The logistics industry has seen a rise in digital freight forwarders in recent years with many of those companies vowing to revolutionize the industry through the use of technology and innovative business models. However, despite initial hype and promise, many of these digital forwarders are now struggling to grow and maintain profitability. In this blog post, I will explore some of the reasons why digital freight forwarders are facing challenges, and discuss the future of the industry.
Navigating The Challenges of Digital Freight Forwarders: From Promises to Performance
In what follows, I’ll delve into 8 main struggles that digital freight forwarders are currently facing, and which hindered their growth:
The Loudness Backfire: How Digital Freight Forwarders’ Hype is Harming their Business
One reason for the struggles of digital freight forwarders is that they were too loud with their statements and promises. Many of these companies heavily advertised their services and claimed that they would disrupt the traditional logistics industry. However, these statements have gained a negative traction from traditional freight forwarders and shippers who helped them grow at first, but are now realizing that digital freight forwarders do not provide any real difference in terms of services. In fact, many traditional logistics companies have the same and even a higher level of digitization, and real-life logistics experience which is crucial when unexpected things happen.
Disruption Deficient: Digital Freight Forwarders’ Lack of Groundbreaking Improvements
Another reason for the struggles of digital freight forwarders is that they have not introduced significant improvements to the industry. Companies that have disrupted other industries have introduced entirely new ways of doing things. Uber, for example, revolutionized the transportation industry by providing affordable ride services with an improved taxi service. Netflix transformed the entertainment industry when it brought cinemas into every house. On the other hand, digital forwarders have mainly reintroduced basic features such as shipment visibility, better communication between partners and lesser paperwork. While these improvements are beneficial, they are not groundbreaking nor enough to attract customers. Furthermore, the solutions developed by digital forwarders have become too costly for many customers.
The industry is in need of new technologies that can improve decision making, tracking and automation. In this day and age, when one thinks of disruption, AI-powered decision-making, tokenization of shipments and logistics assets, and fully automated planning functions are among the things that crosses one’s mind. Such innovations can truly change the industry and convince shippers and other market players to switch to their providers.
Sustainability Claims: Are Digital Freight Forwarders Living Up to Their Promises?
Many digital freight forwarders promoted sustainability as a competitive advantage. However, it’s not always clear if their claims about being more sustainable than traditional freight forwarders are backed by concrete evidence. As the industry progresses towards digitalization, it’s important for companies to not only make claims about being sustainable, but also be transparent about their environmental impact with a clear strategy for reducing it. People are interested in tangible outcomes, not just empty promises or unfulfilled commitments.
Troubling Signs of Over-Investment, Layoffs and Crypto Investments
Moreover, recent reports of overspending, investments in crypto, layoffs and investments in traditional logistics businesses, among other concerns, suggest that some digital freight forwarders may be facing challenges with their business models. These developments, if true, can indicate that there might be underlying issues in the way digital forwarders operate, and it’s important for the industry and customers to be aware of these potential challenges.
Digital freight forwarders may have made a strategic mistake by trying to compete directly with established logistics companies instead of working with them as partners. In addition to that, the customer acquisition costs for digital forwarders are not clear, but it is believed that they are high due to factors such as marketing expenses, high bonuses for sales managers, and other irrational decisions. It is worth considering if these high costs will ultimately pay off, given that the lifetime value of shippers is high. However, since sales were generated through extensive marketing and sales efforts, and there are no distinct differences in their services, there is a likelihood that a significant portion of these customers may choose to switch to other providers in the near future. The reason being, DFFs have created hype through their marketing, but have not established a sustainable business model. All trends eventually fade and the recent reports of layoffs, overspending, and management changes suggest that the future of these companies is uncertain as they are losing credibility.
Pandemic Accelerates The Need for Digitalization in The Logistics Industry
The COVID-19 pandemic has had a significant impact on the logistics industry, highlighting the need for digitalization in order to adapt to the new challenges and demands of the market. It’s worth noting that the pandemic has also accelerated the need for better technology, visibility, transparency and efficiency in the logistics industry. Customers are now demanding better tools, and freight forwarders are good at reacting to these demands. However, traditional freight forwarders have been on this path for a long time; much longer than most digital forwarders have been around.
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Digital Freight Forwarders’ Struggle for Profitability
It turns out that, in fact, the more precarious business model may well be “digital” freight forwarders living off funding, rather than the ‘traditional’ ones living off profits. With that being said, the business model of digital forwarders may be more uncertain and less stable compared to traditional freight forwarders who have a more sustainable business model. Traditional freight forwarders are good at making money, even during lean and tough times. This is due to the fact that they have been in the industry for a longer time, and have built a loyal customer base and reputation for providing reliable and efficient services. In contrast, many digital forwarders are relatively new to the industry, and have not yet established themselves in the market.
The billions invested into the industry have led to the development of expensive solutions, for many digital freight forwarders have overspent on building and promoting their services. This lack of financial prudence may lead to further negative stories of irrational spending and potential financial misconduct in the future. Additionally, the high costs of these solutions may not provide a competitive advantage since new players can replicate them at a lower cost. This lack of cost-effectiveness will become a significant challenge for digital freight forwarders in the coming years.
Lack of Real-life Logistics Experience
Another factor that contributes to the struggles of digital freight forwarders is their lack of real-life logistics experience. Traditional freight forwarders have a wealth of experience in handling various types of cargo, and dealing with unexpected challenges such as natural disasters and customs regulations. They have also built a network of reliable partners and suppliers which enables them to provide more comprehensive and efficient logistics and freight services. Digital freight forwarders, on the other hand, are still in the process of building these relationships and gaining this experience.
The cost of the solutions provided by digital forwarders is also a major concern. Many customers are finding that the prices charged by these companies are too high, especially when compared to the services provided by traditional freight forwarders. This is partly due to the fact that digital forwarders are still in the process of scaling up their operations, and have not yet achieved the economies of scale that traditional freight forwarders have.
Digital Freight Forwarders Lack Transparency and Accountability
Another issue that digital freight forwarders are facing is their lack of transparency and accountability. Many customers are concerned about the reliability and security of the data and information provided by these companies. Traditional forwarders, on the other hand, are required to comply with strict regulations and standards which ensures that they are transparent and accountable in their operations.
From Traditional to True Digital: Logisoft’s Support for Freight Forwarders
At Logisoft, we believe that the digital transformation of the logistics industry starts with traditional forwarders. We help them leverage technology to improve visibility, transparency and efficiency in a sustainable and gradual way. Our tailored solution guides them through the transition, ensuring that they become true digital forwarders and the industry is ready to fully benefit from this innovation. We are committed to supporting traditional freight forwarders in their journey towards digitalization, and believe that this is the key to a successful industry-wide transformation.
Learn more about Logisoft Freight Management Software for Ro-Ro – the right step towards transforming your freight forwarding business
The Future of Digital Freight Forwarding: Opportunities and Challenges
In conclusion, digital freight forwarders have faced challenges in recent years due to their loud statements and promises, lack of significant improvements and expensive solutions. While the logistics industry is in need of disruption and innovation, the current digital forwarders have not been able to deliver on this level. It’s possible that new players or acquisitions by existing market players may be necessary for a renaissance of the industry. It is important to note that the industry has been on the path of improvement for a long time, and the pandemic has only accelerated the need for better technology, visibility, transparency and efficiency. Needless to say, customers are demanding better tools, and freight forwarders are good at reacting to these demands. However, traditional freight forwarders have the experience and relationships that could be combined with the right and advanced technology to become true digital forwarders who are good at making money and providing better service to their customers.