Thanks Lankypom, for your AI summary…l enjoyed it almost as much as the second test outcomes.

When you are walking a path never trodden, there are always unmet obstacles requiring a solution. This is WTC… and in their formative years they did it well. I always admired Richard White and the culture he developed in those early years. But I don’t think he and they (the company) have managed the transition to a large company at all well. It might even be a case of absolute wealth and success corrupts absolutely. The business issues as raised by your AI research are still Business 101 problems resolved in the same way, regardless of big or small.

I do hope they pull out of this tailspin quickly as there is probably a team of hungry Indian tech developers who are watching this very closely. They’ve got nothing to lose and everything to gain.

There was an interesting article on Wisetech, e2open and the new pricing model yesterday in the AFR https://www.afr.com/markets/equity-markets/sticker-shock-and-billion-dollar-deals-puts-wisetech-in-the-balance-20251205-p5nl3d

Having watched the investor day over the weekend and read that article, I intend on toping up my recently started WTC position to a full position. The new pricing model is a strong part of why.

On the face of it the current price at a PE of around 80 requires a lot of growth, averaging between 15-20% for the next 20 years before settling into system growth rates. CargoWise revenue is expected to grow 14-21% in FY26, and presumably due to the law of large numbers , this pace is likely to slip in coming years. Acquisition additions (in particular e2open) will make a mess of growth rates and have an associated integration risk, so could help growth or hinder shareholder returns.

I see the new pricing as a game changer on the current model and accept the reasoning presented at the investor day that this pricing is compatible with how the industry operates for many costs and that the uses of CargoWise will be incentivised to adjust the model to charge through it’s cost to the end customer. 

I also think the operational savings the AI automation and workflows offer customers adds massive value, as does CTO. Each unto themselves are very high value additions for customers on top of what is already regarded as a great system, the churn rates say a lot on this point.

So the current set up is that WTC will be providing it’s customers significant efficiencies (automation savings) and their customers savings (CTO savings) and the cost to do so will now be linked directly to revenue through the new billing approach.

A direct link between revenue and cost makes much more sense than the current system, it’s just that’s not how it’s currently running – hence change is scary and complaints and resistance is normal.

Also, by linking the cost of CargoWise to revenue, it is easier to justify price increases with additional features or functionality. WTC has now inserted it’s self into the margin of global logistics, rather than just being a cost to global logistics.

Hence, the pricing change is in my view a brilliant move.

I need to do more work on e2open, but on the face of it the acquisition makes sense, allowing WTC to service end to end logistics and be in a position to own the space – if you make it, move it and sell it, you need WTC. Plenty of room to grow!

@Magneto @mikebrisy

great points. One other thing I would add is the survival and profitability bias to Freight Forwarding companies using Cargowise. I hadn’t realised just how good it is. Admittedly, much of the future depends on being able to leverage Cargowise’s superiority into adjacent sectors, as previously discussed in other straws. The following snippet from MS explains clearly why customers are unlikely to choose another option and may have to suck it up!

We believe switching costs in CargoWise are the strongest contributor to WiseTech’s moat. CargoWise’s switching costs are most clearly evidenced by its annual gross retention rates, which have stood over 99% per year since 2013, despite WiseTech pushing through notoriously steep price increases over this period. The score warrants close inspection because it is exceedingly rare for software companies to have such near-perfect retention scores. For comparison, WiseTech’s closest peers are estimated to have 95% customer retention rates. Although such scores are still very impressive, implying a mere 5% annual churn, CargoWise’s churn is at least five times better, at under 1% annual churn. This assumes the difficulty level for retaining customers scales linearly between 95% to 100%, while in reality, the closer a company gets to 100%, the more difficult each incremental percentage point of retention becomes. The main reason for this exponential growth in difficulty is that businesses don’t have perfect survival rates in the constant onslaught which is capitalism. In other words, there is business failure risk. Although we are aware of software companies focused on (semi-)government customers (who have essentially zero business failure risk) with similar customer retention rates, we are unaware of other software companies focused on private enterprises with similar near-perfect retention rates. We estimate the business failure rate in WiseTech’s industry is closer to the churn rate of its peers, of around 5% per year, than it is to CargoWise’s customer churn of under 1%.

There are several possible explanations as to why WiseTech’s CargoWise customer churn rate is below the business failure rate of its industry. The first could be a matter of definition. WiseTech’s CargoWise churn rate doesn’t refer to logo churn but to seat churn. This means larger customers, who are less susceptible to business failure risk, can skew the number (although many software companies experience higher seat churn than logo churn, as customers may choose to license fewer seats). We believe this can play a part, especially given WiseTech focuses on the largest 200 global freight forwarders and within those indexes higher among the top 25. But we believe WiseTech’s products plays a larger part.

We believe WiseTech’s CargoWise software helps its customers meaningfully outperform their competitors and thereby reduces business failure risk to close to zero. We see this evidenced in several revealing metrics. The most striking among these is that every long-term CargoWise customer that is publicly listed has seen its share price outperform every one of its publicly listed peers over the past decade by a wide margin, with the average CargoWise customer delivering around 10 times the share price performance of the average peer.

We believe this is because, by digitizing and automating processes, CargoWise makes its users materially more efficient (and effective) at their jobs. Anecdotally, we believe it is typical for freight forwarders using CargoWise to process twice the number of jobs per day, compared with the industry average.

But having twice the efficiency should result in half the staff, all else being equal. After all, as WiseTech’s CargoWise customers become proficient on the platform, they should be able to reduce staff and therefore have seat churn. This brings us to the second metric of customer outperformance. We observe CargoWise customers have consistently gained market share, as they translate their lower cost base into lower prices for their respective customers, which, in a cost-conscious industry, results in significant improvements in their win rates at tenders. Between 2011 and 2023, CargoWise customers (both publicly listed and privately owned) that ranked among the top 25 global freight forwarders, as per the authoritative Armstrong & Associates Top 25 Global Freight Forwarder rankings, saw 7 times the container volume growth compared with other top 25 global freight forwarders

WTC is currently my largest holding within Super (~8%) having doubled my holdings in response to recent SP weakness.

@Chagsy you make a good point.

Remember the following slide from the FY24 Annual Results presentation.

It is clear to me that RW has judged that Cargowise is sufficiently embedded in the industry that now is the time to push the cost of the platform directly and transparently to the end user. As long as the "noise" that generates is acceptable, then it has removed the cost friction from $WTC customers to use more of the platform functionality to improve their service and lower their costs, further driving the picture above.

This could spur a race among the "smaller" customers who are now on the new model to leverage the platform to improve their competitive offering, however, I don’t think the small customers initially move the dial significantly for revenue. The same incentive exists for the top25 LGFFs. So a key success indicator is when these start to move to the New Commercial Model. If that happens quickly, then we could see a strong revenue uptick.

I really encourage all holders of $WTC (and watchers) to watch all 4 hours of the Investor Day recording. My head is still spinning.

Overall, I think there could be some short term challenges (CTO rollout timeline; E2Open performance), but over the medium and long term I think the story has a long, long way to run.

A big question I have is whether $WTC has the internal capability to take on and deliver the bold challenges - specifically CTO rollout and the deep E2Open integration required to deliver the vision. On the former, for example, RW said CTO could be bigger than Cargowise, but it is clear from what was revealed in the Investor Day is that it has significant change management implications. That is because when you try to optimise a complex system with multiple actors, there are individual winners and losers. And if the system requires all to cooperate, then the  "losers" can spoil the game. I wonder if the ambition will face serious roadblocks that continue to drag out the timeline?

This was the reason I asked the question about CTO milestones and timeline. And it was clear management were unwilling to be drawn on either. (They had time to think this through carefully because I asked the same question at the recent AGM.) This is telling, because it means that $WTC allowed the market in 2024 to form totally unrealistic expectations about the timeline for CTO to deliver.

It seems to me that $WTC sees this as high stakes. From the participation on the day, it appears that RW is deeply involved in the CTO pilot.

Again, I wonder if that created further impetus to move to the New Commercial Model quickly, because, once embedded, it becomes easier to pull the price lever with the NCM. So they might better be able to sustain overall revenue growth via NCM, if CTO is going to be a much longer burn (2-5 years, just like it initially took time to get Cargowise going.)

So much to mull over.

One thing is for sure, Investor Day gives me the next level of understanding to interpret the results over the rest of FY26. I feel much better informed about the business, the opportunities, and the risks.