According to experts, the growth in service offerings from third-party logistics companies is one of the main trends for the logistics service market in 2020. Several IT companies are already actively preparing for growing competition in this market. In an interview with Retail & Loyalty, Alexander Egorov, CEO of Reksoft, discusses development incentives in the logistics market and how new digital solutions are influencing this process.
Let’s start with the market in which Agorafreight.com project is operating. What can you tell us about the international multimodal transportation sector today? To what extent this sector has been transformed by digitalization?
I can’t say that the transport and logistics market is operating in easy conditions. Being a service market, it depends on how business is going for its customers. However, there are strong positive trends which are stimulating transportation growth. For example, significant growth is taking place in the e-commerce and business globalization sectors. These changes have spurred on the business community to create new customer communication interfaces which are giving impetus to and changing the face of the multimodal transportation market. For example, the growing volume of trade in the European Union and China, new investment projects on trade routes and land transport development (which is becoming a faster alternative to sea transport and a cheaper alternative to air transport) are gradually resulting in changes to international logistics.
According to PwC’s annual CEO survey 2018, 65% of CEOs of transportation and logistics companies anticipate that changes in sales channels will have a game-changing influence on their business. Moreover, 54% of logistics companies expect to see growth in revenue thanks to digitalization, which will involve making changes to key business processes.
What was the trigger for creating the logistics service platform and digital forwarding agent Agorafreight.com?
Purely and simply, that question is about digital transformation. To begin with, let me talk about traditional business in an international logistics company. Once the company receives a customer’s request for cargo delivery from point A to point B, its staff email the requests to all known carriers and forwarding agents with reference to the required direction. Then the best price is selected from all the offers, a full supply chain is organized and a commercial offer is sent to the customer. The rates may vary between carriers by up to 30%. Logistics departments of freight forwarding companies spend about 70% of their working hours preparing commercial offers for their customers. Air and sea freight rates can fluctuate day to day. Email is the main communication tool for this kind of scheme.
So, when Reksoft received a request from a customer regarding the online digitalization of the process described above which could calculate the best route for cargo in terms of cost and time all within a short space of time, we immediately recognized that it was a challenging and innovative one. Quick market analysis also showed that our customer would be the first in Russia to offer this kind of integrated international service. Moreover, it posed a challenge for Reksoft from a technological point of view. It is a labor and time consuming job to analyze and harmonize heterogeneous data, create a route map, find an optimized route on the map, etc.
What were the main challenges you faced in creating the platform?
The choice of business model itself was the first challenging aspect. Our task was to create a digital forwarding agent as opposed to just another aggregator. The customer had asked for a service which allows to select the best offer, contract with all supply chain participants, take responsibility for customers’ goods and provide a full delivery service, i.e. a turnkey service. Together with the client we studied the market experience in this area. For example, the Freightos portal focused on being a global logistics service marketplace standard. Flexport, which is the most similar to AgoraFreight, took the approach of scaling freight forwarding services through digitalization. Kontainers, meanwhile, is aimed at advanced service provision. It took us more than a year to develop our own unique model.
One of the main problems of the new business model being created was the need to ensure global geographic coverage: to find partners worldwide, particularly those who are capable of delivering goods to hard-to-reach locations.
The second challenge was the rate policy automation among various carriers. In fact, all market players establish their unique freight rates on their own terms and with their own restrictions. There are no standards on the market, in that everybody creates their own files which are very similar on the one hand, but, on the other hand, have different set of columns, tabs and dozens of fine-print restrictions at the bottom of the page. APIs are provided by a few systems and the standards also vary greatly. Another problem is linked to geographic names and particularly conventional regions which do not always correspond to geographic locations. For example, Moscow Region is frequently assigned to Moscow, even though it is a separate region. At this stage, it was necessary to consolidate all the various rates and locations in one common standard to ensure that they were being described and used consistently.
Finally, provision of on-the-go integration of all available capabilities was a challenging task. Clearly the correct combination of routes and the calculation of rates and terms pose business risks both for the service provider and for the customer.
How did you manage to solve this problem?
This required integrating competencies from our clients as professionals who understand all the ins and outs of logistics processes, as well as Reksoft’s expert knowledge as a software developer. Today Agorafreight.com is a global service which successfully uses numerous rates from logistics and transport companies worldwide and offers online calculations for carrier services between China, Vietnam, the USA, India, the European Union and Russia. This saves a significant amount of time for the personnel who were previously involved in the traditional processes of selecting and comparing freight prices. A customer can calculate a delivery from China to Moscow in 30 seconds, compare the options from worldwide forwarding partners and immediately book the delivery. Up until now, you had to wait at least two days to get a similar offer and look for forwarding agents in suitable locations on your own. The system already includes more than 100 companies worldwide.
What kind of tasks lie ahead?
Currently our main goal is to expand the platform and its functionality. The flow of orders has increased and it’s important to handle them promptly. We’re also continuing to integrate the platform with new carriers and freight forwarders by providing various delivery options for service customers. Promoting Agorafreight.com services both on the Russian and international markets is another challenge for the service owners.