Networks offer independent freight forwarders leverage
Freight forwarding networks have become an essential feature in doing business for the independent freight forwarder. During the past two decades, there has been a dramatic rise in the number of “networks” for independent freight forwarders. While not a mainstream topic in logistics circles, networks are increasingly becoming a business fixture for independent freight forwarders whose competition is now more often with transnational-logistics entities like Panalpina, Kuehne & Nagel, Ceva, or XPO Logistics rather than other forwarders. Even global integrators like UPS, FedEx and DHL represent competition to the independent freight forwarder. With so many larger competitors circling like sharks, ready at a moment’s notice to take a chunk out of their business, forwarders have gravitated to the concept of leveraging their industry through networks. Taken as a group, independent freight forwarders control vast amounts of international commerce – freight – and networks allow forwarders to assemble this activity into economic advantage. To a degree, forwarders have become the sales arm of the industry and often have the closest relationship to the BCOs (Beneficial Cargo Owners), NVOs (Non-vessel owners) and carriers. These relationships are the core of the forwarders’ business model. The attraction of the networks is they operate almost like an extension of the freight forwarders’ own business model. Most forwarders need to find agents (other forwarders/brokers) in other countries to represent them. While many larger logistics companies either acquire or establish their own offices and corporations in a country, it is an expensive and potentially high risk move for a forwarder with limited capital. The prudent move is to find an agent with reciprocal interests. But it has always been a sensitive process to find the right forwarder to be their agent. It also can be an expensive exercise given the number of countries in which a forwarder does business. Networks simplify the process and can make it far more cost-effective. By hosting annual general events with “networking” meetings, a forwarder can literally meet hundreds of forwarders from other nations to establish binding relationships or hammer out individual business deals. Networks Come in All Flavors One of the oldest networks is undoubtedly the largest, WCA World, an umbrella organization for a number of specialized forwarding networks. WCA founder (1998) David Yokeum is in many respects the progenitor of the current version of the freight forwarding network. Among the innovations he introduced was scheduled one-on-one meetings. The combination of the scheduler and timing turned the one-on-one meetings into a kind of speed dating for freight forwarders looking for partners. Because of the global nature of the forwarding business, the annual events often look like mini-United Nations meetings. There are often large contingents from Asia, Indian Subcontinent, South America and the Middle East in attendance and many of the destinations for the annual events are chosen as visa friendly for the majority of the membership. Organizing these annual events is a major activity for the networks. From a business perspective, with the exception of the membership fees, they represent the largest economic activity. Sponsorships and related events are important to making these events useful and profitable. From a business perspective, networks come in a variety of flavors. Yokeum, and many other networks since, favor a business model where the “network” is an independent company serving a membership, rather than a network company composed of forwarders. The rationale being that forwarders can “manage” a network of fellow forwarders without a conflict of interest being introduced into the mix. Another element of the network is how to determine membership. From a geographic perspective, how many members can a country or region be allocated? Obviously, if there are too many from the same area, the network is as much promoting your competition as yourself and the value is lessened. On the other hand, in large or complex trading areas like the U.S., Brazil, Australia or China the need for a number of choices is necessary to match the demands, which must be accounted for in determining membership numbers. Beyond the designated numbers, there are the qualifications for membership. Gary Dale Cearley, who manages a number of forwarding networks including Bangkok-based AiO, explained to the AJOT at an Amsterdam event, “checking an application, really looking at their [the forwarders] track record, checking their specialties, is essential to making a network successful.” Another network veteran, Wolfgang Karau whose WWPC is one of the oldest and most successful project forwarding groups, added on the problems vetting potential membership, “too many forwarders just want the sales [opportunity at the meetings] and aren’t really qualified.” Growth of Networks The “clubbish” nature of the networks also raises the inherent problem of growth. How does one add more members in a network whose numbers are fixed by geography? How does a network of fixed size add more revenue? One of the primary ways was simply adding in offices. A forwarder might have a number of offices which can be added to the network beyond basic membership. In the case of the WCA, the combined number of offices is now approaching 7,000 worldwide, which gives some idea of the potential reach and leverage freight forwarding networks can wield. Another way to expand is to create more specialty networks. WCA World pioneered developing specialty networks. Project forwarding was an obvious “specialty” that required a unique skill set. It was also easy to “qualify” project forwarders – the track records are pretty easy to find. However, it is a small club and other specialty networks have emerged such as perishables, relocation, dangerous goods and pharmaceuticals, to name a few. Another form of growth has been the addition of other “partner” organizations which might cater to a different segment – such as recently formed or newly spun-off forwarding enterprises. Since one of the strongest selling points (and profit centers through exhibitions and sponsorships) for these networks is the air and ocean carriers as well as other service providers to the forwarding industry, it is natural that the service providers have become “specialty” networks themselves. A good example is the WWPC. The WWPC expanded into building another network, “Cargo Equipment Experts Ltd (CEE) a global network for Equipment Owners such as haulers, crane operators, tug and barge operators, stevedores and export packers, port operators, rail operators, riggers & skidders, surveyors, air cargo handling equipment owners and supporting industry, serving the heavy and outsized cargo industry.” With such a proliferation of networks, another avenue of growth is M&A. In October, the WCA World announced it had acquired a majority stake in the Elite Global Logistics Network (EGLN). EGLN, a relative newcomer to the network business, was formed in 2015 but expanded fast and had built a membership of 332 in 131 countries. For EGLN it is an immediate boost in services for their membership and for WCA a quick addition (although overlaps are always an issue) of a significant number of new members. It wouldn’t be surprising to see more M&A within the industry – a consolidation similar to that of the forwarding industry itself. Future Services What creates value and differentiates one network from another is services. With membership fees, always a point of contention – “what am I getting for my money?” – services are an important element to both recruiting and keeping members. Some typical offers are availability of insurance, banking facilities and payment programs, collection and recourse (financial protection) and marketing and promotion. The services offered by the networks are becoming increasingly more sophisticated. WIN, one of the WCA initiatives, is essentially a portal that enables forwarders to have the same back room IT functions as the mega-logistics companies. It is an important step in network service offerings. A real advantage that multi-national logistics companies and integrators have over independent freight forwarders is the massive IT that homogenously powers the backroom operations for hundreds of offices. The lack of IT continuity between individual forwarders and the time and investment to keep these operations up to date is the single largest point of vulnerability. WIN may represent the future face of network services. The sector growing the fastest in logistics is the IT heavy, asset light group of companies like C.H. Robinson and Transplace, who are the “enablers” rather than prosecutors of freight movement. With the emphasis in forwarding shifting to enabler and IT provider, the networks could also see a change from being predominately match-maker to cloud seeding IT. Such a transformation in services has already happened in transportation organizations like the former South Motor Carriers Association into the SMC3 whose organization is platform driven for LTL trucking. A related trend is e-commerce. E-commerce is now the elephant in the room for logistics companies and in turn forwarding networks. The WCA’s president Dan March took the helm a couple of years ago and made e-commerce a priority for the group’s networks. Recently, Mall for Africa (MFA) and Mall for the World (MFW) announced a first of its kind, strategic partnership with WCA eCommerce, the first logistics e-commerce network. The partnership’s avowed aims are to “further amplify cross-border e-commerce logistics by enabling WCA members to increase their customer base while allowing MFA/MFW to enter additional markets through WCA’s local and regional logistics capabilities.” While it might be a little premature to say that e-commerce networks will eclipse forwarding networks, e-commerce networks have the growth potential in new directions that the existing networks lack, and thus this trend bears watching.