Metcalfe's Law and Network Effect in Shipping

Aug 15, 2018 Michael Ruffus Michael Ruffus

Formulation of the Metcalfe's Law

Metcalfe's law states that the utility of the network is proportional to the square of the number of users of this network ≈n2. This is due to the fact that the number of unique links in the network with the number of nodes (n) can be mathematically expressed by the triangular number n (n-1) / 2, which asymptotically approaches n2/2.

This law was first formulated by Robert Metcalfe regarding Ethernet. The law describes such concept as the Network effect and is used in multilevel network marketing, in social networks and marketing as such.

In practice, this means that if one link in the network brings a person 1 conditional benefit unit, then for a group of 10 people this benefit is 45 conventional units, 100 people - 4,950 conventional units, and so on, - grows in quadratic dependence.

The law caused a boom in the appearance of dotcoms.

Metcalfe's law is another thing you should know about the Network Effect.

SeaRates widely uses Metcalfe’s law building the network of independent freight forwarding agents, who are working united within same platform and digital space like one company. Shown above, the synergy effect is reached by the combination of efforts of each company, calling to their strong sides. For example if you are a forwarder somewhere in Germany, and your customer needs a delivery of 25mt of equipment from Rostov on Donto Nuremberg which mode of transportation will be the cheapest? You may consider truck or container shipping mode, and you will be searching for an agent in Russia, who will be able to assist you with this delivery.

If you are working under SeaRatesPartnership – you have full access to all freight forwarders in the system, and it will be easy for you to find the closest one. But this is also not the most important part. The most important is that the platform will give you a hint: if the forwarder from Russia have added his rates and services into the system – you may be surprised that this route can be served on the absolutely different way: by river in container. Yes, by the intermodal routing combining sea and Danube river, where another freight forwarder updated the tarrif information; and Danube has direct connection with Nuremberg; as such you are getting the optimal and cheapest option to deliver your cargo, and this option is 15% cheaper than regular container line load.

This is how Metcalf's law and network effect works in logistics: a community of freight forwarders united by the one principle bring a new efficient solution to a customer, 100 times faster than if a separate company would try to find this solution by phone/email.

How SeaRates makes network effect real?

There are much more examples in the world where the optimal delivery is not obvious at first glance - and only local strong operator knows all the secrets. In such countire as Afghanistan, Mongolia, Lesotho, Trinidad & Tobago and many of the developing countries, where economy has huge future potential - there are still many stuff to do.

SeaRates unites freight forwarders not manually. There is a family of digital tools, which are decentralized and regulated by all companies in the same time. These apps are developed to be installed on the forwarder's website and work by the cloud-based principle, collecting all tarrif and cargo movement information and statistics, they are saved and further analyzed to improve the system day by day.

Here are the applications, which combine freight forwarders advantages:

  • Logistics Explorer - the cornerstone of the environment. Works as a booking system on the transport company website, and allows to calculate any tariff from A to B by any mode of transport (sea, air, road and rail) with the ability of offering the alternative routes and types of delivery. The shipper can place bookings directly from the freight forwarders website.
  • Container Tracking - the tool, combined with route planner - tracing system, which is connected with AIS and today able to determine the location of not only containers, but trucks, aircargo, ships, wagons and more.
  • Load Calculator - stuffing optimization tool, which also works by any mode of transport and relieves your mind of long mathematical problem solving and calculating loading models. Also helps in optimizing of cargo consolidation.
  • Other useful apps