Two Trends Are Threats To The Industry
Phil identifies two threats, which are acting as fundamental drivers of change within the industry. We asked Phil to elaborate on these catalysts, and more importantly, their impact.
Declining Freight Rates
For forwarders, just as the 2009 financial crisis ended, another crisis began. There has been a massive increase in the capacity of the global container fleet. There are several reasons for this, other than projected demand. Simple pricing theory dictates that if you increase supply more than demand, prices will fall. And they have. And continue to fall.
Sure, costs to carriers are also falling, but forwarders typically charge a margin, not a set rate. Works well when rates are moving upwards. But when rates are falling, revenue is hit harder than costs. Maybe this wouldn’t be so bad if expenses fell too. But most other expenses, like labor costs, are not linked to carrier costs. And, as expenses have a habit of doing, they have kept rising.
Phil adds that something else has contributed to declining freight rates. Nowadays, shippers are better informed of market trends, rates and competitive offerings. Knowledge is power, and this knowledge is keeping freight rates at low levels. Suddenly the freight industry is not so opaque. But no matter the cause, carrier rates plummeting or internet-savvy shippers, declining freight rates spells gloom for forwarders.
It’s not just freight rates. Shippers are getting better visibility into freight forwarding right across the value chain of Quoting > Booking > Transporting > Delivery > Billing.
Shippers have their own pressures. Global supply chains are increasingly complex. Supply chain volatility, increased procurement vendors, agile manufacturing and an on-demand economy. They are demanding support, more transparency, from forwarders. And getting it.
And that creates a vicious circle for Forwarders. They must continuously match the value add quality services that competitors offer to stay in the game. Take for example, freight tracking technology. Accurate event information and exception notification started relatively recently as an expensive value-add that few forwarders could offer and few shippers could afford. Today even small shippers won’t ship unless they can check the status of their shipment.