2015 is shaping up to be a roller-coaster year for freight forwarder and carrier volumes. An air cargo surge caused by the West Coast port labor slowdown led to congestion-related challenges at major gateways throughout the United States. A strong U.S. dollar has since depressed export volumes, leading to bargain-basement rates for forwarders from both ocean and air carriers, who see falling fuel prices as the light at the end of the tunnel in assuring profitability.
Air cargo space has been relatively easy to find, and onerous hours-of-service regulations, combined with a lopsided government safety rating scheme, has not had quite the adverse impact on trucking availability as had been predicted. Indeed, after a long, difficult post-Great Recession period, the freight forwarding industry could be looking at its own “light at the end of the tunnel.” But a recent analyst revelation about giant internet service provider Amazon suggests the source of the illumination may be a freight train heading our way.
Many forwarders choose to minimize automation in their operations since so much of the business requires shipper hand-holding and providing customized service to address the unique aspects of each consignment. Automation could help ease the burden of repetitive processes in the forwarding industry, and it may also increase efficiency and customer communication. But technology is often seen by forwarders as expensive and a threat to scarce financial resources.
This old way of thinking may finally be changing. Growing customer expectations on forwarders to provide data from online ordering, shipment tracking, customs processing and disposition are making the movement of boxes the easy part and moving information increasingly challenging. Shippers are abandoning telephone conversations in favor of data exchanges to increase operational efficiency with their forwarding partners.
Airlines have been working to streamline the shipment process by encouraging freight forwarder customers to submit master electronic air waybills (e-AWBs). We have seen this promoted through the years by IATA, through its e-freight initiative, aiming to remove the actual paper from the transaction in favor of a digital document, with its data being used for multiple purposes. Progress, however, remains glacial, with the industry achieving only about 34 percent penetration of e-AWBs worldwide.
Analysts at a large investment banking firm point to this slow adoption of digital technology, plus the fragmented nature of the logistics industry in general, as opportunities for Amazon to move in. The Seattle-based e-retailer could leverage its vast technology and fulfillment infrastructure supporting its own network of distribution, sorting and data warehousing to offer logistical services currently offered by the freight forwarding community.
Before dismissing the notion of Amazon becoming a freight forwarder, let’s consider its remarkable growth and distribution strategy. The company now has more than 165 fulfillment centers globally and has been testing various last-mile delivery strategies. Customers using its “Prime” service pay a yearly fee for faster free or low-cost delivery for items that have even been known to arrive on Sunday.
Amazon’s cloud computing and informational technology resources could be leveraged to satisfy shipper information cravings up to now only provided by the integrated carriers. Its existing warehouse network might serve as a springboard to offer storage and fulfillment services for inventory – offerings now considered the domain of the forwarder.
Still in doubt about the Amazon threat? Consider that, just a few years ago, companies were routinely purchasing large mainframe computers for their data storage. Now these machines have largely been replaced by an information “cloud,” running software and storing data on third-party systems for a fraction of the cost. One of the providers of such services is Amazon. Though it’s still best-known for its online product retailing, Amazon is now controlling almost a third of the data storage market. Times are changing.
For many freight forwarders, seeing Amazon potentially jump into the industry is the stuff of nightmares. Considering its innovative past, the idea is probably not far-fetched. Forwarders have lost volume to the integrators over the years, largely because of a lack of an integrated technology platform capable of providing accurate information and communication with carriers and ground-delivery partners. A giant internet retailer, such as Amazon or even China’s Alibaba, could be the next source of competition.
Electronic messaging is an essential requirement in modern business that cuts costs while potentially increasing the quality of services, thus achieving greater efficiency in the freight forwarding business. These benefits can be enormous not only for freight forwarders and their customers but for the entire supply chain.
The light at the end of the tunnel could indeed be a freight train, but if forwarders begin to adopt technology more readily, perhaps they can catch a ride into a more profitable future.1 - Reader Likes This Post