IL Exclusive Research:2008 Airfreight Forwarders Perspectives

Changing trade patterns driven by new manufacturing centers and burgeoning consumer markets have created a vacuum for airfreight forwarders that can deliver value-added logistics services beyond commoditized capacity and customs brokerage services—services that penetrate farther and drive value and efficiency deeper in the supply chain.

This global complexity, compounded by a weakening U.S. economy and competition from third-party logistics providers (3PLs), is swiftly changing the face of today’s airfreight forwarder.

Inbound Logistics’ Air Freight Perspectives 2008 provides a contextual mirror that reflects the changing complexion of the airfreight forwarding community.

First, our Airfreight Forwarding Market Insight Survey provides an up-close look at the industry and how forwarders are expanding their global coverage and services to meet customer and corporate expectations.

Soliciting input from more than 40 air cargo forwarders, we supplement statistical and anecdotal data with our analysis of challenges and opportunities awaiting air cargo service providers and their customers.

Second, IL’s Who’s Who in Airfreight Forwarding puts names to these changing faces, presenting a snapshot of industry players and their service portfolios and providing a bridge to connect readers with airfreight service providers.

Forward Motion

As airfreight carriers face the challenges of restructuring routes, downsizing fleets, and expanding services in more lucrative international lanes, forwarders have the luxury of perspective—following at a close distance, understanding and mitigating cost bleeds, and looking for opportunities to grow their businesses.

While U.S. economic uncertainty, a weak dollar, soaring fuel prices, and demand lulls in certain sectors are fast becoming apparent in the airfreight forwarding sector, the industry’s broad global coverage and a structural model that is both counter-cyclical and readily adaptive have helped service providers momentarily ride out the fuel- and credit-fed fiscal storm.

Among these survivors and conquerors, forwarders responding to our Airfreight Forwarding Market Insight Survey have been in business an average of 29.5 years, with 87.5 percent providing global coverage and 12.5 percent serving the North American market alone.

This global penetration suggests that when the going gets tough, airfreight forwarders get going, following capacity and carriers as and where demand dictates.

While U.S. recessionary trends are visible, many global markets are otherwise thriving. GDP growth in China, the Middle East, and Latin America is projected to continue on an upward path, translating to steady domestic consumption and airfreight demand.

Forwarders serving these markets will likely counter economic instabilities in the United States and other underperforming markets.

Survey respondents overwhelmingly report positive sales during the past year, with 87 percent citing growth of five percent or more and 50 percent indicating sales above 15 percent.

Net revenue was slightly less positive, with 79 percent of airfreight forwarders recording profits more than five percent and 40 percent clearing revenue in excess of 15 percent.

Reflecting some of the expected consequences of deteriorating economic conditions and rising operating costs, nearly one quarter of respondents recorded a loss or break-even numbers.

Airfreight forwarders with negative financials point to a weak dollar and prevailing economic conditions as reasons for their poor performances.

“Customers are shipping less frequently and opting to hold orders and gain some economy of scale by shipping larger shipments less frequently,” observes one respondent.

By and large, though, airfreight forwarders indicate that attention to customer service, new service offerings, and increased sales efforts are driving positive revenue growth. Some are, in fact, capitalizing on U.S. deflation and foreign demand for products to expand export services and generate additional revenue streams.

“The weak U.S. dollar has stimulated our direct and indirect customers’ global sales, thus increasing export traffic,” shares one forwarder.

Across the board, and regardless of profitability, airfreight forwarders report they have grown their customer base in the past year, with 92 percent expanding by five percent or more and 24 percent indicating a 15-percent-plus growth in new clients.

Even companies experiencing slack revenue growth are looking at mining new sales opportunities to stimulate business.

“Profits are down due to a challenging economy,” one respondent observes. “But our customer base is increasing and profits are starting back up due to expansion of services.”

Expanding services beyond traditional capabilities is key to the continued success of the airfreight forwarding sector, especially as 3PLs with like services compete for market share.

Among survey respondents, more than two-thirds report being non-asset-based, 97.5 percent provide logistics services, 92.5 percent offer ocean freight forwarding competencies, and 80 percent operate as consolidators.

Technology services are fast becoming the standard among forwarders, with nearly all indicating they offer both online customs and trade compliance solutions. Web-based tracking (95 percent), online documentation services (75 percent), and rate quote accessibility (72.5 percent) also rank high among those polled.

In terms of airfreight-specific services, heavy freight, door-to-door, overnight, next-flight-out, and charter capabilities are standard among forwarders, with at least 90 percent of companies surveyed meeting these requirements.

Hazmat (72.5 percent) and perishable cargo (67.5 percent) handling capabilities are more specialized and a smaller, but rising, segment of forwarders (7.5 percent) are going the last mile with white glove services.

Looking Forward

As airlines and airfreight buyers reckon with the manifestations of a slowing U.S. economy, institutionalized fuel costs, and shifting freight demand patterns, airfreight forwarders will invariably feel some of the pinch as their respective carrier partners, competitors, and shipper customers look to rationalize spend throughout the supply chain.

Expectedly, 87.5 percent of forwarders responding to the survey cite rising costs as their single greatest challenge moving forward, with security (72.5 percent), regulation (45 percent), and profitability (45 percent) rounding out the top priorities.

Reducing transportation costs is also the foremost concern for air cargo customers, according to 90 percent of forwarder respondents. Managing supply lines (57.5 percent), security/compliance (55 percent), globalization (52.5 percent), vendor management (45 percent), and expansion (45 percent) are other hot-button issues for airfreight shippers.

As these two sets of data suggest, shipper expectations and the role of the airfreight forwarder are swiftly adapting to the needs of the marketplace.

Consequently, creating value goes well beyond simply matching capacity with demand. That forwarders rank security and compliance as high as they do reflects their perceived value to customers in negotiating an increasingly complicated web of bureaucracy.

Concurrently, airfreight forwarders discern similar customer demand for services and technologies that help shippers gain better control of information and product flow farther back in the supply chain, work with vendors and carriers more collaboratively, and leverage these synergies to consolidate shipments, rationalize equipment utilization, and reduce costs.

As additional evidence of forwarders’ evolving “outsourcing” role, 52.5 percent of survey respondents report that their customers are challenged by reducing inventory, with cutting labor costs and reducing assets cited by 32.5 percent and 22.5 percent, respectively.

Even as current fuel price factors confound air cargo shippers, the industry is headed toward a major watershed with looming regulatory legislation that threatens to impede air cargo’s expediency and economy.

Where air cargo shippers have historically relied on intermediaries to manage tactical responsibilities such as accessing capacity, negotiating rates, facilitating customs, and other regulatory due diligence, these imminent changes place global airfreight forwarders in a more strategic space at the point of origin. U.S. businesses, already struggling with inflating transportation expenses, will likely expect forwarding partners to play an even greater role in managing this complexity.

The Department of Homeland Security and the Transportation Security Administration plan to phase in “100 percent” screening of air cargo carried in passenger planes over the next few years, which will place additional burdens on shippers to account for supply chain partners and shipments and mediate possible delays.

Additionally, U.S. Customs and Border Protection’s (CBP) Importer Security Filing (10+2) mandate, which is expected to roll out in 2009, will require importers to electronically submit a security filing specifying 10 data elements plus an additional two carrier requirements to CBP 24 hours prior to loading vessels at foreign ports.

With many businesses currently unaware and/or ill-equipped to efficiently meet the 10+2 requirements, they will alternatively rely on offshore supply chain intermediaries to manage these new rules.

There is also speculation that in the short term, some shippers will shift more freight to air transport to offset expected delays with CBP’s new security protocol.

This means forwarders will play a critical role in aggregating information deeper in the supply chain, disseminating this data to necessary partners and authorities, and helping customers find appropriate solutions to move product without undue cost or holdup.

Technology Tops the List

Not surprisingly, 40 percent of forwarders responding to the survey indicate that technology investment remains a top priority. With minimal fixed assets, forwarders have to invest in IT systems to drive greater value and differentiate themselves within an increasingly competitive sector.

In turn, technology strategy and implementation is less of a concern for air cargo shippers, with only 22.5 percent of respondents indicating this as a concern for their customers.

Importantly though, as U.S. security and compliance efforts ratchet up, cargo shippers and consignees will favor forwarding partners that have customer-facing technology capabilities—purchase order management, for example—to help seamlessly connect with vendors and carriers.

Consequently, access to more detailed and objective information about shipments, transit routings, times, and costs, provide shippers with a better idea of performance and the opportunity to leverage this historical data to further increase efficiencies and reduce spend.