Five Reasons SMBs Suddenly Make Sense For Forwarders

By John Edmonds, Research & Marketing, Freightos

One of the first rules forwarders drill into their sales teams is that it’s all about key accounts. The logic checks out. Smaller customers have a higher cost of service, lower volume, and, well, can be more error-prone.

But as markets shift, technology shifts and, most importantly, margins shrink, forwarders are starting to revisit this core tenet of sales. Here’s five reasons why SMBs are suddenly much more relevant for even the largest forwarders:

1. Small Business Importers Are A Growing Segment

It’s official. Every single year sees more and more small businesses importing. Ecommerce is one reason. Just about anyone can import a product and sell it on Amazon, creating a massive long-tail sales target. For example, there are over 100,000 companies that sell over $100,000 worth of goods annually.

More small businesses will be exporting too. China’s online retail market is larger than the U.S. market, creating over a billion good reasons for US exporters and manufacturers to sell there. Alibaba’s Jack Ma recently urged 3,000 US small businesses to do just that at a conference in Detroit, and he is making good on his vision to take down trade barriers that are holding smaller businesses back from buying and selling globally.

Speaking in Detroit in June 2017, Jack Ma encouraged US sellers to increase their sales abroad

(Stock Photo from prior event via Alibaba)

2. Forwarders Are Cutting Cost Of Sale

As more technology hits the sector, forwarders predict that most of their processes will be largely automated in just five years time. Researchers, like Drewry, see freight digitalization hitting the sales process first, reducing the cost of sale. Pioneers may lack coverage (for now), according to a Transport Intelligence mystery shopping survey, but this will soon change. The same digital sales model that does so much for Amazon is now (slowly) reaching freight, changing market dynamics.

Back-office and cross-functional processes will also be automated, making it easier to service small business customers. Of course, new customers will always require some support, but machine learning for exception identification and management should keep efforts down.

3. Small Business Means Business For Forwarders

The industry has seemed change-averse for a while. But we’ve reached the point where it’s no surprise when Kuehne + Nagel’s CEO saysWe consider digitalization not as disruption, but as part of our ongoing business evolution”. It’s more than talk too – big fish Damco’s Twill Logistics was set up, in part, to go after the guppies, not the whales.

Interestingly enough (and as hard as it is for a tech blog to admit this), new opportunities don’t always need new technology. A recent Transport Intelligence report picks up on emerging examples of collaborative contract logistics in the enterprise shipper segment, identifying a great opportunity for small businesses to replicate the practice. “If several retailers source from the same supplier, why not consolidate transport and logistics if it can improve efficiency and save money for all involved?” In other words, if smaller shippers aggregate demand, they climb the ladder to better purchasing power.

4. Shipper Attitudes Are Changing

Conventional knowledge has it that shippers are driven by price, not by service, when selecting a forwarder. But while that was the case, attitudes are changing fast. Top forwarders now predict that in just five more years, price will no longer be the predominant factor. As price transparency becomes more prevalent, forwarders will be forced to up their service game in order to differentiate. Digitalization plays an important role here as well – digital service means lower operational costs, making service for small businesses more scalable while still satisfying the growing demand for pitch-perfect service.

5. Disruption Brings New Use Cases

“Disruption” is an abused buzzword. What it actually refers to is a situation in which customers are offered something revolutionary that previously didn’t exist, unlocking new market opportunities.

Uber may take customers from cab companies, but according to Uber Board member, Bill Gurley, the real significance (and justification for its $70 billion dollar valuation) is that it attracts new customers. Use cases like suburban couples on a night out, or ferrying their young children around, or making sure their teenagers go partying safely all expand the market.

These are new sales, not sales won from cabs. And it can extend farther, taking market share from other industries, like rental cars, courier services, and even as an alternative to car ownership.

Uber has been increasingly branching out into the delivery space, proof of an expanded market for a taxi service.

(Photo via Uber)

Freight’s Expanding Market

Freight digitalization is innovation – gradual improvements in current offerings – but it’s also disruptive – creating new business. Amazon and Alibaba are rapidly increasing their involvement in the freight sector for exactly this reason. Ecommerce is only going to grow, and with it retail business is shifting from from larger shippers (the Sears and Walmarts) to smaller shippers, like the millions that sell on Amazon. This shift has paid off already for the fully digitalized courier business – there is, for instance, a high correlation between the increase in ecommerce sales and UPS shipments.

That’s why forwarders will chase small business. They are a growing importer segment and soon to be a growing exporter segment. Freight digitalization will reduce their cost to sell and serve. Shippers and forwarders are both open to opportunity, and ecommerce’s continuing evolution will provide that opportunity.

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