Like it or not, globalization is shaping the modern world. Yet international freight transportation, one of the industries that support the process, remains paradoxically old-fashioned. It is highly fragmented, with the top five container-shipping lines, for example, carrying only a quarter of the world's ocean freight among them; prices on some routes bear little relation to supply and demand; and contracts are so casual that they might be sealed by a one-page fax or a handshake. Despite growth, since the mid-1990s, of more than 5 percent a year in the revenues of the air- and sea-freight sectors—to more than $130 billion annually by the end of the decade—both consistently underperformed the S&P 500 during the same period (Exhibit 1).

The proprietors of the many freight companies (including freight forwarders) that are state owned, in private hands, or owned by conglomerates have mostly been content to let them bump along the bottom. Are they doomed to stay there, or can the freight industry bring its practices and profitability more into line with its role in the modern world?

We believe that it can. Much of the trouble in the...