Forwarding industry poised to thrive, say reports

By Staff -- Logistics Management, 8/1/1999

Not too long ago, consultants, researchers, and others mounted a death watch for the freight forwarding industry. They could not compete, the reasoning went, with integrated carriers that controlled every segment of the transportation pipeline.

As Mark Twain once said about rumors of his own death, reports of the freight forwarders' demise were greatly exaggerated. A new study by the Colography Group and a recent stock analyst's report indicate that multimodal freight forwarders are in as good a growth position today as at any time in the last 20 years.

The study by the Colography Group, an Atlanta, Ga.-based research and consulting firm, says several factors are helping the forwarding industry thrive. According to the report, forwarders can take advantage of their variable cost structure, provide a broad range of modal and service options, and use Web-based technologies to offer a very competitive combination of price and service.

For example, because freight forwarders do not operate expensive fixed assets like aircraft, they can respond quickly to changing market conditions, the Colography Group report says. They also can call on many different carriers within each mode, giving them great flexibility.

Another factor that is contributing to the forwarders' renaissance is the development of Internet-based communications technology. This relatively low-cost technology allows them to provide customers with information services that are comparable to those provided by integrated carriers that have spent billions of dollars on information systems.

But that is not to say that forwarders do not have some challenges to meet, says Colography Group President Ted Scherck. "The need to compete globally leaves many forwarders confronted with a difficult choice," he says. "To gain size and scope, intraregional forwarders may want to merge with their counterparts on other continents. But such combinations, if they grow too big, could rob regional forwarders of the agility and flexibility that made them unique in the first place."

A recent report issued by the investment firm Deutsche Banc Alex. Brown also sounded a generally positive note. According to Edward M. Wolfe, an analyst who follows the airfreight and logistics fields, stocks of four of the largest United States-based freight forwarders (Air Express International, Circle International, Expediters International, and Fritz Cos.) had a difficult year in 1998 but have typically outperformed the market in 1999. He expects that all four will overcome the effects of recent economic turmoil in Asia, Europe, and Latin America. He adds that the actual success of each will be tied to economic conditions in trade lanes where they have the greatest exposure. Wolfe therefore advises investors to choose forwarders' stocks carefully over the next 12 months but is upbeat about the prospects for all to perform well when overseas demand for U.S. exports and U.S. demand for imports return to former levels.