Like all sectors of the air cargo industry, freight forwarders, too, were impacted by the Covid-19 pandemic and the following repercussions. The ensuing supply chain crisis resulted in an increase in freight rates with implications for forwarders’ earnings, says Accenture in a report highlighting freight forwarders’ earnings amid carrier-rate volatility. Understanding the relationship between rates and earnings can help freight forwarders navigate the volatile forwarding market, says the report.
“The past two years of pandemic-related pressure sparked more changes in the freight forwarding industry than in the last 25 years combined,” says Brandon Fried, Executive Director, Airforwarders Association. “Locked-down consumers resorted to online ordering goods in response to government-mandated lockdowns creating more shipment demand than ever. This change in purchasing habits created unsurpassed demand for air freight services as retailers and manufacturers struggled to meet demand. Airfreight forwarders rose to the occasion by providing creative solutions to the most complex logistical challenges ever seen in the supply chain industry.”
Freight forwarders are asset-light intermediaries with flexible cost structures. “Between 62 and 85 percent of revenues are channelled into purchasing carrier capacity (such as cargo airlines),” says the McKinsey report. “Of the remainder, forwarders typically convert 20–30 percent to earnings before interest and taxes (EBIT), achieving EBIT margins of 1–11 percent with return on invested capital (ROIC) typically above 20 percent, given the asset-light business model.”
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