The freight forwarding sector is in the eye of a recessionary storm. Since the middle of 2008 there has been a massive reduction in demand for all forwarding services. Indeed such has been the magnitude of the fall that it suggests the sector is undergoing a systemic change of considerable magnitude.

In particular inter-continental sea container and air freight markets on routes in and out of China have been worst affected. It is these critical China trades that have provided both the growth of the freight forwarding market over the past decade as well as its difficulties today.

However it is important to understand the structure of freight forwarding and its relationship with the underlying transport assets which it brokers. The structure of freight forwarding is not static and it continues to develop in both volume and, it might be suggested, power. Freight forwarding is consolidating, a consolidation apparently amplified by the present recession.

Looking back over the past twelve months it can be seen that there has been a violent reduction in trade. According to the World Bank, the value of traded goods in dollars has fallen by 30% between September 2008 and March 2009. However the profile of the fall suggests a sharp contraction around December of 2008 and January of 2009 followed by a degree of stabilisation.

The fundamental position of the container shipping sector is a gross mismatch between the available container shipping capacity and the level of demand. Capacity is rising as new ships, which were ordered several years ago, are put into service. Demand however is falling steeply. The implications of this situation for freight forwarders have been two-fold. The fall in demand has had a substantial effect on revenue, yet the fall in rates has had an ameliorative impact on margins.

The present trends in the air freight market are fairly similar to those in the sea freight market. However over the long term dynamics of the two markets are fundamentally different as air freight is dominated by the opportunity costs inherent in the belly-freight capacity of what is perceived as an industry driven by passenger revenue. Over the past decade growth has been driven by the 'China trades', although other markets have also played a significant role. The collapse in export traffic from China in particular has caused a severe recession in the sector with high levels of overcapacity.

Overall the sector also appears to be restructuring. There has been an appreciable shift to lower value goods being moved by (now quite cheap) container ship, whilst higher value goods make up a larger proportion of cargo moved by air. It seems that many shippers have taken the view that inventory velocity is not as important as lower transport costs – a situation influenced no doubt by low interest rates.

With many airlines tending to make capacity adjustment decisions based on passenger volumes rather than air cargo volumes, there has not been the necessary reduction in capacity required to return the market back to equilibrium.

Looking towards an eventual recovery in the air freight market, it is highly probable that any upturn would see a rapid and substantial increase in available capacity – meaning that rates will stay depressed for some time to come.

There are major differences in the way, and the effectiveness, with which the large freight forwarders have approached the downturn. So why the difference in terms of performance? One possible cause might be exposure to different trade lanes. Trans-pacific trades, particularly east-bound have declined more quickly than the whole market. However the Europe-China lane has also fallen violently and the two compose around half of all traffic.

Of course one obvious answer should not be overlooked: some companies are just better run than others. Freight forwarding remains a people-led business, and if staff are managed well and are good at their jobs, company performance will shine.

This feature article has been excerpted and abridged from Ti's Global Freight Forwarding 2009 report published August 2009.

About Global Freight Forwarding 2009

The latest edition of Global Freight Forwarding 2009 contains analysis of the state of the global forwarding market including key trends and developments in 2008 and the first half of 2009. In addition, the report contains market sizing and 5 year forecasts by sector (air and sea) for major regions and 40 individual countries. For the first time the report includes interim market data revealing the impact of the downturn on the market.

In addition the report provides company profiles and market shares for the leading players and ranking of the largest air and sea freight forwarders in terms of revenues, air tonnage and teus shipped.

 News source: Transport Intelligence, by John Manners-Bell