Why BIG is not always best

During the late 1990s, there was a lot of talk about how the big global forwarders were going to take over the world, squeezing out the medium-sized players and leaving only smaller niche forwarders. A buying spree that saw many famous names swallowed up by larger companies – Danzas, Excel and AEI being absorbed by DHL, UPS buying Emery and Fritz, Bax Global merging with Schenker – seemed to confirm that trend.
But the world has not turned out quite the way the big global players expected. Medium-sized players have not all disappeared and technology has in some ways evened out the playing field. It turns out that in the 21st century there are opportunities for smaller as well as larger players in the freight forwarding business.
One man who is well-placed to analyse such trends is Larry Woelk, director of recruitment specialists and logistics consultancy BiS Henderson. He not only talks to forwarders and shippers on a regular basis, but has a career spanning many of the famous names in the forwarding business. It includes heading the EMEA region for Airborne Express, being vice president sales and marketing for BAX Global, and being global sales and marketing director for Lep – coincidentally all companies that were later gobbled up by mergers or acquisitions.
Woelk starts from a point that will be familiar to many in the air freight industry – that big mergers have not always produced the synergies expected. To put it bluntly, all too often 2+2 has equalled 3 – perhaps even 2 in a few cases. He cites a conversation he had with an executive at the heart of one merger who reckoned that the purchasing company had achieved precisely no new business in his region as a result of their much-vaunted takeover of a big industry name. 
The big new conglomerates have also found that shippers have not quite behaved towards them as they expected. The rationale for being a big global forwarder was that big global shippers wanted to work with a single logistics partner across the world. But instead they have continued to tender business on a regional or lane segment basis.
The reason, says Woelk, is that the big forwarders still cannot provide a globally consistent level of service. “My own personal experience having worked for companies with global networks, is that I could often get better service from an agent network than from an own office network, because if the agent did not perform they knew I would change them. But to make changes internally was really quite difficult, because of the management structure and other internal issues.”
Interestingly, the integrators are much more successful at achieving global consistency – at least in their express products. But can they achieve the same in their forwarding businesses? Woelk points to UPS, which he says is a very process-driven company. 
“That gives them a tremendous advantage in many ways on the express side, but the question is can forwarding be as process-driven as packages? Forwarding traditionally has been a seat-of-the-pants, reacting, problem-solving business – in other words, the furthest you could imagine from a process. But UPS has achieved every strategy it has set out to and so, I think, in the end they will probably succeed.”
Back with the big global forwarders, if they are still only getting the business on a regional or lane basis, they do still get the business? Woelk reckons one part at least of the mergers and acquisition strategy was correct in that big shippers like to do business with big global brands.
With the buying of freight services now tending to be done by pro-curement and purch-asing departments rather than freight or logistics managers, price is also a critical factor. “That is where the big forwarders have a big advantage, because they can get much better rates from airlines and shipping lines,” Woelk says.
Nevertheless, he does see opportunities for medium-sized forwarders. One is in flexibility and cust-omer service. What smaller forwarder does not boast that their advantage is that their customers can always reach them and that they are responsive to last minute demands and changes of business?
The good news from Woelk is that this seems to push shipper buttons too. “I talk to a lot of them in the course of my recruitment work, and many say their relationship with their suppliers is not what it used to be, that they don’t feel so connected with these mega-forwarders. Many big shippers simply aren’t satisfied with their global [forwarding] provision.”
That doesn’t necessarily mean shippers are prepared to pay more for such service, however, and this is the dil-emma for the medium-sized forwarders. The challenge, Woelk reckons, is to get shippers to look at the overall cost of their supply chain, not just the rate they are getting.
“I know one big global company who use smaller independent providers because they analysed the market and decided that while they were more expensive, smaller companies produced more efficient supply chains,” he says. “In other words, with a more smaller provider shipments get where they are supposed to. The cost of parts that don’t turn up on time because larger providers are not as flexible outweighs the savings those larger providers can offer on rates.”
This, he says, is an argument the forwarding industry needs to work harder to get across. “It is a challenge to shift focus from price to value, but it is better for all. The forwarder, big or small, makes more money, and the shipper has a better supply chain that saves him money.”
There are other factors which can favour medium-sized forwarders too. Once IT was one of the key advantages of the big players: they had their own proprietary software (the AEI Logis sys-tem comes to mind), which was something the small-to-medium agents could not match.
But now the tables have turned. Those big forwarder platforms may now be cum-bersome legacy systems that are difficult to update and change and, in some cases, acquired companies are still on a different system from the main group. “Meanwhile the smaller forwarder can easily buy an off-the-shelf system that is quite comprehensive, more flexible and provides better information to customers,” Woelk notes.
Some medium-sized for-warders are also doing very well in a role much talked about in the 1990s – the fourth party logistics provi-der, or 4PL. The idea here is that since no one forwarder or logistics partner can provide all your needs globally, you appoint a company to select (or help you to select) and then manage them for you.
Woelk says big forwarders have also tried to be 4PLs but he cites a case of one big name company who tried for a year to adapt its legacy system to this role and finally had to resign the contract because they could not.
“A smaller company can be more flexible, and will have more modern technology to transmit data to the shipper, which is an essential part of being a 4PL,” he says, citing UK forwarders such as Allport, Woodland and Uniserve. “They can set up 4PL operations specifically to cater for a shipper, while big forwarders have a more rigid structure.”
He concludes, then, that there is much for all types of forwarders to play for in today’s airfreight industry. 
“Forwarding has changed considerably over the past few years. There is more visibility in the supply chain and more operational capability through improvements in IT. It is faster and cheaper and forwarders don’t just move freight but also provide solutions,” he says. 
“Yes, acquisitions have cre-ated some mega-forwarders and yes, they have some advantages. But whether you are mega, big, or small, there are opportunities for everyone.”
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