Digital Freight Forwarding is dead! Long live digital freight forwarding.

Digital Freight Forwarding as it was pitched to investors and the logistics world is dead. The heavily financed disruptors were set to challenge the 3PL space, providing beneficial cargo owners (BCOs) with a newer, highly efficient, and more transparent way of moving freight. Some even pitched that they'd be selling software in the near future. Lets take a look at today's reality, and why digital freight forwarding does exist, just not in the way the digital freight forwarders want you to believe.

What is digital freight forwarding?

Digital freight forwarding refers to the use of technology to organize and complete shipments. Although simple, this is the only definition you need. Remember, freight forwarding in the purest sense is being the middleman in an operation between carrier and shipper.

The problem with this definition is that it implies that freight forwarders who are not "digital" do not use digital technology to run their business. This is the reality that the likes of Flexport, Zencargo, Beacon, Sennder, and more, have used to market their new-age offering to the world.

Why is digital forwarding different to traditional forwarding?

When you look at global 3PLs such as DSV, Kuehne + Nagel, DB Schenker, and anyone really on the top 25 Armstrong and associates top 3PL list, you know they are using software. And that software isn't Office365 and and a telephone. In the bulk of cases, they are using multiple freight forwarding logistics technology solutions simultaneously, including in-house technology of their own making.

The bulk of freight forwarding operations are done by these top 25 companies. Everyone else is fighting it out for a 20-30% market share. That's still a considerable amount of business, with the freight forwarding industry valued close to $200bn USD (we'll see if that is still the case post 2023).

This is where digital freight forwarders come into the picture. Their message that freight forwarding is archaic and needs to be digitized is wrong for the top end, and they knew it as far back as the mid 2010s when Flexport first switched on the smoke machine. But they assumed it was the case for the long tail market, which was prime for the taking.

However...

There is no difference between digital forwarding and freight forwarding in 2023, leaving the digital freight forwarders in a tricky situation.

Freight forwarding technology to empower people, not replace them.

This is where digital forwarders went wrong. When you read reviews about their services and hear stories from shippers, you realize that their problems do not come from software. They may in fact have better and more optimized software to run their operations than the average forwarder. But they lack the people, the relationships, and the knowledge.

This isn't saying that they do not have good people. Look at any digital freight forwarder's employee list on LinkedIn and you'll find talent. The problem is they do not have enough people to truly be the global forwarders like the image they reflect through their marketing efforts. The truth is that even the likes of Flexport are limited in what they can offer geographically due to this. You can add some code and make a product work in a foreign language with relative ease... But finding good people, that's a whole different challenge.

Instead of spending on software, digital forwarders will spend on footprint and talent.

Those digital freight forwarders who have enough cash in the bank will be able to solve their problems by spending it. The others? Things aren't looking too hot for the Flexport copycats and other digital forwarders who are struggling to find both profitability and market fit.

Flexport are a great example of this digital freight forwarding space and how it is going through an identity crisis. Only recently their new CEO suggested that they are a forwarder, finally removing any lingering desires to see Flexport selling software. Now that they are over their identity crisis, we're likely to see Flexport joining the M&A scene in a big way. They'll be making more than one acquisition in the freight forwarding space, focusing on increasing their footprint beyond the USA to China operations they have previously relied on.

Timing is a fascinating thing, and with nearshoring and reshoring still aggressively taking place, Flexport should use these as an opportunity to expand southwards. Countries like Mexico and Chile should be in their sights, and potential acquisitions of struggling forwarders in Europe may also be on the cards.

Digital freight forwarding lives on and is stronger than ever

All freight forwarders are digital forwarders.

If the above statement is not true today, it will be tomorrow. Freight forwarding is a highly digitized activity, which has been unfairly represented in recent years. There are parts that remain unreasonably difficult and include many inefficiencies, but this is not due to a lack of digitization. And freight forwarders cannot be held responsible for the lack of standardization in the industry, or the lack of connectivity between platforms.

We are seeing improvements in these areas, making freight forwarding more digitized than ever.

As standardization improves, and software suppliers are forced to improve their integrations with other platforms (or in the case of CargoWise build a walled-off ecosystem or a "pay to enter environment"), these issues will gradually disappear.

Even small forwarders with powerful partner networks will outperform "digital" freight forwarders.

Imagine a world where small forwarders are all using the same software. Unlikely? I'd say that is an understatement. However, there is a reality where freight forwarders can easily connect and interact, regardless of their operating system. Now add the BCOs and carriers to this picture. All interconnected. All working seamlessly together.

There are platforms today that are working towards making this a reality. And as it happens, digital freight forwarders may find themselves further fragilized, especially those who have not taken the time to build strong partner networks.

If smaller forwarders continue to deliver positive outcomes and above average levels of customer service, they will survive on that alone if they are tech enabled. If they are part of a strong forwarding network such as the WACO System with great partners across the world, they will never have anything to fear from both "digital forwarders" and the top 3PLs.

Digital freight forwarders may be a dying breed, but digital freight forwarding is well and truly thriving, and will continue to change the forwarding landscape as a true disruptor.

Digital freight forwarders have been awfully quiet recently. Their entire sales and marketing pitch has fallen apart, and their rather shallow offer is leading to disappointed customers finding themselves with no other option that to look elsewhere.

Flexport have the cash to buy their way into new markets and grow their forwarding offer. Sennder have been doing this in Europe, but to what end? It's going to be a very interesting year for "digital" freight forwarders.

I'm Anthony, ex-WiseTech'er and Logistics Technology nerd.

You can find me on LinkedIn: https://www.linkedin.com/in/anthonymlr/

And I may start using Twitter if Elon doesn't kill it first: https://twitter.com/Anthonymlr1

My opinions are my own, although I'm sometimes told they are shared by many, yet voiced by few.

My goal is to make Logistics Technology a healthier place and to provide everyone with the kind of information they need to decrypt this magical and mad industry we either love or hate depending on the day and if someone has blocked the Suez Canal again.