Consultant Insight: Freight forwarding outlook cloudier than usual

Most freight forwarders reported improving conditions during the third quarter of 2020, but for the full year will likely report lower financials and mixed air and ocean volumes during what has become a challenging year for the forwarding market. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] The loss of cargo capacity from passenger airlines has kept airfreight rates high throughout the year, and they will likely remain high for the next two or more years as passenger airlines slowly return more flights to the skies. In the meantime, those carriers with freighters as assets, particularly the integrators, will benefit financially. “Similar to Q2, the pandemic caused an increase in demand for certain goods at the same time that air capacity remained tight. To meet the urgent transportation needs that could not be fulfilled with scheduled capacity, we utilized charter capacity for certain customers, resulting in higher average buy and sell rates,” Jeffrey S. Musser, president and CEO of Expeditors International of Washington, said in the company’s 3Q earnings announcement. “We would expect air pricing to remain volatile until passenger traffic starts to return in a meaningful way.” Indeed, a number of forwarders, including Dachser , DSV and more , have chartered flights this year to move goods on behalf of their customers. The way this additional expense has translated into profits for forwarders varies. Despite promising improvements in the third quarter for automotive and perishables, as noted by Kuehne + Nagel, year-to-date air volumes through Q3 remain down compared to 2019 for forwarders, including Expeditors, Kuehne + Nagel and DHL Global Freight Forwarding. Expeditors reported Q3 air volumes down 5%; Kuehne + Nagel reported air volumes down 12.8% in Q3, and down 14.6% year-to-date through September. DHL Global Freight Forwarding air volumes were down 14.1% in Q3 and down 12.9% year-to-date through September. DSV seems to have bucked the trend, thanks to its 2019 acquisition of Panalpina; the forwarder reported a 4% increase in Q3 air volumes and a 51% increase in year-to-date air volumes through September. Meanwhile, the ocean freight market recovered from volume declines during the early part of the pandemic and experienced some of the biggest volume increases on the trans-Pacific lane starting in the early summer, with record monthly volumes reported at the California ports of Los Angeles and Long Beach. Expectations of strong volumes will continue through Q1 2021, and perhaps even into the middle of Q2. Much of this volume was attributed to delayed inventory replenishment from earlier in the year, when Chinese manufacturers were closed due to the Chinese Lunar New Year, COVID-19, the holiday season, COVID-related “just-in-case” inventories, and shifts from air to ocean. In its Q3 earnings report, DSV observed that the trans-Atlantic ocean freight trade lane still remains below last year’s volumes. This is a lane that DSV has more exposure to versus the trans-Pacific lane. However, for Q3, DSV reported a 9% increase in total ocean freight volumes and a 30% increase year to date through September. Kuehne + Nagel, DHL Global Freight Forwarding and Expeditors International of Washington all reported declines in ocean freight volumes for Q3 and year-to-date through September. The new year will likely pick up from where 2020 ended, with tight air capacity and high rates for both air and ocean freight. Despite COVID-19 vaccine distribution beginning in various countries, COVID-19 will remain a dark, uncertain cloud hanging over the freight forwarding market throughout most of 2021. Cost management will be important while forwarders look to expand services beyond air and ocean to help offset changing global dynamics and improve profitability. For example, the growth of e-commerce will see a number of service offerings from freight forwarders in terms of cross-border services and last-mile delivery capabilities. But at the same time, we will see online marketplaces also expand their logistics capabilities, including into freight forwarding, so perhaps an acquisition or two may occur in this space. If not an acquisition, the time may be right for some other type of acquisition within the forwarding marketing – a number of larger forwarders are taking notes on the changes in the global market and will react when the time is right.

Consultant Insight: Freight forwarding outlook cloudier than usual

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