2017 – the year of the agile small forwarder?

April 10, 2017 3:38 pm Published by

AS we step into the era of Trump, Martin Dixon, Director – Head of Research Products
at Drewry, has told independent forwarders to look out for niche opportunities and
the chance to poach customers away from larger organisations as M&A activity in the
forwarding world looks set to continue.

By the time you are reading this, president-elect will have taken his seat in the
Oval Office and while many may question his policies, Dixon says – from a purely
economic standpoint – the indication are that Rump’s fiscal moves will be good for
growth, and by proxy good for trade.

Regardless of your views on him, the short-term growth the president elect stated
policies will bring will have quiet an effect on 2017,” says Dixon. “How this will
look further down the line really depends on how it is implemented and the impact of
rising debt.
“But most economists agree on his policies bringing positivity in the short term.”

Globally, Dixon believes the economic indicators are also positive: “We are
expecting strength in the Chinese economy and parts of Europe are looking a little
better – of course the big question remains the repercussions of Brexit.”
“Generally, though – and bear in mind how difficult last year was – 2017 is looking

More trade means more transport, and more goods being transported only increases the
business prospects of the independent forwarders. Dixon notes that freight rates
have, and continue to, rise. In the latter part of the fourth quarter of 2016, spot
rates rose. While he continue to remain volatile, indications are that they will
continue to gain ground in the run-up to Chinese New Year.

We also know that contract rates on the Asia-Europe trade have risen and we expect
overall global rates to rise over the course of 2017,” he says. “This is of course a
big boost to forwarders providing them bigger margins to work with.
“Furthermore, the volatility is something of a blessing for independents as,
providing they are nimble and quick to react – something their small size provides –
they can capitalise on the lag between higher rates they apply to customers and the
higher rates placed on them.”

In recent months in the ocean freight sector, the spotlight has been on the
alliances. But Dixon says these will have less of a bearing on forwarders then M&A
activity. Alliances, he says, are no new concept, the recent formations the sector
has seen are mainly a change of composition.
“Where alliances will have an impact is more in regards to service choice and
service reliability. The ability of forwarders to influence services reliability for
their customers will be affected by the alliance shake-up,” he continues.

But M&A activity – which is the forwarding community has been, and Dixon thinks will
continue to be, particularly active – creates a lot of interesting opportunities for
the “smaller guys” because big mergers throw up two issues: problems integrating and
customer retention.
“Bringing together the operational and IT platforms of two firms is rarely an easy
process,” says Dixon. “The fallout of this, if managed badly, can be that customers
get annoyed with their services and end up looking elsewhere.

On top of this, many shippers like to have their eggs spread out rather than in one
basket. So, if you have a situation where two providers used by the same shipper
combine, that shipper will likely be tempted to move elsewhere and this has the
potential to create opportunities for smaller firms.”

Of course, it would be wrong to say that wherever you have M&A activity you have
customers fleeing as if it were a sinking ship, but the potential is something Dixon
feels independents cannot overlook in 2017.
Bringing it back to Trump is the mood his election victory reflects, one of inward
thinking and rationality over globalisation. Again, Dixon thinks this presents a
benefit for the smaller firms.

Larger forwarders are more concerned with global supply chains,” he says. “But the
events of last year – combined with reported sentiment for the year ahead – suggests
the era of globalisation is changing. We expect to see supply chains become more
intra-regional than intercontinental. “I’d expect smaller forwarders with niche
knowledge of particular region to benefit here and perhaps scoop up the growing
trade that they are likely to see in their respective corners of the globe.”

~ Source: Voice of the Independent, January 2017. No. 061

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This post was written by Ilse Venter