Dissecting the Aggregator vs Operator Marketplace Models
Welcome back to the ninth edition of The LogTech Letter, a weekly look at a particular aspect of the impact technology is having on the world of global and domestic logistics. Last week, I analyzed whether domestic TMSs can ever effectively cater to all sides of a freight relationship. Today, I’m looking at the nuances between the range of international freight rate marketplaces available to shippers.
As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.
For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.
Companies that want an instant international freight quote in 2020 have options that literally did not exist even a few years ago. And not just singular options, but a multitude of options.
There’s still an open question about whether all categories of shippers will eventually migrate to such online quoting tools, and to what extent they will, but that’s a subject for another newsletter. I promise that’s coming at some point, as the question of whether large volume enterprise shippers can extract value from these tools in the same way smaller, infrequent and less sophisticated shippers can is a crucial one to explore.
But today, I wanted to examine a more granular issue around the proliferation of freight rate marketplaces: whether shippers will prefer going to aggregated marketplaces or operator-built marketplaces. This sounds like a more binary question that it is. The reality is that freight rate marketplaces have developed along a pretty nuanced spectrum, ranging from:
Operator-controlled by an asset-based provider
Operator-controlled by a non-asset provider
Aggregator, but heavily curated
Aggregator, but lightly curated
Aggregator, completely open
Liner carriers like Maersk, Hapag-Lloyd and MSC, and even the terminal operator DP World, fit into the first bucket; forwarders like Agility (through its Shipa Freight platform) and Geodis (through its Upply platform) fit into the second bucket; a tightly controlled marketplace like Simpliship fits into the third bucket; Freightos likely fits into the fourth; and no one really yet fits into the final bucket.
What does all this mean though? For one, it means shippers of all sizes and types have a range of options available to them, even after deciding whether to use an operator-built marketplace or an aggregator-built one. But that initial decision - aggregator or operator - is probably more important to dissect.
In speaking with someone this week at one of the operator-run marketplaces, his pitch was pretty straightforward: “An aggregator cannot offer that promise that the operator makes.” The idea is that the buck on a transaction stops with the provider of a service, and that the more layers between the transaction and the provision of the service, the less accountability there is. That’s theoretical, of course. A forwarder could easily fall short of service expectations relative to what was bought on that forwarder’s own marketplace.
The flipside is that in lieu of direct accountability in an aggregator marketplace, a shipper gets a more neutral environment with more service provider options from which to choose. None of this is rocket science. It’s the same difference as shopping at Foot Locker’s website versus shopping at Nike’s or Adidas’ websites.
It might come down to two dynamics: whether the shipper has a sense of what it needs; and whether there is name brand recognition around that operator. To use the shoe-shopping analogy, if I know I need a good pair of running shoes, and I have an affinity for Nikes, I might be tempted to just go to Nike’s website instead of the retailer’s site. If I’m not brand-loyal or even brand-aware, I might go to the retailer’s site to see how various brands stack up against one other in terms of price and features.
There’s another question hanging out there: is an operator-run marketplace truly even a marketplace?
This might be a semantic question, but consider the case a large forwarder puts forward to describe its universe of available rates. That forwarder is essentially saying its rates serve as a proxy of a neutral marketplace in terms of origin-destination coverage, with the added bonus of having the innate accountability of buying directly from the service provider.
But, is it a marketplace is there is only one seller? The neutral marketplaces would argue that it’s not. That in order to be a true marketplace, you need competition between sellers, and that that neutrally-facilitated competition is a bigger benefit to the buyer than the intrinsic accountability of buying direct from an operator.
Another dynamic (again, for a future newsletter) is whether the aggregator model or operator model of marketplace fits better into the multi-sided platform economy into which we’ve hurtled.
The good thing is that shippers don’t have to commit to one model or another. There’s the opportunity to try everything and see what works best for their business.
Here’s a roundup of pieces on JOC.com the past week from my colleagues and myself (note: there is a paywall):
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Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.
I'd actually advocate that the biggest shift is from a rate marketplace, which is really just a pricing tool, to a vertically integrated freight marketplace, which includes not just pricing but also full shipment management (and, more importantly, the shipper advantages that ensues from centrally managed and controlled shipment management).
More simply, if a rate marketplace provides transparency for shippers and accountability on providers, a marketplace with management capabilities builds further by adding in management transparency for buyers and accountability on actual performance, not just price. It's the difference between Amazon only being a pricing marketplace vs being a marketplace that actually makes your consumer experience better.