FX International Payments
By Karen Lynch
The goals of this transformation could be compared to the consumer experience with e-commerce and parcel delivery. Online shoppers now demand next-day, same-day, and even within-the-hour delivery of their purchases. With their smartphones, they can watch packages’ journey to their doorsteps. Global freight forwarding will never be as fast, especially since most of the cargo involved is seaborne. Yet digital innovation in logistics and supply chain management can remove some of the friction that slows shipments today, while improving visibility, via dashboards, into shipments’ movement around the world.
Freight forwarders handle large shipments of goods across the world, arranging multiple means of transportation, warehousing, customs requirements, and other logistics and services. They shepherd imports and exports through the complex international trade system, which could involve a dozen or more organizations touching any shipment.
“Freight forwarding … came of age in the post-World War II period by ensuring a relatively seamless ‘one stop shop’ experience for cargo shippers—something the plethora of liners, terminal operators, railroads, trucking companies, and others that physically moved the cargo proved unable or unwilling to do,” McKinsey wrote in Brave New World? Container Transport in 2043. “An enormous number of freight forwarders emerged, mainly serving and maintaining long-term relationships with local cargo shippers.”1
The differences between the parcel and freight-forwarding industries can be defined by size—parcels are smaller than freight, which is embodied by big pallets of merchandise and the massive cargo containers stacked up at ports across the world. The differences also can be defined in terms of market: the business-to-consumer (B2C) market makes up the bulk of the parcel industry’s business, while freight is a business-to-business (B2B) market. Another important difference is that parcel services often carry their shipments end-to-end, giving them greater control than freight handlers.
For this last reason, parcel services are not only ahead of freight forwarders in digitizing their operations and customer experience, but the speed-to-market in B2C is pressuring the B2B supply chain to keep up. Consider, for example, manufacturers racing to get their products to retailers. Some also see a blurring of the two markets, with parcel shippers and even e-commerce companies moving to carry more freight.2
Further complicating the picture, freight forwarding is often lumped together with logistics in a multitrillion-dollar industry that includes infrastructure (think boats, planes, warehouses), execution (think hauling cargo), and services (the management of shipments by freight forwarders). And there is blurring here, as well, with some ocean carriers providing digital portals for customers,3 while some digital freight forwarders are evolving their businesses by acquiring physical assets such as planes.
With new market entrants spurring digital innovation in every segment of the supply chain, there is increased competition as well as consolidation across the field of freight forwarding. “Clearly, the freight forwarding industry is about to experience enormous change as new technologies take hold,” according to the Boston Consulting Group (BCG).4
Digitization enables freight forwarders to provide importers and exporters with faster, better information on the shipments they handle. That gives companies greater ability to address complications en route; for example, to change destinations based on market need or inform their customers of a delay. Innovations in supply chain management also help freight forwarders increase the efficiency of shipments. McKinsey estimates potential reductions of 16 to 28 percent in shipping and customs processing times.5
To date, there has been little such capability. “Compared with other industries, an unusually high number of manual processes is the norm in air and sea freight forwarding,” the BCG report said. “Some companies still rely on email, personal handoffs, and even faxes to convey shipping documents—all time-consuming and error-prone methods that jack up costs.”6
BCG lists various examples of startups innovating global supply chain management in the freight forwarding industry, including: Fleet, a digital freight forwarder that operates a platform and manages freight; Flexport, one that also has acquired physical assets such as planes and warehouses; Freightos, which has launched an online freight marketplace; Haven, which provides transportation management software for importers and exporters; and Twill, a digital freight forwarding subsidiary of an ocean carrier.7
Meanwhile, the customs bureaus and other government agencies with which freight forwarders deal are also digitizing. For instance, the World Customs Organization has declared 2019 the year of “smart borders,” to reengineer its members’ cumbersome processing of imports and exports.8
Importers and exporters stand to gain from greater supply chain visibility and efficiencies as the freight forwarding industry undergoes a digital transformation. Digitally native freight forwarders, digital freight marketplaces, and other new enterprises have brought supply chain innovations to the market, spurring traditional freight forwarders to follow suit. The coming years will likely see significant change in the movement of merchandise across the world.
Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.
1. Brave New World? Container Transport in 2043, TT Club and McKinsey & Co.; https://www.ttclub.com/fileadmin/uploads/tt-club/Documents/Brave_new_world_/Brave_New_World_LR.pdf
2. “The Digital Imperative in Freight Forwarding,” Boston Consulting Group; https://www.bcg.com/publications/2018/digital-imperative-freight-forwarding.aspx
3. “Digital Portal,” Maersk; https://digitalportal.maersk.com/
4. “The Digital Imperative in Freight Forwarding,” Boston Consulting Group; https://www.bcg.com/publications/2018/digital-imperative-freight-forwarding.aspx
5. Globalization in Transition: The Future of Trade and Value Chains, McKinsey Global Institute; https://www.mckinsey.com/~/media/mckinsey/featured%20insights/innovation/globalization%20in%20transition%20the%20future%20of%20trade%20and%20value%20chains/mgi-globalization%20in%20transition-the-future-of-trade-and-value-chains-full-report.ashx
6. “The Digital Imperative in Freight Forwarding,” Boston Consulting Group; https://www.bcg.com/publications/2018/digital-imperative-freight-forwarding.aspx
8. “World Customs Organization Dedicates 2019 to Transforming Frontiers into SMART Borders for Seamless Trade, Travel and Transport,” World Customs Organization; http://www.wcoomd.org/en/media/newsroom/2018/november/world-customs-organization-dedicates-2019-to-transforming-frontiers-into-smart-borders.aspx