Global recession and the fate of small forwarders
This is a topic that I have been thinking about quite a bit over the last few months as the global recession continues to develop. What will be the fate of the small freight forwarders? According to a report I read on the Financial Times, many of today’s small freight forwarders will simply disappear. The main contributing factor will be cash flow. As more and more customers try to extend their credit terms and string forwarders out for cash, the harder it will be for forwarders to keep up with timely payments to the airlines and steamship lines. Making things more difficult for the small forwarder will be customers who go belly up, leaving forwarders holding the financial bag.
If this scenario does play out as the report on Financial Times states, then the large global forwarders will benefit by gaining additional market share. Mostly because the global players have the financial reserves to weather the storm.
If you work for a small forwarder, let me know your thoughts on the FT article.
Building A Cash Cushion | Accounting Solutions on Tue, 9th Dec 2008 5:23 pm
[...] Global recession and the fate of small forwarders | Third Party … [...]
SwizStick on Tue, 9th Dec 2008 7:42 pm
In my humble opinion, cash flow is king. No matter what size the forwarder, those who have properly controlled and monitored cash flow should survive while those who have not are at the most risk. Forwarders/3PLs of all sizes should regularly analyze customer payments and financial standings and have processes and controls in place to make sure the cash keeps coming in on a consistent basis. Loyal customers with good payment records who may have fallen on hard times but still have bright futures might be considered for lengthening credit terms. Difficult customers or those with poor payment records or on shaky financial footing should be tightly controlled, even at risk of losing the client – better to have cash in the bank than bankruptcy later. Let those customers be somebody else’s problem. Some of the larger forwarders/3PLs with deep pockets or plenty of cash on their balance sheets might be able to take advantage by scooping up some of the “problem customers” but they too would need to gauge the risk vs. reward in taking such clients on in a rapidly declining global economy.
And regardless, most small forwarders/3PLs I know have better, more personal customer service than the larger outfits, so oftentimes those “difficult” customers end up coming right back, tight credit controls notwithstanding. I can think of one client I used to deal with in my old days who must have left the company I worked for at the time at least 4 times over the years I worked there. Each time they left angrily because we refused to continually accept late and short payments or renegotiate our already flexible payment terms. Each time they ended up coming back because not only would other forwarders/3PLs not extend them such favorable credit terms but their service was nowhere near as good as ours.
Newbie to Freight on Tue, 9th Dec 2008 7:55 pm
Well the other side of the arguement is that because these big firms would have stiff pricing policy, due to overheads and more mouths to feed, the small forwarders would employ gorrilla warfare and price themselves lower in order to earn a penny instead of losing the dollar, and ultimately be able to tide through the tough times by tightening their belts. What I see would be the disapperence of small forwarders who in the past were never finacially responsible by perpertually offering lower prices to undercut their competitors, these firms would have virtually no reserves to fall back on. Small firms that use good services with fair pricing would be able to avoid customers that go belly up because their responsible pricing would ineveitablly attract responsible customers as well.
SwizStick on Tue, 9th Dec 2008 8:20 pm
Newbie – true, but the bigger firms also tend to command better carrier rates due to their higher volumes. That’s certainly not universally true, some smaller providers are very strong in specific markets and can easily undercut the bigger firms, but on an overall basis the larger firms tend to secure better carrier pricing.
You are absolutely right about smaller firms not being financially responsible – as I said, regardless of size if they have been sloppy in the past they will most likely disappear. I’ve posted a few times about the phenomenon of China-based forwarders and NVOCCs calling me – direct from China – for business. If forwarders are still working off outdated business models of simply marking up co-loaded rates with carriers, combined with sloppy accounting, they can kiss their butts goodbye.