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April 16 2018

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70 The Journal of Commerce | April 16 2018 Trading Places Peter Tirschwell "DISRUPTION" IS A term that gets thrown around a lot. But while disruption may have come to taxis, it hasn't come to international shipping, at least not yet. Incumbent players one day might be disrupted by an Amazon or Home Depot taking control of their logistics, or from an autonomous truck manufacturer accepting loads for its trucks via an electronic load board, as DB Schenker CEO Jochen Thewes suggested in his TPM keynote speech in early March. To the extent disruption has even been a subject of conversation, it's been due to the emergence of so- called digital forwarders such as Flex- port, FreightHub, Twill, iContainers, and Shipwaves. These are forwarders like everyone else, but they exposed weaknesses in legacy forwarders' models and attracted, in some cases, huge largely non-industry investment based on the idea that a new technolo- gy-enabled philosophy on forwarding represented a significant opening. Among those weaknesses were legacy players traditionally profiting by keeping information close to the vest, particularly from customers. That was the opening to cater to more tech-inclined customers who expect to interact digitally with forwarders the same way they do with banks, airlines, news providers, and friends. And by building systems from the ground up, digital forwarders created operational efficiencies that incumbent forwarders, with their legacy IT and large bureaucracies, could not replicate, at least initially. Data entered once can be reused, and automated sales processes remove costly human intervention and reduce transaction costs. But such innovations increasingly look more like first mover advantages than disruption, which means people being put out of business. Unlike Uber, which disrupted taxis by combining technology with the introduction of massive new capacity, at the end of the day, digital forwarders are forwarders like everyone else. They are catering not to consumers but to businesses that ultimately will judge the service not by its user interface but by reliabili- ty. And the margins are thin. It would thus not be long before legacy forwarders picked up on the idea that they are being out-inno- vated, and would respond. After all, threats are nothing new for forward- ers — at their core they are interme- diaries who are uncomfortable on the best of days. "As an industry, we have been shielded for quite some time from really radical change and disruption. But in my opinion, that time's up," Thewes said in a speech that caught the moment as few TPM keynotes have. "I can't really tell you what our operating and our business will look like in five or 10 years from now because there is so much change. But I can definitely tell you that we will operate our business significantly differently from the way we're operating it today." He dealt head-on with the prob- lem of transparency. "Let's face it, the freight forwarding industry basically exists because of the complexities in the supply chain, because there are so many players, and because of a lack of transparency, and that is how we have made our money in the past. Now we need to find a way to make money with, and through, transparency." But if legacy forwarders' large and slow-moving organizations were an obstacle to change, they are turning this into an advantage by being able to make the needed investments to catch up. They are gaining mastery over the vast amounts of data run- ning through their systems, and the vast trove soon to become available through sensors on trucks, ships, containers, chassis, and other hard- ware. "If you would have asked me a couple of years ago if I as a forwarder would hire teams of mathemati- cians and data scientists, I probably would have looked at you a little bit strange," Thewes said. As evidence that they are responding, large forwarders are accelerating the rollout of digital offerings. Thewes said DB Schenker will unveil a new digital ocean offer- ing in the spring. Kuehne + Nagel, the largest ocean forwarder, recently unveiled KN ESP, a digital purchase order management system allowing customers to connect with multiple partners in the supply chain. A second recent K+N digital offering, called Sea Explorer, offers customers a broad overview of ocean freight services. The idea that legacy forwarders must greatly accelerate their pace of innovation "has definitely hit home with most of the top freight for- warders and ship lines. In fact, we are blown away by the investment in resources as well as the innovative ideas some of the big players are working on right now," Kontainers, which supports forwarders with digi- tal technology, wrote in a March blog. In the face of this response, some question how unique the so-called digital forwarders actually are. As Dan Gardner, vice president of supply chain management for Lakeshore Learning Materials and co-founder of consulting firm Trade Facilitators Inc., wrote in The Journal of Commerce late last year: "One has to wonder about the competitive advantage that the digital forwarders can sustain over the long term. Basically, the matter comes down to how difficult it is for other forwarders to replicate what the digital forwarders are doing with online quoting and booking, track and trace, and supply chain analytics ... The level of early entrant advantage enjoyed by the digital forwarders cannot last." JOC email: twitter: @petertirschwell Disruption or just first mover advantage? "As an industry, we have been shielded for quite some time from really radical change and disruption. But in my opinion, that time's up."

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