The Top 25 Freight Forwarders: Leaders Prepare for Demand Surge

Productivity of U.S. manufacturing for domestic and global markets boomed over the past two quarters, increasing at a 3.6 percent annual rate and up 2.1 percent from mid-year 2013, note prominent trade analysts. In the coming months, these same analysts believe that productivity will be one of the more-watched global economic statistics.

“This is not only true for manufacturers and retailers moving freight, but for freight intermediaries,” says Doug Handler, chief economist for IHS Global Insight.

Rob Knigge, the leader of Accenture’s freight and logistics group agrees, noting that freight forwarding and contract logistics continues to be a growth industry based on the uptick in the manufacturing. “Manufacturers and retailers are relying more on freight forwarders to be the managers of their intercontinental supply chains,” he says. “Governments are more concerned about safety than ever before, and are thus demanding more transparency of information.”

For prominent middlemen, that means staying in front of the ever-evolving supply chain management challenges and getting ready for advanced data, says Brandon Fried, executive director of the Airforwarders Association (AfA). “Most of our economic indicators suggest sustained growth and consumer spending,” he adds. “And this means more business and opportunities.”

Top 25 “get it”
Manufacturers and retailers are also forcing forwarders to respond to the new marketplace by restructuring their logistics functions.

“They’re consolidating service providers and functions, sharing logistics facilities, and centralizing management all in an effort to become more efficient,” says Evan Armstrong, president of the leading third-party logistics provider (3PL) consulting firm Armstrong and Associates.

Each year Armstrong’s firm compiles Logistics Management’s Top 25 Freight Forwarders list for a closer analysis of industry trends and how those leading forwarders are meeting these evolving shipper needs.

“The world’s major forwarders are way ahead of the curve on compliance and technology,” says Armstrong. “That’s a big reason why they are so successful,” adding that this trend will only gain more momentum. Yet, he also notes that the glory days of international transportation management (ITM) companies are fading fast.

“Because the threshold levels of IT and value-added services capabilities are higher, the big guys will grow at the expense of small operators particularly in customs brokerage, transportation management, and end-to-end service,” says Armstrong. 

However, while the Top 25 have fine-tuned their ability to generate volumes for ocean and air, the industry is changing in ways that puts added pressure on gross margins and further challenge earnings. “We estimate that the market will increase 4.5 percent for this year in the U.S.,” says Armstrong. “Other analysts estimate that ocean freight revenue markets alone will rise by 3 percent to 5 percent. Individual company results are a mixed bag, however.” 

Underlying this mixed bag for forwarding is the relationship between the gross domestic product (GDP) and world trade, adds Armstrong. “World trade once represented two or three times the GDP,” he says. The last numbers I saw showed slippage of the two indices, so now they’re just about equal.”

Top level observations
By way of ranking the three leading freight forwarder players, Armstrong and his staff of analysts provide these anecdotal asides:

• DHL Global Forwarding grew through the acquisition of highly respected companies like Danzas. DHL currently has more than 30 global carrier partners with more than 80 contracts on a multitude of trade lanes and more than 330 gateway facilities.

• Kuehne + Nagel has outpaced the volume growth of the market in all its fields of activity. Sea freight and airfreight business units again led the way. In both areas, high internal productivity and strict cost management compensated.

• DB Schenker’s German operations, including Europe’s largest rail freight and trucking operations, are over 70 percent of total revenues.

For these three leading players in the rankings, “anticipatory logistics” has become a new part of their strategic plans. “The logistics industry is undergoing rapid and profound changes,” says Matthias Heutger, DHL’s senior vice president of strategy. “This is especially true when it comes to multi-channel retailing or predictive purchasing.”

Markus Kückelhaus, director of trend research at DHL, maintains that forwarders, irrespective of size, will have to prepare for these changes or be left behind. “We live in a dynamic and disruptive world,” he says. “And forwarders must do their best to anticipate and adjust to it.”

Dr. Thomas Lieb, chairman of Schenker’s management board, believes in the power of anticipation, noting that his company has expanded operations in Southeast Asia, the Middle East, and Africa based on that premise.

“In line with our growth strategy, we continue to intensify our own presence in interesting markets,” says Lieb. “Freight forwarders need to manage the sale and deliverance of a complex service that includes more than just the movement of goods, but also emphasizes technology, reporting, systems integration, compliance, risk management, and often global coordination.”

Compliance pressure remains prevalent
Meanwhile, regulatory agencies are bearing down on U.S. exporters, says Beth Peterson, president of BPE, Inc., a consultancy specializing in import/export operations and the development of global supply chain security programs. She says that forwarders of all sizes are increasingly challenged to align compliance with logistics operations.

“All of this means that export teams need to be involved early and significantly in discussions about new products, new markets, or new acquisitions,” says Peterson. “Unfortunately, many export compliance teams find themselves excluded from key strategic considerations, despite the ramifications that it presents to an export program.”

Virtually every global freight intermediary and shipper would benefit from automation, adds Peterson, but many companies still don’t fully recognize the value of moving to an automated environment.

“Perhaps no other aspect of global trade has more latent value than the automation of compliance processes,” Peterson insists. “It reduces the need for both shipper and forwarder to devote human resources to manually re-keying data in documents, or collating spreadsheets from different departments or regions. It simply improves compliance accuracy.”

Globalization to localization?
In its annual report titled Global Freight Forwarding 2014, analysts for London-based Transport Intelligence (Ti) maintain that some supply chains could undergo a complete circle–from globalization to localization.

“One thing that’s for certain is that the global logistics industry of the future will be largely unrecognizable from what it is today” says report author, Michael Nordmann, adding that forwarders are also looking at new industry opportunities at the same time. “To boost airfreight revenue and tonnage, forwarders look to the perishables and pharmaceuticals industries. For sea freight, it’s oil and gas, retail, and e-commerce.”

And while freight forwarders target new markets and industries, economic forces are underway, favoring a return to regionalization from that of globalization, adds Nordmann. So, how will this affect the freight forwarding market?

“It’s still too early to say, but solutions such as multi-modal transportation options will likely be one means of survival,” offers Nordmann.

Much of the growth within North America is from the U.S., and for Canada and Mexico, the majority of trade is dependent on this country. The North America Free Trade Agreement (NAFTA) has been hugely successful in fostering more hemispheric commerce, thanks in large part to intermodal transport.

“Forwarders are helping shippers expand into Mexico to meet the increasing demand for automotive parts,” says Cathy Roberson, a Ti analyst based in Atlanta. “For example, Kerry Logistics announced the acquisition of a majority stake in Cargo Master’s Group [CMG], a Mexico-based logistics and freight forwarding company. CMG has a domestic network of six offices throughout the country, including Guadalajara, Queretaro, and Monterrey.”

Within the same time frame, Kuene + Nagel acquired Perishables International Transportation of Vancouver, Canada. The ports of Vancouver and Prince Rupert give North American forwarders some nice ocean freight options, says Roberson. “And that keeps Asia in the global framework. China maintains the largest market share in the region for freight forwarding, with Japan a distant second,” she adds.

Yet even within the Asia Pacific, localization may be gaining traction. Ti analysts forecast that slight gains will be noted by 2017 by Indonesia, Vietnam, and the Philippines. “For each of these countries,” says Roberson, “manufacturing is on the rise and will increase freight forwarding activity.”