Episode Transcript
[00:00:03] Speaker A: Welcome to the Freight Buyers Club. I'm Mike King. My guest today is Oliver Grit, founder and CEO of Ontegas Cloud, the freight forwarder profitability specialists. Oliver spent decades inside the industry. He now advises starting as an apprentice at Schenke in Southern Germany, moving through Danzas in Switzerland and becoming Chief financial officer of DHL Express at the age of 39.
He left DHL in his 40s to build what is now on Tegos cloud. He was last on the show arguing that forwarders make their best money in their worst markets. War in the Middle east, vessel oversupply, fuel volatility, and a tariff regime that rewrites itself every few weeks. Time to test the thesis. Oliver, welcome back.
[00:00:52] Speaker B: Thanks Mike. Hi Oliver.
[00:00:54] Speaker A: Last time you told me forwarding thrives on complexity. Does this market still feel like opportunity to you or does it feel like something else?
[00:01:04] Speaker B: No, it perfectly feels like opportunity. I mean, last time I was alluding to the COVID situation, which was a gold mine or turned out to be a gold mine for the industry.
Now with the unfortunate war in the Middle east, we are edging into this mega crisis territory again.
The vibes I receive from some of the well organized trade forwarders is that their profitability is heading up again and again.
Proving my point. When times get tough, forwarders benefit.
[00:01:45] Speaker A: What separates the forwarders capitalizing on this from the ones just hanging on? Oliver?
[00:01:50] Speaker B: Well, incidentally, I was in Dubai when the war started and that gave me a little bit of time to listen around in my customer base how now everybody is dealing with this situation.
And the clear differentiation point there for those who immediately were on the case and those that were not so much on the case was data.
The ones that were great within a day or two had figured out which of their customers were most affected by the situation, which ones could use help. They knew exactly where their cargo was stuck and they were immediately working out alternative solutions with their customers to resolve the situation. And those are also the ones that have been extremely quick in, in levying extra charges like war surcharge, bunker fees or fuel surcharges. And latest numbers already show that profitability is going up.
[00:02:54] Speaker A: Oliver, so you were actually in Dubai while all this was happening. What was it like trying to keep these supply chains flowing, working alongside your clients, I suppose. But in the midst of this conflict, which at that stage at the end of February, early March, we didn't really know how it was going to evolve, did we? It was quite, it was really, really serious. Then there was a lot of bombs flying in that area.
[00:03:18] Speaker B: Well, there were a lot of bombs flying in that area. The press reports though, were a bit overstating the situations. They, for example, showed that apparently hotels had been hit in Dubai, which was not the case. The air defense in those first few days worked perfect perfectly. However, there was some stuff falling off the sky from shot down drones and missiles which set a car on fire here and there. But luckily no major harm to the, to the population. Yeah, it was spooky. Nobody knew what was going on when regular flights would start to work.
And yeah, in a situation like this, it takes a few moments to breathe and say, what do we actually do now? They switched onto home office in a lot of cases. And then with varying speeds, people looked into the data and started contacting their customers to help those that were most affected to sort out their broken supply chains as carriers obviously could not easily get into the Gulf anymore or surrounding areas and offloaded containers in other places. And that had to be dealt with
[00:04:44] Speaker A: real time supply chain management in the midst of a crisis. Wow.
So you guys have put out a new report it calls 2026 the year of peak liquidity stress.
What in your view is actually breaking and who is it breaking for?
[00:05:02] Speaker B: Well, the insecurity in the world economy, like all the time that happens, requires people to tighten their belts, especially also investment funds require of their portfolio companies to tighten the belts and drive down their banking facilities, tighten up their working capital.
And this is going to be the recurring theme of this podcast, Mike. Those that are on top of their detail, on top of their processes, they can beautifully immediately react to this. And for those who are more disorganized in that area, for them it takes a little bit longer. That situation, which nobody knows how long it will last and what the exact outcome will be, requires that tightening. Also from a forwarder's perspective, they are confronted with a situation where their customers tighten their belt, will require higher payment terms, are not so punctual, maybe in some areas anymore, to pay their overdues. And that just requires an additional level of organization and becoming a little bit more, let's call it, aggressive in this area to make sure nothing falls through the cracks.
[00:06:26] Speaker A: Let's flesh that out a little bit then. You've said in the past that two forwarders in identical markets can have completely different cash outcomes.
So say if I'm running a forwarding business this morning, where do I look first?
[00:06:42] Speaker B: Well, the first area to, to look at for somebody running a freight forwarding business of any size, the first metric you look at is your bank account is the money you find in your bank account exactly the amount of money that you had expected the day before, or two or three days before.
If yes, everything is in order, normal business can resume. If not, then you've got to be immediately on the case.
Why not have monies that were promised not being collected, have extraordinary things happen that required specific outflow, and then the whole company has to be set in motion to make up for that shortfall the next day or in the next two days. So that is what separates a great working forwarder from one that has still room for improvement.
[00:07:42] Speaker A: Interesting.
Let's just think about this a little bit. Let's say we always have delayed decisions, poor visibility and misaligned teams. We see this every single year.
But why? What I don't understand, and maybe you can explain it to me, is why does the industry keep tolerating them?
[00:08:01] Speaker B: Because the industry, for whatever reason, on not everybody, but on a large scale, tolerate to operate on a substandard level. The standard level is the one that the top performers of the industry set. And they didn't get there by some sort of miracle. They got there by doing what is the right thing to do in this industry. Freight forwarding is a completely algorithmic business. There are no big strategic decisions to take. You don't have to think about what's going to be the design fashion in the next period. You don't have to think where to build a huge factory and how the global economy goes so that your factory is in the right place. What you have to do is to work your operation like a clockwork, arrow free, automatically, all the time. And if you do that, then the standard is 50% return on capital employed as a minimum. As a minimum, the really great ones have 100% and more. 50% is the absolute minimum. But that standard hasn't permeated the industry in totality. You find a lot of places where the company operates far below the standard. And freight forwarding is one of those industry, for whatever the reason is, where the standard has not become the standard, where people are satisfied with a situation that is below standard. And that is the reason why in so many cases you still have poor visibility and misaligned teams. Because good enough is what people perceive to be tolerable.
[00:09:51] Speaker A: On Tegos, Cloud put out a study saying that forwarders are leaving 3 to 5% of gross profit on the table through unbilled fees and underpriced lanes. I think probably a lot of forwards out there know how to make a profit in a market like now. Where there's, you know, there's a lot of complexity. But let's think about this in a different way. In a soft market, what's the difference between a good year and a bad one? Where does that leakage actually happen?
[00:10:19] Speaker B: Well, the leakage in a soft market or good market happens usually around fees.
It's surprising to see how many fees are left on the table and not being re invoiced to the customer. Of course, first and foremost, demurrage. I mean, it's hardly believable that a forwarder that receives demurrage does not pass it on by default to their customers.
So the amounts are staggering for the industry overall. And then of course you have a whole bunch of other fees and if you don't find them, then make them up.
The leakage area is first and foremost in fees, like the merge, waiting time, everything else, and in the avoidance of double costing. That again requires diligent work on the profitability of every file and the ambition to make as much money as possible with every customer order and every file. And the better you have that information available for you to look at. What else can I invoice? What am I missing? The easier that of course can be done and, and the amounts that are left on the table are staggering.
[00:11:42] Speaker A: Thanks for that, Oliver. Let's just pivot slightly. Everyone in freight is being sold an AI story at the moment.
What in your view? I'm thinking about how this fits into what we've already discussed in terms of AI and the forwarder operations. What's real, what's noise, what should be avoided in your view?
[00:12:02] Speaker B: Well, first of all, AI is real, AI is not noise. And we are all using AI if we know it or don't know it a for many, many years.
So it's not like the super revolution. And we are all using it more and more just automatically. Everybody uses gemini, everybody uses ChatGPT in one version or another.
Many years ago we had optical character recognition, which is AI, or voice recognition, which is a.
So in principle is nothing new. Everybody uses it. That's great. Now the question more specifically, if I'm a freight forwarding company, I want to be cutting edge. I have to use AI. And you're absolutely right, Mike, to say that there are boatloads of products out there that tell you something about AI and give them the buyer the good feeling. I'm cutting edge. I'm using such a product. My company uses AI for any business, including every forwarding business.
Being absolutely serious about the opportunity that AI offers means to strategically embed AI into your core processes.
Only if you do this, you really achieve maximum process automation. You achieve maximum data quality, achieve maximum decision making possibility in real time. What's the prerequisite again to be able to totally embed strategically embed AI into your core processes. That is the possession of a single consistent company data model. One version of the truth.
From first customer contact to cash collection. In the very end, all one holistic process, one holistic data model with high data quality, almost perfect data quality. And then you can more and more embed data AI. You can have it voice controlled by your operator so that they don't have to go through screens anymore. They can immediately tell the computer what you want and that's what you have to get to. That is the base you have to build. Everything else is a halfway house and in the medium and long term will mean that you're burning money.
[00:14:39] Speaker A: So this is the recurring question and get your data right before you implement anything like AI.
[00:14:44] Speaker B: Exactly.
[00:14:45] Speaker A: Okay, you've said in the past, we've discussed this, that the hardest part of transformation is the psychology rather than the technology.
When the rules of trade change overnight, what does leadership in a forwarding business actually look like?
[00:15:02] Speaker B: Well, two things.
One I already alluded to and that is the ambitious mindset.
Let me tell you a story. So you pointed out that due to my very advanced age, I've been working in this industry forever.
And I very vividly remember the days when I was working actually for the good old Swiss logistics firm Danzes in the head office in the 90s.
And we had all these strategic meetings and what was discussed over and over and over again is the margins of freight forwarding are going backwards.
We are definitely making less money per file. The GP margin is going down.
This is a decade old industry myth.
The reality is none of that has happened.
I wouldn't bet my house on it. But I'm pretty sure Koenenagel in 1985 had a GP margin of around 25% and they have 25% GP margin today. Maybe they even had a little bit less in the 80s and 90s than they have today. There is no margin decline in freight forwarding. Freight forwarding is also not a bad business or the worst business to be in. It's a absolutely great, fantastic business.
I remember being an expat in Asia in the 90s.
Everybody looked jealously at the banks and how much money expats in banks were making.
Guess what? Freight forwarding caught up with that. If you are a great freight forwarder, Anywhere in the world. You make as much money as, as somebody who's working in a bank.
So it's a great industry and the good companies, they are making fantastic money in this industry. And it's exactly that ambition that distinguishes great from not so great and has the right psychology. I already alluded to this, but I think it's a very important point. Secondly, and this is maybe where the impression comes from that freight forwarding is not such a great business.
It's a business that is brutal on detail and is brutal on daily hard grind. It's not business for somebody who has a huge stock portfolio or currency portfolio, trades it once a day, made boatloads of money. Freight forwarding is all in the detail. It's all how you have the culture in your company to accept the daily grind as something that's being normal. And then thirdly, you must be ultimately flexible and opportunistic. You mentioned the tariffs before.
You mentioned. We talked about the war situation before, we talked about crisis situation before.
It's the ability to deal with this in no time. And accepting that freight forwarding is super versatile, super flexible, super opportunistic, which is what makes it a great business. But it's nothing for people who have the mindset of a civil servant. It's for adventurers, it's for gladiators, it's for scouts. And that's the mindset with which this business must be handled at every level of the company.
[00:18:44] Speaker A: Okay, thanks Dahlf. I'm sure I didn't age you at the start there, but as we're, as we're going down that route, drawing on your extensive experience, If a forwarding CEO is listening to this and wants to enter 2027 in better shape than 2026, just give us a few tips. What's one thing they should do this week?
[00:19:05] Speaker B: Well, give us a call and immediately start applying our systems and processes.
But all kidding aside, I think I mentioned it already. It's this mindset culture of the grind and culture of flexibility starts getting the ball rolling on that 50% is the norm, is a minimum standard, and that's the benchmark.
And that benchmark can be taken apart into many other benchmarks. How much SGA should a company have? What's the gross profit margin should be, what the DSO should be, what the DPO would be. There's benchmark standards for all of those. If those are not met, then everything has to be set in motion to get there. It's a completely algorithmic business. There's no inherent hindrance. Not to be able to meet these benchmarks, and if we can help getting there, we are more than happy to do so.
[00:20:08] Speaker A: Excellent advice. Oliver Gritt, Founder and CEO of Ontegos Cloud. Thanks for joining me today.
[00:20:14] Speaker B: Thanks Mike.
[00:20:15] Speaker A: If you want to dig further into the work referenced in this conversation, the Cash Flow Stress Matrix Report can be found on the On Tegos Cloud website.
Big thanks as ever to Karen Ball and Tom Matthews for production. If you'd like to keep up to date with everything new in shipping, air cargo, freight and global trade, please do follow this content on your platform of choice. And if you want to get in touch, I'm on LinkedIn or you can email me at Mike at the Freight Buyers Club.
[00:20:43] Speaker B: Com.
[00:20:43] Speaker A: Thanks for listening. See you next time.
