In a volatile and consolidating freight forwarding landscape, C.H. Robinson has concentrated on offering solutions beyond the rates, president of global forwarding Mike Short tells Will Waters
There has been a record level of consolidation this year among international freight forwarding and logistics companies, much of it involving US firms as either acquirer or acquiree, with European 3PLs such as DSV, Geodis, and K+N moving to acquire US 3PLs and freight brokerage firms and the highly ambitious US group XPO Logistics snapping up Con-way and Europe’s Norbert Dentressangle, for example.
In contrast, things have been relatively stable at fellow US transport and logistics giant C.H. Robinson, which has largely completed the integration of Phoenix International, the forwarder it bought in late 2012 and that brought the group’s president of global forwarding, Mike Short, to C.H. Robinson.
That said, ‘stable’ is not a term many would apply this year to global air and sea freight forwarding. “The market has been very volatile on both the air freight and the ocean freight side,” Short notes. “We have very similar things going on with both products, which is not normal: there is a lot of capacity coming on, and the demand for that capacity is insufficient. So it is really creating some issues with the rates and with the profitability of the carriers, and hence we are having to continue to quote our customers more often than we ever have in the past, due to the continued volatility.”
Inevitably, this has meant some customers have pulled away from longer-term contracts in favour of playing the spot-rate markets, although Short says C.H. Robinson has a good mix of customers when it comes to contractual or non-contractual. “But customers right now are very aware of the drop in market rates,” he says.
“The majority of our business is transpacific eastbound ocean freight, and that is a business where we would usually quote maybe three or four times a year, and now we are quoting monthly. What it does when rates are this volatile is that it starts to compress the margin.” This applies to forwarders as well as carriers.
Some analysts have suggested that this low and volatile rates environment is likely to remain for another two or three years, although Short says it is hard to say. “But we are definitely looking well into 2016 that this is going to continue,” he observes.
He expects this is also likely to be similar picture for air freight. “But that is even more difficult to predict than with ocean freight, because air freight really relies more upon the global economy than it does anything else.” It also responds more quickly to fluctuations in the global economy than ocean freight.
Perfect storm
But the decisions by container lines to make big investments in new capacity that is continuing to come online, now coinciding with a time when demand from China is slowing down, “is something of the perfect storm for the carriers, which is causing more pressure for them to consolidate as well – and the outcome of that really remains to be seen”, says Short.
The merger of Cosco and China Shipping Group looks likely to be the next of these consolidations, although it just one of many significant recent mergers and alliances in the last few years.
“We have tried to utilise the carrier base based on the customer’s needs, and the more they create alliances, the fewer tools you have to create the answer for what the needs are of the customer,” Short says.
Short says it is both the current low level of rates and the fluctuation or volatility that is squeezing margins for forwarders. “The fact that there is volatility requires customers to request quotes and get competitive quotes way more often than they would have done in the past,” he says.
This puts pressure on suppliers to be even more competitive than last time.
And it has, understandably, led to more customers pulling away from long-term contracts.
Contractual environment
“We try to instruct our customers that if they want to go into a contractual environment, that they do it with a portion of their business, so that they are not tied to that contract,” says Short. “It is difficult, because as the market goes down, they expect a reduction, and if the market goes up, they don’t expect an increase. It’s quite a double-edged sword that we’re trying to work through, and it is something that is relatively new, within the last three years.”
While customers often talk about the desire for stability, sometimes saying it is more important than the actual prices themselves, but in reality they want both stability and low prices, forwarders observe.
“They do. That’s why we really look to partner with our customers and offer solutions beyond the rates,” says Short. “Most of it revolves around IT, but we really do try to get involved and become one with the customer.”
Attempts to develop partnership is, of course, challenged by this volatility.
“It is always a challenge, but I like to think that our relationships with customers are strong enough to withstand the volatility, and to this point we have been gaining market share and not losing it,” Short stresses.
Market position
So, with C.H. Robinson particularly strong on the ocean freight side and in the transpacific inbound market, how does he see the company’s positioning in the market, with some large customers increasingly wanting more global deals and one stop shops?
“Right now, we are perceived as being one of the best in the market at what we do, and I feel that although we are positioned one way today, it is not going to be that way tomorrow,” says Short. “And we are looking to expand our global footprint, so as we gain market share – and we have had initiatives that focus on air freight, so we have been gaining there as well – we are looking for efficiencies and gateways. And all of this multipronged approach is looking to develop us into a well-rounded global freight forwarder, which is happening.”
Some parts of the company’s desired expansion can be achieved organically, while other parts of the business will most likely need to be accelerated by acquisition at some point again, as happened with the company’s purchase of Phoenix International in late 2012 – which greatly expanded C.H. Robinson’s freight forwarding scale.
“We have always felt that it is a combination of both,” says Short. “It really depends on our expertise in the market.”
The company has been vocal recently about its attempts to expand its Europe-Asia business, although this is just one of many areas it is wanting to develop. “It not only follows geography, it follows verticals as well, and there are really quite a lot that we are looking at,” says Short.
Vertical growth
These verticals it is particularly focusing on include the automotive, textile, and chemicals markets, for both air and ocean freight.
Short says there is no particular gap in terms of geographical footprint where it is not able to meet customers’ needs from these or any other verticals, with one option being to grow with a customer into a certain market where it does not have its own owned infrastructure.
“There is not a market that we don’t cover that is a major market today. If it is not our own flag flying there, we have exclusive partnerships with agents that are really typically top freight forwarders in that geographic location,” he says.
But expanding in certain markets would allow it to achieving further economies of scale. “In our world, volume speaks, and that is ultimately the goal,” says Short. “We have partnerships with some great, great companies. But at the end of the day, controlling your own destiny is the name of the game.”
It has certainly been a very busy period on the acquisition side for the logistics sector as a whole, with many of the transactions involving US companies. But Short says this does not put pressure on companies like C.H. Robinson to be in that game.
“We get on with our own business,” he says. “Our focus is on our people, process, and technology. There have been a lot of acquisitions out there, but we do not succumb to that pressure. What we look to do is find the right cultural fit, and if that is the right fit that helps us expand, with our people, process, and technology, then we will do so. But we will not give in to the pressures of just buying to buy.”
Automation and productivity
So at a time when some forwarders have been struggling with the process of improving their levels of automation, efficiency, and productivity, where does C.H. Robinson sit in terms of its IT systems?
“We are closing in on the final phase of integration with the Phoenix acquisition,” says Short. “That has gone extremely well.”
The combined forwarding business uses a platform developed in-house by C.H. Robinson. Short, who joined the business from the Phoenix side, said the efficiency and productivity of the combined organization are now higher than that achieved within Phoenix. “Every day is a new day in the IT world, and we continue to progress,” adds Short. “But I feel very comfortable with where our productivity and efficiency is today.”
Short says the IT integration of the old Phoenix business into the C.H. Robinson platform is 80% complete. “We integrate it by service, and we have one left to go, which will be done within the next three months. Air exports, air imports, ocean export, ocean import, customs clearance… Those were all done individually.” The one remaining service to integrate is ocean import transportation – although this is the biggest one.
While IT moves on quickly, Short believes the current platform gives the organization a few years, potentially, on a platform that provides the right level of automation and visibility. This he sees as a major advantage.
“This industry is littered with integrations that went wrong,” he observes. “There are still companies today that operate on multiple platforms. The fact that we are on one platform that can accept new integrations is a leg up. We have 750 IT programmers on staff to help with these integrations.”
Air cargo operations
Although C.H. Robinson is looking to expand its presence in the air freight forwarding sector, Short has no particular issues with the current structure of the air logistics chain and its levels of operational efficiency.
“The only thing that really comes to mind is that when the volumes come back, it will allow for efficiencies by operating the freighters. The freighters right now are having difficulty operating in an environment with low rates, mainly brought on by the passenger planes. So, I think the volumes will drive back, which will bring the efficiency later.”
One thing that C.H. Robinson has done to take greater control of the air logistics process is to bring cargo screening in house, investing in its own cargo screening equipment. “That can help sometimes help with efficiency and throughput.”
But it seems that IATA-led initiatives to digitalise and provide a quality framework for the air freight sector have got some way to go in the US market. Short says he is unfamiliar with Cargo 2000 and like many US forwarders, C.H. Robinson has not yet been persuaded to participate in e-Freight, although he adds: “It is definitely something that we are watching. It is a very hot topic in the market at this point. It would lead to a ton of efficiencies in what we do today. We have been slow to adopt this in the US market. But it is something that we would hope, as a freight forwarder, we could do – not only in air freight, but customs; everywhere would be much better. It is one that we are monitoring, and we try to lend our opinion from time to time. But it is market-driven.”
This means it is unclear who is really going to be the driver behind making progress with it. Essentially, it seems that somebody still has to demonstrate a lot of value will be coming quite quickly from e-Freight participation in order to encourage forwarders in the US to make the necessary investments in time and resources. And, like many forwarders in the US – and globally – C.H. Robinson is hoping that these developments will make progress, but it seems unlikely to be a first mover or early adopter.
“We depend on a lot of outside influences or factors,” says Short. “But that is a topic that everyone speaks of, and being selfish as a freight forwarder, we would love to see it.”
Potential for technology
But in terms of the potential for technology in general, in air and sea freight, to further improve efficiencies, Short anticipates there will be a lot of opportunities for productivity gains, either with the technology that we have now, or within the next few years.
“I’m sure there will be. I’m not a tech guy, but from an IT perspective I’m sure that there are efficiencies to be have and I’m sure that they’re coming. We try to stay ahead of it as we go, but it changes almost daily it seems. But I’m sure there will be.”
In terms of performance and quality monitoring, Short says C.H.Robinson uses “quite a few” KPIs, monitored on a daily basis.
“It is for our own benefit, but also for the customers in regard to timeliness and accuracy. There are a lot of things that benefit the customer as well.”
In terms of directions customers are pushing freight forwarders currently, either as an organisation or as freight forwarding sector? Short says:
“Right now their focus seems to be, with our larger customers, focused on EDI connectivity, and being able to do – not only communicate, but also order entry, through EDI connections. That seems to be the hottest thing right now.”
This means wanting suppliers to be connected with their systems directly, with several aims but the ultimate end being to reduce their costs.
“There’s no secret in the fact that companies are trying to be more efficient, cut their costs. I think at the end of the day the opportunity is to create data integrity, but it is also to reduce labour costs.”
Short says this does not require any great step change in technology to make that happen, it is more a case of working through with individual customers to make those connections.
“Everyone can be a little bit different, and we work through them, through each individual customer every time.”
Current priorities
In terms of his organisation’s priorities for the coming weeks and months, Short says: “Right now, we are focused on creating a strategy for 2016. We are reviewing 2015 in that process. That is really where we are at today, and that is a lot of the focus today. We have come a long way in the last three years, and we typically will review that process, and then that will help us create a strategy going forward.”
Predictions for next year: More volatility
And as for next year, Short says: “I think that we are going to continue to differentiate ourselves by creating solutions with the customer. And it is going to be volatile. And when things are volatile, just like any other time, you really need to listen to the customer and create solutions based on their needs.”
