Maximizing Profitability in Freight Forwarding with an Integrated Operating Model

Dec 13, 2023
Oracle Logistics & Compliance | 5 min READ
The freight forwarding industry stands at an inflection point in 2023. Despite being one of the most profitable sectors in logistics (returns on capital employed (ROCE) of freight forwarding have consistently outranked CPG, IT, and high-tech firms like Apple1 ), freight forwarding margins are undergoing erosion due to numerous factors.
Nishant Kumar
Nishant Kumar

Principal Consultant – Supply Chain Management,

Oracle Practice


One of the key factors behind this shift is the increase in air and sea freight carrier rates, which has sent the gross profit margins of freight forwarders at a 10-year low.2 Typically, the industry operates with up to 20% return on invested capital (ROIC). However, if these trends persist, freight forwarders may face a downturn. Moreover, the contraction of demand due to altered macroeconomic factors has already shrunk the market to $382bn in 2022.3
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At this point, freight forwarders must maximize their operating margins to remain competitive amidst a heating market. By taking a page from the operating models of new-age, digital-native freight forwarders, legacy players can retain their leadership position in their geographies of operation.
Key freight forwarding challenges to focus on in 2023
For legacy players, a fragmented and siloed operating model is usually the root cause of their major difficulties. When the dot-com era triggered the digitization of businesses, freight forwarding followed suit. However, this wave of digitization focused on taking paper-based processes to the screen without focusing on the big picture. These technology systems were labeled cutting edge in those years, and in the next decade, most of the technology interventions came as point solutions.
As a result, freight forwarding organizations continued to operate in a siloed fashion. Finance had their ERP modules, sales teams ran on on-prem CPQ systems, operations teams had their ERP and Transportation Management Systems (TMS), and service teams kept themselves limited to the CRM. None of these systems could talk to each other, which resulted in inefficient operations – at least, by today's standards.
But when the industry is readjusting to new dynamics, the inefficiencies inherent to such a technology architecture turn into the difference between profitable operations and sub-optimal financial performance.
Spotting the fault lines
So, where do these inefficiencies manifest? In these key areas:
  • Issuing accurate quotations: Sales teams find it difficult to issue profitable quotations when shippers have custom requests or a prospective order involves multi-leg, multi-mode scenarios.
  • Keeping contracts profitable: Because up to 70% of contracts are long-term ones,4 changing carrier terms and evolving market dynamics can destabilize the value proposition of existing contracts.
  • Optimal route selection: Selecting the most cost-effective route while taking multiple factors like distance, transit times, carrier rates, and special handling requirements proves difficult in multi-leg scenarios.
  • High standalone bookings: Inability to consolidate bookings results in increased standalone bookings and inefficient container/vessel utilization.
  • Operational inefficiency: Suboptimal process flows and low decision quality result in inefficient vessel and container utilization and delays in issuing quotes or creating orders.
  • Human errors and delays: Because various systems (like the ERP, TMS, CPQ, and CRM) can not talk to each other, employees must load data from one system to another to drive the end-to-end process.
Eliminating the weak links with an integrated digital architecture
Digital advancements in recent years have turned the above challenges into opportunities waiting to be exploited by freight forwarders. Oracle Transportation Management (OTM) is now recognized as a cutting-edge solution for managing multi-modal logistics in complex supply chain networks. This is evidenced by its leadership position in Gartner's Magic Quadrant for Transportation Management Systems 2023. Similarly, Oracle CPQ Cloud enables logistics players to handle complex pricing and rate management scenarios easily.
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However, integrating these two systems can unleash significant improvements in the KPIs underpinning the order-to-delivery process. This integration enables the logistics organization to synchronize sales, finance, and operations processes, resulting in seamlessly connected end-to-end workflows. Moreover, the integration can unlock valuable insights that can help commercial teams keep a continuous eye on the profitability across jobs and contracts.
Activating responsive, profitable operations with OTM-CPQ Cloud integration
When integrating OTM with CPQ Cloud, the key challenge lies in designing seamless processes in which checkpoints like quote approval or order creation can be automated.
Through our work with a recent client, we were able to gauge the scope of impact of such a solution – it enabled a 50% reduction in response times to customers, minimized cost deviations by 50%, and brought a 70% improvement in profit margin control. Moreover, the solution enabled maximal booking consolidation, improved orchestration in multi-leg scenarios, and 20% cost savings through automation and self-service.
OTM-CPQ Cloud integration can help freight forwarders activate the following differentiators:
  • Accurate quote issuance: OTM-CPQ integration enables automated fetching of rate structures in complex transit scenarios and helps sales teams quickly issue accurate quotes to clients.
  • Automate quote approval: By ensuring that each contract meets or exceeds the determined profit threshold, automated quote approval speeds up quote issuance and reduces unproductive communication between teams.
  • Automate order creation: CPQ API enables the ingestion of key data points associated with an approved and accepted quotation and helps automate the order creation process in OTM.
  • Job-level profit tracking: The integration can help commerce teams track the planned and actual profit margins across each job, improving decision quality and preventing margin erosion.
  • Optimal route and mode selection: Helps with selecting the most cost-effective route and transport modes that meet the shipper's custom requirements.
Next steps
Amidst climbing carrier rates and contracting demand, maximizing margins, and maintaining profitability across contracts should be top-of-mind for freight forwarders. By integrating their technology systems, freight forwarders can build more responsive end-to-end workflows and activate a resilient operating model that ensures maximum margins by default.
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