What are the Challenges to Freight Forwarding Companies?
Just like any other company you can think of, freight forwarders are also concerned about their future. As absurd as it may seem, even such an industry is facing uncertainty due to the macro-trends taking place around the world. Due to this, freight forwarding companies have to face challenges from the state of the global economy to the impact of technology, and so much more.
Apart from macro-economic reasons, there is a lot going on in the industry that freight forwarders need to be wary about. Here are some of the most prominent challenges of them all.
Immense Competition
Freight forwarding companies have a lot more competition to deal with than ever before. The reason why the competition is so fierce is that logistics companies are no longer restricted to certain services like warehousing and ocean carrier. They now also provide NVOCC type services and forwarding. If that is not enough, companies like Amazon are getting a piece of the pie as well, which leads to the next challenge, the commoditization of freight forwarding.
The Commoditization of Freight Forwarding
A majority of shippers view freight forwarding as a commodity. In fact, any transportation service is viewed as a commodity. Said shippers only care about their deliveries being made on time. What this means is that they give price more value than service. Because of this, freight forwarding companies are unable to differentiate themselves from the rest of the crowd, especially from those that try to outdo others by tweaking their prices.
But then again, there are some freight forwarding companies that are able to maintain margins and keep up with their competition by offering new or better technology to improve their customers’ experience.
Rate of Change
Freight forwarding companies need to take new market challenges into account in order to stay ahead of the curve. For example, a recent trend involves ocean carriers forming alliances. If such trends are not taken into account, it can severely affect contracts and their rates for freight forwarders.
As mentioned earlier, technology is playing an important role in changing the landscape for freight forwarders. It also affects how they manage their business and even their customers for that matter.
Most importantly, market expectations continue to revolve around cheaper and faster deliveries.
Complexity of Tenders
One of the most important things for freight forwarding companies to do is to respond to tenders. Seeing how the volume of these bids are extremely high, with each of them being so complex, they can consume a lot of time, money, and other resources. This is where freight forwarding companies need to play it smart. Not only do they have to improve their tender management process, but they need to make sure they are bidding fast and accurately. Also, they need to bid on tenders that will be best for their business.
The Volatility of Ocean Shipping
Ocean shipping is a big part of what freight forwarders do, and it is extremely unstable. It can take an expert to understand the contracts and their complicated rates. There are times when cost structures won’t even make any sense, which makes it difficult for freight forwarders to provide reliable and accurate quotes to their customers. Additionally, the random nature of surcharges and GRI’s only makes things worse.
Of course, there has been a lot of debate regarding the simplification of these factors, but it is clear there won’t be any relief any time soon.
Exchange Rate Fluctuations
Fluctuations in exchange rates directly impact the prices charged by freight forwarding companies. To add to the problem at hand, when more expensive payment methods are used, like bank transfers that include exorbitant bank transfer fees, it will affect both, freight forwarding companies and customers alike.
To deal with this problem, freight forwarding companies do cooperate with each other to do away with incompatible payment methods and also to decrease the share of bank transfer payments.
The aforementioned challenges are just a few of many others that haunt freight forwarding companies. The more you dig, the more problems you will come across, thus solidifying how complicated managing freight forwarding companies really are. Other challenges faced by freight forwarding companies also include:
Rising Fuel Costs
One of the biggest costs associated with freight forwarding is fuel costs. Rising fuel costs increase transportation costs by pushing up fuel surcharges. Rising diesel fuel prices also escalate surcharges which are then added to freight rates, and they cut into the earnings and revenue of freight forwarders and all associated third parties.
Government Regulations
Freight forwarders have to deal with regulations imposed by the federal, state and local government bodies.
Environmental Issues
Emission reduction regulations introduced by local and state governments have created immense concern for freight forwarding companies. It will result in an increase in compliance costs which would exceed all benefits.
Additional Challenges
- The freight forwarding industry has collectively suffered due to the economic crunch. Trade-related activities have dropped considerably, so much so, freight businesses struggle even during peak seasons.
- A majority of freight forwarding companies are unable to support and maintain large projects, especially in cases where they need to provide freight international services. This is because of lacking financial stability. Custom brokers and other associated small businesses do not get enough ROI (Return on Investment) because the economy is not stable enough, which impacts freight prices from season to season.
- The legislation responsible for imports and exports varies from one region to another. Freight forwarding companies have a limited operational scope because of this. Despite globalization and free trade agreements, several nations have protectionist laws that do not help either. Said laws prevent the import and export of certain items on a large or commercialized scale.
The Final Word
For these reasons and others, freight forwarding companies need to work harder than ever to differentiate themselves from their competition, all the while ensuring their service is top-notch. Some of the most prominent freight forwarding companies recommend offering competitive rates and delivering exceptional customer service options and technology to make decision making as easy as 1-2-3.
Managing these challenges can be difficult, but not impossible. You can look into options like outsourcing a portion or all of your business and freight processes to improve visibility throughout the supply chain, reduce expenses and meet all regulatory requirements, and so on. However, enough emphasis cannot be placed on the fact you will need to do your homework to ensure you are dealing with reliable and experienced third parties that will do justice to your freight forwarding company and its operations.
All in all, freight forwarding companies have a lot of challenges to face. To add insult to injury the word freight forwarder varies in different states or countries, which can make things more difficult than they already are.
