Freight forwarding is changing — for better, for worse, and forever.

Freight forwarding is changing — for better, for worse, and forever.
Photo by Stephane YAICH / Unsplash

(I originally posted this article on Medium in November 2022)

As the end of 2022 is fast approaching, you’d be forgiven for thinking we were still in 2020. The last few years have gone by like a blur, yet many important events have taken place that will reshape the logistics industry forever. From a global pandemic to the Suez Canal traffic jam, and from tensions between the US and China (remember Trump’s tariffs?) to social unrest due to inflation, we’ve seen enough recently to last a lifetime.

How have recent events impacted the global freight forwarding market, and what can we expect moving forward?

Freight forwarding in numbers: “you’re hot, then you’re cold”

When you take a trip down memory lane, the recent global freight forwarding market is a story of peaks and troughs.

  • + 8% in 2017 (post Hanjin bankruptcy year, which caused some tensions in 2016)
  • + 3.9% in 2018
  • - 1.3% in 2019
  • - 8.7% in 2020
  • + 11.2% in 2021
  • Forecast + 5.x% in 2022

And overall positive evolution, which comes as no surprise considering the global enthusiasm around ecommerce in recent years. It is no secret that the majority of items sold online in the US originate in China, with drop-shipping or simply sourcing items on Alibaba or Aliexpress a common practice for many Shopify store owners.

Alongside the smaller ecommerce owner-operators, major brands, mainly in fast fashion, have clearly contributed to the growth in global freight movements. Alongside established brands such as Burberry, New Balance, GAP, and Balenciaga, Shein is establishing itself as a fast fashion powerhouse. And let’s not forget that WISH was a thing for five minutes.

Is the freight forwarding market going to stay hot for long?

The short answer — no.

We’re clearly overextended right now, and smart businesses are gearing up for a shift in consumer habits, and in the global scene. We’re already seeing a small exodus of businesses out of China, including Apple themselves who are experimenting with manufacturing the iPhone 14 outside of Chennai, in India. If this goes well, we can expect them to further expand their operations there, and to leave China completely, especially with the fear of a hostile military operation in Taiwan.

We’re hearing a lot about reshoring and nearshoring. These two strategies make complete sense, as the global pandemic has unravelled the weaknesses of our global supply chains. We’re simply not equipped today to handle such disruption. If the global flow of goods is not steady with predictable periods of tension, then we’ll continue to see more of the same issues that have been plaguing the major ports. From traffic jams to empty containers littering the port environment like a hoarder refusing to tidy their yard (and charging you for the privilege), we’ve seen it all.

Infrastructure cannot take the growth

Although carriers are building more ships, and asset-based companies are expanding their warehousing capacity (unless you’re Amazon) and fleet sizes, it doesn’t solve the problems. In fact, this is like applying a band-aid to a concussed patient who has just been thrown around in a TEU from Shanghai to LA, and then diverted to the East Coast due to traffic.

Maritime ports are located too close to densely populated areas, which is now causing expansion issues. Authorities cannot seem to find the time between busy periods to fix the existing mess, and anything they do try to implement doesn’t really cut it. A reasonable approach would be to increase everything: ports, roads, railways, canals… But this takes time and money. Money which is better invested in software solutions and horizontal expansion, to make more money.

With ocean vessel capacity set to increase by about 30% in 2025 compared to pre-pandemic numbers, how will the existing port and inland infrastructure keep up without significant change?

As the top 25 global freight forwarders dance with each other, SMBs are at risk

Consolidation is a buzzword we’ve been hearing for a while now in our industry. Ocean carriers consolidated the market in the blink of an eye, with multiple deals taking place back-to-back:

  • COSCO and China Shipping merger, then acquiring OOCL
  • Maersk acquired Hamburg Sud
  • ONE born out of the merger of NYK, K Line and MOL

(I’m definitely forgetting some deals there).

Fast forward to today’s global freight forwarding market. Not only are forwarders acquiring each other, but ocean carriers are once again keen to splash the cash on the back of bumper profits last year. Things are once again changing at the top:

  • DSV acquired Panalpina, and has now acquired Agility
  • Maersk acquired Damco and has added Senator to their operations
  • XPO Logistics dropped out of the top 25 global freight forwarder list to pursue their new specialised strategy
  • MSC have acquired Bolloré’s African operations

What are we looking at here?

There are clearly different strategies being pursued, with some companies deciding to go big or go home, and others looking to specialize by focusing on specific verticals or regions. Most of the top list, including Italian giant Savino Del Bene who pride themselves on organic growth, have been shopping in some adjacent market.

The ocean carriers are transforming their businesses whilst they can: “spend the cash while you have it” comes to mind. After years of struggling to find consistent vertical growth in their field, breaking out horizontally makes sense. Let’s just hope they manage to pull off impressive integrations, providing synergies to their customers and growing their businesses, otherwise we may see them selling off parts for scraps (too big to fail does not exist in our industry!).

SMB forwarders can’t compete at scale, but they can thrive if they specialize

I recently said to somebody on LinkedIn that I wasn’t brave enough to be in the operations side of logistics today. It isn’t a business I would start personally, as I believe that we’re heading towards the end of freight forwarding as we know it. With smarter “self-service” software solutions appearing at an alarming pace, and more eyes on our industry than ever before, there is a chance that the middleman that is the freight forwarder will simply cease to exist.

In the meantime, picking a strong vertical that requires specialist knowledge and has next to zero margin for error is a solid plan. In fact, it’s the one chosen by companies such as Savino Del Bene or Leschaco, who are thriving in a highly competitive global marketplace.

At a local scale, many SMB shippers still prefer the quality of service and boutique approach of SMB freight forwarders. The major challenges I see with this moving forward is that:

  • It isn’t scalable
  • SMB Shippers are going to be the first to feel the pinch with inflation levels spiking
  • Carriers can be hard to deal with, especially now that they are direct competitors, so getting the best deal and service for your customers can be hard

The added threat of “digital freight forwarders”

I’ve said it before, and I remain consistent to my word: digital freight forwarders are just freight forwarders. Companies like DSV and Kuehne+Nagel have been using software for decades. In fact, I’d go as far as to say that the only way DSV managed to acquire Panalpina and then Agility is thanks to their software and use of it.

So what are “digital freight forwarders”?

They are the new kids on the block. New freight forwarders with an inflated marketing budget and VC money coming out of their earholes. On paper, the idea is solid: disrupt an archaic industry in dire need of digitalisation. But with solid solutions such as BluJay, Descartes, Cargowise One, and Magaya, already doing this… Need I say more?

Are they a threat for the top 25? Potentially. I can see a future where Flexport break into that list. But I also see a future where Flexport’s valuation follows Klarna to the abyss and becomes a case study for future business students on how not to invest VC money.

What digital freight forwarders are, however, is an added risk for SMB forwarders. If the global freight forwarding market is worth 180b USD or thereabouts, then everyone who isn’t a top 25 is likely fighting over a 30–40b USD pie (still sizeable but crowded). Add to the mix the ocean carriers who are going to be attempting to take business from everyone, and we’ve got a very different landscape than we did 5 years ago.

Just how much is everything going to change in the next few years?

If I had a crystal ball…

I’ll close this article off with a few hypotheses that would make for an interesting bedtime story.

  1. Nearshoring and reshoring will see China struggle more and push them towards invading Taiwan.
  2. Infrastructure in the US and Europe is not ready for the above, nor is it ready for the impact that climate change will have in the next 10 years.
  3. Immediate social unrest will disrupt global logistics at scale and workers will demand higher remuneration. Operators will let this play out, as more disruption leads to higher rates.
  4. Ultimately, smaller freight forwarders will be replaced with software, as shippers build a preference for working directly with asset holders.

Or none of the above will matter because Amazon will own everything anyway (possible, but highly unlikely).

I'm Anthony, ex-WiseTech'er and Logistics Technology nerd.

You can find me on LinkedIn:

And I may start using Twitter if Elon doesn't kill it first:

My opinions are my own, although I'm sometimes told they are shared by many, yet voiced by few.

My goal is to make Logistics Technology a healthier place and to provide everyone with the kind of information they need to decrypt this magical and mad industry we either love or hate depending on the day and if someone has blocked the Suez Canal again.