Global freight forwarding market forecast to grow at a CAGR of 4% to 4.5% until 2020
The freight forwarding market is expected to achieve a Compound Annual Growth Rate (CAGR) of 4 - 4.5% through to 2020 driven principally by e-commerce
The global freight forwarding market, which is an integral division of 3PL services, is expected to grow at a CAGR of 4 - 4.5% until 2020, according to Beroe Inc, a procurement intelligence firm. The global 3PL industry is witnessing growth largely due to the increase in e-commerce and trade activities.
The sea freight market is expected to grow at 2 - 2.5% CAGR until 2025 as there is a high and low (cyclic) pattern between air freight and sea freight based on the volume of the freight exported. To boost the air freight and sea freight revenue and tonnage, forwarders are focusing more on industries such as perishables, pharmaceutical, retail, and e-commerce.
The cost structure of 3PL services showcases that value-added service is the major cost component in the consolidation services with most activities being labour intensive. In the U.S., labour overtime rate is approximately 1.5 times higher than the normal rates, and in China, the overtime rate is approximately 1.1 times higher than the normal rates.
- Freight providers operate at a relatively low margin of 1 – 4% and are highly sensitive to decline in profitability as the business model is dependent on cargo trade, carrier costs, and revenue management.
- Costs of 3PL carriers can be indirectly influenced by forwarders by having sale economies, which leads to a lower cost per shipment. Additionally, freight forwarders should have matured purchasing strategy and pro-active capacity management in order to control the operating costs.
- The disproportionate variation in revenue and carrier costs will lead to a reverse effect in profitability; hence, the freight forwarders should have matured revenue management strategies with relevant cost-cutting measures.
- Air freight shippers with global operations on an average have engagements with 6 - 10 freight forwarders for their annual volume, which amount to 85 – 90% of the volume, which is considered to be the benchmark for a highly consolidated supplier base.
- The reverse logistics overview of 3PL services globally analyses that holiday season contributes to the highest profit rates with the total cost of $63 billion being generated just in the U.S. The reason for this growth is the e-commerce industry's returns policies, which are the major drivers for product returns, wherein the customers are given free return/exchange options for the product purchased.
Source: Eye for Transport