Logistics Explorer: collapse of freight forwarders or the beginning of a new era?

For first time in the history of container shipping, the 5 largest shipping companies began to control most of the total volume of container shipments (55%). The combination of container lines in alliances helps the market to avoid low profitability.

Recall that in 2017 several large shipping companies ceased to exist: in addition to bankrupt Hanjing Shipping, several others were absorbed by large companies. So China Shipping Container Lines was adopted by COSCO;  APL, CSAV Norasia and UASC (United Arab Shipping Shipping Company) became part of larger companies – CMA CGM and Hapag-Lloyd. This is not a complete list of examples of shipping lines mergers and acquisitions.

Thus, over the past two years, the market has witnessed the beginning of the formation of a new global monopoly. For the forwarding world such a trend carries a threat of market loss or bankruptcy. All this time the forwarding business only tried to recoup and it had almost succeeded, but for the last 5 years it has become very outdated and passed in volumes. Competition among carriers has become much tougher, marginality has fallen dramatically, and the struggle for customers has become extremely difficult. The situation worsened even more when information about tariffs became available on the sites of shipping lines and other large companies. The market suddenly became transparent.

How to calculate the tariff for one second

Transparency of the market eliminates intermediaries on the way to the final client. It would seem that the forwarder is completely cornered this time and is unlikely to find a way out of it. However, the developers of SeaRates team do not advise you to lower your head. There are over 500 thousand forwarding companies in the world today. This is an incredibly large number of offices, which are hundreds of times larger than the number of Maersk, MSC, COSCO, CMA and APL offices together. There is only one problem. All these forwarders’ offices are decentralized, practically do not exchange information and operate without any coordination between each other.

Using the most simple example of coordinating the work of two freight forwarders, it can be seen that the selfish actions of both can result in an outcome in which the welfare of both is maximized. For example, when shipping a container, one freight forwarder has cargo of 15m3 and another – 10m3. The exchange of information will ensure that they use one container, which is likely to increase their profits, without applying LCL tarrifs.Logistics Explorer is a product of SeaRates Company, which has been actively integrated to the sites of transport companies since 2017 until now. The Platform makes it possible to calculate the tariff for a second, and thereby makes the site extremely useful and visited. Filling capacity of the tariff base is common and directly depends on the number of its participants. The system is built on the Nash equilibrium principle – this is the result in which the strategy of each player (freight forwarder) is optimal for a given strategy of another player. The Nash equilibrium is a stable situation, since it is not profitable for any player to change his choice in it.

In other words, as the system improves, each of the project participants will be extremely interested in providing reliable and verified information. The transfer of information and enforcement of contract terms by both parties will be recorded by an electronic protocol – a smart contract. In future this will enable forwarders to safely settle between themselves directly, without the participation of intermediaries (banks). Until the end of 2018, the cost of transfers within the network will be US $ 6 + 0% regardless of the amount of the transaction.

Smart contracts

The next step in developing the Logistics Explorer application will be the implementation of a program alghorithm that will monitor the fulfillment of obligations between forwarders. SeaRates will introduce automatic penalties for violation or non-fulfillment of the terms of the transaction. Smart contracts will ensure to all parties the security of the transaction and will be deprived of the risk of ambiguous interpretation of the tariff. These are more profitable transactions in the material plan, since the shipper can avoid the idle time of the vehicle (vessel, container) in case of non-fulfillment of the contract. As such the fulfillment of the terms of the transaction occurs automatically with minimal costs for their support, without the involvement of third parties (intermediaries).

The built-in application on the forwarder’s site is able to work with a huge amount of data (Big Data), which can not be processed in Excel. The team designs a whole series of approaches and methods for processing structured and unstructured data on any tariffs and their relationship to each other. As information becomes available, the database is filled with new information about services and tariffs. Algorithms of calculations are constantly being improved and optimized. In addition, SeaRates continues to invest time and money in developing and researching the possibilities of artificial intelligence. This will make it possible to study the behavioral analysis of customers and offer them optimal logistics solutions.

According to SeaRates, the digital revolution in the logistics business is closer than it seems.

Logistics Explorer – on the international transport web-portal «Shipping»

Приложение теперь доступно и на международном транспортном портале «Судоходство» https://sudohodstvo.org/.

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