Is WiseTech Global in a race against itself?
In the second half of August 2024 WiseTech Global will publish the annual results of their 30th anniversary in business. After recently announcing another price increase which should impact all customers, as well as a lack of any meaningful announcements thus far in this important milestone year, I, as well as many others, eagerly await to hear what Richard White has planned for the future.
With their financial year ending at the end of June, I've been thinking about the future of the industry leading Freight Management System, in which direction they are heading, and how likely they are to get there.
These are my thoughts.
It has been a quiet year.
WiseTech's year has been relatively quiet all things considered. Aside from the acquisition of Aktiv Data which checked off another country for their global customs compliance offering, there hasn't been a whole lot to get excited about. Expectations were high after the acquisitions of Blume Global and Envasé back in early 2023, but after a rather confusing marketing campaign led by Let's Talk Supply Chain, the market is still left wondering what WiseTech is truly trying to accomplish with those acquisitions and how they fit into things.
Trouble in post M&A paradise?
If you've read some of my previous content, you most likely remember my criticism of WiseTech Global's post-M&A processes. One of my key frustrations as someone who is enthusiastic about WiseTech's chances of growing ten fold in the near future, is their lack of appetite when it comes to hitting the ground running post acquisition.
To anyone who tracked their customs acquisitions, this is obvious. Germany, France… Key regions for customs compliance that have taken years to transform into native in-platform compliance. Customs compliance is not simple, especially when dealing with dozens of unique countries and requirements, but still, this is a trend that seems to continue.
Circling back to Blume Global, Pervinder Johar, CEO, left WiseTech Global in February 2024. Almost exactly a year after the acquisition by WiseTech of Blume. Nothing much has been said about this, but the timing is rather curious, and one can only imagine that he didn't share the global vision. Why else would you leave such a promising company that is just getting started on its next gargantuan task? Surely the acquisitions of Blume and Envasé were well thought-out and part of an airtight strategy that was easy to share with the acquired companies’ inbound leadership. Right?
Another price hike to wrap-up the year.
It wouldn't be CargoWise without a price increase. Earlier this year we saw changes to Cargosphere pricing, which may or may not have resulted in an increase. The interesting part there was splitting Cargosphere into separate billing, potentially making easier for a new audience to sign-up. More on that later.
A general price increase was announced effective July 1st 2024 to the tune of 5%. This increase reflects the 12 month inflation numbers for Australia from July 1st 2023 to July 1st 2024. I'm assuming this increase not only reflects WiseTech Global's increased costs such as energy bills and the rent paid to their landlord for the Alexandria and other offices, but also an increase to employee remuneration that follows the same inflationary trends. One can hope that a company with “our people define us.” in the opening salvo of its credo is stepping-up to the plate.
CargoWise's core market ceiling
Valued anywhere between 180 and 220 billion USD, the freight forwarding market has its limitations. The current landscape is interesting, and something I've discussed at length with a number of people. Some call me crazy when I say that the top 5 make up 50% of the international freight forwarding market in USD. Others say that's just the top 3. It is hard to properly gauge and measure. If someone has exact numbers, please reach out so we can put the debate to bed once and for all!
With names like DSV, Toll, Geodis, Logwin, DHL, Bolloré/Ceva, Hellmann, and UPS as part of the customer base, that doesn't leave much for a company that explicitly says in their 2023 annual report that “we target global rollouts with the Top 25 Global Freight Forwarders and the top 200 global logistics providers”.
These global rollouts aren't negotiated over night, sales cycles are long, negotiations hard. FY23 saw six “Large Global Freight Forwarder rollouts”. These six are really only five, as Kuehne+Nagel is only using the CargoWise Global Customs product, which isn't really finished yet.
Kuehne+Nagel seem positive about the customs solution
The more optimistic analyst will read “11 of the Top 25 Global Freight Forwarders have signed up for CargoWise global rollouts” and get excited at the prospect of the other 14 signing-up. I'm not known for my optimism, and believe WiseTech have as much chance of losing one of their large customers, as they do signing a new one. I also believe that the chances of this happening are increasing, a trajectory that will accelerate when WiseTech finally plays its hand.
I'd like to add that in a forwarding world recently dominated by cost-cutting measures, there is no reality where the number of users isn't cut. The likes of DSV and Geodis, who have been around for a while and benefit most from the productivity gains high levels of automation through CargoWise provides, have certainly cut their user count in recent years, with the former axing thousands of people during the first year of the Covid-19 pandemic alone. If CargoWise did provide them with the productivity gains it claims to give, then they could clearly operate to the highest levels with a lowered headcount and fewer users through optimization and smart workflows.
Expanding into US domestic freight
There is no way to sugar coat this: WiseTech's land transport capabilities aren't great. And that's ok. They are excellent at what they do, and prioritized customs in their expansion strategy for multiple reasons:
- Functionality is required by existing core market
- Can be sold as a standalone product to a hungry BCO market
- Can be sold as a standalone product to customs brokers who do not need CargoWise
- Acquisitions enabled a foothold strategy providing a customer base in each country and resources in key regions
But this has been over a decade in the making, and should be wrapped-up soon, allowing WiseTech to turn their attention Stateside.
As with anything logistics related, it is difficult to put a true number on the size of the US domestic freight market. Is it closer to 800bn USD or a trillion dollars? Or maybe somewhere in the middle. Regardless, the market is sizeable, but highly fragmented. This is of course of no concern to WiseTech, as many of their core customers have started expanding into the space in recent years via acquisitions. Add to this the new market they can service with a US domestic product, and it all starts to come together.
This idea has been bouncing around in my head for a while, but when a notification lead me to a WiseTech job offer for a TMS product specialist it all ticked. This kind of product isn't built overnight, and I assume they've been working on it for some time. The question is: who will they acquire, if anyone? They penned a distribution agreement with 3GTMS back in 2018. The integration between the two has been implemented by the likes of Gebrüder Weiss and Scarbrough Transportation in recent years. But has it been successful, and where would this potential expansion leave 3GTMS should they not be acquired?
Another interesting part to consider is the US land visibility requirements. Tracking ships and planes is one, rather straightforward, piece of the puzzle. But trucks on the road, that's a different ball game all together. The RTTVP market isn't as hot as it was a couple of years ago, with project44 attempting to hit the restart button and kick the proverbial skeletons out of its closet, and the likes of Shippeo and FourKites doing their thing, rather uneventfully and quietly. Acquiring any one of those three would make headlines, but is their data worth the potential culture clashes and post-M&A mess? Or should WiseTech build their own data solution? I like the sound of that.
The RTTVP market has clearly changed in recent years.
Products for everyone
There will come a day when WiseTech Global has to rewrite the “Our customers” section on their annual report. Its on page 20 of the FY23 report if you would like to read it. To summarize: their customers are the top 200 global forwarders/3PLs.
Everything from past acquisitions to product development priorities and pricing changes point towards a new addressable market. When WiseTech Global starts actively pushing products to their customers’ customers, they will need to do so with the utmost care. How WiseTech walks that fine line between cannibalisation and potentially increasing revenue opportunities for CargoWise enabled forwarders will dictate the pace of this race. One wrong move, and they could upset their existing customer base before establishing themselves as a serious player in the trillion-dollar supply chain tech space.
How will CargoWise avoid rocking the boat?
They'll start small. NEO and customs are two big opportunities to start building relationships with shippers. WiseTech Global is in a rather unique position where they have the critical mass needed to negotiate with the world's ocean carriers. Think direct booking, tracking data, and more. This is what will be provided to BCOs via NEO. Technically, it enhances the forwarder's relationship with their customer. But really? It gets the WiseTech Global brand out there with an audience criminally unfamiliar with the name.
As for customs, WiseTech Global are the only company in the world to offer this much compliance in a single product. I won't go into too much detail about how customs compliance differs from country to country, with differing stakeholders and requirements in each location. Let's just say that at worst WiseTech will be able to offer enhanced customs tracking, and at best they will enable BCOs to handle their customs operations entirely. There is a lot of potential here, with a wide scope.
Would CargoWise work for a BCO?
Yes.
The day WiseTech Global starts selling CargoWise to BCOs is the day they really compete with their existing customer base. There is no reason why a BCO couldn't operate their own logistics activities using CargoWise, effectively removing the middle-person that is the forwarder.
The real question is: have they already done this? Are they planning to do it? Or will they offer something different all together?
Final thoughts: what to expect.
It's a big anniversary year for WiseTech Global, and every ten years are marked with a relatively big change. 2004 saw the company rebranded and the launch of edienterprise. 2014 brought similar change with edienterprise becoming CargoWise One and the company name changed to WiseTech Global. Fast forward to 2024, and we're still waiting for the big change.
I've long wished for a browser-based CargoWise light for smaller forwarders, with a fraction of the functionality, at a fraction of the cost. The long tail forwarding market may only be around 20% of overall market value, but that is still around 40bn USD. The long tail segment isn't well serviced when it comes to logistics technology, and at the right price, with extremely simplified onboarding and a modern user experience… it could be a very quick and easy win for WiseTech. But when the trillion-dollar BCO market is calling, a slice of a 40bn dollar pie just doesn't feel the same.
For the thirty-year anniversary, your guess is as good as mine. Expect nothing, and you may be pleasantly surprised.
Happy Birthday WiseTech Global, here's to ten more years.