News / It seems size does matter when it comes to freight forwarders and market share

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The contrasting 2014 financial and operational results released this week this week by two of the largest freight service providers – Kuehne + Nagel and Damco – has reopened the debate about market share.

The fact that KN’s sea and air freight volumes grew at a faster rate than the market while Damco experienced the reverse would indicate that the former won market share and the latter lost it.

Yet it is one of the eternal debates amongst freight forwarding executives – who has what market share and how is it defined. Do we measure by teu booked, tonnes handled, or revenues generated?

World Air Cargo Database’s December trends report suggested that only the largest 3PLs won market share last year in air freight: “In the top 10, five outperformed the market: Kuehne + Nagel, Expeditors, UPS Global Forwarding, Nippon Express and Kintetsu – the latter showing a growth of well over 10%.

“The top 20 slightly underperformed the smaller forwarders. As a group, they continued to lose ground in Africa and Latin America, but slightly strengthened their position in the larger markets Asia Pacific and North America,” it said.

A recent report, UK Freight Forwarding Industry by UK research firm Plimsoll, evaluated the top 1,000 forwarders in the country and tracked industry performance across a variety of measures.

It argued that a key performance measure for any business is its growth in sales, which is recorded as an increase in turnover. It found that over the last decade, a clear trend is the largest freight forwarders growing significantly faster than the smallest.

They saw a combined growth by sales of 67.5%, representing an average growth rate which is more than twenty times that of small forwarders.

In the most recent year recorded, small forwarder growth contracted by 0.7% and large companies grew by 3.3%. This disparity expands when restricted to the top 50 forwarders, which recorded an average growth rate more than 12 times that of the small forwarder.

While the evidence suggests that the gap narrowed during the recession, there is a clear danger that the gap will simply grow again as the recovery takes hold.

Of course, sales growth is just one measure and while there are others, equally important, like profitability and liquidity, their effects are smoothed out over time, which leaves the irrefutable fact that the largest operators are growing considerably faster than the smallest.

So why are smaller forwarders persistently so far behind their larger competitors, and can they do anything to close the gap?

An obvious factor is access to resources – the ability to deploy large salesforces, or to run expensive advertising campaigns are advantage the smaller forwarder can never match.

In reality, these capabilities are the preserve of only a handful in the market, with the majority deploying far more modest sales and marketing resources, so the gap must also result from other factors.

Those factors, perhaps unsurprisingly, are what have historically ‘hamstrung’ the sector:

•             the insistence from customers to drive down cost

•             meeting customer demands in operating to tight deadlines

The resulting price differentiation, and time-starved bosses, creates a perfect storm that focuses on servicing existing accounts and a conviction that cost is the only issue that matters. The perpetuation of these beliefs has contributed to an industry that has low self-esteem and commonly undervalues its strengths.

These realities are perfectly illustrated by the lack of engagement with trade and professional bodies. For example, only a handful of freight forwarding leaders are members of the Chartered Institute of Logistics & Transport, while other professional forums and interest groups are woefully represented, when compared with other sectors.

The very institutions that could raise the profile of the sector and articulate the value it provides, and which could begin to diminish the differentiation by cost dimension, are starved of the active participation and leadership of the people that would benefit most.

It is inconceivable that the majority of the market should leave the door open to the largest players to take the lion’s share of the market, but that is precisely what is happening in the forwarding sector.

The mistaken belief that they are supplying a ‘commodity’ has left the smallest competing on price, giving larger players the freedom to accelerate growth of their market share by simple brand building and positioning strategies.

A small forwarder operating in the crowded European road freight space is a typical example of a very accomplished business – generally an expert in its niche and providing a quality service to forwarders and shippers.

This type of company is quite distinct from others in what is a crowded space, but it is often oblivious to the opportunities that could be exploited from clearly differentiating its services and targeting distinct customer groups.

The performance gap will not begin to close until owners and managing directors of SME forwarders realise that they have the power to transform the way they grow their business, by simply thinking and acting differently.

Actualis has joined forces with the Chartered Institute of Logistics to highlight the performance gap and how forwarders can reduce it, with a workshop for forwarding leaders on 24th March, at the Holiday Inn, Sipson: ‘Grow your business 20 times faster”.

Other workshops will be held around the country, reflecting local demand.

More can be found here: http://actualismarketing.com/cilt-sipson-event/

DISCLAIMER: This is a guest post from Paul Kelly, owner of Actualis Marketing. Opinions are those of the author and not The Loadstar.