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January 6 2020

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Januar y 6 2020 | The Journal of Commerce 115 www.joc.com 2020 In Perspective ANNUAL REVIEW & OUTLOOK Logistics Prompt pricing Shippers' access to instant quoting, online booking steadily increasing By Eric Johnson THE OCEAN FREIGHT industry saw considerable progress in 2019 toward a future where instant quoting became an actual procurement option, as opposed to a theoretical concept. The question in 2020 is how and where such tools might gain further traction. Roughly half of the world's top 12 container lines now offer shippers and non-vessel-operating common carriers (NVOCCs) the ability to search rates electronically and book instantly, with others expected to join the fray soon. That's up from only two that offered the capability at the end of 2018. Two of the three largest car- riers — CMA CGM and Maersk Line — offer shippers the ability to guarantee specific sailings at the time of booking. Maersk introduced its Maersk Spot product in mid-2019, guaranteeing that cargo bookings made electronically on its website would not be rolled, in exchange for shippers guaranteeing those electronic book- ings would not result in no-shows. Meanwhile, a clutch of global forwarders now offers shippers the ability to receive quotes digitally and book instantly among their universe of contract rates with container lines. These aren't trivial product developments. The Journal of Commerce reported in September that shippers and NVOCCs were seeing electronic quotes on par with those offered through long-term contracts, signaling that certain con- tainer lines see instant quoting as a key part of their future strategies. Industry analyst Lars Jensen, CEO and partner of Sea-Intelligence Consulting, noted in a March 2019 LinkedIn post that, at the time, Hapag-Lloyd was 40 percent of the way toward a goal of migrating 15 per- cent of total sales to its online quoting platform Quick Quotes by 2023. Extrapolating that 15 percent bench- mark across the entire liner shipping industry would mean that 30 million TEU of ocean freight (out of a project- ed 204 million TEU of total volume) would be transacted through digital channels just three years from now. This estimate, Jensen added, wouldn't even account for forward- ers transacting with beneficial cargo owners (BCOs) via digital channels. Behavioral shi Moving into 2020, the key ques- tion for shippers primarily revolves around whether instant quoting is an impactful enough concept to change procurement behavior. In other words, will electronic quoting plat- forms simply enable a migra- tion of the current spot market, will they serve purely as price discovery tools, or will shippers begin to lean on the ability to pro- cure instantly and rely less on contract rates? Early indications are that shippers ar- en't eager to move away from exist- ing procurement patterns. Quarterly or annual negotiations with carriers and NVOs enable BCOs, particularly large ones, to exert leverage and to tailor service contracts to their unique needs on an ongoing basis. As instant quoting platforms proliferate, they will need to account for those two factors in a way that makes shippers comfortable with is often measured by gross revenue per employee, which ranges from $850,000 to $1 million. One might expect that the new, digital freight brokers would have much higher gross revenue per employee, but this isn't the case. Convoy, for example, sports a gross revenue per employee of roughly $1 million. If these startups are only achieving revenue growth by offering lower prices subsidized by venture capital investments, this game of musical chairs will end one day with all left standing except the found- er—just as happened at WeWork, where the founder received over $2 billion for eight years of work, while the employeess' options are under water and the investors may have to write off millions of dollars invested in the company. The allure of startups' use digital of technology continues to cloud the issue for venture capitalists, which should instead be paying attention to whether these companies will be able to compete with incumbents that are spending more on tech- nology upgrades than the net revenues of those same startups. J.B. Hunt Transport is spending $400 million on its 360 freight-matching service, for example, while XPO invests upwards of $450 million annually in information technology that includes a digital load-matching platform. The brokerage industry has experienced similar technological transformations in the past. It went from using faxes for communicating with shippers, carriers, and drivers to using email and then to in- stant messaging. Now, it is quickly adapting to leveraging the ubiquitous presence and usage of smartphones to speed up communications and shar- ing of all aspects of loads with applicable parties. Adoption of fax, email, and instant messaging didn't "disrupt" any company in the brokerage indus- try. And yet use of smartphone technology by new startups is now improperly viewed as disrupting the established brokerage industry. Amazon's disruption of the retail sector is evi- denced by the closing of thousands of brick-and-mor- tar retail stores, as well as the bankruptcy of several high-profile retailers, from Sears to Payless Shoes (twice). Comparatively, not one brokerage company has closed offices or filed for bankruptcy since the so-called digital brokers entered the market. JOC Satish Jindel is President of SJ Consulting Group. Contact him at satish@jindel.com.

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