buy or build our systems,” Kewalram said. “What this means is that if the function that will be supported by the system is essential to us maintaining a core competitive advantage or one where we can add value to the customer’s supply chain, then we will build and maintain the software ourselves. This allows us to both tailor our resulting service offering to each customer, rather than force them into a standard box and to differentiate ourselves from the competition.
“On the other hand, if it is a contextual support service, we prefer to buy off-the-shelf, best-of-breed software,” he added. “Under this model, we will build anything related to our ‘booking-to-billing cycle,’ which includes freight management, operations and customer service, but we will purchase software that does accurate receivable and accounting because those functions are essential and will not alter substantially the value proposition to our customer.”
Some SaaS providers to the NVO industry are IES, CargoSphere, Magaya, CargoWise, Freightgate, Artemus, Descartes, Kewill and Mercury Gate.
IT providers have particularly helped NVOs in the United States ramp up their filings of electronic manifests to Customs and Border Protection’s Automated Manifest System (AMS) and to comply with the agency’s recently implemented Importer Security Filing rule. Under ISF, importers must submit 10 data fields to Customs 24 hours prior to vessel loading or risk penalties. The data is used to determine the relative risk of a shipment and whether it needs to undergo inspection. NVOs may also experience additional regulatory impacts as the U.S. government reforms its import and export compliance regulations.
“We saw this as not only a natural progression, but one of the most critical features we could offer our clients,” said Andrew Bullen, president of IES. “It is vital that our customers keep up with government requirements to avoid fines and penalties. This is just another area where we see NVOs’ internal IT departments rushing to catch up. Quite frankly, we see other software providers trying to catch up as well.”
Kewalram believes the compulsory nature of the technology adoption posed by regulatory and security requirements is an opportunity rather than an obstacle. “Here at Vanguard we call it the power of a strong hub,” he said.
He pointed out examples of the Australian government’s mandated electronic data interchange initiatives in the 1990s and the U.S. government’s ongoing drive to implement electronic screening and other security based initiatives as drivers of technology adoption.
“When NVOs have to invest in technology to ensure that the freight movement meets statutory requirements, they are apt to say ‘what else can we do with this investment?’ ” Kewalram said. “At Vanguard, we take every opportunity from AMS to ISF to re-examine our processes and rewrite sections of our software to streamline the freight handling itself.”
NVOs also experience the challenges of integrating third-party software packages deployed by their own customers.
“This is especially true in light of the fact that an NVO is often asked to develop solutions to overcome visibility gaps within shippers’ supply chains resulting from the shippers’ selection of vendors whose IT capabilities are not sophisticated enough to fully meet the shippers’ requirements, or whose data entry discipline is lacking,” said John Wierzbicki, area vice president of Panalpina’s U.S. ocean services. “These challenges create data integrity issues which often require the addition of resources by the NVO until an effective scalable solution can be effectively implemented and data entry discipline is improved.”
Carrier Connections. Web portals, such as INTTRA, CargoSmart and GT Nexus, are finding eager customers among the NVOs. These companies initially started out by providing shippers with online capabilities to book cargo, send shipping instructions and receive bills of ladings directly from liner carriers.
Panalpina recently connected to CargoSmart to receive sailing schedule data for 20 ocean carriers. Before this, Panalpina had to manually obtain and update carrier schedule information in its system, a time-consuming process.
Most NVOs simply don’t have the resources in-house to develop and maintain automated sailing schedules with their many carriers. “We’re seeing an influx of NVOs and forwarder business into CargoSmart,” said Joe O’Brien, the company’s managing director for North America.
Paolo Montrone, Kuehne + Nagel’s senior vice president of sea freight in North America, noted carrier integration for NVOs is “a very complex area, not well understood and recognized.
“Customers often underestimate the complexity and challenges of managing data quality and information flow from carriers,” he said. “We have mastered this (via INTTRA) and for Kuehne + Nagel this has been and will be a competitive advantage.”
K + N has also opened its system to other NVOs as a “neutral portal” for specific customers that have asked the company to manage other 3PLs and assure standard visibility, track and trace, and reporting, Montrone said.
“The IT tools that we have available to us today to give out quotes from multiple carriers in multiple trade lanes — which we can e-mail directly to customers while we’re on the phone — puts us miles ahead of the carriers,” said Klaus Jepsen, group chief executive officer for Shipco Transport, a Hoboken, N.J.-based neutral NVO. Unlike other NVOs that have recently partnered with Web portals, Shipco developed its liner carrier links in-house.
Efficient booking visibility and management has helped Panalpina virtually eliminate its “fall-down” or “ghost bookings,” increasing carriers’ confidence in the company’s ability to deliver containers against bookings.
“This positive performance was rewarded by several carriers who granted Panalpina additional capacity — above and beyond our contracted allocation — at a time when space was critically lacking,” Wierzbicki said. “This was clearly a competitive advantage which benefited Panalpina’s clients.”
Sensing a significant business opportunity, INTTRA in early December opened its window to the customers of NVOs, giving a large new group of shippers access to its product.
INTTRA, which is used to initiate more than 350,000 container orders per week, estimates NVOs handle 34 percent of full containerloads and 74 percent of less-than-containerload shipments, for a total of about 50 million TEUs of cargo.
The actual number of NVOs is difficult to estimate; however, INTTRA said its research gives a range of 10,000 to 30,000 globally. While 81 of the top 100 NVOs already use INTTRA’s electronic systems like other shippers to exchange information with container liner companies, NVOs will also be able to do business with their customers on the network.
NVOs will be “able to participate as both a sender of data or a shipper, and as a carrier as a receiver of data,” said Robert Haney, director of NVO product management at INTTRA. “It completes the picture if you think about the supply chain breaking down into shippers and NVOs and steamship lines — this gives us an opportunity to make it more valuable to all three.”
Shippers, he said, would benefit from a single point of entry through which they can initiate and manage both full container and LCL shipments.
INTTRA will sign up NVOs globally to do business with shippers, Haney said. Shippers will be able to perform all the functions they perform today with vessel operators when they use INTTRA to do business with NVOs, and eventually the company plans to let them post schedules on its Web site, www.OceanSchedules.com.
“We’re seeing a tremendous amount of interest in what we’re offering,” said Andy Barron, INTTRA’s vice president of marketing. “The NVOs gain the e-commerce efficiencies that carriers enjoy today from INTTRA.”
In-house IT. Yet, NVOs generally prefer to maintain a degree of IT expertise in-house.
“Any development we do is all in-house so that we have control over our own destiny,” said Fiona Govan, Shipco’s vice president of client relations.
“In general we develop all of our software in-house, and rarely buy software off the shelf,” said John Abisch, Econocaribe’s president. “This gives us the flexibility to quickly make enhancements to the software as business demands it, and we believe this is a significant benefit as it compares to using a less flexible off-the-shelf product.”
“We believe that having this knowledge internally, we can tweak and customize IT to our needs,” said Thomas Krusin, Hellmann’s vice president of ocean product for the Americas region. “In some cases we have formed strategic partnerships with software companies, where we have purchased the base structure and then customized it to our specs afterwards.”
Some NVOs have benefited from years of internal IT development carried out because outside vendors either did not exist at the time or could not deliver automated programs to manage the complexities of freight transportation.
With its demanding chemical shippers, Philadelphia-based forwarder BDP International became one of the industry’s first significant investors in IT in the late 1970s and early 1980s. The company’s system continues to be one of the most sophisticated in the industry.
“Being attached to BDP — a global forwarder promoting all this visibility — is huge,” said Carmen Gerace, executive director of BDP Transport, the forwarder’s NVO. “I’m able to offer a lot of services because of the forwarder we’re attached to.”
“Traditionally, freight forwarding has had communication and information as a core competency,” Montrone said. “While in the early 1990s Kuehne + Nagel was the first player to deploy one single operational system across the world, all along we saw IT as a process enabler. It is a tool, not an end in itself.”
NVOs with express carrier backgrounds, such as UPS, FedEx, DHL and CEVA (via its TNT Worldwide acquisition), also have decades of systems development under their belts, which has helped them leverage the efficiency and competitiveness of their ocean freight services against traditional NVOs.
UPS’s freight business, no matter what transport mode, operates off a single IT platform for one visibility tool for shippers, said Jimmy Crabbe, the company’s vice president of ocean freight services. “All the business units have been integrated. We feel we have a competitive advantage.”
“It really comes down to how much the organization is invested in its own capabilities, how modern these capabilities are, and the company’s philosophy toward IT in general,” said Daniel Gardner, CEO of New York-based Ocean World Lines, a subsidiary of Pacer International. “We have made significant investments in IT internally. However, we’re going to select software from outside that compliments us strongly in-house.”
“In-house development and ownership of the source code allows Panalpina to be more agile and responsive in developing and implementing modifications as necessary to meet global and local requirements,” Wierzbicki said. “That said, we are and have been open to — and regularly review — innovative new technologies which may offer added value to our clients or improve Panalpina’s processes.”
IT departments have carved out bigger places for themselves within NVO operations. Expeditors’ IT department in its Seattle corporate office encompasses more than 600 staff who work on both development of new system applications and ongoing enhancements to the company’s existing systems.
“They are organized into teams that specialize in various aspects of the supply chain,” Wall said. “Expeditors also has branch and regional level IT employees, deployed across our global network, who are tasked with local system maintenance and monitoring responsibilities.”
Bullen of IES said NVOs may be devoting too much of their resources to internal IT development. He recalled how several years ago some NVOs tried to become IT companies themselves, but ultimately backed off when they began incurring huge overhead costs.
“Today we are unfortunately seeing some NVOs make similar mistakes based on some of our competitors also persuading them to make a major internal IT commitment,” Bullen said. “This makes no sense to us. We feel it’s our responsibility to provide these resources to the NVO, without the need for them to staff their own internal IT departments. Many NVOs again are realizing that their competitors who are using the IES systems are getting a better solution at lower costs.”
EDI Relevancy. The earliest form of purely automated transmissions of information within the freight transport business is electronic data interchange, which traces its roots to the mid-1960s. A group of American railroads, concerned about data management, formed the Transportation Data Coordinating Committee in 1968 to explore the implementation of EDI in their business processes. EDI took off among large shippers in the early 1970s when the likes of General Motors, Sears and Kmart deployed EDI to communicate with their major suppliers. Other freight transport modes, including ocean, air and trucking, also climbed on board EDI during the 1970s and 1980s.
EDI essentially allows for computer-to-computer exchange of information via a secure connection without the need for human intervention. These transactions are governed by highly structured formats, such as XML, ANSI X12, and EDIFACT.
“For the big multinationals, EDI is in the forefront,” Jepsen said. “It cuts down on their transaction costs and ensures uniform performance.”
With the ushering of Internet applications in the early 1990s, many technology experts predicted the demise of EDI. However, EDI has remained a dominant force in the shipping industry and continues to increase in use.
“We are seeing many opportunities in this area for NVOs to take back control of what they may have been losing as shippers and carriers were ahead of the curve with EDI,” Bullen said. “NVOs faced great challenges when companies like INTTRA, GT Nexus and Descartes began offering direct shipper-carrier access. They were potentially getting squeezed out of the market. Fortunately, the shippers understood the value that the NVO provides and have pushed the NVO to deliver the same level of EDI capabilities. This, along with the superior service level that the NVOs offer, makes them essential to most importers and exporters’ business.”
“We are taking on many EDI endeavors with customers and vendors,” Abisch said. “This technology reduces both the time to handle a transaction and the possibility for data input error.
“More and more customers are submitting shipping instructions directly to us via EDI. Our ability to give the client information, such as a rate quote or making a booking instantly, has been a significant enhancement to the service we can provide,” he said.
“While we would prefer to operate on one format, you have to meet all potential customer EDI requirements,” Jepsen said. “The good thing is once you have it, you have it.”
Despite decades of EDI use, its inclusion is still expensive, and unlike the large players, many small NVOs are simply unable to afford the implementation of EDI across their networks. This has further widened the competitive gap between large and small NVOs for big volume freight business.
“If you want to handle the large shippers, then you must have EDI to gain admittance,” said Cas Pouderoyen, Agility’s senior vice president of ocean freight product, based in Basel, Switzerland. “If you can’t meet the shipper’s IT and service requirements, then it’s better to be a small niche NVO competing on price.”
“Most NVOs aren’t EDI ready. They use Word documents and PDFs and fax those to the carriers,” O’Brien of CargoSmart said. “We’re able to capture that PDF from the NVO by e-mail and remap it for EDI for transmission to the carrier. Thus the NVO doesn’t have to change its backend.”
Vanguard has extended its EDI capabilities to all transport members within its supply chain, including forwarder customers, liner carriers and trucking companies.
“Last year we hit a major milestone of over 50,000 EDI messages per month and are well on the way to hitting 100,000 per month in the first half of this year,” Kewalram said. “This is a very significant number, particularly where it represents a phone call saved, as compared to the benefit of EDI, which is the elimination of data entry errors. You do the math on this and the entrenched, permanent savings that are brought to the supply chain are self-evident.”
‘Mission Critical.’ The biggest concern for many highly automated NVOs is the prevention of systems downtime for any reason, whether that’s for reprogramming or upgrades.
“You’re constantly playing catch-up,” Troy said. “We probably make 15 to 20 changes to our system a week. It’s nice that we can do this work in-house.”
Vanguard recently conducted a business continuity review that resulted in the NVO classifying all its booking-to-billing modules as “mission critical.”
“This has dramatic impact on an organization’s investment in the underlying infrastructure and even drives how we change our software,” Kewalram said. “For example, five years ago we could rush out software changes, recall any changes that needed remediation, and fix and re-release them. However, with the increased dependence on our systems from the entire freight management and customer service cycle, we cannot even afford the short time it takes to recall software errors. This has meant that we have to make an increased investment in test systems and longer lead times to release software.”
Kewalram said one of the primary reasons for this IT dependency is that customers, especially in the midst of the global recession, experienced headcount reductions and had to learn to do more with less, which means many of them have sought to use technology to maintain or enhance productivity.
He further highlighted that customers are asking for more of a “self-service” model from their NVOs. “I recently met with a customer on the East Coast who claims to have become so reliant on our self-service portal that they classify our system as vital to their own operation because they rely on their staff being able to make bookings and track freight from home before the work day commences.
“My own view is that this is representative of the ever increasing trend to ‘always be working’ — the international trade dynamic has changed to a 24/7 operation — a trend accentuated by the fact that our customers’ customers (the forwarder’s consignee customer) in an overseas destination are accessing our information online while we are sleeping,” Kewalram said.
Shippers are also demanding that if their NVOs want their business then they must provide them end-to-end shipment visibility, starting as far back as the purchase order level all the way through to the consignee’s door.
“If you’re a global provider like we are, then you must have an IT system that gives your customer visibility. They want to see where their cargo is at all times,” Agility’s Pouderoyen said. “A spreadsheet doesn’t do it anymore.”
“We’ve been active in vendor management for over 10 years,” Crabbe of UPS said. “Through our technology, (shippers) can reduce their internal costs for this activity in their logistics divisions.”
NVOs are even concerned about protecting their databases from extreme loss due to man-made and natural disasters. In 2009, Expeditors opened a dedicated off-site disaster recovery center (DRC) in Spokane, Wash., about 250 miles east of Seattle. “The DRC helps safeguard both the data security and system continuity requirements of Expeditors and our customers,” Wall said.
Vanguard maintains two data centers, one in California and another in Hong Kong. “Data is continuously backed up to the Hong Kong data center so that if the California data center is physically off the air, the Hong Kong data center kicks in and can operate our worldwide systems,” Kewalram said. “I hope we never have to test this in real life.”
People-Driven Tools. While IT has brought increased efficiencies and benefits to ocean shipping, it’s also minimized some of the human interaction once dominant in this industry.
“I believe the liner carriers went a little too far and cut out personalized service, because they looked at IT as a cost-cutting measure,” Troy said.
Shipco’s Jepsen said many of today’s carriers have grown accustomed to NVOs being able to more efficiently interact with shippers moving less than 10,000 TEUs a year of either less-than-containerload and full-container cargoes and steer those boxes to their ships.
But he warned IT should not supplant person-to-person communication in the NVO industry. “We need to be careful not to fall into the same trap by allowing our LCL product to become commoditized,” Jepsen said.
“The reality is that commoditization of an industry kills innovation to a large extent, which in turn disadvantages the customer,” Kewalram said.
“With the increasingly rapid advancements regularly being made in technology, it’s impossible to predict what will be possible and what will happen in just a few months or years,” Wierzbicki said. “Therefore, the possibility of the ‘commoditization’ of the NVO industry can’t be ruled out. However, the likelihood of that actually happening seems minimal today.”
NVO executives believe there are still plenty of gaps and exceptional events where IT has yet to conquer. “It is still people who make the difference. They are the ones looking to improve that small local process in some corner of the world. The process might not be known at a client’s corporate level, but if not addressed, costs lead time or affects supply chain stability. This is where we deliver value and it is part of the uniqueness of our industry,” Montrone said.
“One thing’s for certain is that even the most tech-savvy customer still wants the safety net of speaking to a person,” Gardner of OWL said. “Technology is a tool and the human element drives it.”