The changing role of traditional and digital forwarders
06 / 02 / 2023
Brandon Fried, executive director, Airforwarders Association. Photo: AfA
The meteoric rise in freight levels during the pandemic created an irrational exuberance for most forwarders, but the party is ending for some, writes Airforwarders Association (AfA) executive director Brandon Fried.
As freight forwarders begin to see reduced shipments drop to more realistic levels, some still see high volumes but most see reduced, albeit manageable, levels.
So now we should look at the kinds of forwarding companies expected to effectively respond if consumer demand drops and the tide of profit washes away.
Throughout the past two years, private equity invested in the forwarding business at record levels.
These financial entities provided operational investments and money to acquire competitors and complimentary service providers.
The ride has been incredible for many forwarding companies. Now, many of these investors, accustomed to high pandemic margins, are likely seeking a return on their investment capital.
The digital forwarder is the most talked about and illuminated market segment
While the definition of this entity remains elusive, most are self-professed masters of modernisation, leveraging technology to provide a level of automation previously unknown to the traditional forwarder.
Digital forwarders promise an enhanced customer experience, improved shipment transparency, faster inquiry response times, data analysis and flexible service offerings.
Most of all, they continue to offer excitement and the forward-thinking our industry needs. Shipment automation is here to stay: customers demand it, and digital forwarders understand its need.
The digital forwarder excitement attracted the investment community’s attention, but even these technology-focused companies must pay the piper and begin to make money.
Recent staff reductions, not only in our industry but outside at popular names including Amazon, Uber, and Microsoft, abound.
So far in 2023, more than 58,000 tech workers have been laid off in mass job cuts.
This downsizing trend may not necessarily be a sign of failure but reacting proactively to potential stormy economic conditions ahead.
The traditional forwarder model has always benefited from well-established partner relationships, local people, comprehensive industry experience, and unsurpassed personalised service.
Some of these forwarders invested in automation long ago and continue to do so today.
Others have not seen the need or a convincing business case for spending precious financial resources on technology.
Yet, despite not having the most current automation, many traditional forwarders are enjoying continuing success and high levels of customer satisfaction.
But the disparate nature of freight forwarding, where unrelated transportation partners may rely on different technology platforms for the same shipment, often presents communications challenges.
These hurdles delay information flow, often reducing customer transparency and responsiveness.
Digital forwarders see the need to address the issue and maybe succeed in this endeavour.
Traditional forwarders do not necessarily need to copy every aspect of their service offerings but in this instance, can certainly learn lessons from their digital competitors.
Predicting the future is a complicated and often foolish endeavour, especially when it comes to which freight forwarders will continue to succeed as volumes normalise.
Many traditional companies continue to invest in automation while providing service offerings like their digital counterparts.
While unassured, their survival prospects are positive, and many will not have to face pressure from the investment community anxiously awaiting a generous return on capital.
The pandemic taught shippers to always have a flexible supply chain strategy as many abandoned the “just in time” in favour of “just in case” planning.
Whether digital or traditional, customers expect their forwarders to provide creative solutions to complex logistical challenges.
Ease of use, quick access to information, and shipment transparency remain essential customer demands.
Most importantly, the occasional face-to-face, collaborative interaction with the customer remains at the top of the list.
Freight forwarding in a post-pandemic world will continue to thrive, but, as in any industry, some players will achieve the same as others. Some companies may not even survive.
However, while helpful, owning sophisticated technology and expensive automation are not necessarily essential predictors of success.
Forwarding is still a business that thrives on personal relationships, regardless of any computer’s size and speed.
AfA optimistic US air cargo industry can ride out a recession