In order to transform the freight industry, a number of startups are now working to develop software designed to help sector players manage a structurally-complex industry whose business is valued at close to $1,400 billion per annum in the US.

Developing software to manage the complexity of the maritime freight business
Every year some 9 billion tons of merchandise, accounting for 80-90% of all global merchandise is transported by sea, making maritime freight transport the most widely used means of cargo transportation worldwide. Major port cities such as Singapore and Shanghai dominate international trade. Meanwhile the widespread use of containers, pioneered in 1956, has brought lower freight costs and contributed enormously to the growth in international trade. Today around 50,000 merchant vessels – including bulk carriers, oil tankers and container ships – ply the oceans. However, while the overall freight sector accounted for $1,390 billion in 2012 in the US alone, according to the United States Department of Transportation, the Baltic Dry Index, which measures the cost of moving major raw materials by sea, was recently clearly showing the effects of the current economic slowdown in China.
In fact, despite the major role it plays in the world economy, maritime transport today has the image of being an ageing heavy industry, distinctly lacking in innovation. Even though hundreds of thousands of dollars were invested during the 1980s and 90s to modernise cargo fleets, there is now a real need to introduce technological innovations in order to optimise the transaction process between shippers and carriers and be able to track merchandise. 
Maritime transport
Maritime transport as a percentage of global goods transportation (Source: Arte)

A fragmented industry characterised by intermediaries

A special feature of the maritime cargo industry is its complex structure, involving a large number of intermediaries. "When it comes to maritime freight, the value chain – to take an extremely simplified example – is as follows: first the merchandise is transported from the exporting company’s warehouse to the port. This is often done through a road haulage company. At the port the goods have to go through customs and are then loaded into a container. The actual sea-crossing is handled by another party. When the ship arrives at the destination port, the same processes take place in reverse”, explains industry expert Matthias Hanke, Managing Partner at international consultancy Roland Berger in Zurich, adding: “So you see how complex the model is. It’s not just about one firm that wants to ship goods and one freight transporter. Different players are involved right along the value chain.” It is therefore hardly surprising that even in this day and age it can take sixty phone calls or more to book space on a ship and finalise the transaction.
This is the raison d'être of the forwarding agent. The freight forwarder’s job is to join up the first two links in the chain – the firm wishing to ship goods and the shipping company. This intermediary agency plays a role not only in bringing the two parties together; it also makes the transaction happen by negotiating prices and then takes care of administrative and customs procedures. It is basically the forwarding agent’s job to make sure the client’s aims are achieved. The forwarding agent will in fact decide which mode of transport to use, make the necessary arrangements and will receive a commission for the sum total of the services rendered.  
Tech start-up
Tech startup Haven has created an online platform that links up firms wishing to ship goods with shipping companies
Some major firms have their own departments to carry out this intermediary role, but very often companies prefer to use a third party freight forwarder. The freight forwarder employs people with legal, fiscal and logistics skillsets, and will also have the kind of powerful international network that an individual firm is unlikely to be able to match. ‟Take for instance the Swiss company Kuehne+Nagel, the largest international transport and logistics agent today, which transports 2.9 million containers a year”, says Matthias Hanke, explaining: “The firm has a highly developed international network, with warehouses in ports all over the world. They’re therefore well placed to manage the complexity of the business. They do what they’re expected to do and they do it pretty well.”

Disrupt the intermediation model or empower the freight forwarder?

However, once you start talking about changing the way intermediation works, you are talking about disruption. And indeed new players are now emerging and questioning the role of the freight forwarder.
This is precisely the task that San Francisco-based startup Haven has set itself. Haven has developed an online platform that automates ocean freight reservations, providing shippers with guaranteed capacity and transparent billing. ‟While there is real added value for large firms in using an intermediary, given the international connections the agent will have, the advantages are not so obvious for small and medium-sized companies. Moreover, there’s generally very little transparency with regard to the margins charged by freight forwarders” points out Haven co-founder Matt Tillman, underlining: “By creating a market place where the two parties meet, we’re enabling shippers to post a specific request and compare a range of offers.”
Flexport, empowering the freight forwarder
Other players are taking a different approach, focusing on creating software designed to manage the complexity of the business rather than squeezing the freight forwarder out of the process altogether. Flexport, a fellow San Francisco-based startup, is a good example of this approach. "The maritime freight industry is huge, but it’s a highly fragmented and complex business. Shipping goods by sea requires around thirty separate steps and involves four parties at least. Moreover, the industry hasn’t sufficiently taken on board the new technologies”, stresses Sanne Manders, Flexport’s head of operations, explaining: “At Flexport, we’ve opted to add value to the intermediary. After all the forwarder isn’t just a buyer and reseller. The agent is not only responsible for negotiating the price, s/he takes charge of the entire ‘assembly line’, managing the flow of information, and even ensuring that information actually gets from one player in the chain to the next. The purpose of our solution is to replace the dozens of phone calls a freight forwarder traditionally has to make/take by software that will help to manage the highly complex value chain. From the client’s – i.e. the shipper’s – point of view, our solution offers access to analytics on cost, the current whereabouts of the cargo, etc., and so brings greater transparency to the supply chain.”
Given the added value provided by the freight forwarder, it certainly seems a good idea to try and streamline the agent’s activities through information and communication technology, software, and data collection and analysis. Nor are the benefits of this kind of solution limited to strengthening the hand of the intermediary; this approach also enables shippers to gain a clearer view of the value chain, to see what prices are being charged for what and provides smart goods-tracking tools.
By Pauline Canteneur