Executive Briefings

Freight Forwarders Said to Face 'Lose-Lose' Scenario

The uncertainty that prevailed in 2011 resulted in a particularly volatile and difficult year for the freight forwarding industry, according to Global Freight Forwarding 2012, the latest report by Transport Intelligence.

Sea freight forwarders are now finding themselves in a "lose-lose" situation on several key routes - squeezed by stagnant or falling volumes and higher freight rates. Meanwhile air cargo forwarders have been hit by a "double-whammy" of lower economic activity, especially in China, and the migration of some volumes to lower cost sea freight.

The research showed that following a strong recovery in 2010, the market stagnated in 2011. The first and second quarters of the year continued to see reasonable growth, however by the second half of 2011 volumes had weakened significantly. This weakness has continued into 2012.

According to John Manners-Bell, CEO of Transport Intelligence, the forwarding market is likely to see gross margins and operating profits squeezed in 2012. "Our research shows very clearly the negative correlation between rates and forwarders' profitability. The significant rise in sea freight rates at the beginning of the year, and a further rate increase in the last few weeks, will see forwarders come under pressure as they struggle to pass these rates onto their customers. At the same time weaker volumes will hit their revenues."

Despite this the report found that freight forwarders are remarkably resilient in terms of profitability. Although operating margins have fallen slightly over the past six years, they have remained roughly around the 5 percent level. This is despite the volatility in revenues which can be seen over the same period.

"At times over the past year the freight forwarding industry benefited from the alignment of specific supply and demand side conditions - falling rates and higher volumes. However, on many trade lanes the opposite is now true, which will, for the time being, make the market environment highly challenging for forwarders," Manners-Bell said.

Source: BIFA

 

Sea freight forwarders are now finding themselves in a "lose-lose" situation on several key routes - squeezed by stagnant or falling volumes and higher freight rates. Meanwhile air cargo forwarders have been hit by a "double-whammy" of lower economic activity, especially in China, and the migration of some volumes to lower cost sea freight.

The research showed that following a strong recovery in 2010, the market stagnated in 2011. The first and second quarters of the year continued to see reasonable growth, however by the second half of 2011 volumes had weakened significantly. This weakness has continued into 2012.

According to John Manners-Bell, CEO of Transport Intelligence, the forwarding market is likely to see gross margins and operating profits squeezed in 2012. "Our research shows very clearly the negative correlation between rates and forwarders' profitability. The significant rise in sea freight rates at the beginning of the year, and a further rate increase in the last few weeks, will see forwarders come under pressure as they struggle to pass these rates onto their customers. At the same time weaker volumes will hit their revenues."

Despite this the report found that freight forwarders are remarkably resilient in terms of profitability. Although operating margins have fallen slightly over the past six years, they have remained roughly around the 5 percent level. This is despite the volatility in revenues which can be seen over the same period.

"At times over the past year the freight forwarding industry benefited from the alignment of specific supply and demand side conditions - falling rates and higher volumes. However, on many trade lanes the opposite is now true, which will, for the time being, make the market environment highly challenging for forwarders," Manners-Bell said.

Source: BIFA