Carriers and Forwarders - A Zero-Sum Game: An Economic Outlook on The Freight Forwarding Industry.
Updated: Sep 5, 2019
Recent occurrences are bound to shape the future outlook of the freight forwarding industry sooner than later. It's not a surprise that as these changes are happening, some freight forwarders won't even notice them until their traditional profit margins disappear and their call to action is futile.
Trade wars, data ownership, a shift in carriers strategy to derive more profit from inland logistics, and increases in oil prices are some of the factors that will radically impact the freight forwarding industry in the near future.
President Trump slams tariffs to China in an attempt to soothe the billion-dollar trade deficit, and the ones actually paying the price are the freight forwarders by seeing a reduction of their potential profits. What once was the most profitable trade lane in the world (China - USA) is now a casualty of political turmoil.
As the price of foreign products begin to rise from consequence of tariffs, the direct implications of them on foreign products is a shift in consumer choices towards domestic products. In the long run, it represents a decrease in exports and imports in the economy’s trade balances.
To the freight forwarding world, this represents an immediate decrease in their day-to-day business thus limiting the potential profits they would have achieved as compared to a tariff-free scenario. Under these circumstances, freight forwarders face additional pressure to reinvent themselves now more than ever.
Another relevant circumstance that freight forwarders should regard as an imminent threat to their business model is the landscape of data ownership. Data is one of the most valuable resources of our time and it is an asset that carriers are trying to own in the shipping industry.
The biggest threat of an industry is where an asset-intensive company with its presence well established in multiple verticals takes ownership of the data including that of its competition. Such a situation is evident when looking at companies like Maersk and its Tradelens initiative whose utility resides in a centralized private blockchain solution that brings together data from multiple stakeholders of different logistics services under one platform.
This position can be very beneficial for Maersk and its new plans to derive half of their revenues from inland logistics (now competing directly with forwarders). They are on a path to domination that directly threatens the existence of forwarders as we know them.
Finally, the deadline to implement the IMO2020 new Sulfur regulations is right around the corner and forwarders can expect such regulations impacting their day-to-day business in the near future. New oil sulfur content regulations are set out to increase significantly the price of the gas carriers use by 50%. Carriers will have no choice but to spike up their rates, thus passing the cost along to the forwarders.
However, the forwarders will also have to increase their prices and ultimately passing the costs along to the consumers. In the short run, this will cause a decrease in demand from consumers and a recessionary industry cycle can be expected until a decent equilibrium point is reached organically in the long run.
In presence of these circumstances, forwarders are now in a challenging but possibly rewarding position - that is of course, if they use these obstacles as the path to reinventing themselves and turn these circumstances into their advantage.
Naturally, there will be some that will be completely erased but the visionary ones, will have to be creative by opening new revenue streams and seeking new technologies like eForwarding to offset the changes that are right in front of us.