For over a decade, there has been a debate about the relative advantages of working with digital forwarders vs. traditional forwarders. It’s an outdated debate based on false assumptions. This article frames the discussion in the context of today’s global shipping environment.
When the original “digital forwarders” came on the scene around 2012, they were promoted as pure-play marketplaces to book global freight – companies that would do for global freight management what Expedia and others have done for managing personal travel. Namely, eliminate the middleman. The truth is, these companies today act more like traditional forwarders than marketplaces, albeit with visibility and booking platforms that both look and work great.
These early discussions cast “traditional forwarders” as dinosaurs of a bygone age. Companies with armies of clerks using email, phones and fax machines to manage highly manual, paper-based processes. In reality, most forwarders today have embraced digital transformation to some degree, with their own online booking and tracking capabilities.
The Promise of Digital Forwarders and Freight Marketplaces
When the digital forwarders vs. traditional forwarders debate began, the promise of a better way was very enticing to shippers. Booking freight once meant sending an email to a forwarder and waiting days for a price quote. Then, after the booking, there was limited information available on shipment status or delays.
Venture capital firms salivated at the idea of bringing digital processes to a $200 billion+ industry. They heaped money on these digital start-ups, who funneled investor dollars into building their technical platforms. (They did not use the money to build a global network of freight experts….more on that later).
Valuations have dropped for these freight marketplaces and the original idea of displacing traditional forwarders has not happened. Still, digital marketplaces have taken a good chunk of market share for global shipping management.
In the shipping community, ardent fans of the freight marketplaces most appreciate the easy and intuitive user interfaces for booking, document sharing, tracking and reporting. Some platforms even offer SKU-level tracking on in-transit inventory, a huge help for inventory management and planning.
When comparing digital forwarders vs. traditional forwarders, the work digital forwarders have done to modernize and digitize processes in the management of global freight shipments solved acute shipper pain points. There’s real value there.
Perhaps the biggest benefit of freight marketplaces is that they forced the freight forwarding community, at large, to take a hard look in the mirror and adopt more streamlined, paperless processes. It was a sorely needed wake-up call for traditional forwarders to start going digital – and they answered the call using available tools like AI, API, machine learning and RPA. For another class of freight forwarders – those, like Dimerco Express Group, that were already pursuing digital strategies – the new competition speeded up a digital transformation effort that had started in the early 2000s.
Where Have Global Freight Marketplaces Not Lived Up to the Original Promise?
The early characterization of digital forwarders as industry disrupters that would change the game in global freight forwarding has not panned out.
Analyzing the ongoing competition between digital forwarders vs traditional forwarders, many shippers who defected to the digital start-ups have come back. We have seen that borne out in our own business. While Dimerco certainly lost customers to global freight marketplaces, we’ve seen an equal number and more return because 1) the promised benefits of the new model were not realized and 2) shippers recognized that “traditional forwarders” now offer many of the advantages of global freight marketplaces, without the downsides.
What downsides? Based on discussions with our customers and others in the shipping community, here’s what we’re hearing:
- Rates are not lower. In fact, in some cases they could be higher. The digital marketplaces negotiate with the same carriers for similar rates. There’s little evidence that digital efficiencies achieved in how they manage day-to-day operations has enabled a lower mark-up vs traditional forwarders.
- Capacity is sometimes hard to find. One shipper of dangerous goods (batteries) approached Dimerco because it had nearly 100 containers stuck in Shanghai because its provider could not secure steamship line capacity. In such cases, a pretty user interface doesn’t count for much. It takes strong carrier relationships and local freight specialists with product know-how (of specialist carriers, paperwork, customs hurdles) to make it happen.
- Tough to get a human on the phone. Sometimes you just need to talk to someone to answer a question or troubleshoot a problem. Self-service processes and centralized call centers may drive operational efficiencies, but not operational quality. Shippers most appreciate traditional freight forwarders not for how they handle the 80% of transactions that are routine, but for the 20% that aren’t.
- Lack of local expertise. Freight marketplaces focus capital investments on the technology platform and not on building a global freight shipping network. Think about your own situation. Problems can arise if you’re dealing with a central customer service rep in the U.S. who is, in turn, working with a third-party freight agent in Asia to troubleshoot a critical delay. A company like Dimerco has 160+ direct company offices across four continents – all working on the same system. More importantly, these local offices are staffed by freight experts with the local market knowledge to solve problems. Maybe it’s finding capacity through a carrier they speak with daily, or accessing local truck capacity from a long-time partner, or fixing faulty customs paperwork based on an intimate knowledge of local customs processes. When a shipping problem arises, whether it’s across the country or across the world, it helps to work with a forwarding partner with the resources to solve it.
How to Choose Between Digital Forwarders and Traditional Forwarders
As we’ve established, today’s “traditional forwarders” are, in fact, digital forwarders. They just arrived there from a different place. Instead of the pure-play freight marketplaces, this emerging breed of digital-first forwarders leveraged a deep knowledge of global shipping to transform their operations to become faster, more transparent and paperless.
So I guess it comes down to the old “chicken and egg” argument. Are you better with a pure-play freight marketplace that started with no pre-conceived biases on how to manage coordination between shippers, suppliers, carriers and forwarders? Or, is there more benefit to working with an experienced freight specialist that has undergone a digital transformation and now executes proven shipping processes with the greater convenience, speed and visibility you crave?
It’s really a choice between digital innovation, the path forged by freight marketplaces, vs digital transformation, which many traditional forwarders have undergone. There are advantages to either option.
But let’s say you’re a nationwide hospital network that needs to digitize and you’re looking for a partner to help. Do you want a tech-based start-up from outside the industry to completely re-imagine how to implement the change? Or, do you want a partner that combines an expert’s knowledge of hospital operations (patient records, staff scheduling, billing, insurance claim processing, etc) with the digital transformation acumen to get these tasks done faster, easier and in full compliance?
Choose a Forwarder that Offers Both Data in the Cloud and Boots on the Ground
Digital marketplaces for global shipping shook up a centuries-old industry often set in its ways and forced a wholesale reevaluation of processes. That’s a good thing.
But when making the choice between digital forwarders vs. traditional forwarders, it’s important to recognize that the difference between the two, in terms of digitalization, has all but disappeared. Where many traditional forwarders separate themselves is with the global shipping networks they have built. The wise choice for a shipping partner may be a 3PL with a strong global freight forwarding network that has also undergone its own digital transformation.
Going forward, technology will continue to shape how supply chains are managed and how cargo gets moved. But in the end, when you choose a global shipping partner, you need more than a software platform; you need the expertise and the global network to move your cargo efficiently and reliably. A global forwarder that offers BOTH data in the cloud and boots on the ground.
What do you think? We’d love to know. Contact Dimerco today to start a discussion.
