Sydney-based Tim Routh writes exclusively for Splash today giving insight on how to develop and sell shipping tech innovations.
My firm China Sea Rates was sold and now I am embarking on a very bright new future. Technology in shipping and logistics fascinates me. We are in an industry that is always on the move.
There have been many articles recently examining shipping and freight technology and its worth to the industry and clients.
Some have measured the success of a freight tech firm on the investment it has attracted and others on the volumes the company has moved either by sea and or air/land freight. Having recently pioneered and ridden the investment roller coaster of a freight tech company I would like to offer a few insights on what I observed. As in many cases it is not the investment received or the volume shipped that indicates a healthy innovator or genuine disrupter in shipping.
We must first have to examine the word ‘shipping’. I say this as I think there are industries and firms that are using the word out of context. Obviously, there are many meanings to shipping, but the most common definition is – the transport of goods by sea or other means. As per the definition we normally relate ‘shipping’ to the transport of items via the sea. Yet in many instances trucking and air freight firms also use the term to describe their operation. Perhaps ‘shipping’ conjures up better visuals in the client’s mind than ‘trucking’.
Now any firm in shipping – air freight – trucking – etc use the same word. The technologies they develop and offer are light years apart and the solutions they focus on are also radically different. There is also the pace of the solution in its application. As such for the most part we can separate them into Sea Freight vs Air Freight – Trucking. There are complete and holistic solutions that encompass both, yet I would offer that the solution if examined would divide into the two I have outlined above in operation and context.
Let’s start by looking at Air Freight – Trucking solutions. From a pricing point of view this is a very simple system. What I refer to as straight line pricing. We send the goods from point A to Point B and there are only one or two entities involved in doing so. Let’s say we FedEx a 10 kg box from Shanghai to Los Angeles. This nowadays is a simple spreadsheet that can price and arrange the booking. Same for trucking, if we want to send a pallet Miami to New York with Uber Freight then it is a simple spreadsheet. Of course this is all hidden behind the company’s website, app or other client facing technology. Whilst the pricing of this solution is not complex it is trying to solve complex problems such as routing, back loads and wasted miles. This system even goes so far through is own operation to try and save the planet.
Sea freight is far more cumbersome. Its pricing has fixed and floating charges. What to do if we have a 20ft container on the same Bill of Lading as a 40ft container? Some charges such as port charges in the import country are fixed to the container, yet a paperwork charge may be fixed to the Bill of Lading. This is what I refer to as ‘Bric a Brac’ pricing. Where a system has miscellaneous objects of little value on their own yet combined make a solid offering. Sea freight solutions unlike the other systems have not yet been able to tackle the same issues as Air Freight and Trucking, such as capacity, route and yield management. Several factors have slowed the advancement, mainly there are many more parties involved in the process.
This means the focus at any given time is misplaced, a ports capacity may be low yet it could fill a vessel and vice versa. By having the many entities in the supply chain it fractures the ability to handle a true complete solution. Then there are external factors that also impact such as, exchange rates, political issues and Customs Authorities. A great deal more collaboration is required to advance the cause.
Having now looked at the two systems we then need to look at valuing them. The first component is to review the revenue, with a basic evaluation. I like to take this to a very molecular level. What is the PPJ – Profit Per Job? By looking at an Air Freight – Trucking job we see that in most cases that the profit is not as high as Sea Freight. Mainly due to the size of the shipments. This is where we are also having to look at whether the technology is behind the service or is at the front? For example is the technology part of a freight forwarding entity or is partnering the shipping/logistics firm. Obviously, a freight forwarder with an internal technology and with a healthy following of clients is worth a great deal more than a technology firm acquiring a profit per booking on a micro pay rate basis.
The next step is to evaluate the clients. And in this case being retail is the best scenario. If you are a freight technology firm and you are partnered with a freight forwarder, you have no control over your client base. This is not as strong as handling your client’s work. One item that always secured interest from investors in my business was client management. We handled the freight and were paid directly from the client. Cashflow is king and if your technology does not have the ability to interact with the client, it is not a good sign. White label offerings often are wiped out overnight due to their client losing one of their own large clients. An associate of mine was the CEO of www.temando.com, a great Air Freight – Trucking platform that had a reputable investor and attracted $50m in investment. This week after three years it has now closed its doors, due to not being retail.
Know your client’s expectations. Many freight tech solutions are conceived and delivered through the eye of the founder/s. That founder/s in many cases has conceived the technology in an effort to solve a problem. Mine was to make shipping rates accessible to anyone. At the time they weren’t. Also hopefully save the client money and offer more service options. It was not API capable, which we then did. Upon completing the API upgrade I understood it was not effective. We had a huge potential client called Magento, who is one of the world’s biggest e-commerce solutions. Everything was a match, but for the three-second rule! All technology with API to Magento had to function from click to result in three seconds, which most shipping technology does not. My client’s focus was to ensure the buyer got a result ultra-fast, not just a result.
Shipping lines, air courier companies and trucking firms investing into freight technology can be fraught with danger. What I see is a good initial range of companies innovating and delivering solid solutions. Be wary of any investment/s from firms that may not be aligned with your current goals. Further many of these firms will use your firm to advance their own cause either geographically (China especially) or markets they have no experience in. For example a shipping line investing in a trucking firm in Brazil. Best investments come from those who invest every day, such as venture capital firms or other investment firms. In many of these cases the shipping company is using your technology as a front to test a new market.
Don’t forget Asia- Pacific and China. It is after all 50% of most shipments for international transactions. Each day you advance your technology without including Asia is a day you will spend getting the partner caught up on the advancement. Understand that China especially is drastically different to anywhere in the world. Be prepared in your endeavours to have to share your technology. One of the biggest issues in China is that they do not have anywhere near the same systems as in the West. Also remember when it comes to shipping, they are the biggest country in the world. They have a system and it works, if at best on a basic level. They have huge government interaction. If it bothers you don’t proceed.
The actual volume that a company handles is very low on my focus. This is mainly due to it being historical data. Often when I speak with freight tech firms, they have had a consultant in previously and the entire focus was volume. Analysing previous quarters whilst good for KPI management, does not do anything proactive towards moving the firm forward. Decisions in shipping and freight are mostly made by your client’s requirements or an opportunity from a partner, not focusing on 12-month-old volume report on trade from Shanghai to Long Beach. One note that there are some speciality companies that handle data in a proactive and positive solution, whether by consulting or their own indexes. These are much better as they are using volume data to either forecast or locate trends.
Two items that always were hammered into me form all parts were scale and access. The scale of the technology must be able to handle a micro client or an enterprise client. Selling jewellery and selling mining equipment are two very different things, yet both clients may have the same transactions resulting in the same attention. The technology must be scaled to understand all levels of client. Access is paramount, your technology must be in as many places as possible. I don’t mean physically, rather online and able to be ‘plugged in’ anywhere. Many firms make the mistake of thinking their technology is compatible.
Make sure you have the right mentality. I sold China Sea Rates to a Chinese bank and a postal entity in China at a time that was right. I never would have thought that. And whilst technology is important, so too are the people that work in the organisation.