1. business and industrial
2. logistics
3. air freight

SEAFREIGHT FORWARDING – BUSINESS
MODEL UNDER PRESSURE?
Presentation to ETH Zürich, Logistics Management
Zurich, 30th April 2013
Challenges in sea freight forwarding_fin.pptx
1
Our logistics core team in Zurich: lateral hires paired with
experienced consultants
Matthias
Hanke
Dr. Matthias
Hodel
Peter
Wiese
Partner
Project Manager
Senior Consultant
• 2 years of steel trading experience
• 4 years of line management
experience in Swiss International Air
Lines
• 3 years of line management
experience in DHL Express
• 12 years of consulting experience
– Logistics
– Travel and tourism
– Network mgmt. and strategy
– Aviation
matthias.hanke@rolandberger.com
Source: Roland Berger
• 8 years of consulting experience
– Logistics
– Travel and tourism
– Aviation
– Strategy and organization
development
– Restructuring
• 3 years of experience in DHL
Global Forwarding (freight
forwarding, shipping, and process
management)
• 2 years consulting experience
– Freight forwarding
– Marine & air logistics
– Supply chain
– Consumer goods
matthias.hodel@rolandberger.com
peter.wiese@rolandberger.com
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Roland Berger Strategy Consultants is a top management
consultancy with a strong global footprint
Our offices
Founded in 1967 in Germany by Roland Berger
51 offices in 36 countries, with 2,700 employees
About 250 RB Partners currently serving
~1,500 international clients
Source: Roland Berger
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We support major players in the logistics industry in strategic and
organizational questions
Selected clients and project examples from the logistics industry
KEY PROJECTS (EXAMPLES)
> Complete strategic transformation and turnaround of global liner shipping company
> Developed new organizational structure and
optimized management processes supporting
a new corporate strategy for a global forwarder
> Defined a leading forwarder's Russia/Eastern
Europe expansion strategy
> Conducted extensive market entry studies in
various geographical areas and customer
industries for a logistics service provider
> Optimized human resource management/
processes for a global forwarder
> Assessed potential for network optimization
and synergy options for a global logistics group
> Conducted a strategy assessment for a global
forwarder and defined recommendation for
improvements
Source: Roland Berger
Challenges in sea freight forwarding_fin.pptx
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Today's focus will be on seafreight forwarding
Logistics Service Providers
FOCUS
KEY CHARACTERISTICS
Overland
Transportation
>
>
>
>
Mainly trucking; growing share of rail
Forwarders often exercise "Selbsteintrittsrecht" and "operate"
Operation consists of carriage plus terminal operation for LTL business (groupage)
"Mama and Papa business" – low USPs ... low entry hurdles
Global
Forwarding
>
>
>
>
Core business is sea and air intercontinental transportation
Asset-light/ trading business (capacity brokerage) plus value added services
Low margins (RoS; don't mix up with RoC)
Interfaces with Overland Transportation and Contract Logistics
Contract
Logistics
>
>
>
>
Coordination of parts of the supply chain on behalf of the customer
Warehousing and Distribution are elements of core business
Contract duration over a longer period (~5 years) with dedicated investments
IT integration/interfacing with customer is key
Integrators;
Express Logistics
>
>
>
>
Door-to-door service, self operated (P&D, domestic linehaul, intl. linehaul, terminals)
Standing network – given fix-cost (flight gets operated ... full or empty)
Day-definite and Time-definite delivery plus even courier-services
High-cost proposition
Source: Roland Berger analysis
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Vocabulary for clarification – related to seafreight forwarding
VALUE
CHAIN
INCO
TERMS1)
Shipper
Inland
logistics
Customs
Terminal
DDP
CIF
Carrier/
shipping
line
Terminal
Inland
logistics
Consignee
Forwarder
Forwarder
FOB
EXW
Customs
Forwarder
Forwarder
> Forwarders are capacity brokers and 3PL logistic service providers … means: in its "archetype",
forwarding is a rather asset-free business
> Seafreight forwarders work for both: for shippers (based on the INCO terms DDP or CIF) or for
consignees (FOB or EXW)
> Carriers (here: shipping lines) heavily influence the business economics of the seafreight forwarding
business model
Source: Roland Berger analysis
1) International Commercial Terms; define risk and cost transfer from
shipper to consignee
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Agenda today
In order to discuss strategic topics in seafreight forwarding, you have to…
A
… understand major trends on global economy, its impact on seafreight
business and respective carrier moves
B
… get a glance of the resulting challenges for seafreight forwarders
Consequently, you will recognize that…
C
… the forwarding business model in seafreight is faced with substantial
changes … on the other hand, several so far untapped strategic opportunities may be addressed
Source: Roland Berger
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A. Global seafreight – Overview of the market and key trends
Challenges in sea freight forwarding_fin.pptx
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Chapter overview: Global seafreight – Overview of the market and
key trends
1
MARKET CHARACTERISTICS
> Seafreight accounts for the main share of global volume in world trade, mainly due to its price and
capacity advantage over other means of transport
> The seafreight market is growing in line with growth of world trade, but trade landscape is shifting
towards emerging markets
> Imbalanced trade flows lead to biased trade lanes; while capacity utilization on especially Asia Pacific
export routes is higher, import routes have lower load factors
> The seafreight market has an oligopolistic structure with strong position of carriers limiting the
negotiation power of forwarders and shippers
2
MARKET TRENDS
> Carriers are continuously expanding their fleet which leads to significant seasonal overcapacities
> Overcapacity and world trade fluctuations result into increasingly volatile freight rates and of course
shipping lines are facing increasing cost pressure
> Digitalization is bringing new business models to the industry, as e-commerce platforms emerge in
the seafreight value chain
Source: Roland Berger analysis
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1
MARKET CHARACTERISTICS
Seafreight is the world's principal mode of global transportation,
mainly due to significant unit cost advantages
Comparison of external costs and relative price levels
Volume and price for transportation modes
150.000
TonKm,
Trillion
30
20
10
2
4
6
8
Source: World Economic Forum, CEFIC, Roland Berger analysis
10
12
14
Normalized freight
price range
> Seafreight is the most commonly
utilized and relatively cheapest
mode of transportation, moving
approximately 90% of world cargo
> Airfreight relatively expensive,
due to low capacity of aircrafts and
high operating costs
> Currently, shippers shift historic air
freight capacity into seafreight
> Overland transportation dominated
by truck, as rail infrastructure is not
present in all regions
> Each mode of transportation has a
distinctive value proposition,
different market conditions and
business models
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1
MARKET
MARKET CHARACTERISTICS
CHALLENGES
Seafreight market is forecasted to grow with 14% until 2015 –
Emerging markets are the main driver of global growth
Seafreight market growth
CONTAINER TRAFFIC BY TRADELANE 2015
Million TEU (twenty-foot equivalent unit)
Transatlantic
East bound
North
America 1
20.4
3.8
4.4
1.8
IntraEurope1
Far East – Middle
East
10.2
Transatlantic
West bound
Transpacific
East bound
3.9
N. America –
S. America
1.7
Intra-S. America
High-growth trade lanes, above 200%
Transpacific
West bound
10.6
6
Far East – Europe
19.5
10.2
Europe – Far East
Europe –
2.2
Latin America
67
Intra-Asia1
Far East –
Australasia
2.7
3.7
Far East – Latin
America
Low-growth trade lanes, below 200%
> Seafreight market forecasted to grow from ~175 m
TEU in 2012 to ~200 m TEU
by 2015 (+14%)
> No macro trade lanes are
expected to shrink, however,
overall trading landscape is
shifting
> Market power will shift
towards emerging
economies mainly driven by
Asia Pacific – both external
and internal trade flows
1) Includes domestic volume
Note: Container flows based on forecasts excluding empties and transshipment but including domestic for intra-regional
trade; some trades excluded for display purposes
Source: HIS Global Insight, Drewry, KN Research
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1
MARKET CHARACTERISTICS
Oligopolistic market - top 10 shipping lines have a market share of
~63% – Economies of scale is main driver for competitiveness
Top 10 seafreight carriers1) [mTEU capacity, April 2013]
Mkt.
share
[%]
15.2
13.5
8.3
6.4
4.3
4.3
4.0
3.6
3.5
3.5
mTEU
# vessels
4.5
Vessels
4.0
Ordered
3.5
Current
3.0
2.5
0.2
1.0
2.6
600
500
400
0.4
300
2.0
1.5
> Size matters¨… allowing for
economies of scale
3.1
2.3
0.5
0.1
0.2
1.4
1.1
0.0
APMMSC
Maersk
200
0.1
0.7
0.4
0.7
0.1
0.7
CMA HL +
COSCO Ever- HapagCGM Hamburg
green Lloyd
Sud
Line
0.2
0.6
0.2
0.6
0.1
0.6
APL Hanjin CSCL
Shipping
0.1
0.5
> Oligopolistic structures in
seafreight business have
given negotiation power to
carriers in history
> Overcapacities on the
other hand lead to short
terms discounts on rate and
make the market volatile
100
0
MOL
1) Top 100 shipping lines
Source: Alphaliner, Roland Berger analysis
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2
MARKET TRENDS
Strong capacity growth leads to danger of overcapacity in the
industry, results in rate declines and falling profitability
Seafreight capacity development until 2015 [million TEU]
CAPACITY DEVELOPMENT
50
45
Vessels
Containers
40
35
30
FORECAST
m TEU
COMMENTS
+47%
25
20
15
10
+27%
5
0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: Drewry, World Shipping Council, Roland Berger analysis
> Carriers are expanding capacity, by building
more and larger ships
– Carriers are expected to extend vessel
capacity by 27% until 2015, based on
current order books
– Until 2015 the number of available
containers (TEUs) is expected to increase
with 47% to nearly 40 million available TEU
> Additional capacity might lead to overcapacity
and resulting rate decline, distress sales
and un-utilized assets
> Significant challenges for carriers to
manage their capacity allocations with
economies of scale, in order to generate profit
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2
MARKET TRENDS
World trade development has been linked to GDP growth – Historical
interdependence however is changing towards stronger volatility
Yearly volume growth rates [YoY % growth]
TRADE GROWTH CORRELATED WITH GDP GROWTH
OUTLOOK
% YoY change
30
20
10
0
-101985
1990
-20
GDP
-30
World trade
1995
2000
2005
2010
2015
> Historically there has been a rather constant multiplier between absolute
growth in GDP and world trade – world trade reacting strongly to
changes in GDP growth
> Recent developments might have altered traditional trade dynamics
– World trade declined -22% during the crisis, significantly more than
GDP
– Subsequent recovery has not followed historic patterns
– Leading to increased volatility for players in the seafreight sector
Source: WTO, OECD, IHS, Roland Berger analysis
> World trade has grown with a
CAGR of 6% during the last 20
years and is forecasted to grow
further – however
– 2012 only saw a ~2% growth of
world trade
– Recent forecasts foresee a mere
~3% growth of world trade in
2013
> Volatility of world trade can be
expected to remain high or even
increase
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2
MARKET TRENDS
Seafreight market is highly cyclical with rate hikes of over 200%
during a yearly cycle – European rates currently below slot cost?
Rate volatility on key tradelanes [SCFI rates in USD/TEU ]
> Volatility of seafreight rates is
affected by two main parameters
– Capacity utilization respectively
demanded volume
– Bunker price
> Demanded volumes are highly
sensitive to economic developments
and fluctuates around cyclical
events such as vacation, Christmas,
Chinese New Year etc.
> Carriers forward fluctuations in
bunker price directly to
FWD/shippers with BAF surcharges
> Carriers sometimes even sell below
"slot cost"
> SCFI average above SCFI EBP rate
Carrier slot cost ~USD 800-900/TEU1)
Source: SCFI
1) Thereof Bunker: ~USD 500, Port & Channel ~USD 250, Vessel Rate ~USD 200
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2
MARKET TRENDS
Shipping lines have seen a strong decline of profitability in
recent years – Size is no guarantee for profitability
Container shipping profitability
Industry Return On Equity
22%
Profitability of top carriers
Comments
Revenue [USD bn]
> Seafreight carriers' profitability
has dropped significantly since
the beginning of the financial crises
> Carriers did not expect the economic downturn – huge investments
made in vessels that were underor unutilized on delivery
> Low profitability, causes intense
competition – impedes increasing
rates to profitable levels, even as
volume are above pre-crisis level
> Profitability of the industry in the
next 2 years, is directly
dependent on general macro
economic development
30
25
20
9%
15
3%
1%
10
5
-9%
2007
2009
2008
2010
2011
Source: PWC, Roland Berger analysis
APM-Maersk
CMA CGM
MOL
Hanjin
Hapag-Lloyd
Evergreen
APL
CSCL
0
-200
-150
-100
Note: MSC and COSCO excluded
due to lack of data
-50
0
50
Profit % change
2007-11
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2
MARKET TRENDS
Digitalization is a key trend shaping the current seafreight landscape
– New business models emerge at the horizont
KEY ELEMENTS
E-communication
between forwarder,
shipping line, road
carrier and terminal
E-communication
shipper/origin and
consignee
/destination
Electronic customs
declarations
Source: Roland Berger analysis
IMPACT ON INDUSTRY
> Digitalization is a relatively new phenomenon in
seafreight and the industry is still finding its direction
> Seafreight especially underlies a digitalization of its
operating landscape over the last years, mainly
driven by carriers modernizing their IT systems
> Key elements for digitalization are
 efficiency increase (through EDI) focusing on
shipping info (shipping instructions, booking
requests and master data) as well as invoicing
and documents (customs, etc.)
 enabling IT driven solutions (e.g. track & trace)
> One of the key future fields for digitalization is the
emergence of shipping e-commerce platforms,
enabling real-time bookings and rate comparisons
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2
MARKET TRENDS
Three seafreight e-commerce platforms currently "on stage", so far
with a rather pre-mature value proposition for the industry
SHIPPING PLATFORMS
KEY FUNCTIONALITIES
>
>
See schedule data online
Request "online" quotes (but not real-time, neither linked
to the revenue management system of a carrier)
> Conduct "online" booking of seafreight, partly also
corresponding road feeder services (but rather designed
on a hybrid set-up)
> Set-up online profile including master data and
framework agreements e.g. with road feeder service
providers
> …
 Huge additional impact can be expected with a view to
value chain efficiency and the role of the various players
along the value chain
Source: INTTRA, GT NEXUS, CargoSmart, Roland Berger analysis
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2
MARKET TRENDS
Platforms provide an online solution for booking shipments –
Integrated rate management necessary for full automation
Generic e-commerce shipping platform process
PLATFORM SHIPMENT PROCESS
Shipper
Select
voyage
Request
booking
Provide
quote
ELABORATION
Provide
shipping
instructions
Confirm
booking
Provide
booking
number
Invoicing
Arrange inland
transport
etc.
Execute
shipment
Carrier
Provide
sailing
schedule
Calculate
rate for
shipment
Handled through shipping platforms
Source: Roland Berger analysis
HYBRID/OFFLINE SOLUTION
Handled through other systems, not automated
> Shipping platforms automate
and standardize the majority
of the booking process,
> Rate calculation is the key
part of the booking process
that is not automated through
the shipping platforms
> Carriers determine rate and
conditions for the shipment
based on the booking request
– rates are not integrated on
the platforms
> Fully automated e-commerce
solution, would require that
carriers /forwarders
integrate rate management
between systems and the
platforms
Input
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2
MARKET TRENDS
Platforms are still in early stage of development – Overall direction
rather heterogeneous
SHIPPING PLATFORMS
> Seafreight shipping platform
> Facilitates e-commerce in seafreight
> Largest platform, connected to over 40
leading shipping lines
MAJOR PARTNERS
> INTTRA was founded by a group of
shipping lines – incl. Maersk, MSC
and CMA CGM
> Forwarders support the platform, with
K+N as an investor and all major
forwarders as operational partners
> Cloud based supply chain platform
> Covers door to door flows of goods
> Second largest seafreight platform
> No direct transportation partners
> Major carriers uses GTN for booking
requests and shipping instructions
> Most large forwarders integrated –
DHL controls all seafreight
transactions through GTN
> Global logistics platform
> Has "real time" sailing schedule info
> Mainly connected to Asian shipping lines
> No direct transportation partners, but
several technology partners e.g.
Cisco and HP
> Working with especially Asian
carriers – Main forwarder client is
Panalpina
Source: INTTRA, GT NEXUS, CargoSmart, Roland Berger analysis
BENEFITS
Key benefits provided by the
shipping platforms are:
> Cost savings, reduce processing
costs and eliminate costs of
connecting systems to multiple
carriers/forwarders/shippers
> Reduced complexity, shipping
platforms create one single
connection for each carrier, forwarder
and shipper
> Faster processing times, reduce
paper, faxes, phone calls, etc.
> Higher data quality, by automated
processes and reduced manual
keying of data
> Increased visibility of the supply
chain
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2
MARKET TRENDS
INTTRA is the largest shipping platform – Focus is on combining
integrated sailing schedule and container booking functionality
Key functionality
SAILING SCHEDULES
> Search across 30 carriers amongst complete
sailing schedules
> Full visibility on some 10 million voyages
worldwide, though only planned schedules
1) According to INTTRA
Source: INTTRA, Roland Berger analysis
CONTAINER BOOKING
> Electronic booking with 24 of the leading
carriers – 18% of global container bookings1)
> Instant bookings if shipper/forwarder has an
agreement with carriers
> No direct rate comparison across carriers
OTHER FUNCTIONALITY
> Platform aims to offer functionality
enabling a full e-commerce
solution for shippers, carriers and
forwarders through
– Electronic invoicing
– Track & trace
– Bill of Lading amendment and
approval
– Submission of shipping
instructions
– Performance measurement
> INTTRA has recently entered a
partnership with CargoSphere
aiming to integrate a rate
management tool, delivering realtime rate information for
participating carriers
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2
MARKET TRENDS
GT NEXUS takes the functionality one step further – Full seafreight
management process handled by the platform
Key functionality (focus seafreight)
FREIGHT PROCUREMENT
CONTRACT MANAGEMENT SHIPMENT EXECUTION
> Standardized platform and
> Management of service
template to procure capacity –
contracts with transport
both global bids and spot rate
providers – linked with
procurement
procurement module
> Focus on creating transparent > Renegotiation and updates to
comparability between offers
contracts as an integrated
from various providers
functionality
> Reflects information needed for > Compare and retrieve
global frame agreements,
contracted routes, rates, and
including volume forecast,
service across transportation
tradelane view etc.
providers
> Covers end-to-end rate
negotiation process
Source: INTTRA, Roland Berger analysis
> Bookings sent electronically
along with booking confirmation
responses - potentially EDI link
to ERP system
> Send bill of lading
instructions electronically,
while also being able to receive
approved B/Ls, and print B/Ls
> Create shipping instructions
a and communicate
electronically to partners
> Based on current service
contracts
PLATFORM
> GT Nexus covers a
broader scope than
INTTRA, with the full
seafreight management
process
> Allows for direct
comparison of rates
between providers –
however, only through
spot-rate bids
> Full e-commerce
spectrum, e.g. freight
audit and invoicing etc.
> Platform covers
seafreight, airfreight and
land freight, as well as,
shipper/consignee and
banks
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2
MARKET TRENDS
CargoSmart has similar focus as INTTRA, though mainly
cooperating with Asia carriers
Key functionality
SAILING SCHEDULES
PLATFORM
> Dynamic sailing schedules of
over 30 carriers – as the only
platform, providing real-time
voyage data
> Active voyage management,
with notifications enabling
exception management for
LSPs and shippers
> Private label interface, giving
LSPs/shippers the ability to
integrate CargoSmart's offering
into a value-added service
> Functionality covers the
end to end seafreight
process
– Integrated contract
management module,
– E-invoicing functionality
> Measures carrier on-time
performance – applied as
input for carrier selection
/negotiations
> Main collaborating partners
are Asian carriers – MOL
promoting CargoSmart as
platform of choice to its
customers
Source: INTTRA, Roland Berger analysis
BOOKINGS
> Online booking with the
affiliated carriers - bookings to
be confirmed
> Covers bookings of general
cargo, reefer and dangerous
goods
SHIPPING INSTRUCTIONS
> Check of cargo versus
international trading sanctions > Provision of shipping
instructions based on booking
> Allows sharing shipping
> Specify distribution lists for bills
templates with associate
of lading or print express bills
companies
of lading
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B. Seafreight forwarding – Key characteristics of the business
model and challenges from industry trends in seafreight
Challenges in sea freight forwarding_fin.pptx
24
Chapter overview: Seafreight forwarding – Key characteristics of
the business model & challenges resulting from trends in seafreight
1
KEY CHARACTERISTICS
> Forwarders are positioned as intermediaries between shippers, carriers and consignees,
accounting for approx. 35% of seafreight market volume
> Seafreight is getting increasingly important for forwarders as shippers shift away from airfreight
towards seafreight
> Due to their trading based business model, freight forwarders operate with relatively low margin
and are highly sensitive to declines in profitability
2
CHALLENGES FOR FREIGHT FORWARDERS
> Stagnating core markets – Growth plans of forwarders cannot be implemented in current
strongholds; new fields of activity need to be tapped
> Cost pressure from carriers – Freight forwarders need to find ways to secure a stable profit margin
> Rise of e-commerce – Freight forwarders must develop an e-commerce strategy to sustain/ defend
their position in the value chain
Source: Roland Berger analysis
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1
KEY CHARACTERISTICS OF THE BUSINESS MODEL
Freight forwarders are intermediaries between shippers, carriers and
consignees
The freight forwarding business model
65%
SHIPPER
CARRIER
FREIGHT
FORWARDER
Market share
Source: Roland Berger analysis
Carrier controlled value chain
> Shipper/consignee directly interact with carrier
> Mainly applicable for…
– large shipping volumes
– full container loads (FCL)
– simple/ repetitive point-to-point shipments
CONSIGNEE
FREIGHT
FORWARDER
35%
xx%
A
Forwarder controlled value chain
> Freight forwarder coordinates transport of goods
from shipper to consignee
> Mainly applicable for…
– all sizes of shipping volumes
– full and less than container loads (FCL & LCL)
– more complex supply chains incl. RFS, VAS, …
– named accounts and FAK (Freight all kind)
B
Challenges in sea freight forwarding_fin.pptx
26
1
KEY CHARACTERISTICS OF THE BUSINESS MODEL
Seafreight is a major contribution element for forwarders to generate
revenue and profit – K+N stands out as the market leader
Revenue and profit structure of selected major forwarders [2012]
OVERVIEW REVENUE STRUCTURE OF FORWARDERS
Revenue1)
[CHF bn]
16.4
6.6
19.1
EBIT1)
[%]
3.9%
1.2%
3.3%
Other
BUs:
airfreight,
rail/ road,
SCM/ CL
45%
Seafreight
55%
Kuehne + Nagel
60%
40%
Panalpina
76%
24%
DHL
> Seafreight is expected to grow in
importance for forwarders, as shippers
– shift away from airfreight towards
seafreight, mainly due to cost advantages
– increasingly need holistic management of
their increasingly complex supply
chains
– focus on core business and let third party
providers manage more of their logistics
> Amongst international freight forwarders,
Kuehne + Nagel stands out with large share
of revenues and profits stemming from
seafreight
1) Only freight forwarding BUs
Source: Roland Berger analysis
Challenges in sea freight forwarding_fin.pptx
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1
KEY CHARACTERISTICS OF THE BUSINESS MODEL
Business model is highly dependent on revenue management and
on economies of scale in purchasing to improve results
Typical freight forwarder P&L structure (illustrative) [% of revenue]
> Costs of 3rd party carriers –
indirectly influencable by
forwarders
~76-81%
100%
>
> Economies of scale lead to
lower cost per shipment
> Cost of Sales also driven by
business mix between Air/
Sea/ Road Forwarding
>
~19-24%
Operating expenditures
(OPEX)
Net
Revenue
Cost of
Sales
Source: Roland Berger analysis
>
~8-10%
Gross Profit Direct Costs
~5-7%
~1-4%
Indirect
Costs
EBITDA
>
>
COMMENTS
Forwarding business model shows relatively low
margins and is highly sensitive to declines in
volume and gross profit
There are two key potential levers to improve
profitability
– Actions above gross profit: increase revenue
(->sales) and reduce cost of sales (->purchasing)
– Actions below gross profit: reduce operating
cost
Increase of net revenue requires continuous
revision of product/ service portfolio as well as
appropriate revenue management strategies
Reduction of cost of sales requires mature
purchasing strategies, pro-active capacity
management
Reduction of OPEX looks at overhead and at
demand related FTE adjustment in operations
Challenges in sea freight forwarding_fin.pptx
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1
KEY CHARACTERISTICS OF THE BUSINESS MODEL
A disproportional change of revenue and CoS will lead to a
"transistor effect" on profitability
"TRANSISTOR EFFECT" (Exemplary Simulation)
COMMENTS
Revenue
per TEU
Cost of sales
per TEU
GP
per TEU
Starting point
100%
84%
16%
Over proportional
reduction of revenue
-15%
-10%
-41%
Same rel. change of
revenue and CoS
-10%
-10%
-10%
-5%
-10%
21%
Over proportional
reduction of CoS
Changes to revenue and cost of sales
have a multiplied impact on gross profit
Even a proportional decrease of revenue
and cost of sales must be immediately
answered by appropriate cost cutting
actions with a view to OPEX cost
Source: Roland Berger analysis
> Forwarding with similar P&L
structure as a trading company –
profit is driven by the ratio between
transport capacity cost and sales
> "Transistor effect" describes the
amplifying effect on gross profit
due to a disproportional change of
revenue (sales price) over cost of
sales
> Revenue influenced not only by
market demand and competitive
offers but also by currency impact
> Cost of sales not only influenced
by carrier's pricing and revenue
management but also by bunker
price development
Challenges in sea freight forwarding_fin.pptx
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2
CHALLENGES FOR FREIGHT FORWARDERS
Seafreight market dynamics combined with seafreight forwarding
business characteristics result into some interesting challenges for
forwarders
KEY MARKET CONDITIONS
CHALLENGES FOR FREIGHT FORWARDERS
Core markets
stagnating and
seeing increased
volatility
> Current strongholds for freight forwarders (e.g. Western Europe) will not
support sustainable revenue growth
> Increasing volatility of freight rates makes maintaining a stable revenue
and gross profit level difficult
> Consequently, forwarders must tap into new revenue and profit sources
Shipping lines and
shippers forward
cost pressure to
forwarders
> Rate negotiations with carriers (and shippers) will become increasingly
difficult and gross margins are expected to decrease
> Forwarders need to find ways to ensure profitably even with lower gross
profit margins
Increased digitalization opens market
for e-commerce
> Freight forwarders' operating models need to ensure compatibility with
the emerging e-commerce systems and EDI requirements
> Freight forwarders might be facing risk of a weakee position in the value
chain
EVIDENCE?
Others…
> … not in scope for today
Source: Roland Berger analysis
Challenges in sea freight forwarding_fin.pptx
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2
CHALLENGES FOR FREIGHT FORWARDERS
While volume stagnation and cost pressure can already be
observed, evidence of digitalization needs a second look
CURRENT SITUATION
> As of now, platforms do not yet constitute a
significant threat to the forwarders' business
model as they have:
– Limited gain in transparency due lack of
real time rate comparison
– No automated real-time processing of
booking requests, but mere simplification of
ordering process (for shipper)
– No integration of the entire
transportation flow but only link to
seafreight carriers and forwarders
– Etc.
> However, enlargement of functionalities of
platforms might be possible, as evidence
from a similar industry suggests
Source: Roland Berger
FREIGHT FORWARDING VS. TOUR OPERATING:
Players in the value chains
Freight forwarding
Tour operating
Shipper/
Consignee
Customer
Forwarder
Tour
operator / Travel
agent/
OTA
Customs,
Warehouse,
Terminal
Destination
management
agency
Carriers
(Sea, Overland)
Content provider
(Airline, Hotel)
Challenges in sea freight forwarding_fin.pptx
31
2
CHALLENGES FOR FREIGHT FORWARDERS
Tour operators have a similar position in the value chain as freight
forwarders – Recent developments triggered significant upheaval
Tour operating comparison: overview
> Tour operators and freight forwarders with a similar position in their industry's value chain – acting as
intermediaries between capacity providers and their clients
> In tour operating industry, technological innovation combined with overcapacities triggered drastic
changes
– Capacity providers to be accessed directly their customers
– Increasing price transparency has sharpened the customers' focus on pricing – many products have
become mere commodities
– Enhanced internet capabilities (standardized databases, platforms and "data mixer" functionality
enabled new business models based on dynamic production
– New business models challenge established players, with low cost production, large scale offering,
superior online sales strategy etc.
> Established tour operators have difficulties adapting their business model to the new reality –
consequently they are struggling for sustainable USPs
Source: Roland Berger analysis
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32
2
CHALLENGES FOR FREIGHT FORWARDERS
A fully dynamic production needs 4 elements: platforms, "data mixer",
standardized data bases, real-time connection to capacity mgnt. systems
Dynamic production in tour operating (exemplary snapshot)
Distribution system
Platforms
Distribution system
T/O.com / OTA.com
(?)
IBE
Dynamic
production
Dynamic packaging
T/O labeled hotel content
Standardized
databases
T/O Legacy packages
Negotiated
T/O content
for X- prod.
- Seasonal
- Framework
Real-time connection to
individual capacity
management systems
Source: Roland Berger analysis
Bedbanks
FlightCache
(via Amadeus)
Other
LCCs

Package tours short-haul
 mass market
 high yield market
 Package tours long-haul
 Individual tours short-haul
and long-haul
Flights
TT-
PORTFOLIO IMPACT FOR T/Os
Own
nego tiated
capaci
ties
 Specialist tours (sailing,
climbing, safari, diving, ...)
 Cruise ship journeys
 Retail shops
 Destination management
agents
 Hotel ownership
Challenges in sea freight forwarding_fin.pptx
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2
CHALLENGES FOR FREIGHT FORWARDERS
Only a few moves are required to set the entire seafreight
forwarding business model upside down – how long will it take?
FUNCTIONALITIES
FWD PLATFORMS
T/O PLATFORMS
>>
Online search of specific offerings
✓
✓
>>
Comparison of offering details
✓
✓
>>
"Online" booking of selected offering
✓
✓
>>
"Online" settlement of bills
✓
✓
>>
Issuing of all documents as e-documents
✓
✓
Independent platforms showing multiple shipping products,
fed from various web pages, enabling comparison
>> Standardized data bases comparable with aviation
industry
>>
>>
>>
Availability of real-time data on prices and capacities, directly
linked to carriers capacity management/ booking systems
Purchasing of product packages instead of
components (availability of "data mixer")
Source: Roland Berger analysis
?
✓
✓
✓
✓
Challenges in sea freight forwarding_fin.pptx
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C. Strategic options – How might forwarders respond to
contemporary market conditions?
Challenges in sea freight forwarding_fin.pptx
35
Chapter overview: Strategic options – How might forwarders
respond to contemporary market conditions?
FORWARDERS' STRATEGIC OPTIONS (EXCERPT OF SELECTED LEVERS)
A
Increased
pressure on
forwarders
profit margins
B
Source: Roland Berger analysis
ACTIONS Revenue
1. Enforce focus on trade-lanes from/to emerging markets
ABOVE
enhancement 2. Expand USP/ offering outside core forwarding
GROSS
3. Invest in complementary segments of the transportation value
PROFIT
chain
4. Define value proposition in relation to potentially emerging
shipping e-commerce platforms
5. Ensure operating systems are up to date and compatible with ecommerce
Cost of Sales 6. Review carrier purchasing negotiation levers
(Purchasing) 7. Review risk policy in purchasing carrier capacities
8. Introduce GDP forecasting modules into purchasing strategies
9. Review non-seafreight purchasing items
10. Reduce operational overhead in line with demand volume
ACTIONS OPEX
BELOW management 11. Review duplications in the global organizational set-up (center,
region, country)
GROSS
PROFIT
12. Review efficiency potential in SG&A functions (Sales, FIN, HR, IT)
13. Flanking strategic moves with adaptation of short term spending
policy (e.g. travel budget, …)
Challenges in sea freight forwarding_fin.pptx
36
1
-
2
REVENUE ENHANCEMENT
In the face of stagnating markets, freight forwarders have to actively
seek for new and sustainable profit pools
Market selection dimensions
IDENTIFICATION CRITERIA
> Profitability of the industry vertical/
logistic services/ geography segment
combination
Intra-Asia
> Market growth of the industry vertical/
logistic services/geography segment
combination
Asia-Middle East
Seafreight FCL
Seafreight LCL
Inland logistics
Terminal logistics
Other …
Trade financing
> Entry barriers into a specific segment
Value added service
Other …
Contract Logistics
> Capability fit of the segment
requirements with current positioning
SCM
Asia-Africa
Logistics IT services
TRADELANE
Asia-South America
> Investment needs in terms of asset
equipment
> ...other
LOGISTIC SERVICE
Source: Roland Berger analysis
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3
REVENUE ENHANCEMENT
More active participation in the seafreight value chain bears
potential for revenue diversification for freight forwarders
Expansion in the value chain
Service providers, including e-commerce platforms
Shipper
a
Inland
logistics
Customs
Terminal
Carrier
Terminal
Inland
logistics
Customs
Consignee
b
Forwarder (capacity trading and 3PL value chain management)
a> Forwarders can relatively easily enter the service provider market, e.g. K+N buying a stake in INTTRA
b> Inland logistics is a peripheral mode of transportation for the forwarders, though requiring a move away from the
asset-light business model most forwarders have
c> Terminals are highly profitable but asset heavy and not likely to give forwarders synergies
d> Carriers are extremely asset heavy and business model is different – not likely to give forwarders synergies
Source: Roland Berger analysis
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4
REVENUE ENHANCEMENT
Forwarders need to decide how to position themselves towards ecommerce – Three principal strategic options are at hand
Forwarders' strategic options to deal with emerging e-commerce platforms
STRATEGIC OPTIONS
>I Use platforms for BUYING AND
SELLING capacity with armslength relationship and low
effort/investment
EVALUATION
Cost
Complexity
Impact
COMMENTS
> No significant investment
> "Easy" and flexible solution but not
sustainable
> Does not mitigate threats from
platforms
II>
Become an INTEGRATED
PARTNER through investment in
one of the established platforms
> Medium-sized investment
> Allows for mitigation of threats by
influencing direction of platforms
> Reduces flexibility by locking onto
one platform
III>
Develop OWN PLATFORM as a
new business area with a
significant investment/effort
> Significant investment
> Control of platform and its direction
> Active participation in changing the
industry – potentially nonetheless into
a direction not favorite for FWDs
Source: Roland Berger analysis
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5
REVENUE ENHANCEMENT
E-commerce platforms pose both opportunities and threats – Market
leaders have started to respond to the emergence of platforms
Impact of e-commerce platforms
+ OPPORTUNITIES
- THREATS
> Forwarders might gain access to
the 65% of seafreight market
that is currently controlled by
carriers – leverage volumes and
capacity management to
compete with carriers' spot-rates
> Forwarders will be able to reduce
complexity and cost of
operations through automated
processes
> Forwarders will increase the
number of carriers they
collaborate with, as integration is
simplified by the platforms
Source: Roland Berger analysis
> Increased transparency likely to
hollow-out forwarders margins,
as shippers can compare rates in
real time
> Carriers will be able to increasingly
take-over forwarders' market
segments – further expansion by
building capabilities in in-land
logistics segments
> Carriers might allocate rates based
on platforms' volume instead of
individual shippers, eliminating
forwarders' ability to negotiate a
volume-driven price advantage
RECENT INDUSTRY MOVES
> Developed in-house transport
management system for its
forwarding activities (SALog)
> Roll-out by 2013
> Key investor in INTTRA
> Implementing SAP's TM ERP
system
> System being rolled-out
> Supporting CargoSmart
> Complete organizational
transformation (NFE) with focus on
digitalizing key processes – based
on SAP TM
> Roll-out by 2015
> Moves from GT Nexus to INTTRA
for all seafreight
Challenges in sea freight forwarding_fin.pptx
40
6
-
9
PURCHASING
Review carrier purchasing negotiation levers (Exzerpt)
PURCHASING FRAMEWORK
•
•
•
•
•
•
•
•
•
•
•
•
•
Understand, that transparency on freight rates will "rocket" to new
dimensions - acknowledge, that ad-hoc carrier prices will become an
integrated part of the future purchasing processes
Review/ define trade-lane strategies
Manage consolidated view on all seafreight volumes
Differentiate seafreight volumes by specific customer groups
Define carrier specific strategy; booking rules … by trade-lane
Rethink carrier volume deals which include the utilization of spot
prices – precondition: adapted risk exposure strategy
Elaborate alternative models for container rates – e.g. linked to
floating container rate indices reduced by individual rebate schemes
(potentially tailor-made for specific customer groups) – avoid regular
renegotiation effort
Reduce/ avoid container drop-off and pick-up charges by bundling
inbound/ outbound volume per country areas
Create transparency on procurement levers
Conduct tender calls where possible
Clearly defined purchasing processes (roles, …)
Create transparency on carrier specific KPIs
…
PURCHASING AND
FORECASTING OPERATIONS
•
•
•
CARRIER
PURCHASING
•
•
•
Thoroughly exploit market and
competitive intelligence
Introduce freight rate
forecasting algorithms (ITbased) aiming for risk reduction
from volatility; appropriate "proxy
baskets" help to indicate freight
rate trends
Sophisticated preparation and
simulation of results
Transparency on hedging levers
in case of risk exposure
Close coordination of purchasing
and pricing
Operate yield management
systems …
Challenges in sea freight forwarding_fin.pptx
41
6
-
9
PURCHASING
Review risk policy in purchasing carrier capacities
Risk taking policy
> Forwarders partially change procurement strategy from risk-free back-to-back deals to risk
taking
> Key to success is the right timing of purchasing guaranteed (i.e. risk attached) capacity and
reselling it – good prognoses tools required
> Benefits from risk taking procurement strategy are twofold:
– Carriers might be willing to pay a risk premium for guaranteed volumes at a fixed price – thus
managing their business in a volatile environment
– Freight forwarders can bundle their volumes and thus improve their negotiation power
> The downsides of non-back-to-back deals however are obvious: huge exposure through "stocktaking" of sourced capacity – danger of losses if carrier market rates drop in the meantime
 see details
on next 2
pages
> Another form of risk taking (not linked to purchasing) would be adaptations to the cash cycle
 Today, the forwarder can benefit from a positive cash cycle: shippers usually pay earlier for
services than the carrier is charging them
 The forwarder could move into trade financing function for the shipper against interesting
interest rates of course – results also into increased risk
Challenges in sea freight forwarding_fin.pptx
42
6
9
-
PURCHASING
Overcoming the risk averse nature of forwarding presents an
enormous opportunity for increasing profit margins
Risk taking in carrier purchasing
REVISED TRADING CONCEPT
COMMENTS
Freight rates
Proxy indicators
Hedged buying rate
Cost per TEU
TRADING DYNAMICS
II
II
I
III
I
Time
> Proxy indicators partially based on GDP forecasting modules
> Systematic identification and bundling of all sources of information for trade
volumes, carrier utilization and freight rate development to be utilized such as freight
rate indices, spot rates, competitive intelligence
> Structured/ sophisticated analysis of all available information and preparation of
buying/pricing decisions is imperative and includes IT-based forecasting models,
weekly market/pricing alignment meetings and a weekly call on the pricing strategy
Source: Roland Berger analysis
> Forwarders apply a low-risk, direct
trading strategy – a revised risk
strategy can generate significant
profits … but needs to be managed!
> Time lag between proxy indicators
and freight rate developments can be
utilized for intelligent procurement
> Approach holds significant risks and
forwarders need to ensure that they
–I Hedge capacity when proxy
indicators forecast increasing rates
II– Sell procured capacity before market
rates fall below hedged rate level
– Procure and sell capacity at spot
III
rates and postpone renegotiation of
rates with shippers
Challenges in sea freight forwarding_fin.pptx
43
6
-
9
PURCHASING
Review non-seafreight purchasing items
Procurement of other commercial services within Seafreight (~20%)
1. General question: Is there still efficiency potential concerning purchasing and use of commercial
services in seafreight?
2. To what extent is there a structured cross-country purchasing approach for Trucking/ Rail/
Barges/ Terminals?
 Review # of suppliers and consider alternative suppliers (especially in rail feeder services)
 Bundle volumes
 Established standardized service portfolio with a view to packing and stuffing
 Consider alternative terminals
 …
3. Does it make sense reviewing the LCL network infrastructure (# LCL gateways)?
4. Does it make sense optimizing the LCL and FCL routing from inner-Europe to the ports whilst
leveraging advantageous purchasing deals of the commercial services (IT based optimization of
either lead-time or cost)?
5. …
Challenges in sea freight forwarding_fin.pptx
44
10 -
13
OPEX MANAGEMENT
On the back of rising cost pressure, freight forwarders continuously
have to actively manage their operational efficiency
Reduce OPEX & SGA cost
a
b
REVIEW VALUE CHAIN ACTIVITIES
Marketing
& Sales
Pricing
Operations
Customer
Service
Cost impact
high
Capacity
sourcing
Focus on existing core forwarding
activities – goal is to foster efficient service
delivery
Integrate activities – that can be more
efficiently delivered in-house, than from third
party providers
Current scope of activities
Source: Roland Berger analysis
Targeted scope of activities
Categorization of measures (indicative)
Factor cost
reduction
Internal optimization
Regional / CT
setup
low
Abolishment activities that are…
– …not sufficiently value adding
– …not sustainable
– …unnecessary complexity drivers
EFFICIENT SET-UP OF OPERATIONS AND SERVICES
Process
improvement
low
Automation
Structural
adjustment
Outsourcing
Set up
SSC
Separate
entity
Location
adjustment
high
Implementation
challenge
> For targeted scope of activities, efficient set-up of service
delivery has to be developed
> Key question include make-or-buy, integrated vs. separate
entity, close decentralized vs. centralized/offshoring
> Additionally, cost saving potentials in internal processes to be
analyzed
Challenges in sea freight forwarding_fin.pptx
45
It's containers that
changed the world!
Challenges in sea freight forwarding_fin.pptx
46