The WTO confirmed yesterday the extent of the damage to international trade caused by the COVID-19 pandemic. Global trade volumes suffered in Q2 at a rate that exceeded the very worst declines of the global financial crisis.
As the virus circulated in China initially, its manufacturing output dropped substantially. This weakened intra-regional trade volumes and exports to major consumer markets (notably the US and Europe) fell considerably. As the virus spread further, these major import markets saw their own industries shutdown, along with vast swathes of retail, at a time where China was recovering.
The subsequent loss in trade output in the first half of the year was stark. As a result, the global freight forwarding industry contracted by 11.6% year-over-year in real terms in H1.
This ‘real terms’ distinction is important to highlight. Ti’s market sizing methodology measures/forecasts the rate of growth when the price of freight forwarding services is assumed to be constant (the same as in the previous year). In other words, it measures the growth in the underlying volume of freight forwarding services provided.
The distinction is important to make because COVID not only disrupted volumes, but supply lines too. In the sea freight market, carriers blanked sailings on lanes where volumes collapsed, tightening capacity and pushing up rates. These higher prices were passed on by carriers to forwarders to shippers, providing a boost to revenues.
However, the change in the air freight market was much more stark. Air passenger travel was decimated by the pandemic, with international revenue passenger kilometres falling by 98% year-on-year in the worst months of April and May. This is significant, because typically 40%-50% of air freight is carried in the bellyhold of passenger aircraft. According to IATA, available cargo tonne-kilometres, a measure of air freight capacity, fell 24.2% year-on-year in the first seven months of 2020.
This created a scramble for space on planes and ultimately to higher rates, with forwarders working hard to fulfil the supply chain needs of shippers. They increased prices of forwarding services to offset their increased purchased transportation costs, leading to an overall increase in revenue. This is illustrated by the financial results of major providers, seen in the table below:
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Comparison of Volume Growth and Revenue Growth in Major Global Air Freight Forwarders |
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H1 Volume Growth |
H1 Revenue Growth |
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DHL Global Forwarding |
-12.3% |
26.0% |
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Kuehne + Nagel |
-15.5% |
1.4% |
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DB Schenker |
-14.4% |
25.0% |
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Expeditors |
-9.0% |
47.2% |
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Agility |
-23.6% |
17.3% |
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Damco |
-11.2% |
63.2% |
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Source: Company Financial Statements, Ti Calculations |
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(Note revenue growth is as stated in financial reports and could include an element of inorganic or FX-effected growth)
Overall, the air freight forwarding market contracted by 15.3% in real terms in H1. The sharp declines in manufacturing output have been particularly damaging to volumes. Automotive output for example, fell to 10% of normal levels in some markets during the height of lockdowns. With demand collapsing as lockdowns kicked in, inventories grew to record high levels meaning requirements for air freight movements waned. Furthermore, with capacity squeezed and prices increasing, there appears to have been an element of modal shift away from air freight. Increases in volumes of healthcare-related goods, such as PPE and cross-border e-commerce volumes only partially offset this slide.
Sea freight forwarding has been comparatively more resilient, but still saw the market contract by 7.6% over the first half of the year. This is more reflective of overall trade trends, with sea freight containing a broader and deeper mix of goods than air freight. Given the extent of the economic shock, very few sectors were spared from the slowdown and this has led to contracting sea freight forwarding volumes across the world.
For 2020 overall, growth in the global freight forwarding market is projected to be -10.2%, with both the air and sea freight markets set to show signs of recovery towards the latter half of 2020. Certainly volumes are improving from record lows seen during April and May, although recovering to pre-COVID levels will take time and the shape of this recovery remains highly uncertain.
Source: Transport Intelligence, September 2020
Author: Andy Ralls
New market sizing data for the Global Freight Forwarding market will be published on GSCi in the coming weeks. For more information, please contact Michael Clover, Ti’s Head of Commercial Development, at [email protected]
