Refining business operations and consolidating efficiencies

The first international freight forwarders were hotels and inn-keepers in 19th century London. Their guests often carried substantial amounts of luggage which the inn keepers held and forwarded in cargo ships across the Atlantic. Over time, as steamships and regular rail transport made trade much more predictable, international freight forwarding became a specialised industry, serving to smoothen the wheels of trade.

A forwarder performs several essential functions in the international trading mechanism. The forwarding company acts as a logistics expert for shippers, booking space with carriers, negotiating freight charges, consolidating goods for easier handling, helping with documentation and advising on the best routes possible. Needless to say, trade is the life-blood of the forwarding industry; the last few years saw trade volumes rise after their collapse following the Great Recession. For instance, demand for air freight increased by 9 per cent in 2017. Yet right when shipping lines and air carriers began to envisage a better future, protectionist headwinds and geopolitical tensions are threatening the trade recovery. Will this recovery endure? How will forwarders survive if it does not?

First, forwarders will have to look harder for newer markets. For every market that shrinks, there is another that shows growth. The future belongs to nimble players; quick-footed freight forwarders would recognise new growth areas and seek to carve out their own niche. One of the major geopolitical developments of recent times affords just such opportunities.

The Belt and Road Initiative of Chinese President Xi Jinping is slowly tying the countries in the Eurasian landmass into a seamless trading zone while defying previously unconquerable natural obstacles. Every day regular train services carry goods from the Chinese interior to cities in Western Europe. The China Pakistan Economic Corridor (CPEC) component of the Belt and Road Initiative is well underway and set to connect western and central China with Pakistan and the Persian Gulf Region. Large, state of the art Special Economic Zones are being built along the CPEC so that industries that can no longer compete from China can be transferred to countries with lower wages. All this is being done so that a new China-centred trading zone eventually cover much of Asia, Eastern Europe and Africa, radically altering the economic geography of these regions. While the institutional framework in the areas covered by the Belt and Road Initiative is still not entirely clear, what is evident is that there are profits to be made in this inchoate trading zone across Eurasia.

The Belt and Road Initiative is not without its detractors however. There are serious misgivings in many countries about what its promoters intend to do through it and regardless, the initiative diverts attention from the widely accepted goal of multilateral trade liberalisation. That brings us to the second aspect of our question, are the days of relatively free trade over? Will a protectionist wave in the western world blow away what the GATT, WTO and other institutions have achieved?

In our opinion, there is a high possibility that a full-flown trade war is not on the cards. Most countries are strongly tied to the global trading regime and their economies are highly interdependent. Powerful constituencies in every country, ranging from trade bodies to think tanks and university departments oppose the threats to freer trade. Among the general population, there is a growing understanding that trade has raised living standards, lowered political tensions and made the world a smaller place.

Accordingly, the latest round of trade restrictions imposed by the US might not invite a full-blown trade war. After US President Trump ordered tariffs slapped on around $60 billion dollars worth of Chinese goods, the Chinese have retaliated with a very measured response. Only $3.0 billion of American goods have been targeted and that too, mostly agricultural products. This is a clear indication that major international players are unwilling to upend the liberal trading regime that has given us so much over the last few decades.

Thus freight forwarders can be cautiously optimistic about the future. With sea and air freight volumes having increased over several years, this is the time to invest in refining business operations and consolidating efficiencies. The hiccups to world trade do not undermine the long term, decades-long trend of freer trade and lower barriers. Looking for new growth areas and using the latest technologies (particularly in data mining and analytics) would help every business survive, regardless of whether there is a trade war on the way.

Jayeed Naseeree is an executive of Freight Gibraltar Ltd.

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