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How starting as a traditional brokerage led to a digital transformation

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Yes, logistics and transportation industries will need to part from their old ways to stay relevant and competitive. No, it won’t only be just about fancy autonomous vehicles.

The following is a first-hand account of the lessons Opus9 learned in building a modern brokerage. The opinions expressed here are solely those of the author and do not necessarily represent the views of FreightWaves.

 

Shipping industry corporate executives largely agree that profound transformations are coming. Be it via machine learning, blockchain, or AI, with some IoT mixed in, supply chain innovators are racing to find the proper combination of these technologies to script the end game. However, the story telling us where those transformations will occur first is largely untold. Sure, full digital automation of shipping processes is on its way, but what are the intermediary steps leading us there?

Breaking the Myths Surrounding Transportation

It’s easy to be impressed by technical publications parading how modern, almost futuristic, transportation has become. Some would make you believe freight can already fly on its own at the stroke of a wand from one place to the other. It’s only when you are confronted with the realities of the field that you realize how low-tech the process still remains. And, even if autonomous systems tend to take center stage, a great portion of the automation may not even come from frontier technologies.

What are the pain points we’re trying to solve here? In order to take step 1 towards the promise of this transformation, a company needs to truly live the day to day of how it currently works. At Opus9, we did exactly that - we started shipping freight manually and digging into our own operations. During the time our company operated as a traditional brokerage firm, we witnessed and experienced every broker-sided inefficiency along the customer journey as well as client-sided issues with shipping and trucking of goods.  And trust me, there are plenty of them.

The Time Factor...

Time is money they say, so let’s talk about that first. It takes up to six weeks from a truckload or LTL quote to when payment is processed using the traditional shipping method.

One of the main reasons? The key actors in the shipping industry (shippers, carriers, brokers) rely heavily on paperwork. A lot of documents are circulating from one stakeholder to another and through various means. From the initial spreadsheet referencing the types of goods, pick-up and delivery locations and dates to quotes, to the bill of lading, and finally to the proof of delivery, those documents which sometimes only exist as hard copies are emailed at best, faxed at worst, and wasting time and efficiency always.

Like the travel industry 10 years ago, shipping is based on intermediaries, brokers, forwarders and agents that negotiate prices verbally (mostly over the phone) with carriers and shippers before sending written confirmations through email or fax. The back and forth between the shipper, brokers, and the different carriers the broker will have contacted, is very time consuming. If we take a look at the traditional booking process, it takes between 12 and 24 hours to obtain a quote from a carrier and between 24 and 48 hours to get an actual booking confirmation.

In most cases, once the shipment is on its way, there is no way for the shipper to monitor it. Typically, the broker will ask the carrier company to provide the truck driver’s location as a check call. Check calls are perceived as part of the service but with companies now utilizing GPS tracking systems, and ELD being the norm, manual attempts to solve the issue of real-time tracking should all but disappear. Still a pain point for a large portion of shippers, many companies are being built around this specific focus, but ultimately lose sight of the automation opportunities either side of the simple in-transit status updates and alerts.

 …Impacting Pricing For All

Pricing-wise, the traditional brokerage model tremendously lacks transparency. Accessorial costs (toll fees, extra governmental fees, etc. that can represent sometimes about 20% of the total cost) are not generally mentioned upfront during the negotiation and are likely to appear later. In addition, the broker’s mark-up rationale isn’t always clear, and fees often are tacked on days, or weeks after proof of delivery. Finally, there are the traditional latencies in payment, which makes it hard to understand cash flows for all parties involved. When carrier companies issue an invoice to a broker, terms of payment are usually between 30 to 45 days, and the timing isn’t getting better. Some shippers are now asking for as much as 120 days.

How to Bring About Effective Change

Across 12 months of operations as a traditional 3PL, we analyzed and discovered which pieces of the puzzle to automate in order to optimize the shipping experience and reduce friction for each stakeholder involved in the process.

Since shippers traditionally build a trustworthy relationship with a broker, we built a user-friendly, customer-centric quoting, booking and process flow. We learned to measure the importance of the individual steps in the process, and how each component can play in the industry’s dynamics. Automated notifications, in shipment-chat, and alerts allow shippers to ship freight in an automated manner ‘Lights Out’ end to end and access our operations staff only when critical issues arise.

To circle back on the travel industry analogy, people used to love calling a travel agent to plan and book their next exotic trip. Eventually the industry shifted to automation, to a level whereby most of us do not think twice about booking our next travel without any human interaction. As we continue to evolve automation leveraging additional technologies, we will continue to provide a true chapter by chapter story of digital transformation.

Free trade and Asia's logistics resurgence - takeaways from Asian Logistics and Maritime Conference

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Free trade promulgation and its relevance in the global economy took center stage in the keynote address of Hong Kong’s Chief Executive, Carrie Lam, at the recently concluded Asian Logistics and Maritime Conference in Hong Kong. Lam spoke about Hong Kong’s bustling trade activity as it projects itself as one of the world’s preeminent logistics and maritime centers, and was borderline critical of the trade spats that have currently held economies in a deadlock.

“Free trade is taking something of a thrashing these days, given the rising undercurrent of unilateralism and protectionism,” she said. “For Hong Kong, the primacy of free trade is immutable. It’s thanks to free enterprise and our ability to adapt to the changing market that has made Hong Kong one of the world’s leading trading economies, and a leading international financial and logistics center.”

Unlike regular economies, Hong Kong’s GDP has had an inordinate dependence on logistics and trade, with the sector contributing to 22% of the total GDP while employing about 19% of the country’s workforce. This has led to the country’s trade value to stand at nearly $1.06 trillion - a value thrice as big as its GDP.

Hong Kong has constantly put its weight behind signing free trade agreements, with Lam reminding that it has been a year since the state signed a free trade and related investment agreement with the Association of Southeast Asian Nations (ASEAN), which would take effect from January next year. The country has also concluded a free trade agreement negotiation with Australia a few days back.

Dato Lim Jock Hoi, the secretary-general of ASEAN spoke about the growing importance of ASEAN countries in the global economic rhetoric, as the region is now the sixth-largest economy in the world, with a combined GDP of $2.8 trillion. Jock Hoi alluded to the need for more investment in the transportation space, pointing out that the challenge lay in expanding ports and bolstering highway and rail networks.  “ASEAN is committed to enhancing regional and global connectivity, but we need sustainable solutions to infrastructure to provide greater connectivity,” he said.

All through the conference, the U.S.-China trade war found mention, with logistics incumbents largely echoing that its impact would not be as catastrophic as advertised. Karen Reddington, president of Asia-Pacific division of FedEx Express, contended that there might be a few “bumps in the road” due to tariffs, but it would not stem trade flow.

Mike Fang, VP and head of Maersk Line’s Greater China region (CXE: MAERB.C.IX) opined that the trade tensions would cause disruptions for its customers in the transpacific, but also mentioned that this would create a spike in demand over the region as shippers rush to get ahead of the tariffs that would be in place by the beginning of next year. Though it is good on the shorter run, he expected a more extended ebb period following the Chinese new year. “In the long term we need to put this in perspective, it impacts about 2% of global trade,” he said.

However, the trade spat could inadvertently help boost manufacturing in the ASEAN countries like Indonesia and Vietnam, which are already cashing in and are expecting a jump in exports to the United States. Chinese businesses, with the intention of circumventing the tariffs, are shipping unfinished goods to South-East Asia for assembly and also use these countries as an export base.

Fang also spoke about improving connectivity across the land, apart from strengthening maritime transport. The Belt and Road Initiative, for instance, has connected China to the depths of Europe, with rail connections now going as far as France. Railroads are attractive to global supply chains as it is faster than sea freight, and has carbon emissions that are 90% lesser than air freight. Apart from promoting such networks, Maersk has indulged in several digital initiatives of its own that could improve customer service, reduce costs, improve asset productivity and develop new revenue sources, said Fang.

As supply chains are increasingly digitized, it makes way for higher transparency and visibility into logistics processes, with the technology of blockchain being an example. Dean Croke, chief analytics officer of Blockchain in Transport Alliance (BiTA), spoke about blockchain’s immutable ledger system which could help secure information across complex supply chains, as freight moves through various stakeholders.

For this to materialize, Croke advocated for creating industry-wide blockchain standards that would ensure data interoperability. “Blockchain has emerged as a serious topic in the logistics space over the last year, and it is important that we standardize data formats across the supply chain, or it would lead to us spending a disproportionate time in mapping legacy data systems to a standardized data system,” he said. Since its launch last year, BiTA membership has snowballed to over 450 companies, with the likes of UPS, FedEx, Uber Freight and Google getting onboard, as they collectively look to create a common framework and standards from which participants could build DLT and blockchain applications.

Ambrosus builds decentralized IoT networks for food and pharma supply chains

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Blockchain’s relevance in the logistics space is now evident, as the technology could be a way to bring transparency and visibility to a myriad of verticals, especially the ones that involve complex international supply chains. Then again, regardless of blockchain’s irrefutable possibilities, concerns continue to arise as to how feasible is the idea of convincing large businesses to make their sensitive and proprietary data public, albeit them being securely stored.

Ambrosus, a blockchain-based startup, believes it can break the data deadlock. “We enable consumers and supply chain stakeholders to have better trust about the products that they are receiving or consuming, and we do this through sensors that communicate to the blockchain,” said Angel Versetti, CEO of Ambrosus.

As blockchain is touted as an ultimate instrument of trust, Ambrosus uses it to source data from various sensors. Though most blockchains function in isolated environments and are self-contained making it conducive for fintech use-cases, Ambrosus is enabling real-world data to enter the blockchain which helps it gain perspective into the products being shipped through the system.

Versetti spoke about what caused him to rally behind the idea of creating a transparent supply chain network with blockchain as a medium. “I was previously working at the United Nations, and one of the problems we identified was that despite all the technological advancements, there were still a lot of recalls in the food industry and similar problems existed in the medical space as well through counterfeit items,” he said.

“In both the sectors, the problem was about inducing transparency and the ability for multiple stakeholders to reduce fraud. And when I was thinking about solving this, I realized that blockchain was a solution.”

Ambrosus eyes the pharma and food supply chain industry as its customer base and is working primarily with large businesses in the space, to understand their needs and build a platform that is conducive to large-scale sensor generated transactions.

“In general, food and pharma companies are pretty conservative when it comes to technology. In the pharma space, you have a lot of regulations that make it difficult for them to adopt new technologies, as they are very risk averse and want to test everything thoroughly because if something goes wrong with quality assurance, someone can literally die,” said Versetti.  

And since Ambrosus works on highly sensitive segments, it is critical for its technology to be consistent and scalable - aspects which would not be quite as rigorous in other verticals. Versetti also mentioned about the difficulty in getting stakeholders to the table. “We need to educate them, especially the executives who may not understand what blockchain is, or why it is valuable to them,” said Versetti. “But this year is a bit easier, due to the market hype blockchain created last year, and that helps provide executives trust on data integrity, and they know that blockchain is going to be important for the future of their companies.”

Versetti contended that one of the major roadblocks to widespread adoption was about the opacity in regulations, and the hostility shown by countries towards blockchain related technology and cryptocurrency. “But once we go past that and are ready to integrate it, a lot of companies would benefit from the power of blockchain and data integrity offered by it, without really needing to make the data public or transparent,” he said.

Such a move would need foundational changes to the design architecture, which Ambrosus is tackling through a hybrid solution that allows companies to store data themselves and supply only the metadata - making it the ‘fingerprint’ of the primary data set, that could be used to verify if data is altered. However, there still runs the risk of companies deleting data, and with blockchain only registering the fingerprint, it would not be possible to pinpoint who actually erased the data.

“But this could be solved with zero knowledge proof, and we have been doing that. It is basically a technology that allows you to verify the integrity of the data without being able to see the original data itself,” said Versetti. “It is still pretty early though, and it will take some time for it to be more production ready.”

Another challenge to Ambrosus stems from the fact that companies are largely protective of their data, and would be inclined to choose industry incumbents like IBM, which to a risk-averse firm, would seem more tenable for their blockchain pursuits. “But if you look at IBM Hyperledger's architecture, we guarantee that what they’ve built is not the real blockchain, because it can be controlled by a single party and is developed by a single stakeholder,” said Versetti.

At the end of the day, blockchain is about decentralization and companies would see value only if they consent to work with different stakeholders on a level playing field. Versetti mentioned that Ambrosus had built a scalable solution that can process up to 500,000 transactions per second by bundling data together. “Our goal for the next few months would be to roll it out, and make it work in a way that would be acceptable for industrial grade applications and to have adoption amongst several large stakeholders,” he said.