By Stephen Willis | 25 September 2008 – With increases in fuel prices and a slowing economy worldwide, the international freight industry faces new challenges.
So what are the trends we are seeing in the international freight market and how will they affect the customer?
The global freight forwarding market stood at 116.8 billion Euros in 2007, growing by just under 11%.
This was the lowest level of growth seen by the international freight market for four years. The slowdown was caused mainly by the impact of the weak economy in the US on the freight market but, with the European economy now also showing signs of trouble, growth in freight is expected to slow still further this year and next.
The credit crunch has had a big impact on China import to the US, a freight market which had previously been flying high. Although this decline in freight was offset a little by an increase in US exports caused by the weakness of the dollar, shipping companies are now thinking about how best to weather stormy market conditions ahead.
The good news is that as they are asset light, freight companies are better placed than some to ride out the coming recession and forwarders are in one of the strongest positions in the freight industry. So it is from the freight companies that customers can expect to see most innovation in the international freight industry in the next year or two.
International freight customers can expect to see some big changes on the horizon.
We can expect to see migration of some air freight traffic to the cheaper option of shipping by sea, as many customers decide to make savings in this way.
This is likely to be accompanied by less growth in the ‘express’ sector of the international freight market as some customers opt to compromise speed in freight for cost savings.
We are also likely to see more mergers and amalgamations between international freight companies as freight companies look to increase profitability through building economies of scale.
Inevitably, some weaker freight companies will go to the wall as the tough trading conditions define the winners and the losers in the international freight market. But the stronger freight forwarding companies will become still stronger as they continue to innovate to address the market challenges.
Some question marks hang over the China import market as labour costs in China spiral and it becomes more costly as a manufacturer. For example, Asda has said recently that they may shift some of their sourcing to Vietnam as the benefits of China import are being eroded by rising labour and suppliers’ costs, and more supermarkets are expected to follow suit. However, despite this, China import and trade with Asia will continue to be the rising star of the international freight market and profits from Asian freight forwarding will help freight companies invest in new customer services.
Increased competition between freight forwarding companies is likely to lead to new product development as freight forwarders add on more value-added services to differentiate themselves from the shipping company down the road.
There is also likely to be an increasing focus on improving customer service.
What’s more, the freight forwarding industry will see more use of IT to automate processes and reduce costs. This will be good news for customers as it means more transparency in the international freight industry. Increased use of technology will improve communications between shipping companies, customers and the end recipients, providing a better service all round. Integrated IT will also be used to increase customer choice in international freight – for example, between ‘green’ options for freight forwarding as an alternative to the fastest freight transport options.
And lastly, excess shipping capacity leading to cheaper freight rates will be a help to freight forwarders, with the customer again being the ultimate winner as competition in the international freight market hots up in the year ahead.