Freight Forwarding Selection: The People Factor

The ongoing commodification of the freight forwarding industry has caused many shippers to seek key differentiators in service, say leading industry analysts. But a more granular approach to finding the right intermediary may be to examine how well they manage and treat their own people.

“Freight forwarding doesn't get the same attention as fast-changing, glamorous industries such as high technology,” says Laurent Guerard, a partner at A.T. Kearney. “Freight forwarding lacks a certain sex appeal—you could almost call its reputation ‘grubby'—and thus it's often overlooked by everyday people, and even by many investors. Yet freight forwarding is one of the world's most profitable industries, and its top performers are almost as profitable as Apple.”

In a recent study, A.T. Kearney notes that although other companies can't duplicate the history of the freight forwarding front-runners, they can learn lessons from those examples in order to achieve profitability in the future. One key lesson is to invest in experience and stable systems within a strong corporate culture.

The six industry leaders examined in the study include Kuehne & Nagel Expeditors International, DSV, Panalpina, UTi and CEVA. According to Arsenio Martinez-Simon, a principal with A.T. Kearney, they all have the same common denominators in place: experience and stable, productive business systems.

“Within the forwarding community, two companies stand out,” says Martinez-Simon. “Swiss-based Kuehne & Nagel and the U.S.-based Expeditors International have for decades boasted profitability levels far above the industry average.” And for decades, charismatic titans presided over both companies: Klaus-Michael Kuehne started working at Kuehne & Nagel in 1958 and became CEO in 1966, while Peter Rose co-founded Expeditors in 1979 and became CEO in 1988.

“Each man had a business philosophy that provided a bedrock for his organization's culture and business systems,” explains Martinez-Simon. “At Kuehne & Nagel, Kuehne has passed on the CEO and Chairman positions to successors, but remains the majority shareholder and honorary chairman. At Expeditors, Rose stepped down as CEO in 2013, while his successor, Jeffrey Musser has worked at the company since 1983.”

According to Martinez-Simon, keeping experienced people is not a matter of luck, but of company policy. For example, Expeditors made no layoffs during the post-2008 recession, choosing long-term employee stability over its short-term balance sheet.

Complex demands
The result of these long tenures is that management and staff have developed a profound understanding of their customers, their suppliers, and their own company, observe analysts, who add that the leaders in this market “intuitively know” what it takes to convert business into profits. This knowledge is especially important in the logistics and transportation industry, where customer expectations are seldom routine.

“Complex demands arise because customers, seeking to improve their supply chains, present freight forwarders with a huge universe of opportunities to design customized services,” says Jeff Ward, a partner with A.T. Kearney. “Customized value-added services can allow freight forwarders to keep high margins, escaping the sad fate of standardized transportation services, which are increasingly commoditized.”

However, the key to succeeding at those customized services is the ability to engage existing and potential customers intelligently and ask the right questions, contends Oliver Gritz, an independent expert in transport and logistics with more than 30 years of industry experience in roles at Danzas and DHL.

“The best firms are able to match shippers' needs with their own organizational abilities,” says Gritz. “They know exactly which lever to pull, who to engage, and how to execute in order to convert business into profits. Such skills require experience in the industry and company.”

Having seen the industry from many sides, Gritz maintains that industry experience and staff tenure are not sufficient to guarantee top industry performance, however. “Converting activity into profit also requires a proven and well-established business system.”

Building a business system
The A.T. Kearney study notes that both Kuehne & Nagel and Expeditors have proven business systems that are part of the company culture, which all employees accept without any reservation, and that are constantly improved in an “organic fashion.”

In this context, business systems have two key components. First, they have clearly defined organizational structures, processes and key performance indicators (KPIs). The second, but equally important piece, is “data mastery.”
“This ‘mastery' should not be confused with the capabilities of an IT system,” insists Gritz. “Neither Kuehne & Nagel nor Expeditors have a superior IT system. Both use an older in-house solution.”

Gritz adds that an “industry myth” holds firm that IT capabilities differentiate successful freight forwarding companies, but he believes what really matters instead is how well companies use their systems, which includes constant updates and ongoing training. Indeed, it's crucial that forwarders pay attention to entry and management of each data element—an area where second-tier competitors fall short.

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