Consolidating your logistics by Big Data

Introduction: What are "logistics" & "freight forwarding"?

When we talk about "logistics", you may think of cargo movement. In fact, "logistics" is the process of planning, implementing, and controlling the effective and efficient flow of goods and services from the point of origin to the point of consumption for the purpose of conforming to customer requirements. (Kate, 2013) Therefore, the definition of "logistics" should including inbound, outbound, internal and external movements. For example, international transportation (freight forwarding), warehousing management, order fulfillment, inventory management, logistics network design etc, are some of the topics which under the scope of "logistics".

The freight forwarding industry sector is a subset of the logistics industry. It generally provides services that guarantee products getting to the proper destination by an agreed upon date, and in good condition. Freight forwarders usually work closely with shipping or airline companies as agent and their major customers are manufactures and traders. The key mission of freight forwarding service is to save the client’s time and provide reliable transportation of products at competitive rates. In responding to the changing markets, many freight forwarders also provide more value-added services such as warehousing, distribution and total logistics solutions. 

To understand the works of a freight forwarding company, you can refer to the below video for a basic idea.

Video 1# How Does A Freight Forwarding Company Work ??   (How to video, 2013)

Evolution of “Big Data”

To understand Big Data, you can refer to the below video: What is Big Data and how does it work? (Funk-e Studio, 2013)

Big data means the practice of collecting electronic information from huge sources and applying analytics to identify patterns, trends, and other intelligence. In general, the analysis could be something have happened but not easy to perceive, or something can be predicted and will happen in the future. Early in the 1900s, doing data analytics was very difficult. It required manually computing all the statistics. Everything was done by hand or by calculating machines. Then calculator came along in the 1970s and made it easier to utilize more data. But the volume manageable with a calculator is still small. In the 1980s, computers became the mainstream. Yet, they were still expensive to work with data at that time. As the decades have passed, the amount of data has grown as fast as the computing power of machines. Then, many new technologies, such as cloud computing, mobile and automation, has continued to advance at a pace that made the volume of data grow even faster every year. Many companies have taken harder look at the evolving role of technologies in their supply chains as a way to support better decision-making. It has been practical for the industry dealt with structured data captured in proprietary software system, such as CRM and ERP, in the past. But nowdays, the emerging technological disruption erupt unstructured data involving in huge volume, wide variety, and high velocity. IBM (Forbes, 2012) estimates that every day 2.5 quintillion bytes of data are created – so much that 90% of the data in the world today has been created in the last two years, and Zikopoulos et al. (Understand Big Data, 2012) expect data volumes to reach 35 zettabytes by 2020. Moreover, new big data sources are pushed further across the boundaries. Data can be generated terabytes to petabytes of data in days or weeks. According to Peter F. Drucker (HBR, 1998), among history-making innovation, those based on new knowledge, whether scientific, technical, or social - rank high. Safe and proper use of Big Data can facilitate discovery and support new knowledge. 

Hong Kong Freight Forwarding Industry Overview

In Hong Kong, the freight forwarding industry has benefited from Hong Kong’s world class infrastructure, business-friendly and open environment. Total freight movements increased by 9.3% year-on-year (YOY) to 244 million tonnes in the first nine months of 2014. Most of the larger freight forwarders have a wide network of overseas branches, and act as agents for international air and ocean liners. More than 70% of Hong Kong’s exports are sent to other Asian markets, with Western Europe and North America accounting for about 10% each. Western Europe and North America, as long-haul markets, tend to account for a bigger proportion of the total. (HKTDC Research, 2015) 

The services provided by the industry vary according to the sophistication of the freight forwarder. The larger freight forwarders usually offer a full range of logistics services. Their main customers are time-sensitive manufacturing, trading and retail sectors. Thus, larger firm concentrate on their core competency and reduce business cycle time. The smaller freight forwarders provide more basic and economical services. Thus, the smaller firms provide more flexibility and more personalized services. Generally speaking, the forwarding service performance is strongly associated with the reliability, efficiency and predictability of service delivery for customers. 

Challenges in Freight Forwarding Industry

As global supply chains become more and more complex, the freight forwarding industry is threatened by the following main factors: 

Keen competition

In certain extent, freight forwarders is only an agent of international transportation, they are not producing any products, so the development of a freight forwarding company really subject to the market movement. For example, if the production line of a customer move from South China to Vietnam, then it will cause a direct impact to the freight forwarder which doing business with that factory in South China. Of course, some of the international freight forwarder may able to secure the business because they may have branches in Vietnam.  However, somehow, from the customer point of view, it is very easy for them to find substitution in the market because it is no difference for the factory to use forwarder A or forwarder B for moving cargo from port to port. So, somehow, in freight industry "price is king". If a company has a better networking in particular market, that company maybe the dominant player in that market. For example, DHL and Schenker DB in European market, Expeditors in American market, Nippon in Japanese market, Toll Global Forwarding in Australian market etc. Under this keen competition on price, so some of the smaller freight forwarder may strengthen their services by providing certain kinds of value added services (such as labeling or pick and pack) to their customer before/ after shipping at their warehouse and even providing tailor made supply chain solution for their customer.

In addition, for the customer with very large cargo volume, they may even making duel with freighter directly, i.e. get space and equipment from shipping line or airline. For instance, Zara group, they always get space from airline directly because she can even arrange charter shipment from Spain to worldwide. Under this condition, freight forwarder id they can get cargo from these kind of big customer, the profit margin is very slim. So, most of the freight forwarder usually make use of big customer to secure space and get lower cost from carriers and then get more smaller shipments from different smaller customers to maximize their profit margin.

Fast changing market

On the other hand, freight forwarding industry has a very close binding on the international trading. For instance, the trading terms (Incoterms) between shipper and consignee change, it will totally affect the business environment of freight forwarding industry. Say, if freight forwarder A has a key customer in South China which doing business under trading terms CFR (i.e. Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Insurance for the goods is not included.), under CFR condition this key customer will pay for the freight charge to forwarder A. However, if one day, the trading terms change from CFR to EXW (i.e. The seller makes the goods available at his/her premises. Buyer responsible to arrange pick up and freight) Under this situation, forwarder A may loss the customer suddenly because seller is no longer responsible to pay the freight and buyer can nominate another forwarder to arrange freight service on her behalf.

Furthermore, customer demand is related to consumer needs and government policy. If any changes, cargo volume may change suddenly. One of our group mates is working in logistics industry over a decade, he can see the change of market. For example, the popular of digital camera and the decline of film camera & photo related accessories. Free duty for importing red wine to Hong Kong, jet up a big volume in wine transportation. In short, a good market forecasting and strategy development plan is very important for freight forwarding industry. Otherwise, it is very easy to loss the market share.

The way to go..?

Under globalization, competitive advantage is very important for each individual forwarding company. There is emerging need for better leverage networks and new technologies to ensure that they meet the expanding needs of the customer's changing markets and competitions. With a technological assist, we can coordinate across time and space, resulting in higher productivity, faster cycle times, reduced facilities costs and greater freedom to structure work arrangements beneficial to both. (nGenera Corporation, 2009). Moreover, freight rates, more or less is transparent in the market. So, business strategy and direction is very critical on top of pricing. As mentioned, big cargo volume can help a forwarder to get a lower cost from shipping line and airline. However, smaller volume shipment should be the focus of all the market players. Yet, how to get clear picture of the market and cargo movement? Big data is one of the solutions.

Different Strategic Approaches and Potential Applications of Big Data

In respond to meet the challenges, on the one hand, freight forwarding companies in different size and cultures must consider a number of strategic fits and adopt different strategy to defend against competitive forces and gain market share. Some may adopt differentiation strategy to become a “one-stop-shop-provider” as a way to achieve differentiation advantage. Some may use cost leadership strategy to improve logistics process efficiencies and reduce unnecessary costs as a way to sustain a competitive advantage. Some may focus on developing core competencies that can act as an entry barrier. Others may adopt multiple generic strategies through creating different business units for each of them. On the other hand, Big Data represents a potential new source of competitive advantage for freight forwarders by harvesting data for insight into market trends, cost structures and market demand.

With the rise of smart technologies, professionals have started to collect all the data together to do analysis for freight forwarding industry. There is an emerging need for the companies constantly seeking opportunities for cost and service improvement through data mining and analytics. They can use Big Data to find answers that are more specific and significantly more useful. When freight forwarders handle millions of transactional data everyday, not only from a single computer system, but also many other sources on the internet, including content, weather, location, maps, voice video, and digital images, these data enable new capabilities to respond to fast-moving market conditions more intelligently. In fact, more and more IT companies are providing solutions to covert Big Data quickly into business intelligence. Through value creation and value extraction from Big Data, service providers can operate more efficiently and improve the scalability of their business. Different applications of Big Data technology have been adopted in the markets. For example, there are:

• Use Big Data analytic to drive value that aligns with core competencies and creates a competitive advantage, e.g. use data mining to segment different customers for better service personalization.
• Enable the organizational change to move towards fact-based decisions, adoption of new technologies, and embrace collaboration, e.g. bringing Big Data to cargo transport to improve capacity utilization by making it more efficient and environmentally friendly.
• Deliver faster  results by capitalizing in the ever-changing global market place, e.g. utilizing data analytics and building predictive model to deal with uncertain shipping situations.  

Case Study - Cargo Smart: Big Data and Freight Forwarding Industry

Cargo Smart

CargoSmart is a global software solutions company which providing global shipment management software to enable shippers, consignees, logistics service providers (including freight forwarders), and ocean carriers to improve planning and on-time deliveries. The data sources come from over 30 ocean carriers, CargoSmart leverages big data sources and a cloud-based platform to offer award-winning sailing schedules, visibility, documentation, contract management, compliance, and benchmarking solutions. Regarding on the Big Data, it is including 5500 vessels covering 90% of the world's ocean container traffic. Moreover, CargoSmart is providing a real-time big data processing for their customer and they are helping over 130,000 transportation and logistics professionals to increase delivery reliability, lower transportation costs, and streamline operations.

Application of Big Data in Freight Forwarding Industry

According to 2013 KPMG report, only 9% of logistics professionals have visibility into their supply chain because they are lack of access to quality data and still rely on manual data processing. Under this condition, many logistics professionals still under the condition of inefficient supply chain visibility. As a result, a big information gap formed and even caused inefficient processes. (Environmental Leader, 2013) Back to the success case of CargoSmart, some of the customers from CargoSmart make use of big data to analyze and act on any significant trends, opportunities and risks arising from events. So, if any freight forwarder able to spot out the cargo trends and opportunities, then eliminate the cargo risk impact, such forwarder should able to get a higher competitive advantage. Nevertheless, is it possible for freight forwarder to make use of big data in their consolidation planning and development?

Big Data helps forwarder to make better consolidation planning?

What is cargo consolidation?

First of all, cargo consolidation is when several small shipments, all being forwarded to the same region or location, are bundled and shipped together. This service can be beneficial both to the customer and to the freight forwarder. Consolidation is one of the common core functions which are highly associated with profitability and competitiveness in the industry.

How does cargo consolidation work?

Freight forwarder set up container freight station (CFS) in different location to keep different shipment from shippers/ consignee and then group related region/ location cargoes for container loading/ break bulk for inland feeder and delivery.

Strategic advantages to focus on improvement freight consolidation by Big Data

Cost competitive advantage: When the price competitiveness is strong in the market, the fundamental cost reduction relies heavily on cost control. Poor forwarding service not only affect profitability and competitiveness in the industry, but also raises the costs of trading and reduces the potential for global integration. There are several cost advantages to freight consolidation, both for the customer and the shipping company. First, consolidating small shipments lowers operation costs for the freight forwarder. Second, forwarding small shipments together lowers total shipping costs for the customers.

Differentiation advantage: According to Caplice (Logistics management, 2013), logistics manager are usually the last to know when supply chain problem occurs, but the first to respond when there’s a problem. Make use of big data may help to spot out the risk in advance.

SWOT Analysis: Make use of big data to have better consolidation development and planning

Strength

Cargo consolidation is one of the most important activities for freight forwarder to generate more income. So, the better consolidation efficiency and effectiveness, the more income can be generated. Make use of big data, forwarder can know the cargo trend and potential risk etc. Then, forwarder can have better consolidation development and planning.

Weaknesses

As mentioned above only 9% of logistics professionals have visibility into their supply chain because they are lack of access to quality data and still rely on manual data processing. Still, this is no doubt a fact in freight forwarding industry. First of all, not every forwarder is usual systematic way to handle shipment. Most of them are still using manual data processing. Thus, the data source in freight forwarding industry is not very good in quality at this moment. Freight forwarder may not easy to generate quality information for consolidation development and planning.

Opportunities

For sure, at this moment, only few logistics players in the market have visibility into their supply chain, in other word, if a company can get a better quality data source and make use of big data analysis in their company. She should able to get a higher competitive advantage compare with other forwarders. So far, DHL is one of the international freight forwarders that is using big data in her business sector.

Threat

The same, as only few logistics players in the market is making use of big data to enhance her visibility into their supply chain. In order word, any companies who are not doing freight forwarding business but she has business which may related to freight forwarding sector, then she may expand her business coverage to freight forwarding industry. For example, Maersk (Shipping line) build up a subsidiary company Damco (freight forwarding and logistics company) to take care the upstream needs. Under this situation, the competition of existing freight forwarders become more keen.

Conclusion

When we talk about "logistics", you may think of cargo movement. In micro view point, this is definitely correct. Yet, when we talk about "logistics", talk about "big data", have you think of globalization? That correct, under the impact of globalization, everything is possible because the boarder of each single industry is no longer separated. Of course, for freight forwarding companies, big data analysis may still very new at this moment. However, it is sure that with the popularity of different big data software come to the market, big data analysis will sooner or later can apply to the whole consolidation planning.

References

Environment Leader (2013). Big Data Improves Shipping Supply Chain Sustainability, Visibility. Retrieved April 13, 2015, from http://www.environmentalleader.com/2013/10/30/big-data-improves-shipping-supply-chain-sustainability-visibility/

Funk-e Studio (2013, November 12). What is Big Data and how does it work?  [Video file]. Retrieved from https://youtu.be/TzxmjbL-i4Y

Forbes (2012). Improving Decision Making in the World of Big Data Retreived April 13, 2015 from http://www.forbes.com/sites/etrade/2015/04/14/4-simple-steps-you-can-take-now-to-prepare-for-your-retirement/

HKTDC Research (2015) Freight Forwarding Industry in Hong Kong http://hong-kong-economy-research.hktdc.com/business-news/article/Hong-Kong-Industry-Profiles/Freight-Forwarding-Industry-in-Hong-Kong/hkip/en/1/1X000000/1X006NHM.htm

How to video (2013, September 8). How does a freight forwarding company work?? [Video file] Retrieved from https://youtu.be/1JdPUzRlIDI

Kate Vitasek (2013). Supply Chain Management Terms and Glossary. Retreived April 13, 2015 from https://cscmp.org/sites/default/files/user_uploads/resources/downloads/glossary-2013.pdf 

Logistics Management (2013). Transportation Network Optimization: New-age solutions for age-old pressures.

TIBCO (2015). CargoSmartUses Big Data to Transform Shipping. Retreived April 13, 2015 from http://www.cargosmarton.com/cargosmart-uses-big-data-to-transform-shipping/

Zikopoulos, P.C., Eaton, C., deRoos, D., Deutsch, T. and Lapis, G. (2012). Understanding Big Data. McGraw Hill, New York.

Peter F. Drucker (1998).Week 5 Reading: Optional HBR 1998 The disciplibe of innovation.pdf

nGenera Corporation(2009) Week 7 Reading: Building the Collaborative Enterprise: Ten Questions to Ask about Business Opportunities through Collaboration