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Insight: All forwarders are digital forwarders

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Insight: All forwarders are digital forwarders

January 11, 2023

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Every week, Mercado CEO Rob Garrison pens his latest learnings from the supply chain industry as part of an on-going series. Each article aims to share a little insight into what's going on that week, and to help foster discussion amongst industry professionals across levels, geographies, and companies.
All forwarders are digital forwarders. Looking back on the 10 year anniversary of Flexport.
When Flexport (FP) first came on the scene in 2013, I was excited by the prospect. While forwarders have always been digital, I was hopeful that technology was going to take the industry a great leap forward. Investors shared my enthusiasm, pouring $2.4 billion into the company to help make their vision a reality.

Fast forward ten years...and it’s worth an examination of the hope versus the hype.

Digital versus Forwarder

As a Forwarder they have definitely been successful as measured in financial terms. In 2021 they generated $3.3 billion in sales, a 20% EBITDA, and had 3,200 employees. However, according to statistics from Armstrong and Associates, they are still not among the very largest forwarders. As far as market share, A&A has Kuehne and Nagel at the top with nearly $41 Billion in sales, while Flexport hasn't cracked the top 20.

On the other hand, I haven’t seen much progress on the digital front. Generally, there are three areas where forwarders can compete digitally.

Operating Systems (OS)

FP chose to build their own operating system versus buying one. While it’s difficult to know if what Flexport built is better than what’s available on the market, many larger forwarders have chosen to buy versus build. Notably DHL and FedEx—who spent many years and vast fortunes building their own—are now switching to CargoWise. As an aside, CargoWise just reported a whopping 50% EBITDA!

Customer Facing Systems (CX)

FP also chose to build their own CX. I saw a demo recently, and it’s definitely a cut above the other systems that I have seen in the market. It will be interesting to see what impact companies like GoFreight have here. GoFreight builds Customer Facing Systems for forwarders - and in theory—can give even a very small forwarder the ability to provide their customers with a modern UX.

New categories

With $2.4 billion in backing, they could deploy entirely new tech in a business that sorely needs it. Two possibilities are upstream and downstream. Historically 3PLs have focused on pickup to drop-off. Order management in the first mile, and e-commerce in the final are both ripe markets for expansion. They could also move from logistics to supply chain. Offering an Amazon like experience where purchasing, logistics, and sales are integrated.

While the final chapter isn’t written, they do have a new CEO, Dave Clark - who came from Amazon.

Despite their great margins in 2021, Forwarding has historically been a low margin, brutally competitive business. There are 3,000 OTIs in the US alone, and some of the biggest brands in the world compete in this space including Amazon, FedEx, UPS, and DHL.

Given this, it’s tough for me to envision how FP is going to 'change the game' without significant advances in either technology, or by entering into the supply chain space.

Weould love to hear others thoughts! You can get in touch with us here.
Mercado | Insights - The $2.8T international supply chain visualized
"In an 'ideal' world, an importer would have at least one backup country, and one back up supplier for every critical product... All of this sounds good on paper, however it's actually incredibly difficult in practice."
One key reason is the dominance of China. Many importers are concerned about China as a sourcing point due to increasing tensions between the countries. However, the reality is that China dominates mfg in Asia, and they are very good at it.

As a result, quitting China is hard, as you will see in the excellent analysis below by Rita Rudnik.

A second reason is much more mundane. Most importers lack a robust database of their suppliers, and their supplier's suppliers. On the surface this sounds ridiculous, however we have gone through decades of 'predictable' supply chains where this wasn't a priority. Using the example above, most of the bike importers I spoke to were simply not aware of how reliant their suppliers were on Shimano.

My guidance to all importers is to address this database issue quickly. Beyond resiliency, knowing a lot about who makes your products, and who makes their parts, is also critical for understanding things like cost, ESG, and sales.

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About the author

Rob Garrison, Mercado CEO
A highly accomplished Global Supply Chain executive with 25 years of experience, Rob Garrison has provided strategic vision and leadership to Fortune 500 companies. Rob has an impressive history of building agile, technology-enabled supply chains, and he has an established track record of forging high-growth partnerships, positioning organizations for success and launching innovative technology solutions that significantly improve end-to-end supply chain efficiencies.

Rob is currently CEO and founder of Mercado Labs.
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