The Stories Customers Tell Us About Their Freight Forwarding Business

Your insight into the things they would rather not be true…

There is a not a lot of profit in the core business

There is not a lot of profit in the core business

There had been a lot of talk last month, and a lot stress. But what Steve, the CEO, really wanted to know was had it made a difference. Month end had rolled around and Steve really needed the month to show an improvement.

“Ah, Rob,” interrupted Steve as he entered Rob the Financial Controller’s office, “update me on our margins for the month. Are the efforts that Jeff (Sales Manager) and Carol (Operations Manager) are making showing through in our core profits?”

Finishing his email, Rob puts down his tablet and turns to face Steve, slightly shaking his head.

“Nothing I can detect, Steve. I ran the numbers again last night to double check but, if anything, our core contribution margins declined again last month”

Frustrated, Steve prodded Rob to continue. “Anything you can isolate, Rob?”

“We ran into a few issues last month whereby we couldn’t lock in some of our buying rates before finalising with some customers and there were some rate increases that we weren’t able to pass on. These are all putting increased pressure on our core margins.”

Rob continued. “When I spoke to Jeff about these lapses he gave me a lecture on the need to provide more and more services at an all-in rate and then ducked for cover behind the need to trade off margins when negotiating. It’s frustrating Steve, I’m trying to help him but I keep feeling he is blocking me out more and more.”

“What about Carol?”, asks Steve.

“Well she’s getting some pretty good efficiencies from her Air Freight team, but the Ocean Cargo team is not doing as well. She needs to tighten up there. The core activities would be doing ok if the margins weren’t so unstable. On a positive note, the volumes have increased overall which has helped.”

“What concerns me more is the ongoing incidence of penalties and charges for missed cut offs and deadlines. The penalty rates being charged are rising and there are new customs clearance rules being introduced. Steve, I am not confident that we are improving our performance. Rather, I find myself staying up at night, worried we won’t keep up.”

“Damn,” sighed Steve. “I need the core business profit to rise. These growing penalties and charges could seriously hurt us. Our staffing costs are increasing and the board is asking questions again.”

“Ok Rob, let’s get a plan together at the next management meeting. It would be remiss of us to let this slide. We have to turn this business around.”

“Sure Steve, but this is not the first time we have cobbled together a management plan. The last three plans all got lost when the first crisis hit. And we always have crises hit. Whatever plan we come up with must be more durable”

“Yes I know, Rob. Let’s put that on the table too” replied Steve as his rose to leave. “We have a good team. We can make this work.”

This issue is not easy to fix

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Other Forwarders tell their stories

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Forwarders who read this story also found Margins are under increasing pressure of interest

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The recurring nature of this issue is a symptom of a deeper issue

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The forwarder's dilemma

Analysis of the Low core business profit issue

Steve is attempting to simultaneously improve performance in two departments, Sales and operations. Both departments perform different functions, are measured differently, and make daily decisions that affect each other.

Jeff is seeking to provide Steve with higher value sales but in doing so is committing operations to providing more and more services. Carol is trying to manage staff that are frequently overloaded, make them more efficient, and increase productivity. The added value only becomes profit if costs do not rise as well, which means for Carol that she has a problem because her rising load is not being offset by rising staff capacity.

The competitive nature of forwarding means that there is no time for Steve, Jeff or Carol to find another way. So, they push harder to make small gains and end up with rising stress levels.

This story paid a lot of attention to the rising job costs of being a forwarder. Jeff must pick and choose which jobs to take on. If he picks the wrong job, then the job will make a loss for Steve. But the situation is harder still. The competitiveness of the market means that target jobs of the scale needed are highly sort after by other forwarders and thus there is a lot of downwards pressure during quoting on job profits. Add in the struggle Carol is facing to deliver reliable performance and inevitably actual job profits are less than the quoted job profits. In some cases job losses occur.

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