ECONOMYNEXT – Consolidation among container shipping lines trying revive profitability is likely to squeeze profit margins of freight forwarders, especially smaller players, an industry official said.
Jagath Pathirana, chief executive, Expolanka Freight (Pvt) Ltd., said big freight forwarders have long term contracts with shipping lines which give them leverage to ensure rates are maintained.
“But it will be a challenge for smaller players,” he told a forum held by the Asia Securities brokerage where its new study on the logistics sector was presented.
“When GRIs (general rate increases) by shipping lines come and when there is a consolidated effort by shipping lines – then it will be a challenge.”
Pathirana said although shipping lines have been consolidating and trying to contract capacity, cargo volumes were not growing as expected and there was still overcapacity which meant there was a limit to rate hikes.
“As freight forwarders, we get into long term contracts and need stability in rates which has been a challenge. Of course, margins have eroded. But we have not seen a challenge in sustaining the business we have,” Pathirana said.
“You can’t shy away from the fact shipping lines will consolidate to bring in scale to minimise costs and regain profits they have been losing,” he said.
“We have seen cargo volumes have not been increasing rapidly, so market forces will come into play, although lines are contracting space and trying to keep rates at some level.