Digital freight forwarders: the future of logistics? - Girteka Logistics

Digital freight forwarders: the future of logistics?

2021-09-30

As players in the logistics industry look towards digitalization in order to improve the efficiency of their operations, on the other side of the spectrum, there are players that aim to make life easier for those who are looking for logistics solutions. These are so-called digital freight forwarders, which utilize their own developed platform to connect shippers and carriers at a moment’s notice, facilitating the relationship between a carrier and a shipper momentarily.

These freight forwarders offer their customers the ability to get a solution provider not by the brand name, as in the company, but the trucks that are available on the platform. Connecting a customer and a truck directly removes the middle man, making the process of booking a full truck load (FTL) delivery, in theory, much easier.

The platforms have gathered quite the attention and managed to successfully raise funds in order to expand, whether that would be to improve their services or to grow their networks of trucks via Mergers and Acquisitions (M&A). The digital and asset-light companies seemingly have unprecedented flexibility on the kind of offer they could provide to their customers, as a wide-reaching network of trucks can connect customers with potential logistics providers seamlessly.

No doubt such digital companies are pushing the boundaries of what was previously established in the logistics industry.

However, what they are also pushing is for traditional logistics companies to become more digital, as they aim to ease the process of selling capacity to their customers in order to be able to compete against the rising threat of digital forwarders.

The rise of digital freight forwarders

While digital freight forwarders have come onto the scene relatively recently, the concept of a service that directly connects a service provider, such as a person who wants to rent out an apartment, and a user that is looking for temporary accommodation, is nothing new. Such companies, whether it would be Airbnb or Uber, have successfully established themselves in their respective sectors and have amassed huge investor attention on the public markets.

The story was not much different once digital freight forwarders entered the logistics industry and began competing against traditional logistics providers. Uber also expanded into the logistics industry, not only in the United States but also in Canada and Europe with its Uber Freight venture, kicking the digital freight forwarder movement into what seemed like an overdrive.

Over the course of the past few years, investment volume in start-ups in logistics, including digital freight forwarders, has boomed.

McKinsey & Company pointed out that between 2014 and 2019, funding in logistics startups has grown by a 76% Compound Annual Growth Rate (CAGR).

Furthermore, out of all the business models, including last-mile delivery, warehousing, or air and ocean transportation, road freight marketplaces had the second-most funding with around $6 billion of total funds invested between 2014 and the end of 2019.

In a very fragmented European road freight market, where the largest companies have little market share due to the sheer amount of small to medium-size enterprises that operate throughout the continent, digital freight forwarders can disrupt the market by uniting the smaller players with a broad network of trucks. According to Eurostat data, at the end of 2017, there were 571,795 road transport companies registered in the European Union (EU), showcasing just how fragmented the market is.

However, European start-ups had little attention from investors compared to other regions. The funds these start-ups attracted stood at only 5% of the total start-up funding between 2014 and 2019, according to McKinsey, highlighting the discrepancy between the regions and the different levels of interest of investors in certain markets.

Nevertheless, one of the key advantages that the forwarders have is that they are not limited by having a heavy-loaded balance sheet of assets, in this case – trucks and trailers. At the same time, outsourcing the main component of the road freight transport process, namely road transportation, comes with associated risks. With a wide variety of trucks, which belong to numerous operators, the consistency of the service level that a customer might receive can fluctuate wildly.

In addition to fluctuation, issues of reliability of a provider have to be reduced to a minimum, which requires additional investment from the digital freight forwarders. Ensuring an equal, or at least a relatively close level of service between different providers is crucial in order for customers to remain satisfied with the solution. Meanwhile, asset-based providers have control over their road transport process and can pinpoint the reasons behind delays, for example, much easier. Being proactive is less difficult as the data of your performance is provided by a first-hand source, rather than a secondary source.

Changing behavior

Since consumer trends have changed over the past few years, especially as consumers are now getting accustomed to next-day delivery, at first glance, digital freight forwarders are able to adapt to the changes much easier.

Matter of the fact is that next-day delivery puts unprecedented strain on the whole supply chain, which in turn, puts pressure on the service-level agreement (SLA). From the perspective of a road transport provider, to be able to sustain the level that was agreed upon with a customer, like a company that is focused on e-commerce, becomes increasingly difficult without investing in your road transportation process, in particular, digitalization.

Meanwhile, the technology-based forwarders are seemingly able to respond to such events instantly and provide a truck to deliver the goods. On the other hand, the demand to have next-day deliveries has not shown its face suddenly, as e-commerce giants gradually introduced the service, somewhat borrowing time for traditional logistics providers to adapt as well.

Nevertheless, next-day delivery remains a challenging feat to achieve, more so if a company has not invested much in digitalizing its processes.

Another way that consumer behavior has changed is that they pay more attention to the businesses‘ corporate responsibility policies and how do they adhere to those self-enacted policies. In terms of the logistics industry, the focus, rightfully so, has been on the well-being of the drivers. The job of the drivers is never easy and making sure that your employees have the safest and most comfortable equipment at their hands is crucial.

Asset owners have a lot of responsibility and at the same time, the ability to take care of their personnel. In terms of forwarding, a company that is directly involved with a consumer and is connected with a logistics provider that does not conduct its business ethically could strain the relationship between a business and its final customer. Subsequently, a rift could open up between a business and the digital freight forwarder. Thus, digital freight forwarders have to invest additional funds into their due diligence processes just to ensure that the logistics providers that are present on the platform carry that same responsibility as other providers on that same platform.

Facilitating change

As digital freight forwarders came onto the scene, it spurred and provided a good reason for traditional freight forwarders to digitalize, as competition leads to innovation.

While digitalization can be a broad term, it could be broken down into several key aspects:

  • Instant or very quick quotes for shipping;
  • Ease of tracking,
  • An easy way to contact the company, sometimes even through a phone application;
  • Utilization of various systems, including Artificial Intelligence (AI)-powered software to better utilize the network of trucks they have at hand.

Still, the digital-only providers have the advantage that they are ahead of the curve in terms of technological development compared to traditional logistics providers. With very high interest from investors in these companies, they also have the budget to continue to expand the range of their network and services, whether that would be via mergers & acquisitions (M&A) or more traditional ways of spending capital on improving your proposal to your clients.

The main concern for traditional carriers was the fact that the benefits of investing in digitalization or advancing their digital product could be only reaped in the long-term, rather than the short-term.

When a company has an asset-heavy balance sheet, including the maintenance and other ownership costs associated with a fleet of trucks and trailers, that becomes a much harder venture to complete. However, as the digital-based companies have made progress in their market share and showcased how a digital product could benefit the customer, traditional companies had to respond and think about the long-term, rather than the short-term future.

Digital transformation

For example, Girteka Logistics, in a sense a traditional logistics supplier, has been on a journey to transform itself into a digitalized shipper. The company was even recognized for its efforts by the Financial Times. The publication named the road transport solutions provider as one of the most technologically advanced companies in Europe in 2018, as Girteka Logistics moved to become a more digital company. Furthermore, In 2021, the road freight provider was nominated as the European Carrier of the Year by Transporeon, a cloud-based logistics applications developer. With its digital investments, the road transportation company aims to improve and to develop:

  • Customer & Partner experience;
  • Create new customer touchpoints;
  • Adopt and scale market-leading innovations with traceability and Artificial Intelligence (AI)-based technologies, like an AI planner or an AI operator.

That progress has not slowed down, even despite the pandemic that had a major impact on the European economy and in turn, the logistics industry. The company only accelerated its progress to fully digitalize to grow further and remain a leader in innovation in the logistics industry.

While such platforms have managed to dominate other industries, whether that would be ride-hailing or accommodation, they have yet to take out significant market share in the logistics industry, particularly in Europe.

However, their impact must not be underestimated, as perhaps more than ever following the pandemic, having a transparent transportation process was of the utmost importance. The example of the transformation of Girteka Logistics drives that point home, as the company aims to become more digital. While that does not mean that it will become a digital freight forwarder, the fact that digitalization has gone from a trend to a must showcases the impact that digital forwarders have had on the logistics industry. The question is whether they can sustain that advantage, as traditional logistics providers move to digitalize their services. Still, with a very fragmented and ever-growing market of road transportation in Europe, seemingly there is enough space for both business models in the continent.