Freight Forwarding’s Next Phase: Managing instability with innovation

Post pandemic, the global freight forwarding market continues to normalize with demand for air and seafreight forwarding services remaining soft.

London-based freight transportation analyst firm Transport Intelligence (Ti) reported this past July that the global forwarding market was to expand by 1.7% in 2024. This is set against the global economic downturn that contributed to disappointing results in the forwarding market the previous year.

In its “Global Freight Forwarding 2024 Report,” Ti writes that the industry faced challenges arising from the global economic downturn, shifts in consumer behavior, and an oversupply surpassing demand—all of which caused the global freight forwarding market to contract by 1.3% in 2023 based on real terms of holding prices and exchange rates constant, or 45.6% in normal terms that hold only exchange rates constant.

Airfreight forwarding shrank by 2.1% in 2023 while seafreight forwarding decreased by 0.6%, which, Ti reports, can be attributed to reduced freight rates for air and sea. “The market for freight forwarding has reflected the volatility of the wider market for air and seafreight over the past four years,” says Thomas Cullen, chief analyst at Ti.

Cullen emphasizes that for large freight forwarders especially, the years 2020 to 2022 were a boom, with revenues increasing by half and profits doubling.

“However, 2023 saw results falling ‘back-to-earth,’ with profits and revenues falling as the markets returned to what might be called some sort of normality,” says Cullen.

The market remains complex, however, with exceptional events such as the effective obstruction of the Suez Canal.

“In particular the balance between non-asset-based service providers such as freight forwarders and asset owners such as airlines and shipping lines has experienced significant instability,” adds Cullen.

Ti’s recently released “State of Logistics Air and Sea Freight Forwarding Survey 2024” reveals that 91.1% of freight forwarders are currently experiencing increased pressure on margins. “Rising competition and stronger negotiation by clients continue to be the main reasons for the increased pressure on margins,” states the report.

“Targeting higher-margin clients and offering more value-added services are likely to be the most successful strategies in pulling back eroding margins in the next 12 months.”

Recent research by third-party logistics analyst firm Armstrong & Armstrong. (A&A) shows that between 2023 and the end of 2024, the global third-party logistics (3PL) market has experienced a notable divergence.

According to A&A, non-asset-based international transportation management (ITM)—which includes air and ocean freight forwarding, compliance, and inland transportation—along with domestic transportation management (DTM)—which covers freight brokerage, managed transportation, and intermodal transportation management—saw significant declines in segment revenues, with double-digit reductions reported.

A&A notes that this downturn starkly contrasts with the growth observed from late 2020 to 2022, which was driven by strong consumer demand and heightened business activity after the pandemic shutdowns. 

“Since 2023, we’ve been undergoing a normalization period following that spike in demand,” says Evan Armstrong, president of A&A.

The ITM segment has seen growth due to shipping uncertainties in the Red Sea and a decline in ocean traffic through the Suez Canal. Additionally, concerns about tariffs and trade wars have contributed to this growth, particularly in late 2024, as importers are eager to receive their goods before anticipated tariff increases.

Despite a positive trend, A&A data indicates that U.S. ITM net revenue decreased by 4% in 2024, resulting in a slight compression in gross profit margins. However, total net revenue increased to $26.9 billion, or 30.2% versus 2023. Additionally, freight forwarding volumes showed improvement, with U.S.-based ITMs experiencing an average growth of 6.1% TEUs and 13.3% in airfreight metric tons.

“The most significant impact currently stems from tariff and trade war uncertainties despite ongoing challenges like port closures, container shortages, labor shortages, natural disasters, geopolitical conflicts, regulatory compliance issues, and rising transportation costs in the global ITM 3PL segment,” says Armstrong.

Ports and imports saw a significant increase in cargo volumes prior to the tariffs being in place. “This was mainly driven by retailers moving cargo ahead of the Trump administration's expected move to hike duties on goods from China, Mexico, and Canada,” adds Armstrong.

Strategic tariff mitigation strategies

To meet the tariff challenges, global freight forwarders are utilizing several strategic tariff mitigations strategies that include nearshoring and reshoring; free trade zones or transshipment hubs like Singapore, Dubai, and Hong Kong to reduce tariff exposure; and a diversity of suppliers across multiple countries to help avoid tariffs imposed on specific regions—moving production from China to Vietnam or Mexico.

“They’re using digitalization and compliance management that use artificial intelligence [AI] powered customs clearance platforms to ensure accurate documentation and avoid penalties,” says Armstrong. “Predictive analytics are being used to forecast and adapt to tariff changes. Supply chain visibility solutions are helping companies adjust shipments based on new tariff regulations.”

Another approach being taken is supply chain cost optimization strategies, such as consolidating shipments to reduce duties by optimizing cargo loads. shifting risk and tariff responsibility through strategic Incoterms (e.g., DDP vs. FOB); and negotiating long-term stable pricing contracts with carriers to absorb potential tariff hikes.

Technology is solution

A&A points to important technologies and solutions that include the Internet of Things (IoT) and, to a lesser extent, radio-frequency identification (RFID) to significantly improve supply chain visibility and tracking.

Niklas Sundberg, Kuehne+Nagel’s (K+N) chief digital officer, finds that forwarders are increasingly adopting advanced digital solutions to enhance their services.

“These include a full stack of digital connectivity tools ranging from API, EDI to web-based interfaces enabling 24/7 access to transactional and visibility platforms,” he says. 

Forwarders are also leveraging data analytics to craft highly personalised solutions for customers, while automating processes to optimise efficiency and reduce costs. “Additionally, we put focus on cloud transformation to drive new, digital first services, improving user journeys and market-leading transparency,” says Sundberg. 

“Last but not least, everybody is looking into AI, and so are we,” Sundberg adds. “AI is transforming how we run our business, and the next step—agentic AI—will redefine how our industry interact with technology, customers, and partners.”

A&A points to digital freight platforms such as Freightos, Flexport, and Windward as well as digital solutions from traditional freight forwarding 3PLs to facilitate real-time booking, tracking, and cost optimization.

Armstrong notes that AI and automation are used to analyze weather, congestion, and demand to suggest optimal shipping routes, automate customs compliance, and provide predictive analytics. Cloud-based transportation management systems (TMS) help stakeholders manage shipments, invoices, and compliance from anywhere.

“These platforms integrate with ERP and visibility systems for seamless transportation management,” says Armstrong, adding that digital freight platforms like Flexport and CargoWise a.so allow real-time pricing and booking of shipments. “These platforms use AI to connect shippers with available carriers, reducing empty miles and costs,” he adds.