The global freight forwarding market is forecast to continue growing over the next few years, supported by increasing trade volumes, but the industry faces downside risks and margin pressures, according to Transport Intelligence’s (Ti) “Global Freight Forwarding 2017” report.
The report said the freight forwarding market is estimated to have grown by 2.7% in real terms in 2016, up from 2.1% in 2015, on the back of higher air and sea volume growth.
However, due to continued excess capacity issues and lower average oil prices in 2016, rates continued to fall for both air and sea freight, with most forwarders reporting lower year-on-year revenues.
Looking ahead, the market is anticipated to grow at a real 2016 to 2020 compound annual growth rate of 4.1% as global trade volume growth accelerates.
Ti economist David Buckby commented: “While air and sea volume growth picked up a bit in 2016, most forwarders experienced declining revenues on the back of substantial rate declines. As usual in such circumstances, the fall in forwarder sell rates did not match the drop in their buy rates, leading to improved gross profit margins.”
He added: “Over the medium term, I expect growth to pick up in line with higher global trade volume forecasts, though risks are tilted to the downside due to factors such as political uncertainty and trade protectionism.”
On profitability, survey results indicate that excluding the impact of volume and rate changes, margin pressures for forwarders will intensify over the next five years, with investment in technology and offering new and more value-added services thought to be the most successful strategies to sustain margins.
In addition, conventional forwarders are set to lose volume share to other parties, but the threat may be asymmetrical for air and sea.
The report likewise examined the technologies changing the industry, the impact of digitization, changes to the competitive landscape (such as tech-based forwarding, carrier disintermediation, and e-commerce platforms), and ultimately whether forwarders can adapt and survive technological upheaval.
Ti analyst Alex Le Roy said: “The research we have conducted indicates that there is substantial demand for online interfaces which allow forwarders to better serve shippers. Nonetheless, it is clear that the scope of these solutions, in terms of geographic coverage for example, needs to broaden in order for them to deliver value. This will occur, but we are now bearing witness to a race for scale amongst the start-ups.”
Ti’s CEO John Manners-Bell said the forwarding sector is facing a challenging time, not least because the global economic environment has remained volatile and difficult to anticipate, though this was nothing new and the sector had always coped well in such circumstances.
He cautioned, however, that structural challenges such as trends towards regionalization and near-sourcing, coupled with greater technological demands, will prove more difficult to deal with.
He concluded: “Political, economic and technological pressure will continue to shape the industry in the coming year. One thing is certain, whether large or small, freight forwarders will need to remain agile if they are to flourish in an uncertain and complex world.”
Photo: Axisadman
