Early in the fifth century, the citizens of Rome awoke one day to find Alaric, King of the Visigoths, and his forces outside their city’s gates. Rome had by that time stood unassailable for more than 800 years, but not even it could remain oblivious to external forces forever; it fell soon thereafter.
It was an event with a message that still rings true a millennium and a half later; even what seems most impervious to external forces eventually has to change.
In today’s world the Visigoths have given way to “digital disruptors” as the great force for change. On one level this has affected every aspect of business by making communication and access to information easier. However, it’s when it goes a step further and enables business models to be reimagined that the greatest disruption occurs. This is creating a new normal in industries from retail to travel agencies to taxis.
Digitization is already disrupting business models in the shipping industry. Start-ups, like Flexport and Haven, offer one-stop solutions for procurement of container freight services. Xeneta has let the genie out of the bottle by making container freight rates more transparent to shippers. One could argue that just makes them “me too” players. However, their key differentiator is how the customer experience has been improved though the ultimate sophistication; simplification. This is being achieved by providing a neat front end that handles the many stakeholders involved in the background. They have also been steadily automating more elements of the process, like route selection, through the application of “machine learning” technology to big data.
Though the hype surrounding it might suggest otherwise, digital disruption does have its limits. As long as it remains impossible to send cargo in email attachments – a safe bet for the foreseeable future – there will be a role for ocean carriers. It seems likely though that their relationship to their customers will undergo a fundamental change, and as that happens they may need to adapt their business models. While carriers will at least be partially shielded from digital disruption, the same cannot be said for another major stakeholder in shipping: freight forwarders.
Two factors that make breakbulk freight forwarding vulnerable to digital disruption are that it is an intermediary industry, and one that is not highly automated. Although there are good historical reasons to explain both, digital disruptors tend to view nothing as sacrosanct in their pursuit of more simple and direct business models.
Naturally, some incumbent freight forwarders are trying to bring new levels of simplicity, transparency and efficiency to their platforms, but the jury is still out on how successful they have been. One major player invested several hundred million dollars on software development only to end up writing it off.
Making such far-reaching changes is all the more difficult when contending with legacy systems and a corporate culture not well adapted to rapid change and experimentation. Still, the depth of their experience and breadth of their relationships give the major players some room to maneuver, so it would be unwise to place any bets on their longer term prospects, at least yet.
Some might argue that the more specialized field of breakbulk freight forwarding is beyond the reach of digital disruption because its non-standardized nature defies automation. That, and its much smaller size compared with container shipping, go a long way to explaining why it has not found itself in the disruptors’ crosshairs so far. However, the combined effects of intense competition in the container market and rapidly developing technological sophistication will compel and enable disruptors to tackle new and more difficult markets, including breakbulk.
It would be an exaggeration to say that the sky is falling on breakbulk freight forwarding. Rather, it is true to say that a great force for change is mounting at the gates of the industry and so it would be prudent to anticipate, adapt to and, most critically, embrace it. Expressed in shipping terms, it is not a question of how to weather the coming storm, but rather how to navigate uncharted waters. Unsettling as it may be to move away from familiar business models, especially when markets are weak, it is better than the alternative.
Returning to Rome in the fifth century, the city dispatched two envoys to negotiate with what they viewed as the tiresome Visigoths. They were taken aback by the ruthlessness of King Alaric’s demands – all gold, silver and anything of value that could be moved. They objected and asked what that would leave them with. Alaric’s answer – “your lives.”
The lesson, albeit dramatic, for the breakbulk freight forwarding industry incumbents is that the core message of recognizing change and adapting to it is dismissed at their peril.
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