Florian Frese from Container xChange shares thoughts on container logistics, container tracking, digitization challenges for the logistics sector and how to build a successful logistics startup.
Enjoy my interview, Natalia Pięta.
What is the purpose of your Container xChange platform and who uses it?
In general, with Container xChange we are helping freight forwarders and NVOs of all sizes get access to third party equipment, especially containers.
On the other side, because we are a marketplace of users and suppliers, we help shipping lines, leasing companies and container traders reposition their empty containers for free.
We also help shipping companies gain market transparency and we make it super easy for them to find new partners in a secure way. To provide the security we vet our partners, we offer container insurance and payment handling.
We cover basically the entire one-way journey of containers from finding new partners to container tracking, payment handling or adding third-party services. Everything to make the lives of all of our customers easier.
The idea sounds brilliant, but at the same time unobvious. Where did it come from?
It was not mine, unfortunately [laughter]. Both of our co-founders worked at the Boston Consulting Group as consultants for all the big shipping companies for years.
This is how they came across the empty container repositioning problem and realized that the entire industry spends on it about 20 billion USD annually.
Almost five years ago they came up with an Excel solution where they tried to address the problem in an extremely simple way. The customer could say: hey, I’ve got 20 containers in Hamburg, but I want to have them in Shanghai instead. And another customer could call them and say: hey, I have got cargo in Hamburg and need some containers to move it to Shanghai.
And in this Excel solution we basically matched supply and demand of the biggest shipping lines.
So it seems that there are problems that are taken for granted for years, unsolved until somebody sees them and tries out solutions as simple as an Excel file?
Yes! It is super important that you don’t have to start with a full-fledged solution. You can start small and develop an MVP and then go from there.
How did this Excel-based solution evolve into the entire one-way marketplace with extra services that Container xChange is now?
In the beginning, we focused only on shipping companies. It took us time to realize that it makes sense to open the marketplace also to container traders, freight forwarders and leasing companies to play on the whole global market.
That was our first business pivot.
But there was also an evolution in our thinking about the value we needed to deliver with the system to be successful.
In the beginning we only focused on process improvements and generating savings. And that was super easy. If you talk to CEOs, they will always buy the solution if it saves a lot of money.
But it took us time to realize that we also have to make the solution user friendly and simple for the people in operations, so they actually use the platform and make the savings happen.
These people just did not know how to use the complicated Excel sheet we started with.
What was your biggest challenge when building and growing xChange?
There were two: gaining trust of the industry and making sure our value proposition made sense.
We built the development team internally because it is very important for our stakeholders that their data stay safe, and that we are neutral. No company from the shipping industry has shares in xChange or has some more insight into it than the others.
And that is our biggest selling point.
If any shipping company had shares or better access to our data than any other customer, other big competitors would never offer their equipment on xChange. So it was and still is crucial for us to build trust.
Attracting users and getting to the point where we offer real value was yet another big challenge.
Most marketplaces and product companies initially offer their services at a discount.
In the beginning, you are happy if companies use your service even for free because you cannot offer them too much. And you really need them – because without customers and vendors the marketplace makes no sense.
But once they have traded and once they see the value, you can add new features, build up the platform and then slowly start to charge money for your service.
It was a great challenge to reach that moment fast. But it happened in several months and made us way more confident that we can offer our customers real value.
Speaking of value and getting paid for the service – what is your business model?
Companies – forwarders, NVOs, traders, leascos and carriers – pay us a monthly subscription fee and then get access to the entire platform. There are also small fees charged for services like payment handling and for getting insurance through xChange.
And what are your customers’ greatest gains?
Saving money or making more money is always the biggest priority for our customers. But in the end, it’s about speed, because if our customer is approached by his customers and cannot get back to them within a few hours with an estimation, he will most likely lose them.
And usually getting back with estimation and organizing assets would have taken him a few days.
Thanks to xChange it is much faster and it is very easy to give the customer first indication: OK. This is possible. I can offer you the following conditions.
Another thing is trust and security. They know that only a trustworthy, well-checked company can access xChange and lease the equipment, so they know that the equipment will arrive on a certain day and in the right condition.
So it’s about speed, saving money but we also make it easy for people to gain a true game trust in their business partner, which makes their lives easier.
In the beginning you said that your platform enables tracking containers. Can you explain further how that is executed and what technologies do you use to support it?
Well, the sensors and real-time communication are not so common in container logistics yet.
Even though there are more and more containers that get smart with IoT devices, it is just a small fraction of the global fleet. So the best thing you can do right now is to get the data from every shipping line.
We have to do really a lot of integrations with external systems to get the data, and then be able to show it to our customers in a way that makes sense for them and helps them act. Container tracking is still the area that needs huge improvements.
The market expects that in the next 5-10 years the global container fleet will be smart. But right now we are still far from there.
And it is really a pity, because integrations are challenging. There are no common standards for data exchange and every integration for every company has to be written from scratch.
We are happy to see the industry players starting to cooperate on setting the standards – eg. Digital Container Shipping Association pushes data standards heavily. But it is still a matter of the future.
How would you assess the level of digitization of the container logistics in general?
If you think about the international swift payment banking standard, for example, or how easy it is to book flights, you can see that container logistics is so far behind other industries.
And it is not because people in the industry are incapable. It is just because it is a complex and really difficult domain with so many people involved.
But I believe – and we can already see the first signals – that this will change in the future. That things like smart containers, real-time data and more transparency will not be the exception anymore and become available for everyone.
It is the same story with the data standards. Hopefully soon our systems will all speak the same language and people will have access to the same tools because the industry players are really waiting for that.
It will unlock so many new opportunities to use the collected data for better efficiency in container logistics.
Obviously, Container xChange is just one solution for the container logistics industry that could benefit heavily from that.
But think for example about freight forwarders – the opportunities for instant bookings and how these companies could work for shippers – that can also explode in the future thanks to smooth data flows.
What will we see, if we try to look into the future of container logistics beyond the current pandemics? For example, what do you think about blockchain? Many companies expect it to change the game.
I have two answers for that.
First of all, I think blockchain is just a technology. What people associate with blockchain are transparency and real-time data. And in fact, these would also be possible to obtain with other technologies.
But transparency and real-time insights are still not possible because we do not have common data standards and the industry is still under-digitized. So this is why I believe blockchain is no Holy Grail.
I think the idea behind blockchain that everyone owns data collectively is great. But it is difficult to solve everything with blockchain when, for example, there are still people that have to go and have a look at the container, take pictures and manually inspect the containers after every journey. There is lots of manual work still done in the industry.
And then if we look at other industries, and we have talked a bit about this, they are far more technologically advanced than ours, and blockchain is still just a niche technology researched by few players that are trying to figure out how to use it.
So we will see new trials and new applications, but I don’t think it will develop fast.
In the last months we have seen a huge impact of the COVID-19 virus on supply chains and the global T&L sector. But what are the other ways the current global situation and politics influence xChange platform and its users?
A new big use case for several companies on our platform is finding and renting the containers on the rail connection between China and Europe that is part of the Chinese Road and Belt Initiative.
Because all of the containers used on this connection are shipper-owned containers or third party equipment, the companies have to source them in China, move them to Europe, and then find a use for the containers on their way back from Europe.
This is where our platform plays a really important role – we create a place where the users find a company that repositions their equipment from Europe to China, either by train or by the sea. We predict this will have a great impact on our customers, so also on us.
Let me end this conversation with the most difficult question: have you ever felt like a hero when working on your platform?
Yes, and in fact it was today!
One and a half hours ago I had an interview with one of our customers – a container trader from Europe – and at the end she said that if someone wants to use their containers, she will always say No if it’s not on xChange, because only on xChange she knows her company can trust people, she knows that the container will arrive on time, and that she has someone always there for her, in case something goes wrong.
It is an amazing moment when you work on some solution and you hear that people really prefer doing business with the use of your platform than outside of it. I call it a success. And I hope we all have more successes like that in logistics in the nearest future.