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How Lucrative is Freight Forwarding Business?

The epidemic of COVID-19, followed by corrective lockdowns, badly impacted several business industries. However, humans still needed to fulfill their needs and carry on with their routine activities to maintain normality. A business that stayed neutral to the pandemic was freight forwarding. Manufacturers needed their products to be distributed to the final point and sell them to the market of customers or corporations. Despite constricting the number of carriers to move the goods, freight forwarding still conceded.

In fact, due to the widespread virus, these organizations got a chance to sell their services at higher prices. They were using more advanced technology to stay connected with the carriers. But with the easy maintenance of governmental laws, they were able to fulfill their contractual obligations. However, it wouldn’t be fair to neglect the negative impact on such businesses and their processes. The logistics were heavily affected as there was a shortage of storage spaces. Many clients backed out because businesses were failing and shipment across the border became challenging.

Although it remains a profitable business, you learn the art of convincing the agent to sell products at an excellent price to your customer. As the world comes back to normal, we see the reopening of efficient road freight and air and sea freight. Individuals in this business are getting back on track, and new innovative studies make it more lucrative. A good supply chain solution will always be required to keep things simple and efficient. Let’s see how:

1. Monopolistic Profit Making:

Profit margins in the freight forwarding business are higher than most other industries because these companies share an extensive market base. And compared to the clients they have, the carriers are much limited. So, the freight forwarders benefit from this and use their sales volume to set high rates in the names of their carriers and use a monopolistic advantage over their clients. They know that the market has an excess supply, and their logistics services are high in demand – hence, they receive profit from it. Even if they face a drop in revenue due to lower rates, their profit margins still save them from collapsing. One of the strengths they possess that allow them to avoid collapsing is the availability of technical transport equipment. These are very high-priced equipment, only affordable to some cargo companies, making this industry less competitive. It allows them ownership of the market and promises them success.

2. Hyper-Growth:

Freight forwarding companies have created a good value for their organizational growth with their traditional success stories. They have built their trust in financial institutions, which has given them the benefit of always having capital. It’s easier for these well-known freight forwarding businesses to acquire a loan as they already have good credit scores and reliability. Even without the loan, they can generate cash on their growth strategies and easily find buyers and investors of their businesses. Some of these companies are public, and shareholders see the benefit of high dividends, which is why they have a strong market base. From the capital they raise, they buy technological deployments to make their process more efficient and effective. Does this mean that the sunk cost or entry cost for new start-ups is higher? Yes. But it doesn’t mean that they don’t find investors to support them in buying promising technologies, funding their credit needs. And in helping them achieve rapid growth through revenue. Hence, the competition in this industry might be high. Still, it’s differentiated, which means there is always space for the new ones to experience growth.

3. Cost Leverage:

The most significant benefit which freight forwarders and freight forwarding companies enjoy is the opportunity to control cost. They have cost because of their highly trained staff and well-maintained machinery. Even during pandemics and recession, very few freight forwarding companies let go of their current staff because employee stability is significant to this field. They pay close attention when hiring, and only experienced people get selected for well-known companies. Also, these organizations are facilitating extensive business dimensions, which gives them control over their price discrimination – another monopolistic benefit. They understand their customers, suppliers, and carriers deeply, which gives them a competitive edge. However, they are always aware of the demands of their customers and know how to deal with them effectively.

4. Strategic Relationship Opportunities:

Freight forwarders have helpful knowledge and skill regarding networking; that’s how they gain the trust of many to increase their client base. They build strategic relationships with the producers or manufacturers and the retailers or customers to get repeatedly chosen. Customers often demand complex and challenging improvements to make their supply chain better. These ideas help freight forwarders develop customized and value-added services to set high-profit margins and sales rates, usually more than the standard transportation fees. Long-term experience in the industry teaches them the secret of engaging the probable customers and retaining the existing ones. Gradually but definitely, they learn how to make the best profits by finding cost-cutting or sales opportunities. These opportunities allow them to expand, often helping them increase their service area, leading them to become globally recognized. 

5. Easy Data Expertise:

Contrary to popular belief, operational excellence in freight forwarding doesn’t depend on the process management of its IT system. Yes, it is essential to integrate master data in their system, but it doesn’t necessarily require technological capabilities. Because these companies regularly deal with thousands of individual transactions, their staff should be well-trained to record and process them efficiently. The problem arises when these companies do not have reasonable control over their system, and mismanagement is prevalent.  Mastering the data helps them be productive and excel in providing customer satisfaction, ultimately leading to good profits. What’s advantageous here is that freight forwarders could effortlessly achieve all of this even with an old in-house IT solution instead of a more extensive IT system. Such simplistic yet effective data expertise allows them to develop effective strategies that help them move forward and use market opportunities. We can see that the future of freight forwarding is the brightest for those who are best at mastering their data and making good use of it.

Conclusion

Freight forwarding isn’t the most glamorous business industry because it doesn’t require a vast IT system or attractive machinery. It works like it always has, which makes the management so sturdy and the business so lucrative. It is one of the business industries worth investing in because of the stability in profits it has shown in the many previous years.

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