Why air freight forwarding is getting more competitive in USA

Data on the performance of the air freight forwarding industry was recently released by the International Air Transport Association (IATA). It clearly showed that in the USA and across the world the demand had slowed down in the first half of the year. Two fundamental metrics used to measure air freight forwarding industrial performance showed that:

  • Freight-ton-kilometers was down 2.0%
  • Available-freight-ton-kilometers was up 3.3%.

It was interesting to find that major freight forwarders reported a mixed result in their earnings over the same period. Some had increased their bottom line compared to the previous year while others had decreased.

This contrast indicates that air freight forwarding is in some form of imbalance between industry demand and industry profitability. For the industry to return to balance, either demand will increase or air freight forwarding will get more competitive. We feel the industry direction is headed towards the latter.

Why air freight forwarding is getting more competitiveWhy air freight forwarding is getting more competitive

Factors are increasing competition in air freight forwarding

There are at play on the forwarding of air freight a number of economic, political and industrial factors. Many of these have combined to impact negatively on the industry and are making air freight forwarding more competitive.

Demand and volumes in overall decline

From the data it was clear that overall volumes of air freight had declined. Several major freight forwarders attributed the drop to effects such as:

  • More customers taking a selective stance on air freight
  • Market levels were stronger in the previous year
  • Perception of a volatile environment

It is important to note that this position was not shared by major freight forwarders. Some air freight forwarders experienced strong performance and growth in the North American export market, however these would be considered edge cases and not reflective of the overall trend.

Revenues up but profits appear unstable

A financial analysis showed many major forwarders had their revenue increase, but this increase was mostly from raising freight rates on customers. It was typically found in forwarders that managed to have their revenue increase (usually only slightly) despite having their volume decline.

Some forwarders, however, did not fare so well, and reported that their North Asia and North America revenues dropped by about 10%. If industry demand continues to decline it is likely that revenues will decrease across all the major freight forwarders.

Several major freight forwarders had profitability drop by 5.5% and others had their gross profit per ton decline by 10%. In order for air freight forwarders to avoid decreases in profitability across the industry they will have to become more competitive.

Growing market volatility and uncertainty

Further decline in demand is possible from growing market volatility and uncertainty. Consideration needs to be given to unfolding major political events, such as the increasing US and China trade war and the expected disruption from Brexit later this year. The US-China trade route is about 10%, while the UK trade routes represent about 5% of world trade.

Any downturns on UK, US and China routes are likely to impact on global air freight demand.

Technology to benefit those that have it now

Forwarders have been increasing the development and implementation of technology to simplify business with their importing and exporting customers. Most of the industry will not have their latest solutions available till the end of the year or beyond. Also, their solutions will most likely be deployed first in smaller countries, so they will have to look at other ways to improve their competitiveness as industry demand continue to decline. A few major forwarders, however, have successfully commenced using their latest technology solutions, providing benefits such as highly integrated operations, business efficiency improvements, increased freight visibility and service level.

Air freight forwarders that can benefit from their technology investments now are in a much stronger position than those that cannot. They will be able to use them to maintain or improve profitability against reduced volumes from business efficiency improvements. These forwarders will also be able to increase the customer acquisition and retention from improved service delivery. Further, they will have the opportunity to gain a stronger lead by being able to digitise more of their workflows, and implement more advanced technologies, such as mobile information on delivery (IOD).

Industry outlook for air freight forwarder for the USA?

Although customers are increasingly utilizing air freight to improve speed to market, there are many other factors that decrease the overall demand. It is likely the air freight forwarding industry will continue to decline in performance for the remainder of the year. Importers and exporters will be focused on optimising their supply chains and using sea freight where possible.

With an increasing industry over-supply from decreased demand, importers and exporters will be in a stronger position to negotiate lower rates with air freight forwarders. Air freight forwarders that can rise to these challenges by being able to improve efficiency and effectively manage risk will become attractive alternatives.

Looking for a competitive air freight forwarder for the USA?

Working with an innovative, robust and reputable freight forwarder for your importing and exporting is more important than ever in these uncertain times. It is essential to have an air freight forwarder that can rise to new challenges. If you are looking for help with your air freight and seeking a forwarding when importing or exporting from the USA, then consider us. We are an air freight forwarder that gives full costings with no hidden costs, and are happy to be your competitive forwarding partner.

Our forwarding network from the USA has more than 40,000 locations for international air and sea freight around the world. We run an efficient, lean and transparent air freight forwarding service, so contact us online and send a message. You can even message us on Facebook for a quote on doing your air freight to and from the USA.