Freight forwarders in 2020 are facing an increasing number of challenges that keep growing as the years go by—the only significant difference between 2019 and 2020 is the frightful COVID-19 pandemic. Profitability in the high-volume, low-margin freight forwarding industry depends on keeping shipments flowing at high levels to achieve efficiencies and economies of scale to cover their heavy fixed costs.

Upamanyu Borah

Forwarders play a key role in facilitating the logistics of transportation around the world, and their usual activity has been seriously hampered by the unprecedented situation. Squeezed by the deepening crisis, freight forwarders are fighting to survive, forcing some to cut staff and break equipment leases while trying to tap high-demand cargo needed to combat the pandemic.

After the COVID-19 outbreak, India like many other countries implemented lockdowns, which restricted global economic activity. In its turn, the affects can be seen in the freight network industry. Both freight fluidity and demand for freight forwarding services saw significant decreases. Even as oil prices begin to rebound and stabilise, and markets are gradually shifting towards normality, the post-COVID-19 landscape will still present challenges.

Forwarder revenues have dropped over 50 percent, with some watching for potential consolidation; larger forwarders possibly buying up weakened smaller to mid-size forwarders facing bankruptcy.

There is no doubt that airfreight supply chains will recover, but it will take time and the before now ‘unprecedented conditions’ of operators cancelling flights, container shipping lines skipping calls at ports– if not viable to do so – is no longer ‘unprecedented’.

Improvise

There has always been risks involved with global trade whether they are political, economic, natural disaster or something entirely different and that’s where the true value of a freight forwarder rest – guiding their clients through such turmoil by identifying the optimal trade lane, mode of transportation, the best rate, securing capacity and so on.

An air or ocean freight forwarder that wants to position itself as strongly as possible for the recovery, for example, will need to know its own market share and performance against the market for each trade lane and the shift in trade demand. Its responses should be tailored accordingly: where appropriate, it should scale back capacity commitments in hard-hit trade lanes in which it has a large market share but redeploy sales teams to grow market share in resilient trade lanes where its presence is currently small.

Using granular trade-flow modeling, companies can understand their market position and risk exposure in the context of how trade lanes and commodities develop in the crisis. This approach should be combined with macroeconomic scenarios to develop and test strategies for crisis response, as well as next steps after the crisis. Thinking through the most likely scenarios and deducing which shifts in operational and commercial strategy are therefore required will put companies ahead of the curve as we go into the ‘next normal’.

The role of the freight forwarder is evolving, and evolving rapidly. Value-added services such as customs brokerage, consulting, warehousing and more are no longer value-adds but instead expectations from customers. Success will depend on connecting with a larger group of partners, maintaining a multi-national presence and enabling oneself to offer multiple service offerings to customers.

Freight forwarders must find options to remain viable whether that is to focus on a niche solution such as temperature-control service offerings, e-commerce or project logistics or an industry specialisation such as chemicals, pharmaceuticals or mining.

Most often than not, forwarders should look at leveraging technology to navigate the buying and selling terms between manufacturers and importers, as well as provide trusted recommendations. At this time, it should be a chief aim to support the entire ecosystem, so that every player finds the opportunity and means to overcome problems and enjoy success. More than ever, independent freight forwarders need to work together to support the global supply chain.

Adapt

For centuries forwarders have navigated around world wars, country coupes, natural disasters, nationalisations, dictatorships, currency collapse, draconian regulations, and trade wars. Pandemic supply chain disruption is just one more challenge to the ability of forwarders. However, all these will count on their contingency planning capabilities and their flexibility towards change.

As is already happening, change brings with it new opportunities to profit. And with change and opportunity emerges a new set of risks. The velocity at which forwarders have to creatively evolve tempts even the best to act with the Fire-Ready-Aim approach to business.

Freight forwarders and carriers are looking for platforms that seamlessly connect them and continuously innovating to realise the requisites. Meeting the demands of the ‘new normal’, while remaining competitive, calls for smarter ways of working and that’s why AI and cloud logistics solutions for predictive analytics, forecasting and gaining data have become present day vital tools to run the business.

Along this evolution path, we see the emergence of various options that are not necessarily replacing the freight forwarder but perhaps diminishing some the traditional tasks a forwarder is commonly known for – obtaining the best rate, enough capacity and tracking and managing the freight movement from one port or airport to another. As a result and not surprising, freight forwarders are investing in a variety of technologies as well as in value-added services to expand their reach and grow profitably.

Operational efficiency has never been more important. At a time where services can change quickly and may even be suspended or cancelled at short notice, that commitment to delivering quality has become the key determinant more than ever before.

At this challenging time, it is equally to be understood by shippers to try and build in longer lead times to their supply chain and explore alternative routings for shipments.

Freight forwarders that have been the quickest to adapt to the challenges have provided robust solutions via chartered passenger aircraft and freighters, alongside sea-air services. In some cases, this has not only protected the supply chain, but is now seen as an essential value-added service in the turbulent months ahead.

Overcome

Now that it’s already here with us, here are some strategies the stakeholders and decision makers together have laid out to solve some of the problems facing the freight forwarding industry.

Airlines embracing the cargo way

Most airline companies have redesigned their passenger planes to act as cargo planes during this period. This is in a bid to keep their profits high and provide employment to some of their workers. On the same note, more cargo planes and freight operators have now introduced services that cater to small and medium freight forwarders.

Collaborative efforts by suppliers

With the shortage of suppliers, the few ones that remain have now joined forces to share some costs. For example, most manufacturers have agreed on sharing the storage costs on containers during shipments. The joined effort has seen them still in operation even with low volumes to work with.

Enforcement of mitigation and emergency strategies

The constraints facing the distribution of goods and services by most companies have now led to the adoption of ‘What if’ strategies. Most production companies have now resorted to dual-sourcing of their raw materials, local production, or in-house strategies.

Embracing technology

To curb its spread, most logistics and freight forwarding companies have now resulted in the IoT-based warehouse management systems, robotics and automation, and AI-powered technology platforms for customer management. Embracing e-freight services have also done their best in offering alternative market routes in a bid to curb the spread of the virus.

What in Forwarding Faster Forever?

The traditional freight forwarder still makes up an integral part of the logistics machine. In fact, during crises, the service traditional freight forwarders provide is paramount as their role; to be pragmatic and to find solutions to difficult problems – whether it be locating air cargo in the midst of the current capacity crunch or attempting to navigate past the stagnant flow of goods from Asia to Europe.

Traditional freight forwarders have sufficed for the majority of international business operators for many, many years. However, as much as anything, that’s because the conventional forwarding model was, until recently, the only option available—not because it was without drawbacks.

From the last few years, traditional freight forwarders are facing ‘wide and varied threats and opportunities’ from disruptive new e-business models and innovative online platforms, which are gaining market traction and changing the way companies buy and transact international shipping services. The pandemic has just made the situation more vulnerable.

Today, if businesses have goods and services to organise, trade barriers to overcome, supply chain integrity and customer relationships to maintain, and rules and regulations to comply with, it follows that they need a modern-day freight forwarder to relieve the supply chain management burden to a much more extent.

All these have necessitated the need for developing efficiencies for traditional freight forwarders so as to remain competitive. In the midst of assessments which suggest that the virus is likely to remain for another couple of years, it is becoming increasingly apparent that traditional freight forwarders will have to adapt to sustain within the new realities.

Coronavirus isn’t likely to spell the end of the traditional international freight forwarder but rather further highlight their importance in providing companies with a quicker and more cost-effective solution to the shipping process.

The nature of the spot rate shipping business and e-commerce logistics has encouraged the development of online forwarding. As digital platforms and e-forwarders automate processes and make prices more transparent, the question is what remaining value traditional freight forwarders will add to end customers.

In this context, it has been felt worthwhile to examine the role of a handful of select well-known freight forwarders in India with a view to examine the future prospects of the industry. Here, we try to understand and gauge their role in facilitating efficient movement of cargo, given the constraints, through their expertise and ingenuity.

The analysis and interpretations can serve as suggestions and methods for new and existing players in the industry as they derive relevant inferences from it. It will help them to explore the market patterns and predict if they will need more investments, required to upgrade skills and improve the efficiency of operations as technology gets in the way of their relationship-focussed business models.

Navigating forward from adversity

At present, carriers, manufacturers, and shippers seem to be a little healthy, in part because there’s been a lot of stimulus money pumped in to the economy. It may be hard to understand because of everything going on with the pandemic, but the fact of the matter is that freight is moving.

Freight forwarders have the skill and knowledge to oversee today’s global supply chains as more face increasing risks and barriers. Forming the nucleus – the online platform – involves investments and a clear, coherent strategy. As a result, consolidation in the market is likely but those that survive the shakeout will reap financial benefits.

At the same time however, unlike before, the post-COVID world is likely to be characterised by flexible value chains, modification in international container transport functions, multiple suppliers and forwarders in the overall drive towards diversification of exposure to risk. This stands to create scope for breaking traditional shipping patterns of reliance on uni-dimensional processes.

Nevertheless, the coronavirus pandemic has highlighted some of the value that freight forwarders bring to their clients. And with the ‘pandemic that is now sweeping the world and shredding supply chains, the supply chain rule book no longer applies’.

Continued automation and inclusion in fully-encompassing platforms that manage all modes of transportation and data analytics will dominate freight forwarding in the years ahead. Those that succeed in the forwarding markets of the future will be able to ‘see’ and accurately measure cost and service performance, a trend that will most likely favour the largest players.

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