Mary found the perfect deck furniture while shopping online. The process couldn’t have been easier: All it took was a quick search and a simple checkout to solve her summer entertaining problems. That is, until Mary saw in her order confirmation that she could expect her new furniture three to four weeks later.
In a world driven by the promise of on-demand and even same-day delivery, online shopping for many items, such as furniture, can come with one massive headache: long, vague shipping window times due to the very fragmented, paper-based and manual processes that characterize today’s logistics and freight forwarding space, an industry that is estimated to be worth $2 trillion.
That fragmentation also creates a big headache for the many players along the freight forwarding value chain, who all have their hands in getting Mary’s deck furniture from the warehouse to her front door.
Carlos Menendez, Mastercard president, Enterprise Partnerships, recently gave PYMNTS’ Karen Webster an idea of just how opaque shipping processes can be, often with as many as eight different interactions and as many interdependencies between the time the items leave the warehouse until they find their way to the consumer’s front door.
“There are different transport options – by truck, by freight – and questions over whether a shipment will be delayed by weather,” he explained. “There is the question of, when is the next best available route? Are we going to wait until a shipping container is full, or ship it individually?”
Today, freight forwarders use their industry experience, individual contracts with their carrier business partners and end customer requirements to answer some of these unknowns. A customer willing to pay extra for next-day shipping will likely have goods delivered via different routes and mechanisms than a customer willing to wait several weeks for delivery.
All of this affects cost. At online checkout, customers are often presented with a round-number shipping cost, but Menendez noted that this masks the sum of various payments made through the shipping and forwarding process, too.
“An individual may pay $100 to ship something – that’s the macro payment,” he said. “Then there are individual, smaller payments, to pick up items at a factory, put them on a truck for delivery to the port, and for storage. Then, there is the payment to take that item from storage and put it on the ship. Then there are customs duties and fees.”
Considering all of the variables and different routes goods can take while in transit, payments can quickly get complicated. On top of this challenge, Menendez noted, there is the issue of payment speed and settlement – whether freight forwarders and carriers are able to complete jobs before they are paid, how they reconcile any issues or mistakes in payment and more.
According to Menendez, while industry players often solve for these variables based on their own experience, it was the realization that the last mile of delivery can be solved by optimizing the first mile of payment – to the freight forwarders and their value chain – that promoted Mastercard to leverage their rails to create a freight forwarding process and payments solution. Earlier this week, the company announced a collaboration with Stargo, a company that provides automated routing and pricing services for freight forwarders and carriers using automation and artificial intelligence in the problem-solving process.
Menendez acknowledged that solving for all of these frictions is not without its challenges. Take, for instance, the variety with which freight forwarders and their partners make and receive payment.
Some companies pay by check, while others lump their monthly bills together for a single payment. Others agree to a payment plan likened to a subscription model, in which freight forwarders will pay carriers a set amount each month, regardless of how many shipments come through.
Menendez also highlighted a surprising struggle in the financial supply chain of this market.
“There is still cash in this space, believe it or not,” said Menendez. “It is a very fragmented payment experience.”
As Menendez noted, industry players cite long settlement cycles and a long tail of suppliers, as well as manual and expensive reconciliation processes, as top challenges.
A white paper published last month by Drewry Supply Chain Advisors in collaboration with Mastercard highlighted just how large the global container shipping market has become. According to analysts, transport revenues reached $166 billion last year alone, a transaction volume that included 1.26 billion freight invoices – all of which had to be “issued, verified, paid and reconciled,” the report noted, adding that invoicing and payments are plagued by manual processes and errors, particularly for smaller industry stakeholders.
Menendez pointed to the Drewry research, which calculated that addressing these inefficiencies could save global container shipping businesses $34.4 billion a year.
He’s optimistic that Mastercard and Stargo can drive a big chunk of those savings over time by giving freight forwarders an automated, end-to-end solution, from quote request to payment settlement. Stargo’s AI technologies and algorithms will analyze price changes and tens of thousands of data points in real time, and the Mastercard rails can enable payment, authorization, settlement and reconciliation using virtual cards, physical cards and account-to-account transfers (as a result of its Vocalink acquisition completed last year), Menendez explained.
As Mastercard positions itself to tackle these hurdles, Menendez noted that the company is taking a strategic approach to how it does so – and that includes a bit of experimentation.
Menendez emphasized that there are a lot of moving parts in freight forwarding, and that the intent of this pilot is to see how the solution they are co-creating can make the end-to-end process work more smoothly – not just in time, transparency and cost, but also as it relates to environmental issues, economics and TEU governance.
“This is a huge space,” continued Menendez. “We estimate about $2 trillion, just in paying for the shipment of goods. There is a very long tail, and we feel there is a lot of benefit to help organize this space, and facilitate tracking and payment transparency – for people like us, and for companies and governments.”