NVOs struggle to satisfy the technology requirements of their diversified customer base.
By Eric Johnson
Today’s non-vessel-operating common carrier faces a tricky task: how to avoid being a jack of all trades but master of none.
Any successful NVO — whether large or small, neutral or not — will have a book of business that varies widely in its basic characteristics. Those differences include its customers’ volumes, lanes, origins, consolidation needs, and not least, its technological requirements.
In other words, even the NVO with the most homogenous customer base — say one focused almost entirely on inbound shipments from south China — will have customers that have different needs.
So the challenge for all the different classes of NVOs in an incredibly fragmented market is to present themselves to these disparate groups of customers as the right choice for their business. And much of that pitch comes down to providing the right level of technological sophistication.
“The notion that ‘one size or style fits all’ is no longer the case and will soon become a distant memory, as the top providers diversify their IT platforms,” said Steve Aldridge, president of the Irvine, Calif.-based NVO Encompass Global Logistics. “The use of multiple platforms and transactional relationships with the IT providers will grow and, I believe, is the key to long-term success and stability.
- Think about your technology requirements before picking an NVO and look for one that can supply exactly what you need – not more, not less.
- Be open to higher levels of sophistication offered by your NVO — like visibility to the order management level — because it may be more affordable and approachable than you realize.
- Know that the system your NVO is providing you could well be rebranded from a neutral NVO or third-party technology provider, and there’s nothing wrong with that.
- Shippers are seeking deeper levels of exception management.
“We believe that we will now have the capability to serve the varied needs of our clients whether it’s basic supply chain reporting or in-depth management reporting. This is good for the clients as well, since the costs vary depending on the complexity required to satisfy their needs. You can pay for only what you need and not for an array of reports that are not required,” he said.
Indeed, in conversations with a number of NVO executives and third-party technology providers, it became clear that NVOs of all sizes have a mandate to right-size their technology offering to their respective customers based on each customer’s needs. It may seem a generalization, but the smaller importer, bringing in one box a week from one factory, will not have the same technological requirements as an importer sourcing from an array of vendors and bringing in 100 boxes a week.
“It comes down to configurability,” said Eric Souza, director of ocean freight products at UPS. “You have customers that represent the entire spectrum of small, infrequent, simple needs to complex inbound supply chains with major data requirements. But all shippers are grappling with reliability. They’re looking for visibility to their stuff. And then they want some level of integration.”
Given that reality, NVOs are faced with some tricky choices. They can either focus narrowly on a small band of like-minded customers seeking similar levels of technological sophistication (say, a basic track-and-trace platform that provides milestone updates or lets them know if something catastrophic has disrupted their supply chain), or they could focus on becoming a provider to all, offering different levels of sophistication to different categories of shippers, as Aldridge alluded to.
Another alternative to the first option above is to focus narrowly on shippers requiring high levels of sophistication — say, visibility from the moment an order has been placed rather than just when the goods are on the move.
The other tricky choice NVOs face is whether to buy or build a system to meet their strategic goals (a topic American Shipper
touched on in our 2011 NVO report). And here’s where things get more complicated. Many small and midsized NVOs see proprietary technology as a differentiator to their customers, yet many lack the deep pockets to develop systems on their own. So they end up licensing systems from the large neutral NVOs (who do have the wherewithal to invest in these systems) and presenting them to their customers as their own technology.
It’s analogous to the store brand supermarket products that are actually made by a large food manufacturer and white labeled. Supermarkets don’t typically have the core knowledge to grow apples and produce apple juice — their knowledge is tied to the marketing and selling of food products, not the making of them.
Or consider it this way: small and midsized forwarders and NVOs will look to the larger NVOs for technology in the way that small and midsized shippers look to their forwarders and NVOs for technology. That was a concept posited to American Shipper
by Biju Kewalram, co-chief executive officer for the neutral NVO Vanguard, a name renowned in the industry for investing heavily in IT.
“These small and medium forwarders depend on the NVOs’ technology to stay in the marketplace because they don’t have the capital to buy top-notch technology like the (larger) NVOs,” said Michael Sinclair, a Vanguard veteran who is now president of the Americas for New Age Software, a developer of backbone systems for forwarders and NVOs.
“For example, a small forwarder will use a large NVO’s track-and-trace system to track their goods. Also, forwarders — small and large — will rebrand an NVO’s Website and brand it as their own to make it appear as though it’s the small to medium-sized forwarder’s own proprietary software, but in truth it’s really the NVO’s software,” he explained.
Sinclair said NVOs also struggle with the lengthy development cycles for building in-house systems, especially when they can go to outside vendors that are literally in a constant development cycle.
“Technology is going to be a much, much bigger issue in transportation relative to NVOs or large BCOs (beneficial cargo owners),” said Bryn Heimbeck, president of the logistics software developer Trade Tech. “It’s irrelevant whether it’s third-party or in-house. You’ve got a requirement to manage this professionally. It’s large and complex. As a result, you need a production management-type system. More and more providers are defining themselves by their system, because that defines their ability to manage the processes. Everybody’s got good people, but if you don’t have a good system, it limits their ability to do a good job.”
‘Bows And Arrows.’
Heimbeck said NVOs have no choice but to increase their level of IT aptitude and offer broader services to shippers, even ones who aren’t asking for it yet.
“In a competitive market like international shipping, it’s like war,” he said. “There are going to be those NVOs who arm themselves with the machine guns, running into people with bows and arrows, and it’s not going to be an equal competition. The new winners will be the ones who manage that complexity as a production.
“Every importer and exporter, whether big or small, wants to be able to know what’s going to happen, and know where their stuff is,” he said. “But everybody, every importer and exporter, has different needs.”
Souza, of UPS, agreed.
“For a smaller shipper with importing needs, the information at the bill of lading-level may be all they need,” Souza said. “Maybe just send me an email or point me to a Website with a handful of milestones. At the other end of the spectrum, the starting point of visibility begins from the purchase order before the container is even stuffed. Then they want to know what’s in the container — don’t just tell me the container number, tell me what’s in the container.”
This higher degree of specificity is important for shippers who might be ordering goods from multiple factories 90 days prior.
“They don’t always get what they order,” Souza said. “Some forwarders will consolidate orders from different vendors into a more efficient container, but then you have a mixture of purchase orders from different vendors.”
It all creates complexity.
Souza came to UPS from the forwarder Freight Cos. when UPS acquired Fritz Cos. in 2001.
“When we developed our visibility platform at Fritz, you couldn’t go out and buy someone else’s solution and leverage that,” he said. “Now there are a lot of options out there for service providers to give reporting and visibility solutions.”
Taking the issue of available investment dollars out of the equation, there are generally two schools of thought in the NVO industry regarding technology — those who believe it is best developed in-house and those who believe it is best left to developers or neutral NVOs with the cash to fund repeated development cycles.
Some NVOs believe a proprietary system — a true proprietary system, that is — is the key to differentiation (an example is Topocean, whose IT platform American Shipper
wrote about in 2011). Others believe technology acquisition is best done on a tactical level, with the NVO able to pick the best platform available at a given time, say for visibility purposes; then upgrade quickly if a better platform emerges. The evolution of cloud-based platforms has clearly enabled that strategy.
As one veteran executive told American Shipper
, “There’s not one company that has all the answers. What matters to people is not so much the platform itself, but how you utilize the system.”
Aldridge said it’s a rigorous process for small NVOs to wade through.
“The small-to-medium NVO operates in most cases their own proprietary system that provides limited to no management-type reporting,” he said. “The reason lies in that the client base of a small-to-medium NVO doesn’t require anything more than a simple booking summary report, which is much less technical than an account who needs visibility throughout the entire supply chain.
“The challenges the small-to-medium NVO faces, in many cases, are the high costs of the licensing fees and/or the transaction fees that the better known IT providers charge to onboard their solution. It comes down to the cost and investment required versus a tool to differentiate you as a ‘first class’ logistics provider,” Aldridge said.
In January, the large neutral NVO CaroTrans showed American Shipper
its new door-to-port export tool as an example of how NVOs must innovate and invest to compete.
“You have to spend to build customer relationships,” said Matt Spartz, vice president of operations for CaroTrans. “The tools I showed are more gateway tools. Once we have a relationship, we can provide whatever the customer needs.”
Spartz said he would love to be able to pick one technology and offer it to customers — it would make it much simpler for CaroTrans to develop that single system to be used by all in exactly the same way. But that’s not reality.
“One platform is just not possible,” he said. “It’s being driven by customer need and not our dictating to anybody.”
CaroTrans doesn’t build all its IT in-house, though. It was announced in early February the company would use Freightgate’s spot rate solution. The company also uses an outside vendor for ocean schedules.
Indeed, most NVOs use an enterprise system of the ilk of CargoWise or Kewill as the backbone of their operations. It used to be that an NVO’s calling card was its people and relationships with carriers. Of course, that was when it was only about rates and capacity.
Now shippers turn to NVOs for a level of customer service and technological expertise that they often find lacking when dealing direct with carriers. And it’s not just about small shippers who lack the gravity to secure good deals with carriers. Larger shippers are increasingly using NVOs to diversify their transport portfolios, but also to help with visibility and optimization requirements.
Souza said the sophisticated echelons of technology — really robust visibility engines — are probably more familiar than they would appear, both for the NVO and their customers using it.
“If you look at the systems out there — they’re not overwhelmingly complex or intimidating,” he said. “All of us have tracked a package. You can do this the same with an ocean shipment. Maybe it’s because you’re not exposed to the other options out there. Maybe it’s because that’s how you’ve done it for 20 years. Maybe there’s no internal pressure. But we are seeing the impact of technology and mobility permeate the smallest of shippers. You see a new college grad that’s used to Facebook, and he’s waiting for a spreadsheet to load the next day, that’s going to quickly become unacceptable.”
Souza, however, said technology in and of itself is still a differentiator.
“There’s definitely still differentiation between the providers (in terms of systems),” he said. “It’s about how flexible, adaptable, configurable their system is — the level of detail in the system. Some of the largest U.S. NVOs don’t have the same level of sophistication as some further down the ranking.”
A number of experts said the next expectation from shippers and forwarders is higher levels of exception management.
“Certainly exception management,” Souza said. “It’s not a new concept — but I think a desire to focus on what the exceptions are. That continues to increase in importance. Also access to more detail — about a delay and how to resolve it, whether it’s with customs or even something we can’t do anything about, like the L.A. port strike.”
Heimbeck said it’s a natural evolution for shippers to want to control their destiny.
“Everybody has the same issue,” he said. “They want to be able to manage the process. Nobody wants to watch a car wreck. But what they want to be is in the car and able to avoid the wreck. They want to change things before they feel the pain. The current level of technology is not capable of doing that. The best you can do is have an adjacent technology that gives you visibility to watch the wreck, but you don’t have a management system that allows you to take control before the wreck happens.”