A freight intermediary (also known as an OTI or Ocean Transportation Intermediary) is someone who assists an exporter or an importer in securing competitive freight rates while providing the most efficient routing for their cargoes and alsoRead more
Forwarders’ Opportunities in a New Global Environment
Freight forwarders have ridden the waves of globalization for the past 20 or so years. Outsourced manufacturing to China, the opening of emerging markets in Africa, the Middle East and Latin America and the rise of free trade agreements have all help traditional forwarders expand service offerings and geographic reach as supply chains spanned across the globe.
Preliminary results of our 2nd annual forwarding survey suggest that there is no such a thing as a ‘traditional’ freight forwarder but instead one that has adapted to the ever changing market. The rate of adaptation and the approach differs from one forwarder to the next but the overall nature of a freight forwarder has remained the same – to move freight on behalf of client shippers.
However, the times they are a changing, and forwarders are realizing they must change even more to survive in order to address the changing global market. For example, the election of Trump as US President and Brexit have figured prominently in the press suggesting the end of globalization as we know it.
Volume-wise, the freight forwarder has prospered thanks to globalization but they have suffered in recent years in terms of profitability due to low ocean freight rates and a shift from air to ocean freight.
To demonstrate, earnings announcements for first quarter, 2017 are just now coming out with Kuehne + Nagel and Panalpina recently announcing. For Air and Ocean Freight, volume and gross profit gains were:
- Air Volumes: Kuehne + Nagel up 16%, Panalpina up 8%
- Air Gross Profit: Kuehne + Nagel up 2.6%, Panalpina down 3%
- Ocean Volumes: Kuehne + Nagel up 9%, Panalpina up 7%
- Ocean Gross Profit: Kuehne + Nagel down 3.2%, Panalpina down 11%
- So, once again the freight forwarder must adapt as global trade comes under fire.
The rise in nationalism sentiment around the world has many holding their breath. Will the European Union fall? Will the US really build a wall across its southern border? Can the Trans-Pacific Partnership agreement be resurrected without UPS participation? Indeed, more questions than answers at this point in time but for forwarders, there are opportunities. Investment banking firm, Jefferies noted in late 2016 that freight forwarders could benefit from increased complexity created by protectionist sentiment by offering tailor-made solutions.
In a 2012 white paper, DHL analyzed trade outlooks to 2050. Of the five scenarios, DHL presented one scenario in which there is a world of “excessive nationalism and trade protectionism.” According to the paper, ocean freight becomes less important while the significance of regional road and rail transport increases.
In addition, because of the complexity and length of the customs clearing process that will be present in such a scenario, consulting services will be needed.
And finally, resources will be scarce and result in high levels in recycling. As such, assistance in implementing reverse logistics processes will be important.
Will Forwarders Successfully Adapt?
There’s a lot going on within the freight forwarding market – Technology, competition, changing customer expectations and more. What are your thoughts on the changing freight forwarding market? Let us know by taking our second annual survey. Respondents will receive a copy of the analysis in May.
Also, If you’d like to have last year’s survey results, let us know. It's free for you now.
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