In the dynamic world of global trade, freight forwarders play a pivotal role in ensuring goods move across borders with ease.
As the industry continues to evolve, it’s essential freight forwarders stay ahead of the curve by adopting best practices, leveraging innovative technologies, and optimising financial strategies.
This guide offers expert insights and strategies to help your business maximise sustainable growth and navigate the challenges of currency volatility.
What is freight forwarding?
Freight forwarding involves organising and coordinating the shipment of goods from one location to another, typically across international borders.
Freight forwarders help businesses get their goods from A to B. They may manage:
- The transportation of goods, including ocean, air or road with optimised route planning
- Customs documentation to ensure goods pass smoothly across international borders
- Warehousing to provide storage for goods on either side of their global journey
Functioning as the link between shippers and transportation services, a freight forwarder ensures that goods are transported efficiently, cost-effectively, and in compliance with all regulations.
Adapting to industry changes
The freight forwarding industry is constantly evolving due to advancements in technology, shifts in global trade policies, and changing customer expectations.
To remain competitive, you must adapt to these changes by embracing digital transformation, enhancing customer service, and optimising operational efficiency.
Key strategies for sustainable growth
In an ever-changing industry, it’s crucial your business stays on top of trends and builds for sustainable growth.
Let’s delve into some key strategies your business could consider.
Digitalisation and automation
Embracing digitalisation and automation is crucial for your business to thrive.
Technologies such as blockchain, Internet of Things (IoT), and artificial intelligence (AI) can streamline operations, enhance transparency, and improve accuracy.
Automating your documentation and customs procedures reduces human error and speeds up your processes, allowing for more efficient service delivery.
Enhanced data analytics
Utilising advanced data analytics can improve your decision making, predict trends, and optimise supply chain management.
Analysing historical data and real-time information can help you identify inefficiencies, forecast demand, and enhance operational performance.
Green logistics
Environmental sustainability is becoming increasingly important in the logistics industry.
Adopting green logistics practices, such as optimising routes for fuel efficiency, using eco-friendly fuels, and incorporating rail and sea freight options, can reduce your carbon footprint and appeal to environmentally conscious clients.
Sustainable supply chain management
Consider working with suppliers and partners who prioritise sustainability. This can enhance the overall sustainability of your logistics network and contribute to long-term business growth.
Proactive communication
Maintaining proactive communication with your clients is essential for building trust and ensuring customer satisfaction.
Providing regular updates, addressing concerns promptly, and offering personalised solutions can enhance your clients’ experience and build long-term relationships.
Value-added services
Offering value-added services, such as warehousing, insurance, and customs brokerage, can differentiate your business from competitors and provide additional revenue streams.
Tailoring your services to meet the specific needs of clients can further enhance customer satisfaction and loyalty.
Overcoming industry challenges
Due to the global nature of freight forwarding, challenges can appear around every corner.
Let’s break down some of the challenges your business might face and some solutions to overcome them.
Navigating complex regulations
Challenge: The international trade landscape is full of complex and ever-changing regulations. Navigating customs requirements, tariffs, and compliance standards can be challenging and time-consuming.
Solution: Stay informed about regulatory changes and work with knowledgeable partners who can provide guidance and support. Using technology to automate compliance processes can also enhance efficiency and reduce the risk of errors.
Read: What is a tariff in global trade?
Preparing for delays and disruptions
Challenge: Delays and disruptions can occur due to various factors, including weather conditions, port congestion, and geopolitical events.
Solution: Plan for unexpected events by developing alternative routes and maintaining flexible logistics strategies. Real-time tracking and communication with clients can help manage expectations and minimise the impact of delays.
Managing freight costs
Challenge: Freight costs are influenced by several factors, such as fuel prices, demand fluctuations, and geopolitical issues, making them unpredictable.
Solution: Negotiate long-term contracts with carriers to secure stable rates and partner with a currency risk specialist to protect against exchange rate volatility. By managing costs effectively, you can maintain competitive pricing and improve your business’s profit margins.
Understanding currency risk
Currency volatility poses significant risks for your business whenever you make international payments.
Fluctuations in exchange rates can impact profit margins, disrupt cash flow, and create financial uncertainty.
Managing currency risk is essential for your business to maintain financial stability and ensure sustainable growth.
How foreign exchange and international payment solutions can save a freight forwarder money
At Privalgo, we offer a range of foreign exchange and international payment solutions designed to help freight forwarders manage currency risk effectively. As well as helping to maintain financial stability, managing risk properly can save your business money.
Below is an example of how we help freight forwarders protect and increase their profit margins.
Case study: UK-based freight forwarder increases profit margin by 1% with Privalgo
- Industry: Freight forwarding
- Purchasing volume: £500k per month
- Currencies: GBP & USD
- Profit margin: 1.5% for 2023
Our business in focus is a UK-based freight forwarder. The company specialises in providing shipping and logistics services, including ocean freight, air freight, road transport, customs brokerage, and warehousing solutions.
Its clients range from small businesses to large corporations. Fundamentally, the business ensures goods are transported efficiently and safely across international borders.
A crucial part of our freight forwarder’s daily operations is financial management. This involves invoicing suppliers, managing payments to employees and clients around the world, and monitoring financial transactions to ensure profitability and healthy cash flow.
What challenges does the freight forwarder face?
As an international business operating in the global logistics sector, our freight forwarder faces several challenges:
Currency fluctuations
The business deals with Great British pounds (GBP) and United States dollars (GBP/USD) daily. GBP/USD volatility can significantly damage profit margins, especially when dealing with large transactions.
Regulatory compliance
Keeping up with constantly changing international trade regulations and customs requirements constantly keeps the business on its toes.
Supply chain disruptions
Disruptions such as port strikes, natural disasters, political instability or other black swan events like pandemics can delay shipments and increase costs.
Cost management
Rising fuel prices, carrier rates, and labour costs require careful management to keep profits strong.
How managing currency volatility in 2023 saved the freight forwarder money
In 2022, our freight forwarder had no relationship with Privalgo. It was using the same bank since its founding in 2005 to make spot transactions for GBP/USD payments when it needed to pay suppliers.
At the start of the year, the business set a price its customers would pay for its services.
However, due to a year of high inflation, frequent changes in interest rates from the world’s major banks, and Trussonomics, the value of GBP/USD changed significantly throughout 2022.
Between January and September, the value of GBP/USD fell by 22%. This meant buying dollars for the business’s supplier payments became more and more expensive.
As its prices had already been set, this reduction in dollar purchasing power meant the business’s bottom line took a significant hit in 2022.
To ensure it avoided the same fate the following year, the freight forwarder partnered with Privalgo. We used a range of FX products to build a hedging strategy that allowed the business to set its pricing structure more confidently and save money on its GBP/USD transactions.
Here’s how:
Forward contracts for more confident pricing
At the start of 2023, we used a 12-month forward contract to lock in a rate of exchange for the freight forwarder.
This meant the business knew its currency costs at the end of the year regardless of where the GBP/USD market moved.
By knowing how much it would have to pay for its dollars, the business was able to set its pricing more confidently and forecast without fear.
Market orders for maximum value
As well as forward contracts, we used market orders to help the business save money on its GBP/USD transactions.
At the start of the year, GBP/USD was at 1.24. The business predicted its cash flow would allow for some GBP/USD purchases six months into the year. So, we set a market order for the business to take effect if the rate reached 1.26 halfway through the year.
When this rate was achieved, we automatically executed a 500,000 GBP/USD trade for the freight forwarder, helping it return maximum value on its transaction.
By minimising currency risk and capitalising on market opportunities, we helped the business increase its profit margin from 1.5% to 2.5% in 2023.
Future trends in freight forwarding to keep an eye on
Despite AI dominating headlines when it comes to technology and the future, there are many emerging trends that could be hugely beneficial to your business.
Here are some examples to keep an eye on.
Integration of AI and machine learning
AI and machine learning are set to transform the freight forwarding industry by enhancing predictive analytics, optimising routes, and automating routine tasks.
These technologies will enable freight forwarders to improve efficiency, reduce costs, and deliver superior customer service.
Growth of e-commerce
The continued growth of e-commerce is driving demand for efficient and reliable logistics solutions. Precedence Research estimates that the e-commerce market will grow to $7.45 trillion by 2030.
You can adapt to this trend by offering flexible and scalable services that cater to the needs of online retailers and consumers.
Emphasis on cybersecurity
As digitalisation increases, so does the risk of cyber threats.
Implementing robust cybersecurity measures is essential for your business to protect sensitive information, maintain the integrity of operations, and ensure compliance with data protection regulations.
Summarising sustainable growth for freight forwarders
This guide offers insights to help your business grow sustainably and manage currency volatility. Embrace digitalisation, enhance data analytics, and prioritise green logistics to boost efficiency and meet market demands. Effective communication, value-added services, and sustainable supply chain management are key to building strong client relationships.
Adapting to industry changes is essential. Staying informed about regulations, preparing for delays, and managing freight costs will help overcome common challenges. Managing currency risk, as shown in our case study, ensures financial stability and healthier profit margins.
Emerging trends like AI integration, e-commerce growth, and cybersecurity will shape the future of freight forwarding. By staying informed and adaptable, your business can seize new opportunities and thrive in the dynamic global trade landscape.
In conclusion, the journey of a freight forwarder involves constant adaptation and innovation. Embrace change, leverage technology, and manage risks to achieve sustainable growth and long-term success in international logistics.
