Freight forwarders are the true architects of the global supply chain, and their capacity to handle uncertainties determines the flow of goods and trade. However, the industry itself is witnessing an identity shift not only due to digital forwarding but also consolidations.
In its April 2023 update of the air cargo market, CLIVE Data Services of Xeneta reported that longer-term contracts between shippers and freight forwarders may signal ‘more common ground’ in a stabilising global air cargo market which saw demand dip at a slower -3% year-over-year in March.
Does this mean stabilisation in the market for freight forwarders? As the industry is still not out of uncertainties, both the long-term and short-term trends need to be assessed to answer that. The evolution of technology usage and mergers and acquisitions (M&A) are two crucial gauges to measure this.
The most important topic of discussion in the current freight forwarding industry is automation through digitalisation. Regardless of where it has reached, the industry is reminding, once again that it is ruled by humans and human creativity.
Looking at the current market and industry, Brandon Fried, executive director of the Airforwarders Association observed that we're still seeing the value of creative logistical problem-solving, that only people can deliver.
“It's an industry of knowledge, expertise and experience. It is the talent that makes the business value in this industry. And that continues today, regardless of the automation and size. Their skill, knowledge and expertise in the ability to address logistical challenges are that automation might not be able to do.”
“Technology, while helpful as just a tool,” Fried argues, “In the end, it's about the people and their knowledge and expertise that make the business successful.”
“It's an industry of knowledge, expertise and experience. We're still seeing the value of creative logistical problem solving, that only people can deliver.”
Brandon Fried, Airforwarders Association
Meanwhile, Lionel van der Walt, chief growth officer at logistics platform Raft thinks that digital freight forwarding is about bringing the human back into freight forwarding, acting as a catalyst for radically rethinking the nature of work in this age-old industry.
“Traditional freight forwarding processes are often time-consuming and prone to error because they rely heavily on manual tasks such as preparing documentation, chasing payments, and tracking shipments.
According to van der Walt, with digital freight forwarding, many of these mechanical and time-consuming tasks are automated.
“This frees up freight forwarders’ time to focus on higher-value work such as improving cash flow, working more effectively with vendors, and providing personalised customer service,” he said.
Certainly, digital freight forwarding can bring value not only to forwarders but also to their clients, ultimately.
The rise of digital freight forwarding has streamlined operations and workflows at scale without the need for increasing manual labour.
van der Walt said, “Automated processes are improving accuracy and reducing the time it takes to prepare documents, clear declarations, and process and reconcile invoices. AI is helping to improve visibility across the supply chain, enabling freight forwarders to track shipments in real-time and provide up-to-date information to their clients. Further to this, accessibility to real-time information has the benefit of ensuring better collaboration and transparent communications between teams, which ultimately makes life easier for freight forwarders.”
“Digital freight forwarding is bringing the human back into business, acting as a catalyst for rethinking the nature of work in this age-old industry.”
Lionel van der Walt, Raft
Another important but renewed talk of the town is on artificial intelligence (AI) and its impact on the supply chain.
FIATA (International Federation of Freight Forwarders Associations) advisory body for information technology chair Tej Contractor thinks that AI is of great benefit and can remove mundane administrative tasks and allow the human workforce to move on to more interesting and skilled tasks.
“Although AI will never be as good as the data which is input, or the user writing commands into the interface, it will significantly change the way forwarders do business, by adding value to their work and avoiding the repetitive work which is time-consuming and much of the time, uninteresting for the user,” he said.
Fried who reports significant advancement in digital forwarding technologies and believes more is coming, argues that face-to-face interactions are essential in this industry. He notes that even in the so-called digital forwarding companies face-to-face customer discussions are going on as well.
“They have marketing people who, sooner or later, are sitting down for lunch with the shipper because so much of creative logistical problem-solving comes from face-to-face interaction that might not be adequately addressed today, through the handheld device,” he said.
However, while talking about where the industry’s automation is going, Fried notes that there are several areas where digital solutions and technology can fool-proof operations.
“For example,” he said, “There is a big concern now on dangerous goods and shipments like lithium batteries. While face-to-face interaction and consultative approaches are essential, there are procedures to be followed. To the point that could be automated, to make sure that a step isn't missed, the industry is starting to introduce that more.”
“The industry is lacking data visibility and supply chain transparency. And the biggest value that these digital forwarders have created is advancing that conversation.”
Derek Lossing, Cirrus Global Advisors
Meanwhile, talking about some of the digital freight forwarding companies that came into existence to revolutionise the traditional freight forwarding industry, Derek Lossing, founder of Cirrus Global Advisors, a consultancy to forwarders opines that it was not the case.
“I don't think any of them are revolutionising the way goods are moved around the world,” he said.
However, on a positive note, he argues that these companies created a conversation around visibility and Lossing thinks this conversation needed to happen, irrespective of digital freight forwarders.
“Only if you can have visibility and data points around what's happening in the global supply chain, will be able to correct problems or make improvements. And that's true, whether you're a shipper or a forwarder or a carrier. The industry is lacking in some of that data visibility and supply chain transparency. And the biggest value that some of these digital freight forwarders have created is advancing that conversation,” he said.
Robert Khachatryan, chief executive officer of Freight Right Global Logistics notes that the talk about digital forwarding has fueled a massive influx of venture funding into an industry that promises great riches for those able to drag the industry into this century.
“At least, this is what the would-be disruptors are prophecizing,” he said.
However, he thinks that much of the value proposed by new tech companies is around giving smaller forwarders the ability to compete with larger ones. He also noted that, at least in the case of visibility, the ironic outcome of automation is more manual labour.
“What has become clear is that the first round of digitization centred around rate management and quoting turned out to be a dud. Having been able to automate at least some portion of the quoting process, many forwarders realized that the solution could have been better. Visibility tools, which are the most active tech startups these days, are also finding that there may be a reason why smaller forwarders cannot offer visibility to their customer. The available data needs to be more cohesive and siloed. To plug the data gap, logistics companies, and technology providers are doing what they were preaching against. They have hired armies of staff in overseas offices to update milestones that are unavailable automatically or manually.” he said.
“To plug the data gap, they are doing what they were preaching against. They have hired armies of staff to update milestones that are unavailable automatically or manually.”
Robert Khachatryan, Freight Right Global Logistics
The money not only flowing towards the digitalisation of the industry but also into the consolidation of the industry itself. After a period of market uncertainties, the industry is reporting increased M&A.
For example, Jonathan Clark, CEO & EVP of the wholesale freight forwarding company Air Menzies International, in a recent interview with The STAT Trade Times noted that they are trying to double their global footprint in the next two years from 27 offices to 50. While he is expecting organic growth, a lot of that expansion will also come in inorganically by acquiring companies, particularly to enter new markets.
"The difficulty is that many companies have been very successful over the last few years which means the price asked for some of these businesses is inflated. By the middle and end of this year, the market should start to stabilise and should get back to some normality. The airfreight rates are still high. The profits of some of these companies will start to come down and we want to take advantage of this in the next few years, he said.
Lossing agrees with this development and thinks that it is part of how society realised the importance of global supply chains.
“As an industry, top talent tends not to find its way into supply chain and transportation. And, the pandemic taught us how important supply chains are, they can make or break companies. And during that time, there was a lot of investor activity around global freight forwarding M&A. There was a lot of sentiment and how important these companies are,” he said.
He thinks the margins and valuations are going to be falling in the next 12 to 18 months for these companies.
On the same line, Khachatryan is expecting many more consolidations, especially among the smaller companies.
“Except for the first half of 2020, the pandemic years have been rough regarding M&A. As rates and margins soared, companies became more confident and less willing to sell. The owners that had to exit due to succession issues, for example, commanded multiples of EBIDTA, unheard of in the logistics industry. Now that the margins are back to pre-pandemic levels, many companies, especially the ones that took on a lot of overhead, are more and more likely to sell. Should the volume lull continue, some will become desperate to exit. On the other hand, aggressive and cash-rich companies find that acquisitions are the most viable way to grow market share as the overall pie is becoming smaller and smaller,” he said.
Fried shared his frustration as an association leader with fewer companies, but still serving the same amount of people because now they're together as one company.
He said the forwarding industry is no stranger to M&A and it will continue to see more.
“Valuations are a symptom of the marketplace. It's supply and demand. As time progresses, the market is going to stabilise. And in the long term, I am not seeing a reduction in this type of activity.” he said.
Contractor thinks an increase in M&A activities is beneficial for the industry, which has traditionally struggled to secure finance from banks and financial institutions have always taken a cautious approach in lending to service providers.
“The carriers have performed exceptionally well, exceeding their own expectations. It is only wealth that creates wealth hence considering the bottom line that they generated is being put to use to expand their footprint & their scope of services,” he said.
Freight forwarders are the architects of the global supply chain, and without them, there is no flow of goods, trade, and certainly no response to the burning growth in consumer demand for more goods, as a result of economic growth which continues worldwide in the long run.
As Contractor puts it, “The logistics industry is well positioned to meet the demands of customers, as we saw during the pandemic. Their flexibility and adaptability to change make them the strong foundation of the supply chain which customers seek.”
This was originally published in the May 2023 issue of The STAT Trade Times.