The freight forwarding software market – established software providers vs startups

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The freight forwarding software market is moderately concentrated. Despite the relatively high level of merger and acquisition activity, there is still a good number of global and regional software vendors that keep the market in balance. As of recently, there has been an increasing number of software companies that deliver customer-facing tools, allowing forwarders to provide instant online quotes. This has traditionally been a relatively underinvested area compared with the investments in back-end operating systems. The proliferation of customer-facing software vendors is a response to the threat coming from digital forwarders which have set a new standard for better operational management and customer experience.

The incumbent software vendors have been very successful at taking a strong grip on the transport value chain to expand their influence. They have achieved this by evolving their business model to include as many functions as possible along the value chain. Usually, software vendors set out to develop a specific solution which will be the core of the business. Over time, vendors start adding other functions, in most cases upon requests from clients. Even though these new functions rarely become the core business and the speciality of that vendor, they play important role in customer acquisition and retention.

Established software vendors have more bluechip customers than start-ups and benefit from high lock-in with existing customers. Despite the fact that the availability of cloud-based solutions has made switching somewhat easier, the implementation of a global solution still requires a lot of time and resources on various levels, leading to high switching costs. As a result, the profit margins of the leading software vendors are healthy, with WiseTech and Descartes recording profit margins of 29.5% and 37.6% in 2020, respectively.

The established players in the freight forwarding software market mainly compete on price, scalability and functionality. Increasingly, this means offering functions that go beyond the core shipment management, finance, and back-office functions that used to define traditional backbone operating systems. This also provides the opportunity for new entrants with substantial financial backing that can develop robust solutions which can be attached as complementary tools to the core operating system.

In addition to delivering value by filling the functionality gaps of established vendors, many start-ups seek to expand the reach of their solutions and amplify their aggregate value through collaboration with other software vendors. For instance, the rate management software Portrix Logistic Software, partners with the white-label platform Kontainers, to provide a bundled offering including their respective products and the integration between them. This allows forwarders to automate the rates they receive from carriers, add margin, and digitally quote to shippers. Another example is Qwyk which partners with SimpliShip to link the latter’s freight rate management solution with Qwyk’s vessel schedule, visibility, and booking tools to create a hybrid transportation management system. The partnership has enabled these companies to scale their technology globally.

It is worth highlighting that the majority of startups offering software solutions for forwarders do not necessarily seek to replace the operating systems provided by the established vendors. Replacing those operating systems is incredibly tedious and can take years. Rather, start-ups seek to provide specialists technology solutions that integrate into the existing systems used by forwarders and fill the gaps left by the established software vendors.

Source: Transport Intelligence, June 8, 2021

Author: Transport Intelligence

This brief has been taken from a larger paper, ‘Building freight forwarding software capability for the future’ by Ti’s Senior Analyst, Violeta Keckarovska. This paper is available exclusively to GSCi subscribers. Each week, Ti’s team of senior analysts and industry experts deliver analysis covering the latest logistics and supply chain trends exclusively to users of GSCi.

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