How can blockchain disrupt the Freight Forwarding industry - Ernesto Villa explainsBy Jul 14, 2019 11 Min Read
The Crypto Winter has certainly changed the landscape for blockchain development. With the emphasis less on price and more on development, serious projects have gathered momentum and a head of steam.
Ideas – which of course are great – are no longer written on the back of a beer mat and used as a pathway to funding: instead ideas are germinated into MVPs and trialled in the real world.
One such project to take this approach is Consol Freight.
Headed up by Ernesto Vila, Consol Freight is looking to disrupt one of the oldest, and critically, undigitized industries in the world – Freight Forwarding and Trade Finance. Since ships roamed the world the means of moving products from far flung shores back to shipping empires has proven problematic not only in terms of sheer transport but also in terms of payments. Once discoverers could no longer merely seize goods with force, the means to pay was initially solved by those new-fangled banks in the 1700s. However, the process by which credit could be extended across the globe has not changed much in the intervening years. It has even been said that Trade Finance underpinning Freight Forwarding is the most expensive courier system in the world.
It is an industry ripe for disruption.
Ernesto could be just the man for the job. He certainly has the smarts. Originally from Cuba, as soon as he had finished high school, he made for the US. His father had moved there 15 years prior and now had a new family in Florida but left enough room for Ernesto to find his feet. While Ernesto only stayed for about 10 months in that home, it gave him enough time to find a job, get promoted and then find another job.
Of course, Ernesto had arrived in the US with little or no English and no college degree. Career choices were limited, but that did not stop him escalating his opportunities every time. The first job was at Taco Bell but involved sweeping the parking lot. Not the most glamourous and certainly ‘tough’ as Ernesto admits but within a matter of months he was promoted to the kitchens. Then Toys-R-Us were hiring warehouse personnel and Ernesto was recruited and now earning a dizzying $4.50 a hour.
“This was a lot of fun until at the end of the season I was laid off. I knew I had to do something different.”
The something different was to reinvent himself. Ernesto’s father ran a small chemist and was a wholesaler for dye products for the textile industry. Ernesto listened closely to his father’s conversation and was confident enough to update his resume with logistics officer. It certainly sounded better than car lot sweeper and Ernesto was confident he could talk the talk.
Accordingly, he attended a local Jobs Fair and found that he was suddenly desirable. The reinvention coupled with a natural energy found him a job as a store manager for Foot Action, a Fortune 500 company. Within a year he was awarded the Rookie Star Store Manager award. Ernesto modestly says it was because his store was located in an area with a strong Brazilian population. “It was easy to learn Portuguese,” he says. However, having a common language is no guarantee that sales will follow.
Ernesto lasted two years in retail but found the work conditions crazy. He wanted a different kind of job. He spotted a job in an import / export business in Miami. One of the requirements was the candidate had to be Spanish speaking. This was obviously not a problem, although his English speaking skills had not improved as quickly as his prospects. Surprisingly, or maybe not surprisingly, he was offered a job managing corporate accounts. Despite listening and talking with his father, Ernesto had no experience in logistics.
The company is one of the largest freight forwarding operations in the world, operating in the fashion section with brands such as Timberland and Donna Karan. Ernesto walked into his new office, his vast office, but did not even know how to use a corporate telephone.
He enrolled in English classes. His boss was based in Chicago not Miami and Ernesto possesses that fearless streak beloved of migrant workers. So one of his first acts, with his newly learned English and phone skills, was to pick up the phone to Disney Corporate. He got through to the Seaworld Division which was looking to change logistics company to manage their Chinese imports. Ernesto was asked to provide a quote for 19 containers.
He got the business. He became quite a sensation in the company (to say the least).
After that success, Ernesto stayed two years at the company learning the ropes. He was then headhunted by a Chinese Freight Forwarder looking to open new trade lanes into South America. This was another successful period but Ernesto was looking for something more.
The more turned out to be to set up his own freight forwarding company. But how did a 21year old Cuban newly arrived in America fund something like that? Fortune favours the brave and Ernesto is no stranger to either. He had linked up with a Cuban school friend then living in St Louis, Missouri. While gambling was illegal in the state, boats on the Mississippi offered a legal alternative. Ernesto and his new business partner, had they but known it, played poker one weekend on the boats and won a whopping $3000. It was enough to form a company that they called Double Ace Cargo in witness to their lucky streak.
It turned out, however, that the youthful Ernesto did not know everything about freight forwarding. “Our first client wanted three containers shipped. The value of the containers was $20,000 and we were to make $500 for brokering the shipping. All was going well, we’d secured the project, sorted out the containers and when the goods docked asked the client for the $20,000 to pay for goods.”
“Oh, we pay in 30 days,” was the reply.
Crunch time. Ernesto and his partner had to cast around for family and friends to find the temporary cash flow. It was very nerve wracking but they managed to find the money and so their first job was successful.
Today, Double Ace Cargo is one the largest US freight forwarders in the trade with Venezuela, with a turnover of $22million and employing 49 people.
Not everything was a doddle. Although Double Ace Cargo had a big market in Venezuela Ernesto could see trouble coming down the line over a decade ago. “I knew we had to keep on diversifying and finding new markets. I also realised that there were many freight forwarding networks and so it seemed to make sense to join one of those.”
Costing $5000 for membership, the new network was not cheap but at least the members were vetted and covered more parts of the globe which was needed for reciprocal shipping into new countries.
One day, a large company in Miami, put in a rate request for a small shipping project from Morocco to Aruba. Ernesto thought they had found their golden ticket – an opportunity to provide unique shipping services – but it turned out no one in the network could provide any help.
“I finally found a trade lane between Morocco and New York and though I could finish the rest. But soon our golden ticket became a living hell.”
Double Ace Cargo found as they tried to negotiate the containers themselves a huge lack of transparency and then many hidden charges.
“It was a living nightmare. I realised then there was a problem to be solved. I mean, Double Ace Cargo is a very aggressive freight forwarder and was of course very strong in our native Miami, but not one freight forwarder could be all things to all people.”
Ernesto realised two things. The first was the majority of the freight forwarding networks were little more than directories. He also realised that if freight forwarding companies could work together then they could generate more profit. It was a powerful insight.
So he set up Consol Freight which is a specialised platform that did more than list freight forwarding companies. He wanted to connect companies and allow them to work together safely and to generate more income.
“A container on a ship is the same size the world over and costs the same whether it is full or half empty. As an industry we were constantly shipping containers that were not full. Additionally, finding another company that might want to share a container could take weeks in which case the opportunity might also have flown.”
Ernesto went down to business and built a platform that could connect the dots. “Even if the dots that were countries or places that I did not know existed let alone could pronounce.”
Ernesto’s partner decided to remain at Double Ace Cargo but he ploughed on. The Consol Freight platform aimed to support its members, forge relationships and find new value. Early on, Consol Freight found a new advocate in Richard Overton, president of X2 Elite Network. With him came about 300 new members.
Ernesto now had his route to market. He approached other networks and encouraged them to also join Consol Freight, but he was not after the beer mat idea formula. He wanted to create a real world platform first.
His belief in Consol Freight led him to relocate his family to Barcelona in Spain. And then he bumped into blockchain via a trucking entrepreneur. The founder had set up a freight forwarding business in the trucking industry and based it on blockchain. He too had built a product and approached Ernesto to join the advisory board.
“The combination of actual execution – there was a product not just an idea – and blockchain really grabbed me. I wanted to learn more and signed up for an online blockchain course from Oxford University.”
Blockchain provided the missing piece of the puzzle for Ernesto. “We had this great network of companies that worked together but there were some intangibles. For example, we did not necessarily know each other, we were sharing costs based on trust and we had a lot of moving parts in different containers. It lacked certainty.”
Ernesto had now been in the freight forwarding business for more than 20 years. He knew the business inside out but he could also see that without a special sauce, these traditional companies, of which he was one, could be left behind. Digitising had come very late to freight forwarding but when it did, it was going to be very disruptive.
Then there was the role of the banks and the issue of trade finance. Ask anyone in the sector to talk about trade finance and everyone, to a person, will shake their head at the cost, the lack of transparency and the closed and expensive finance monopoly operated by the banks.
Freight forwarding companies were doing all the heavy lifting but not taking any of the profit. Ernesto realised that the addition of digital technology and blockchain to the equation could create a whole new conversation.
“Even to the point that emerging markets in Africa are unable to avail of trade finance through traditional methods, but I knew we could offer something very different for the unbankable.”
At the heart of Consol Freight platform is the concept that Ernesto doesn’t want to finance an entity, he wants to finance the commodity.
This moves the goal posts significantly.
“Smart contracts are key here. We put in place a rigorous set of requirements and actions and when they are met, the contract executes. It removes the need to trust the other party. We also use blockchain to provide governance and IOT to track other issues, such as temperature for perishable goods. If we are not trusting an entity, we need to trust every step in the shipping process.”
Ernesto has built a digital platform that allows for cooperation between agents – in minutes not weeks. Already other freight forwards are asking to lease his software. “We didn’t intend to lease or sell it but we were asked and we are white labelling the platform through our eForwarder product.
He had raised private funding to build his working platform and will use sales generated to go to the next step – to put it on the blockchain.
“We are doing development in parallel. The commercial work pays the bills and the blockchain work will totally disrupt our industry – for the better.”
Right now, the platform, E–Forwarding is live. Ernesto is putting together a team of advisors, identifying the right tech, the right blockchain and also finding partners. Ernesto may say that he is lucky, but no one is that lucky so many times in his career. To quote the final lines in the film Dr Zhivago it suggests that for Ernesto and freight forwarding, like Lara and her balalaika, they don’t need to be taught. It just comes naturally or as is said at the end of the film: Ah, then it is a gift”