Global Freight Forwarding 2017

Global Freight Forwarding 2017 finds that the market grew by 2.7% in real terms in 2016, but stronger growth lies ahead

  • The global freight forwarding market is estimated to have grown by 2.7% in real terms in 2016. However, collapsing air and sea freight rates saw revenues for most forwarders fall significantly. The market is forecast to grow at a real 2016 to 2020 compound annual growth rate (CAGR) of 4.1%, as global trade growth picks up.
  • The Global Freight Forwarding 2017 survey finds 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/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.
  • Generally, there is little variation in gross profit margins among large forwarders: the difference between buy and sell rates is not where the game is won. What really differentiates them is how successful they are at turning their gross profit margin into underlying operating profit, as is evident from their varying conversion ratios.
  • Despite the perception that start-ups will have to dethrone incumbent logistics providers in order to succeed, the reality is that most of these emerging companies are set up to enhance or support today’s successful forwarders. Nonetheless, a few of the more ambitious companies pose a direct threat, and their disruptive potential should not be taken lightly.

22 June 2017 Bath, UK – According to Ti’s Global Freight Forwarding 2017 report, the global freight forwarding market is estimated to have grown by 2.7% in real terms in 2016 (growth due to changes in volumes only, prices and exchange rates are fixed at the base year of 2016). This is up from 2.1% in 2015, on the back of higher air and sea volume growth.

However, thanks to a continuation of excess capacity issues and lower average oil prices in 2016, rates continued to fall in both air and sea freight, meaning most forwarders reported lower year-on-year revenues.

Real growth in the air and sea freight forwarding markets was remarkably similar globally, but this disguises significant differences across important countries and regions. For example, air freight forwarding growth in China is thought to have been robust, while sea freight growth was much weaker. Conversely, the United States saw moderate expansion in sea freight as air freight growth faltered.

Looking ahead, the market is anticipated to grow at a real 2016 to 2020 compound annual growth rate (CAGR) 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. 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.

The report also features a survey which questioned supply chain professionals on issues such as trade lane prospects, margin pressures, strategies for sustaining margins, the performance of the top 20 against the rest of the market, disintermediation, regionalisation, vertical sector opportunities and the effectiveness of online booking platforms. 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/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.

A deep dive into the world of technology in freight forwarding also features in the report, which examines the technologies changing the industry, the impact of digitisation, 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.

It also includes a ‘mystery shopper’ investigation of spot market booking platforms.

Ti Analyst, Alex Le Roy, remarked: “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.

In his foreword to the report, Ti’s CEO, Professor John Manners-Bell, asserted that 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 regionalisation 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.

To find out more about Global Freight Forwarding 2017, or Ti’s expertise in the freight forwarding market, including analysis of its market size and forecasts broken down by regions and countries, strategies of the major 3PLs, analysis of technologies in the industry and more, visit the Ti website, or contact Ti’s Business Development Manager, Michael Clover

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