Special Coverage: The application of technology in ocean freight

American Shipper has profiled the founders of four companies - Haven, ClearMetal, Flexport and Xeneta - that are presenting a unique approach to technology application in ocean freight.

Special Coverage: The application of technology in ocean freight

American Shipper has profiled the founders of four companies - Haven, ClearMetal, Flexport and Xeneta - that are presenting a unique approach to technology application in ocean freight.

Special Coverage: The application of technology in ocean freight

American Shipper has profiled the founders of four companies - Haven, ClearMetal, Flexport and Xeneta - that are presenting a unique approach to technology application in ocean freight.

 
For an industry known for being full of wise, old heads and grizzled veterans, there sure seems to be a lot of young faces making waves in containerized freight these days.

    The emergence of a host of new technology-forward companies that are aiming to rethink the way ocean freight works is largely being driven by people in their 30s.
   These new, burgeoning leaders have varying degrees of experience in the world of logistics, but they all have two common passions: shaking up core ocean freight processes like procurement, forwarding, and visibility; and a belief that modern technology is ready to make an indelible mark on the global movement of containerized goods.

    American Shipper has profiled the founders of four companies that are presenting a unique approach to technology application in ocean freight. These four companies don’t comprise anywhere near a comprehensive list, however, as there are literally dozens of technology providers that have emerged in the last five years with their eyes trained on the ocean freight market.

    Instead, these profiles should be considered windows into how technology is affecting the way shippers, logistics companies, and ocean carriers conduct business with each other. There’s plenty more to explore as technology seeps deeper into literally every business model—even good, old-fashioned ocean freight.

    The broader reality is that hundreds of the brightest minds in advanced technology programming, and hundreds of millions of dollars in equity investment, are targeting the shipping industry. Most fall into one of two buckets: technology focused on aiding decision-making and those focused on execution. The following profiles examine two companies from each bucket.

   However you frame it, one thing is clear: the industry is changing, and fast.

The Ocean Freight Disintermediator.
Company: Haven
Model: Neutral freight rate and logistics marketplace with execution functions
Founders: Matt Tillman, CEO; Jeff Wehner, COO
Age: 35
Founded: 2014
Funding: $14 million

Matt Tillman
    “Global trade is no longer a human scale problem,” says Matt Tillman, chief executive officer and co-founder of the Singapore- and San Francisco-based ocean freight rate platform Haven. “It’s a machine scale problem.”
    Tillman is, in many ways, the archetypal digital flag-bearer of logistics technology, a guy with plenty of startup experience, an obsession with algorithms, and logistics in his blood. He’s spent the last decade-plus building or collaborating on companies that digitized and optimized futures and currency trading and advertising markets.
    But before that, Tillman was the son and grandson of truckers. He’s the first in three generations not to drive a truck for a living. Instead, he started programming at an early age. He speaks about the ocean freight market in the language of business mathematics: algorithms, combinatorics, machine-learning.
    “Humans do bilateral negotiation,” he told American Shipper in a recent interview. “Computers do multilateral.”

   With that fundamental difference in mind, Tillman and co-founder Jeff Wehner created Haven with the aim of building a neutral platform for freight and logistics services. The idea germinated when Tillman tried to book space on a container vessel to ship a truck to race the Pan-American highway.

    “We created a reverse auction over email,” he said. “We treated all forwarders the same, sent out requests in batches. I became obsessed with this problem. I realized it hadn’t really changed much from a paperwork perspective since I was sitting on my dad’s lap filling out a commercial invoice. Software had taken over all these other industries, but it didn’t seem to be taking over freight.”
    The problem crystallized in his mind when talking to his friend Wehner about his experience having containers rolled in Asia, especially those of a pretty prominent shipper.
    “You had $4 million in goods in a container, $170 billion in the bank, and Apple is getting rolled in Shanghai,” he said. “We didn’t want to look at this as Expedia. We wanted to see where the problems are. We wanted to solve price discovery and booking without arbitrage and opacity.”

    Tillman’s belief is that shippers don’t necessarily get the best of the current carrier-forwarder-shipper procurement structure. That’s not necessarily a popular view with forwarders, but it’s a core tenet of the Haven platform.

   “Freight forwarders are in the business of arbitrage,” he said. “What they do is same thing brokers do in the financial industry – provide reduced counterparty risk. There’s value add, but mostly (it’s about) risk. Technically, you have to commoditize your services if you do a great job as a forwarder. You can’t move all the containers you do if you don’t standardize components, services, and documentation.
    “I don’t think the world needs another freight forwarder, it needs to make better use of communication interfaces.”

    Tillman said the objective of Haven is to provide a platform to give customers more efficient access than email to their own providers (carriers and forwarders), access to other providers Haven connects with, and the ability to execute on documents without increasing their workload. That approach, he said, gives customers all the transparency of going directly to carriers along with the reduced risk provided by forwarders.

    “Forwarders go out and get contracts with carriers, and aggregate enough demand,” he said. “They repackage those contractual products, and the price has to be cost-plus-service. If you’re a customer, you get the best set of providers for your forwarder’s margin, not your particular shipment.

    “The thing customers want is the ability to choose the best set of service providers for their shipment, an efficient payment process, and the offset of risk provided by payment terms.”

   So with Haven, instead of doing contracts with carriers, a customer submits a request for quote which goes transparently to the market. Forwarders as well as carriers can bid on the business and prices their rate based on the specs of the shipments. The shipper then chooses the bid based on their own criteria, such as rate and transit time.

    “It allows you to call thousands of providers at once, instead of the three you’d call up,” he said. “This is not something humans can possibly do—it’s a machine-scale problem. You’re effectively moving to real-time tendering every time you do an RFQ with Haven.”

    Sounds simple, but there’s a reason that previous attempts at ocean freight marketplaces haven’t exactly taken off. Tillman argues that his platform works for a couple reasons: the mathematical side is more robust, and the approach is more user-oriented than previous pricing marketplaces.

    “They didn’t execute on what the industry wants,” he said. “They executed on what they wanted the industry to do. I would love to clear up pricing opacity at no downside risk to sales.”
    Pricing is straightforward—Haven charges a flat fee for every container shipped, and signing up for the platform is free. Users can bring their own forwarders into the platform to allow them to compare with service providers already on the network.
   Haven currently has a few hundred forwarders and the top 35 ocean carriers bidding. Users to this point have predominantly been commodity traders (the first market at which Tillman aimed the business), where a $1 per metric ton savings on ocean freight might equate to a 100 percent increase on margin. He said five of the top 10 commodity trading firms use Haven.

    “These are big companies and not small volumes,” he said.
    Retail shippers have been slower to adopt the value of a marketplace, but Tillman said the solutions for those challenges are just a matter of time.
    “They're really smart about their supply chains but we haven't focused on the (consumer packaged goods) brands to date because of the long sales cycle and the lack of volume,” he said. “Transport groups in retail have not gravitated toward us because of inventory issues, but we’ve started testing with one. If you’re using a forwarder or carrier directly, you’re probably losing money on freight.”

    This is another area in which Haven’s approach to a rate marketplace differs as well. Most marketplaces have aimed at the smaller end of the market, at shippers with low and inconsistent volume and little leverage with carriers or forwarders. Tillman believes marketplaces are appropriate for shippers of all sizes, provided the platform is neutral, delivers rates that suit both parties, and is technologically capable of executing the transaction.
   “The platform comes off as a bit idealistic. But that’s kind of the point of technology. It’s here to create something new.”

Visibility And Analytics With The Carrier In Mind.
Company: ClearMetal
Model: Asset visibility and predictive analytics, primarily to ocean carriers
Founders: Adam Compain, CEO; Diego Canales; Will Harvey
Age: 30
Founded: 2014
Funding: $3 million

Adam Compain
    “We’re looking at the underlying flow of data for hidden patterns,” said Adam Compain, chief executive officer and co-founder of ClearMetal, a San Francisco-based company that provides predictive intelligence to ocean carriers, non-vessel-operating common carriers (NVOs), and freight forwarders. “You can understand the flow of market movements, model that data and make sense of it, and then you see things more clearly.”

    Compain’s story is an unusual one.
    After spending a few years in Silicon Valley in technology product development and incubation at Google, he decided to go into shipping.

    “I had a curiosity around logistics and shipping,” he said. “I’ve always been enamored with big, industrial things.”

   So Compain moved to Hong Kong for two months to participate in an immersion program at the ocean carrier OOCL. After learning about the business of container shipping from the inside, he fixated on equipment and the empty repositioning problem carriers have.

    “Everything in the industry is based on prediction (for both asset-based and non-vessel-operating companies),” he said. “What they think is going to happen in the future. But there’s overwhelming complexity and uncertainty around the demand cycle. The industry doesn’t have the technology or the tools to manage that complexity.”
    And the result is misallocated assets, or as he put it, “containers and ships in the wrong place.”

    “I kept hearing that things were too uncertain and complex to figure out,” Compain said.

    So Compain met with some of the top predictive engineers at Stanford to build a solution. Then he approached three of the top 15 carriers to test his hypotheses and algorithms “thousands of times.”

   That testing showed ClearMetal increased forecast accuracy about container positioning in North America across large ports and small inland and coastal geographies.

    “We can model and predict everything in the shipment cycle,” he said. “How long will a vessel journey take? Where do I need containers? Where do I have them? What’s my imbalance?”

    In other words, ClearMetal allows a carrier to move from demand forecasting to data-based predictions.
    “That’s what the name represents,” he said. “Rather than focusing on assets and reacting, we’re taking a proactive approach and focusing on the data. You look through the metal and see the data.”

    The use cases are limitless in Compain’s view, because anything that can be effectively measured can be predicted. Maybe that means predicting in-gate and out-gate flows at a terminal, or how long it will take to unload a container.
   “Once we predict something, we can do thousands of simulations,” he said.
    The key difference in ClearMetal’s approach is that it is aimed squarely at the service providers, while most visibility tools have focused on uses for shippers.
    But, as with many other tech startups focused on logistics, ClearMetal’s visibility offering is based on massive computing and machine learning capabilities. That means the algorithms underlying the system are not static, but constantly evolving based on new information.
    “You build massive amounts of data and allow the computer to figure out the patterns,” Compain said. “Your models are constantly adjusting to work better.”    This leads into what Compain calls a crucial difference in how technology will impact the shipping industry. Rather than look at a problem from the top down, ClearMetal views visibility from the granular level up.
   “The industry has used a top down approach, but averages don’t work well when predicting,” he said.
    Data is drawn from users—like standard EDI message data—combined with external data feeds.

    “There’s nowhere else (carriers) can kind of squeeze cost from,” he said. “Industry technical infrastructure and the technology is there. This technology stuff is one of the last places we have to turn to be able to move from reactive cost-cutting to being revenue-driven and proactive.”

    ClearMetal provides insights in one of three ways:
      • Ready to go software-as-a-service (SaaS) applications, where a carrier would log into ClearMetal’s portal;
    • Via application programming interfaces (APIs), where ClearMetal might convey the ETA of a vessel by plugging it directly into a terminal operator’s terminal operating system;
      • Or by enabling a carrier or NVO’s own platform.
    Compain is also open to providing insights to other technology providers to provide to their customers.

    “We’re happy to go to other proprietary providers,” he said. “There are a whole bunch of players bringing automation. Then you have visibility and analytics. Where we fit is more on the decision-making side. Once you have the automation and tech infrastructure, what do you do with it? How will the world pan out?”

    Compain recognizes the time is ripe, based on market dynamics and the rounds of electronic advancement of shipping processes that have occurred in the recent past.
   “This is the perfect storm to innovate,” Compain said. “There are really high challenges, and increasing economic pressures that create a huge sense of urgency. It’s brought the industry to an unmanageable state. Players before us have done the digitization. Now new technologies are all coming together. This is the forcing function. AI and machine learning are changing every industry, so why not this one?”

The Forwarder With The Blank Technology Canvas.
Company: Flexport
Model: Traditional freight forwarder with a modern tech stack
Founder: Ryan Petersen, CEO
Age: 36
Founded: 2013
Funding: $94 million

Ryan Petersen
    “I really scratched my head at that one,” Ryan Petersen, chief executive officer and founder of the San Francisco-based freight forwarder Flexport, said in describing an early media description of his company as “Uber for freight.”
    Petersen has since strived to make it clear that his company is a freight forwarder with modern technology, not a technology marketplace company aiming to disrupt the shipping industry.

    In truth, no one among this list has made a bigger splash than Petersen, due in large part to a savvy marketing campaign that has positioned Flexport top of mind when most people think of the way technology is impacting the ocean freight industry.

    As highlighted above, that can be a challenge when people fail to understand just what Flexport is and what Petersen is trying to accomplish.

   “Our biggest challenge is to differentiate from the startups that are trying to start new things,” he said. “We’re really like the existing guys (forwarders), but we have a better user interface. The idea is, you’re already buying the service, let us make it better. Customers want reliable freight that arrives on time. We don’t want to radically reinvent the world or change everything.”

    But Petersen did set out to change the way the ocean freight industry perceives technology application. For years, forwarders have built proprietary technology to differentiate themselves, but those systems often were difficult to scale and integrate based on infrastructure and systems limitations of the time. They also didn’t age as well as systems from pure software providers.
    Flexport started from square one, using modern technologies (some built in-house, some off-the-shelf) without the burden of legacy systems weighing the company down as it grew. In other words, a tech stack for the age of internet commerce.
    “There's no dogma around software,” he said. “Whatever makes us more efficient we will do.”    Petersen’s approach begs the question: is the ocean freight industry itself changing, or is technology just finally crossing over into that world and providing more structure and objectivity?
   “The freight forwarding layer is structurally changing,” Petersen said. “There are a lot less people needed in the process. On the surface, there’s not a ton of room for increased efficiency. But there are things where, if technology can be used to make (a carrier’s) ship more efficient, you can make a big difference.”

    Petersen mentioned, for instance, the use of internet of things (IoT) data to improve engine efficiency and port turnaround time to help a carrier prevent a $200 million asset sitting in port for three days.
    “Technology has a way of surprising,” he said. “In our layer, there are huge gains to be made that people don’t notice, like smarter use of LCL, or how you load and unload the container. The guy unloading the container gets no data about what cargo is where, where it all goes. Some might care about the labor savings, but what we care about is the structured data. The idea that you’d load something up, and not store the data around that and pass it to the person who’s unloading it, that’s crazy.

    “For an industry that has seen the effect of what standardization can do (i.e. the shipping container), we shouldn’t be quick to write off a non-standardized process like LCL,” he added. “Without technology, standardizing things doesn’t make sense. Today, logistics is a world of exception, but technology makes things repeatable and consistent. Software likes structure, and the world is messy. Where we succeed is we’re willing to untangle the mess.”

    Even so, it’s the company’s chops as an actual mover of freight that separates Flexport, according to Petersen.
   “Freight forwarding is one of the world’s most fragmented industries,” he said. “The top 10 companies combine for a 9 percent global market share. That’s been because there’s been little economy of scale. You have purchasing scale, but at some point, the price can’t get much lower. Then you get to where as you have inverse scale, the bigger you get with manual processes, the more difficult it is to manage. Then it becomes a diseconomy of scale. The opportunity with technology is to create scale.”
    Petersen described logistics as an industry that has been “sheltered” from technological innovation as other industries have gravitated toward it or been overtaken by it.
    “There are industries that have been sheltered from the internet where you need tons of expertise and assets,” he said. “And that’s logistics. You need expertise and assets, but you need software added to the mix. Companies that pull that off are going to win.”

    On a philosophical level, Petersen believes technology allows service levels to rise as price goes down and profitability goes up. To him, it’s not a race to the bottom, it’s creating efficiencies that improve service and profitability.
    “You should be able to capture an outsized portion of the market because it becomes irrational to not get the better product that’s always cheaper,” he said.

   Petersen said the company is intently focused on shipment management for its shipper customers.
    “Flexport logs all the events, tracking milestones, and 80 percent is logged by bots,” he said. “That scales pretty nicely—you don’t need to add tons of people, or that’s the theory. Costs go down and you can be cheaper than your competitors. Technology creates scale. A lot of Flexport’s IT spend is around managing the shipment. In the future, the idea that humans are involved in logistics will seem crazy. It’s a dangerous business.”

    For carriers, the role of the technology-first freight forwarder is to help vessel owner and leaser extract value from their ships.

    “They’re valuable assets—you want to get a return on that asset,” he said. “But if your customer wants something your asset doesn’t deliver, it’s outside of your scope, so you have to refuse that business. Carriers need a return on their investment, so if the customer need doesn’t match their asset, they either do something the customer doesn’t like, or find new customers. Technology can help match supply and demand for logistics assets, increasing their utilization and driving down costs to serve at the same time. Carriers will need less sales people and account managers when software does the sophisticated quoting, analytics, and supply chain optimization in-real time."
    Petersen said he’s already seeing the tipping point.

   “We’ve reached the point where these conversations take five minutes when it used to take an hour to justify our existence,” he said. “Every company has to be a software company. Developing technology and managing data has to be a core competency.”

Benchmarking Ocean Freight Rates.
Company: Xeneta
Model: Freight rate benchmarking platform with predictive insights for shipper and NVOs
Founders: Patrik Berglund, CEO; Thomas Sorbo, COO
Age: 34
Founded: 2012
Funding: $8.5 million

Patrik Berglund
    To Patrick Berglund, chief executive officer of the Oslo,Norway-based freight rate technology provider Xeneta, the 2008-2009 economic downturn wasn’t just a resetting of global containerized freight demand, it was a fork in the road for how carriers should function operationally.

    “In 2007, the global economy was healthy,” he said. “On a long-term basis, rates had been declining slowly. But as long as the global economy kept growing, economies of scale were the perfect response to those declining rate levels. Then the crisis came along and everything changed. But carriers continue to answer the lower rate level with bigger vessels.”
    Berglund, who previously spent four years with the freight forwarder Kuehne + Nagel, realized that customers often knew more about the market than the carriers selling the space did, and that there was little correlation between what shipping lines wanted to differentiate on and the price they were getting for the service they provided.
    That fundamental dissonance spurred Berglund to create Xeneta, a freight rate benchmarking and business intelligence platform that aggregates million of pieces of data around contract and spot freight rates. Benchmarking data and insights are then provided to shippers and NVOs via Xeneta’s cloud-based system.

   “Investments into market analytics and data are no longer a nice-to-have, but a must-have, as both shippers and carriers are craving visibility and efficiency, not only to better service each other with accurate data, but to also improve internal operations,” Bergund said.

    Xeneta takes a crowd-sourcing approach to benchmarking. Its database incorporates more than 7 million TEUs of freight based on data from contracts submitted anonymously by shippers/beneficial cargo owners (BCOs). In addition, Xeneta is currently working with many of the world's largest NVOs, whose data is also being incorporated to the platform. That includes more than 12 million unique prices for more than 60,000 unique origin-destination pairs from more than 600 BCOs and 2,000 users as of February 2016.

    Participating companies then get real-time insights into how their pricing varies from the average market rate by trade lane.
    The sheer number of pieces of individual rate data provides Xeneta with a foundation to filter out the noise and inherent biases that have often afflicted previous ocean rate benchmarking initiatives. The company only provides benchmarking data and insights on routes where it has at least four rates per route, per day, per equipment type.
    “This is estimated as the weakest starting point, upon which Xeneta builds stronger benchmarks as additional rates are sourced,” the company says on its website. “Mature trade routes are built up by several hundred valid rates per day.”

   The platform is currently strongest in the Asia-Northern Europe and transpacific trades, where insights can be produced around specific ports or even terminals. In other trades, those insights are produced on a regional basis.

    And as Xeneta usage grows, the statistical validity gets stronger and stronger.
    “The more that connect to the platform, the more value there is for everyone,” said Berglund.
    He said the data platform is not meant to be a tool to simply drive down ocean freight rates.
    “I’ve hardly met any BCOs saying they want the lowest rate in the market,” he said. “They want a competitive rate.”

   For instance, Berglund noted, the cost of lost sales is often immensely bigger to an importer than a couple hundred dollars less on its freight rate. So one BCO is using Xeneta to see if its rates are too cheap, thereby raising its risk profile to have cargo rolled.

    Indeed, while Xeneta’s value proposition has mostly been targeted at buyers of ocean freight capacity, there are obvious applications of the data for shipping lines as well.

    “A carrier would have an advanced analytics team, or a yield management team,” Berglund said. “All of them would benefit from this data.”
    Benchmarking data is delivered in two ways: by a market average price, meaning the arithmetic mean of all prices collected; and the market low price, which reveals the price point lower than 95 percent or 97.5 percent of all prices collected.
    From a technological standpoint, Xeneta’s platform isn’t as groundbreaking as the other companies profiled here, but through its focus on data collection and accuracy, Xeneta has gained traction in a market that has been notoriously shy about pricing transparency.
   Pricing is based on the level of market intelligence required by the customer, with its platform ranging from $2,500 a year for the basic flagship product to $25,000 a year for its most in-depth product. The company also offers consultancy and professional services for tendering, benchmarking, or other strategic analysis.
   “In the past year, we’ve had discussions with numerous BCOs, freight forwarders, and carriers,” Berglund said. “It is clear that the industry on both sides has come to the realization that we all must challenge the legacy business practices and provide solutions with technology leading the way.”
Eric Johnson is Research Director and IT Editor of American Shipper. He can be reached by email at ejohnson@shippers.com.

At the midpoint of 2019, many experts expect the economy’s momentum to slow due to the potential for trade tensions to accelerate, global economies to deteriorate or climate-related risks to materialize.

The Port of Oakland in May handled 85,964 TEUs of loaded imports and 78,070 TEUs of loaded exports, up 4.2% and 8.4% year-over-year, respectively.

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Special Coverage: The application of technology in ocean freight

American Shipper has profiled the founders of four companies - Haven, ClearMetal, Flexport and Xeneta - that are presenting a unique approach to technology application in ocean freight.

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Special Coverage: The application of technology in ocean freight

American Shipper has profiled the founders of four companies - Haven, ClearMetal, Flexport and Xeneta - that are presenting a unique approach to technology application in ocean freight.

on Sep 20, 2016AmericanShipper.com