Freight forwarders feeling the squeeze

   Ocean freight forwarders are finding themselves squeezed by stagnant or falling volumes and yet at the same time higher freight rates, something the analyst Transport Intelligence has described as a “lose-lose situation” in its latest report on the sector, Global Freight Forwarding 2012.
   Meanwhile air cargo forwarders have been hit by a “double whammy” of lower economic activity, especially in China, and the migration of some volumes to lower cost ocean freight, the report noted.
   Following a strong recovery in 2010, the freight forwarding market stagnated in 2011, with the weakness continuing into 2012.
   “Our research shows very clearly the negative correlation between rates and forwarders’ profitability,” said Ti Chief Executive Officer John Manners-Bell. “The significant rise in sea freight rates at the beginning of the year, and a further rate increase in the last few weeks, will see forwarders come under pressure as they struggle to pass these rates onto their customers. At the same time weaker volumes will hit their revenues.”
   The report, however, found that forwarders are resilient in terms of profitability. Even though operating margins have fallen slightly over the past six years, they have remained roughly around the 5-percent level, despite volatility in revenues over that period.
   “At times over the past year the freight forwarding industry benefited from the alignment of specific supply and demand side conditions – falling rates and higher volumes,” Manners-Bell said. “However on many trade lanes the opposite is now true, which will, for the time being, make the market environment highly challenging for forwarders.” – Eric Johnson