Welcome to the 113th edition of The LogTech Letter, and the first of 2023!. TLL is a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, Jonah McIntire examined AWS supply chain suite and why it’s ideally suited for SMB tech providers. This week, I’m diving into logistics software pricing.
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@spglobal.com or on Twitter at @LogTechEric.
Photo credit: Den Rise / Shutterstock.com.
When I got back from the long New Year’s holiday weekend, one of the first stories I saw was this from The Loadstar on CargoWise pricing. The story also prompted a number of people to reach out to me about pricing in the market, and an Anthony Miller LinkedIn post (especially pertinent given Anthony’s history at WiseTech). I’m not going to use this newsletter to have a go at WiseTech’s pricing strategy. It’s pretty well known that CargoWise is not an inexpensive product. I’ve had any number of customers tell me they’re not exactly jazzed about the amount they pay for it. But the pricing power is part of the spoils of building a pretty dominant position in an otherwise fragmented market. It’s not that CargoWise has a majority of the world’s forwarders as customers - it’s that they have a healthy proportion of the ones that have invested in software.
The more interesting thing to discuss is pricing in more general terms. New entrants into the forwarding software market will inevitably put pricing pressure on WiseTech, but they haven’t yet because CargoWise (or certain elements of it) are mission critical to forwarders’ operations, and because the new entrants don’t encompass the breadth and history that WiseTech’s product suite does. A conversation I’ve had with many forwarders, and some of the emergent hopefuls, is whether there’s a chance to emulate what CargoWise provides through a patchwork of emerging solutions. The answer so far has been…not yet. Some of those early-stage providers have integrations with CargoWise, and aren’t keen to upset that apple cart, at least until they have a customer footprint that might act as a bulwark against CargoWise. Price is not really the consideration in this situation. A forwarder is not going to pay 1/10th of what it pays to CargoWise to an early stage provider if it means exposing itself to hard-to-quantify disruption from having ripped out CargoWise too early.
In this case, the pricing discussion is not just about ROI - the conversation that emergent providers want to be having - but about the pain of what’s being pulled out. Rip-and-replace used to be a common buzzword in software circles, but the ripping is so painful, in a logistics industry so loathe to do anything too dramatically different, that the conversation software vendors want to have is around opportunity. An investment of X number of dollars translates into 10 times the value of that investment - that type of thing. That gets away from ripping and replacing, and into augmenting. You have this sunk cost, so let’s maximize the value of that sunk cost rather than writing it off. This reinforces the value of CargoWise in a weird way. The longer new entrants waive off attempts to directly compete, the longer CargoWise stays irreplaceable and remains the foundation for the new entrants to build upon.
At some point that will change, but the pricing of solutions for forwarders reflects this reality for now. New entrants are pricing to lure customers based on multiplying the value of the investment they make. CargoWise is pricing based on the work it’s already done to win a vast, hard-won customer base and the acquisitions it has made to reinforce its position.
Think of it this way. Say you’ve owned a house for 10 years. You are a down payment and 10 years of mortgages into paying it off. Your life and your family’s lives have become intertwined with the house. If the property tax for your house increases 30 percent in one year, do you move away, or do you write that off as a cost to bear based on your family’s comfort level in the house. Maybe you do move - and maybe you have an upset kid or spouse because of it. Maybe the new house looks nice but doesn’t run as efficiently as the old one.
New entrants need to grow and evolve - or partner with one another - in such a way as to make forwarders feel as though they aren’t giving up a certain amount of comfort and familiarity and consistency for a few bucks. Because it’s really not yet about the dollar amount as much as the lack of true lower-priced all-encompassing alternatives.
Some forwarders have built solutions that evade this whole scenario, and they will be at an advantage going forward. They have low-cost foundational software that should -theoretically - play nice with the bevy of emerging products, albeit at the cost of having to maintain and update that software at regular intervals themselves.
Pricing is always a tricky subject in logistics. There are few “list price” products. Pricing is influenced by numerous factors - early or late customers, size of company, length of contract, volume, ancillary services, implementation costs, consultative costs, etc. It’s rarely an apples-to-apples comparison, and is usually about how many competitors a software vendor has and, more importantly, how difficult it is for the customer to replace the existing product upon which it relies. Why do you think Excel persists - it’s difficult to replace and low cost to begin with.
TPMTech DevCon update
As I wrote about in fall, we’re adding a new element to TPMTech this year, a DevCon meant to help bring the developer community together. The goal is to drive agreement on things that aren’t necessarily points of competitive differentiation, but would actually drive broader adoption of all solutions in the market. To that point, here’s a preliminary list of topics I’ve narrowed down for the DevCon to focus on. Happy to get any suggestions to add or replace - bear in mind, there’s about two-and-a-half hours set aside for the DevCon, so I think it’s ideal to limit this to about four subjects. With no further ado, I’m suggesting the DevCon be focused on:
Data standards
Cybersecurity frameworks
Scaling products in a fragmented market accustomed to customization
Product-led growth versus sales-led growth in logistics
Control and possession of electronic documents
Comment away! And don’t forget to register…we’re 50 days out from the start of TPMTech. New attendees can get 25 percent off a TPMTech, TPM23, or bundle pass using the code EJTPM25.
Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):
Just the one piece from the last week: a look at how an early stage forwarding technology provider (WaySync) is finding symbiosis with an early stage forwarder (Ardent Global Logistics) in ways neither could with bigger partners.
And here are some recent discussions, reports, and analysis I found interesting:
Great thread from Santosh Sankar on where CH Robinson goes from here after the departure of its CEO Bob Biesterfeld this week.
ZeBox Americas VP Charley Dehoney’s annual look at what interests him in the LogTech landscape is always worth a read.
Some upcoming events I’ll be involved in:
So I was moderating a JOC webcast yesterday when we had a technical glitch that preemptively ended the event just when we were getting started. So we’re getting the band back together and doing it again at 11 am Jan. 12. I’ll be talking about how the logistics technology industry - and buyers of software - will adjust to a very uncertain 2023. Panelists include Trailer Bridge CEO Mitch Luciano, Janel Group CIO Erin O’Leary, and forwarding consultant Alexander Nowroth. Register for the free event here.
My guest on the today’s episode of LogTech Live at 10 am ET will be Anthony Miller, logistics technology LinkedIn poster extraordinaire (he also used to be involved in M&A at WiseTech). My original guest, venture investor Earnest Sweat, had to bow out but we’ll have him back on a later episode. The best way to keep up with details about my show is to subscribe here.
At 2 pm ET on Jan. 24, I’m moderating what should be a hugely informative and fun discussion with Fishtail.ai CEO Marc Held, CargoLogik CEO Miles Varghese, Tive CEO Krenar Konomi, The Robinson Agency CEO Adam Robinson, and Ruben Huber, director of the OceanX Network on forwarding tech solutions. All five have been past or future TPMTech or LogTech panelists. More details on how to catch this one here.
I’ll be at Manifest in Las Vegas Jan 31-Feb 1, involved in two sessions, including a kickoff session at noon Jan 31 talking about the process journalists use to decide what we should cover. I’m also moderating a session at 11:30 am Feb. 1 with execs from Greenscreens.ai, Convoy, Valoroo, and Innovation Endeavors.
Disclaimer: This newsletter is in no way affiliated with the Journal of Commerce or S&P Global, and any opinions are mine only.
Eric, interestingly, we're seeing more customers willing to go through the pain of the TMS change process at the moment, as new revenue is hard to find and so cost-cutting is at the fore.
When we spoke to prospects one or two years ago, many acknowledged they weren't too happy with their software solutions overall (for various reasons) BUT they had little need to change - as everyone was focussed on new sales and new customers. Times were good in late 2020 to mid-2022, and their tech, while imperfect and expensive, was just not on the radar to change.
Today, we see those SAME companies coming back to us and they're ready for the switch, and the pain of moving from one TMS to another.
They ALL tell us it's all about "VALUE". They want lots of modern features, 100% cloud-based tech (i.e. no servers or IT staff for them to buy / pay), and all at a low cost.
The longer freight volumes and rates are down I feel the more this trend will grow...and the more that legacy (and expensive) incumbents like CargoWise / WiseTech Global will be replaced.
Great article!!!
Tim at AscendTMS (TheFreeTMS.com) By InMotion Global, Inc.
Eric, interestingly, we're seeing more customers willing to go through the pain of the TMS change process at the moment, as new revenue is hard to find and so cost-cutting is at the fore.
When we spoke to prospects one or two years ago, many acknowledged they weren't too happy with their software solutions overall (for various reasons) BUT they had little need to change - as everyone was focussed on new sales and new customers. Times were good in late 2020 to mid-2022, and their tech, while imperfect and expensive, was just not on the radar to change.
Today, we see those SAME companies coming back to us and they're ready for the switch, and the pain of moving from one TMS to another.
They ALL tell us it's all about "VALUE". They want lots of modern features, 100% cloud-based tech (i.e. no servers or IT staff for them to buy / pay), and all at a low cost.
The longer freight volumes and rates are down I feel the more this trend will grow...and the more that legacy (and expensive) incumbents like CargoWise / WiseTech Global will be replaced.
Great article!!!
Tim at AscendTMS (TheFreeTMS.com) By InMotion Global, Inc.