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Container Rates and The Role of the Freight Forwarder.

As the container industry started to develop in the early 1970’s, vessel owners and operators started running out of the resources to handle the increasing number of customers who wanted to globalize their business through containerization. The number of customers per vessel increased and the vessels got bigger. The traditional customs brokers kept their focus on customs clearance and duties, while the freight forwarder started focusing on selling the vessel capacity to their clients.

Container Rates and The Role of the Freight Forwarder.

This allowed the vessel operators to focus on the carriage of goods rather than daily interactions and clerical tasks associated with each individual container customer. The freight broker function of the freight forwarder yielded tremendous profits. For small to medium businesses, the forwarder was more or less the sole gatekeeper to rates and vessel space, at the same time as customers had limited access to information and depended on the forwarder to handle all aspects of containerized transport.

Historically container prices have continuously dropped although pricing cycles have become substantially more volatile over the last decade. This drop in prices has continued to squeeze forwarders’ margins, and the once lucrative ocean freight profit has received a clean shave”.

One of the main reasons for this decline in profitability, is access to information. The Internet has provided the container customer with a better understanding of the global container market, including its pricing. Today you can “google” the price of a 40’ container from New York to Rotterdam and find out the approximate price the market is offering. This puts the customer in the driver’s seat and squeezes the freight forwarder’s profitability. Today’s container customer, more often than not, knows the price they want to pay for a container, usually because they know this rate already exists in the market. The question becomes which forwarder is willing to, or has the ability to offer it.

With the drop in profitability for the forwarder, there has been a need to find alternative streams of revenue. Value added services have become increasingly important for the forwarder in order to maintain a viable business. Warehousing, inventory control, documentation, are services that in many cases become more profitable than the freight itself. When the invoice is printed, profit from ocean freight ends up being just one of the line items. Handing fees, documentation charges, inland freight have become more and more important to ensure the survival of the forwarder.

With the drop in profitability for the forwarder, there has been a need to find alternative streams of revenue. Value added services have become increasingly important for the forwarder in order to maintain a viable business.

In certain markets, due to high competition the pricing structure has become such that the actual ocean freight is offered at virtually zero cost, and in some cases even negative. In order to make up for this revenue loss, the players make their money on the value added services and additional fees (usually charged to the receiving party).

Looking at the decline of container price over time and the accompanying decline in profitability for the forwarders, it is clear that the traditional forwarder, who spends the majority of his time sourcing the best container rates, needs to shift focus. The cost associated with the hours, even days, spent locating and locking down the rate needed, quickly eats away at the USD 150 (if lucky) freight profit generated per container. A more time efficient way of obtaining good rates fast, would enable the forwarder to spend more time on maximizing the profitability of other revenue streams.

Henrik Kjaereng has many years of experience in the global shipping and freight forwarding industry and is a managing partner of Loadex Group LLC.

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