Wednesday, September 27, 2023
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Brokers, forwarders adjust course as market softens


A decline in freight volumes, geopolitical concerns and cost inflation were top of mind for customs brokers and freight forwarders, according to Descartes’ eighth annual benchmark survey.

Of the 272 participants polled by the supply chain software-as-a-service provider, most noted that while overall freight demand has fallen, shipment sizes have continued to increase, albeit at a slower rate than last year.

Twenty-nine percent said shipments were more than 5% larger than last year while 25% said shipments were as much as 5% larger. The growth rates were up against tough comparisons as nearly 70% of respondents reported bigger shipment sizes in 2022.

No change in shipment size was seen by 29% of the group this year.

“Global logistics slowed considerably in the second half of 2022 and 2023 is shaping up to look more like 2019’s volumes,” the report said.

The survey showed that scale matters as large-volume forwarders and brokers were 1.8 times more likely to be top financial performers than smaller outfits.

Declines in transportation prices weighed on margins. Top performers with a profit margin of 11% or better stood at 31% of respondents, only a 3-point decline from last year. Thirty-nine percent said they had a profit margin of at least 3% to 10%. Thirteen percent said they were operating at breakeven and 1% said they were losing money.

Two-thirds of the bottom performers, or those with less than a 3% profit margin, handle fewer than 25,000 shipments annually.

The top concern among the group continued to be “global instability,” which half of respondents pointed to as a risk. Inflation was the second-biggest concern, according to 36% of those queried. Large companies were more concerned about geopolitical issues, while inflation was the biggest concern among bottom performers.

Not surprisingly, COVID fell to seventh on the list after being second in 2022.

Pricing pressure was again viewed as the top industry challenge by 51% of the group, with real-time shipment visibility (36%) in second place. Digitization, port congestion and talent recruitment rounded out the top five regulatory and industry concerns.

Concerns around pricing was most acute among bottom performers, with 64% citing the issue compared to 44% of top performers.

Asked about primary growth strategies, 34% said they would engage customers in new industry verticals, with 27% saying they would look at broadening their service offerings. Bottom performers were 1.5 times more focused on serving new customer industries than top performers.

Of the largest companies polled, 26% said acquisitions would be their primary means of growth moving forward, with “entering new customer industries” coming in a close second.

However, plans to garner more e-commerce business were down as 40% said they had “no focus” on the customer group.

Finding skilled talent was listed by 28% as the top inhibitor to growth. A lack of automation, or “tied up in manual processes,” was the No. 2 headwind to growth, with bottom performers citing the issue twice as often as top performers.

Overall, providing more high-value service offerings and increasing automation were cited as the top two initiatives for margin improvement. However, bottom performers appear less likely to materially invest in their networks, saying they would look to raise prices and cut costs to improve margins.

Top performers were 2.4 times more likely to be early adopters of technology when compared to bottom performers. Of the largest and best-performing companies, more than 80% are focused on technology investment compared to 58% of smaller companies and 54% of bottom performers.

“Forwarders and brokers are adjusting their strategies, tactics and technology decisions to address yet another ‘new normal’ with lower shipment volume, higher costs and customers who are back in control of the market,” the report said.

More FreightWaves articles by Todd Maiden

Break freight volumes and rejection rates down by length of haul

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