18/03/2020 by Ingo Erlenhofer 0 Comments
A Case Study of the 21st Century Freight Forwarder
To borrow some terminology from the world of IT, the business of a freight forwarding company can be split into frontend and backend. The frontend business is everything that goes on up until the point where a booking for a shipment is placed, and the backend business is everything that happens thereon after.
Now the backend business has remained largely the same over the years. Travel ten years back in time and the physical freight journey bears little difference to today. The frontend business has however seen immense change in recent years with the appearance of the online shipper, which is what we will be focusing on.
From first customer contact before getting into the cumbersome freight quotation process where you need to deal with various rate sheets and schedules, before eventually sending of the quotation hoping that it converts to a booking so all this was not for nothing – that is the frontend business. That gloomy description makes the frontend business sound dreadful, but truth be told I actually love this part of forwarding and was involved with it one way or another for over a decade. But times are changing, and we all need to change with them.
Every forwarder today falls within either of three categories:
- Pre-digitisation – those that have no digital frontend and communicate with their agents and clients solely via phone or email;
- Partial digitisation – those that have adopted digital tools to automate and streamline the internal quotation process (typically done with the introduction of a rate management system and sometimes accompanied by an external RFQ system); and
- Full digitisation – those that have gone all the way and rolled out their solutions to external users, allowing them to look up quotations and place bookings at their convenience.
I spent most of my professional career in the first two categories because… well, the third category did not exist back then. But in recent years a lot of freight forwarders are gravitating towards full digitisation – including some of my former employers whom some might consider on the conservative side of the industry. And they do it for a reason; we can no longer ignore that customers today want an instant service that offers more convenience at a lower price. How do we deal with that?
Parts of the quotation and booking process can and should indeed be automated, and parts should still be done with human interference. It is not about replacing what we have done for decades, it is about leveraging technology to do more in less time.
To show how this can be done in practice, we will discuss a case study of a mid-sized ocean freight forwarder going from pre-digitisation to full digitisation over the course of 4 months:
The forwarding company we have researched is located in the harbour city of Hamburg, Germany, employs around 30 people, and focuses on international air/sea cargo transportation with annual revenue of roughly € 3M.
With 5 people in the sales department, the forwarder handles an approximate number of 600 quotation requests per month, 24% of which end up in closed bookings. That means, despite the good win ratio, a staggering 456 quotes were generated “free of charge” and not generating any revenue during the pre-digitisation stage.
Also, prior to digitisation, the company’s sales organisation had to generate the quotations from various service provider sheets spending an average of 13 minutes to obtain a final price. That means the absolute time spent to generate quotes hovered around 7.800 minutes per month, which equates to more than 16 working days.
Furthermore, insufficient resources for generating quotations also lead to not all of the requests for pricing being completed, and at worst, quotations were delayed by several days. Thus, the forwarder was calling for a change to drastically improve productivity and win rates. The forwarder sought to serve all customers, without fail or delays.
It was clearly recognised that within rate management optimisation lies a strong business opportunity, not only to improve productivity, cut costs and serve customers faster but also to create a distinct competitive advantage.
After intense market research, the forwarder decided to cooperate with ItsMyCargo in order to build a digitised and automated front end & take advantage of the suggested productivity advantages.
A total of 12 weeks of stream-lined communication, training, and collective workshops were needed for the successful implementation of the ItsMyCargo Online Quotation solution. The entire process was split up into five steps:
- Kick-Off - Planning
- Data delivery -- all the rates and different services displayed in the shop
- Configuration of the product
- Final review -- testing with a few chosen customers and internal use
- Final Launch
It took the forwarder a mere 4 weeks after launch to start harvesting the fruits of the ItsMyCargo value proposition. At this point, already 65% of the entire requested quotations were generated through ItsMyCargo’s solution and the win ratio was pushed up to 33%.
Immediately, the win ratio on quotations increased by 9% and the manual effort to create bookings reduced from 7.800 minutes (16.25 working days) to 2.730 minutes (or 5.7 working days).
The increase in win ratio was also driven by quotations being made available instantly and are no longer restricted to any time or location concerns. Forwarder’s rates are now available from any place, at any time.
A further advantage is that the risk of providing flawed quotations through human error has been reduced to 0%. Paired with ItsMyCargo’s analytical capabilities for providing insights to customer behaviour, there has been indefinite value.
Do you think traditional freight forwarders are going anywhere over the next 5-10 years? We certainly don’t. The only place we see them going is online. And ItsMyCargo is going to be part of that journey.