freight forwarding brokerages & agencies in the us industry report

WWW.IBISWORLD.COM Freight Forwarding Brokerages & Agencies in the US May 2014 1

IBISWorld Industry Report 48851Freight Forwarding Brokerages & Agencies in the USMay 2014 Leah Goddard

Ship shape: Industry revenue will grow in line with improved international trade levels

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

13 Products & Services

15 Demand Determinants

15 Major Markets

16 International Trade

17 Business Locations

19 Competitive Landscape19 Market Share Concentration

19 Key Success Factors

19 Cost Structure Benchmarks

21 Basis of Competition

22 Barriers to Entry

22 Industry Globalization

23 Major Companies23 C.H. Robinson Worldwide Inc.

24 Deutsche Post AG

25 United Parcel Service Inc.

29 Operating Conditions29 Capital Intensity

30 Technology & Systems

30 Revenue Volatility

31 Regulation & Policy

32 Industry Assistance

33 Key Statistics33 Industry Data

33 Annual Change

33 Key Ratios

34 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


Companies in this industry arrange the transportation of freight between shippers and carriers. These operators are usually

known as freight forwarders, marine shipping agents or customs brokers and offer services for many modes of transportation.

The primary activities of this industry are

Freight forwarding

Providing marine shipping agency services

Customs brokering

48121 Charter Flights in the USCompanies in this industry provide air transportation of passengers or cargo with no regular routes or regular schedules.

48211 Rail Transportation in the USCompanies in this industry operate railroads including line-haul and short line railroads.

48311 Ocean & Coastal Transportation in the USCompanies in this industry provide deep-sea, coastal, Great Lakes and St. Lawrence Seaway water transportation.

48321 Inland Water Transportation in the USCompanies in this industry provide inland water transportation of passengers and cargo on lakes, rivers or intracoastal waterways (except on the Great Lakes System).

48411 Local Freight Trucking in the USCompanies in this industry provide local general freight trucking.

48412 Long-Distance Freight Trucking in the USCompanies in this industry provide long-distance general freight trucking.

48422 Local Specialized Freight Trucking in the USCompanies in this industry provide local specialized trucking.

54161 Management Consulting in the USCompanies in this industry supply tariff and freight rate consulting services.

Industry Definition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Agency and brokerage services

Freight forwarding

Process consulting

Other freight-related services


About this Industry

For additional information on this industry

www.airforwarders.org Airforwarders Association

www.ncbfaa.org The National Customs Brokerages and Forwarders Association of America

www.tianet.org Transportation Intermediaries Association

www.bts.gov US Bureau of Transportation Statistics

www.census.gov US Census Bureau

www.dot.gov US Department of Transportation

Additional Resources

IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com


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Total trade value

SOURCE: WWW.IBISWORLD.COM

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2014)

49.7%Agency and

brokerage services43.8%Freight forwarding

5.3%Other freight-related services

1.2%Process consulting


Key Statistics Snapshot

Industry at a GlanceFreight Forwarding Brokerages & Agencies in 2014

Industry Structure Life Cycle Stage MatureRevenue Volatility Medium

Capital Intensity Medium

Industry Assistance Low

Concentration Level Low

Regulation Level Medium

Technology Change Medium

Barriers to Entry Low

Industry Globalization Medium

Competition Level High

Revenue

$102.4bnProfit

$6.2bnWages

$14.4bnBusinesses

66,464

Annual Growth 14-19

4.5%Annual Growth 09-14

5.9%

Key External DriversTotal trade valueConsumer spendingIndustrial production indexWorld price of crude oilWorld GDP

Market ShareC.H. Robinson Worldwide Inc. 9.9%Deutsche Post AG 5.9%United Parcel Service Inc. 4.2%

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FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33



Key External Drivers Total trade valueDemand for international freight forwarding and customs brokering largely depends on the level of trade between the United States and the rest of the world. Increased trade, in volume and value, spurs demand for freight-forwarding brokerages and agencies. The

total trade value is expected to increase in 2014, presenting a potential opportunity for the industry.

Consumer spendingAn increase in consumer spending underpins industry growth because demand for freight forwarding and

Executive Summary

The Freight Forwarding Brokerages and Agencies industry transports goods using third-party trucks, trains, ships and planes, and helps importers and exporters clear goods through customs. Operators generate revenue by acting as middlemen between shipping customers and third-party transportation carriers and assisting exporters and importers with trade documentation. As a support industry, freight forwarders and customs brokers are vulnerable to the health of upstream markets. Consequently, participants need to maintain strong business and customer contacts in order to compete in this industry.

During times of strong economic growth, demand for freight transportation services rises as consumers and businesses purchase more goods that need to be shipped. This growth in demand increases freight tonnage, which boosts industry revenue. Conversely, slow economic activity leads to a reduction in trade values and service fees, which diminishes demand for freight transportation, hurting industry revenue. In addition, businesses may attempt to cut costs by moving forwarding and customs functions in house as opposed to outsourcing these

activities to industry operators, amplifying the impact of reduced demand on industry revenue.

The recession decimated consumer demand and industrial production, resulting in lower trade volumes and putting pressure on industry operators to reduce prices to attract customers, which caused revenue to contract in 2009. Conditions recovered markedly in 2010 and 2011, but industry growth has slowed in recent years due to economic uncertainty and global supply chain disruptions. Nevertheless, revenue is expected to increase 1.7% to $102.4 billion in 2014, contributing to an annualized increase of 5.9% over the past five years due to a strong recovery in freight transportation.

Freight forwarders and customs brokers benefit from rising international trade, which bolsters demand for industry services and, thereby, revenue. Increasing globalization, particularly in supply chains, will drive industry growth over the next five years as manufacturers outsource freight transportation and logistics to industry operators. As industrial production picks up and international trade improves, the industry will continue expanding. During this period, revenue is forecast to increase at an average annual rate of 4.5% to $127.6 billion by 2019. Additionally, the number of companies and employees will grow in order to handle the increasing number of shipments.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Increased international trade will boost demand for freight forwarding agencies


Industry Performance

Key External Driverscontinued

customs-brokering services depends on consumer demand for goods. When unemployment and economic uncertainty rose during the recession, consumers reduced spending, hurting demand for goods in upstream industries and lowering freight volumes. Consumer spending rebounded in 2010 and is expected to increase in 2014, boosting demand for industry services.

Industrial production indexThe industrial production index (IPI) indicates the level of output from the mining, manufacturing and utility sectors. Industry services benefit from rising industrial activity because most industries require freight forwarders and customs brokers to transport raw materials and other semifinished products at various points in their supply chain. In addition, industry services are used for shipping manufactured goods domestically and internationally. The IPI is expected to increase in 2014.

World price of crude oilIncreases in oil prices hurt the profitability of upstream manufacturers and transportation operators. As these businesses seek to cut costs, they reduce demand for industry services. Therefore, changes in the world price of crude oil impact industry revenue. Historically, crude oil prices have been extremely volatile. While the world price of crude oil is expected to decrease in 2014, fluctuations in crude oil prices pose a potential threat to the industry.

World GDPThe global financial crisis reduced world GDP growth. Consumption fell worldwide, hampering manufacturing activity. Because freight forwarding agencies are in the business of shipping inputs and finished products, a slowdown in manufacturing reduced demand for industry services. As financial markets stabilized and consumer demand returned, manufacturing activity started to recover. World GDP is forecast to rise in 2014.

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Current Performance

The Freight Forwarding Brokerages and Agencies industry is closely linked to general economic activity and international trade. The industry also relies on the degree to which companies outsource freight-forwarding and customs-brokering functions that they might otherwise perform in house. In 2009, demand for freight transportation and related services deteriorated as a faltering financial market and rising unemployment rate caused businesses and consumers to reduce spending on goods. Lower retail sales led many businesses to rely on inventory surpluses as opposed to ordering more products. Reduced demand for goods depressed manufacturing activity and international trade. However, in 2010, increased consumer spending led businesses to restock inventories, increasing demand for freight transportation and industry services. As a result, revenue has grown strongly since 2010, rising another 1.7% in 2014. Overall, revenue is projected to increase at an annualized rate of 5.9% to $102.4 billion over the five years to 2014.

Strong industrial activity in the mining, manufacturing and utilities sectors increases the demand for services provided by freight forwarding brokerages and agencies, because these services are used in conjunction with the transport of materials and goods. Before the recession, industrial production expanded steadily. However, the fallout from the subprime mortgage crisis shattered investor and consumer confidence, resulting in the industrial production index (a measure of the output from industrial activities)

dropping 11.3% in 2009. Industrial production started to recover in 2010 as access to credit, business investment and consumer spending began to stabilize, thereby increasing demand for freight transportation and industry services. The industrial production index is expected to grow another 2.9% in 2014.

Similar to revenue, profit margins have increased over the five years to 2014. Profit has not fluctuated as much as revenue, because the majority of industry expenses, such as fuel costs, are passed on to customers. For instance, rising fuel prices in 2010 caused industry operators to impose fuel surcharges, which helped bolster revenue. However, profit suffered because the jump in fuel prices was too steep to be completely passed on to customers. Fortunately, the world price of crude oil has stabilized in recent years, helping profit margins to expand along with revenue. Consequently, the average industry profit margin is projected to grow from 3.6% of revenue in 2009 to 6.1% in 2014.

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The rise of JIT and JIS

To combat these volatile conditions, businesses have looked for ways to reduce costs and improve operating efficiencies. Industry operators have embraced strategies like just-in-time (JIT) logistics and just-in-sequence (JIS) inventory management. JIT is a production strategy that manufacturers use to reduce inventory costs by ordering inputs only as needed in the production process. JIS complements JIT by scheduling the delivery of components and parts according to the manufacturers assembly

line sequence. To fulfill these goals, manufacturers are turning to larger industry operators with greater technological capacity and consistent global coverage that have the resources to support their JIT and JIS strategies.

Developing a worldwide network for these systems adds a considerable indirect cost to the industry in servicing its customers. There is an increasing trend toward vertical integration of the supply chain; small and medium-size enterprises are merging or being bought

Disruptions in global supply chain

Prior to the recession, rising international trade underpinned growth in freight transportation, increasing demand for freight-forwarding brokerages and agencies. After contracting in 2009, international trade has improved markedly, with the total value of US trade surpassing its prerecession high and reaching $4.7 trillion in 2014. Over the five years to 2014, the total value of trade is expected to increase at an annualized rate of 5.5% due to growing consumer demand for goods globally. While this has boosted demand for industry services, disruptions in global supply chains resulting from natural disasters and political instability have hampered international trade in recent years, thus dampening industry growth.

In March 2011, Japan suffered the worst earthquake in its history. The 9.0 magnitude earthquake off the eastern coast of Japan caused massive supply shortages across the country. Major automakers Toyota and Honda were forced to make drastic production cuts because they could not supply components and parts to their facilities around the world as the earthquake and subsequent tsunami crippled Japans infrastructure. The United States has the worlds second-largest car market, and cars are major products that require freight transportation services. As a result, demand for industry services

declined. While sales have returned, fear of another natural disaster that threatens supply still lingers, such as the floods in Thailand in July 2011 and the typhoon in the Philippines in November 2013.

The Arab Spring represents a longer, ongoing geopolitical issue, beginning in December 2010 with the Tunisia uprising. Since then, many Middle Eastern countries have experienced civil unrest, with four governments being overthrown and several others going through large governmental changes. In July 2013, Egypt overthrew their government for the second time in two years. As unrest continues in many of these oil-rich nations, fears are raised over possible oil supply shortages and price spikes, which reduces demand for freight transportation and industry services, if protests continue to turn increasingly violent. Similarly, the United States and its European allies sanctions against Russia over its involvement in Ukraine could hamper international trade and impact commodity prices.

Natural disasters and civil unrest caused shortages of shipped products, hurting demand



Industry Outlook

The industry will grow more strongly in coming years, particularly as the economy enters sustained recovery and international trade rises. Over the five years to 2019, revenue is forecast to increase at an annualized rate of 4.5% to $127.6 billion. As the US economy recovers, consumer spending and industrial production are expected

to increase, raising freight volumes transported domestically and shipped internationally and thereby boosting demand for industry services. Additionally, many shipments of inputs or products will require multiple modes of transportation, which companies in this industry will be hired to arrange.

Improvements in trade and technology

Demand for US goods and services will grow in line with a stronger global economy. Over the five years to 2019, the total value of US trade is forecast to increase at an average annual rate of 4.0%. Total US exports are projected to grow faster than imports, at an annualized rate of 4.2% over the period, driven primarily by rising demand in emerging economies. Additionally, the economies of Canada and Mexico, key export markets for the United States, are forecast to improve, further supporting demand for US goods. Over the same period, total US imports are expected to rise at an annualized rate of 3.8% as US consumer spending and industrial production increase.

In addition to globalization, improvements in process management will support industry growth. As

technology improves, industry participants will be better able to manage shipping activity, logistics and customer inquiries. Participants with international operations will also rely heavily on technology because payment systems and tracking services are conducted electronically through the internet. Additionally, as consumers increasingly buy goods online, demand for freight forwarding brokerages and agencies to manage the transport of these products will increase.

Steeper technology requirements may lead smaller operators to fold or merge

The rise of JIT and JIScontinued

out by operators in other transportation and distribution industries, increasing competition for freight forwarding brokerages and agencies. In response, larger players have expanded the scope of their operations over the five years to 2014. In comparison, nonemploying entities, which primarily consist of independent customs brokers, have been

able to enter the industry as companies increasingly require assistance navigating complex trade laws. For these reasons, the number of industry establishments is forecast to increase at an annualized rate of 0.6% to 72,394, while the number of workers is projected to grow at an average annual rate of 0.8% to 289,467.



Competition prevents profit growth

Industry participants rely on third-party cargo carriers to actually transport freight, but these carriers are increasingly undertaking freight forwarding themselves through internal logistics operations. As a result, external competition is expected to rise and profit is expected to remain relatively flat despite stronger demand for industry services. Increased competition will curb profit margins as businesses undercut competitors to increase market share. In addition, higher wages and other employee-related costs are expected to increase pressure on profit margins, with businesses competing to retain talent. Consequently, the average industry profit margin is projected to marginally decline to 5.9% of revenue in 2019.

According to Section 641 of the Tariff Act, the Treasury must individually and personally license customs brokers, and brokerages must obtain a separate license. A copy of the insurance policy must be filed with the Surface Transportation Board at the US Department of Transportation for the protection of the forwarders customers. To be licensed, a freight forwarder brokerage or agency must pass a comprehensive test. Moreover, most freight forwarding brokerages and agencies consist of autonomous offices that have strong relationships with customers and carriers, so participants must retain knowledgeable, licensed

employees with excellent customer service skills to remain competitive. Consequently, wages are forecast to increase at an average annual rate of 4.0% to total $17.5 billion over the five years to 2019 as industry players raise average employee salaries.

Due to the development of online application and processing systems, some larger clients are expected to bring customs processing in house. However, due to the complexity of customs regulations, many businesses will continue to outsource brokerage services to industry operators. Since independent customs brokers comprise the majority of industry establishments, the number of establishments is forecast to increase at an annualized rate of 2.2% to 80,525 as customs brokers enter the industry to take advantage of increased demand. Moreover, operators in the freight-forwarding segment of the industry will likely work to increase the efficiency and reduce the cost of transporting freight over the next five years. Rising fuel costs and environmental standards will result in increased demand for freight forwarders to ensure that products are moved in the most timely and cost-effective way.

Despite stronger demand, increased price competition will keep profit flat


Industry PerformanceSlowing technological change will focus on improving efficienciesEnterprise growth will slow as new entrants are deterred by intense competitionThere is wholehearted market acceptance of the industrys services

Life Cycle Stage


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DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

Charter Flights

Rail Transportation

Ocean & Coastal Transportation

Inland Water Transportation

Local Freight Trucking

Freight Forwarding Brokerages & Agencies



Industry Life Cycle The Freight Forwarding Brokerages and Agencies industry is in the mature phase of its life cycle. Globalization and international trade will continue to be the major drivers of industry growth. Over the 10 years to 2019, IVA is projected to grow at an average annual rate of 5.0%. While this is higher than the anticipated GDP annualized growth rate of 2.7% over the same period, the IVA growth rate has been bolstered by the recovery of industry wages and profitability since 2009. Slowing technological change and enterprise growth are more indicative of the industrys life cycle.

Outsourcing manufacturing and importing semi-finished goods, coupled with a move toward just-in-time inventories, has increased demand for freight transportation arrangements over the past couple of decades. Larger operators have responded to these trends

by providing integrated logistics services for supply chain management in addition to freight forwarding and customs brokering. Current improvements in services and technologies are focused on increasing efficiency and decreasing transport costs. No new developments are expected to revolutionize freight forwarding and customs brokering. The industrys services are well-known and wholeheartedly accepted by its major markets.

To expand their customer base and market share, larger operators have increasingly acquired smaller participants. Over the 10 years to 2019, the number of enterprises is projected to rise at a low annualized rate of 1.4% to 73,387 operators. Despite the prevalence of independent customs brokers, new entrants will be deterred by intense competition among industry operators.

This industry is Mature


Products & Services Many operators offer customs brokerage services as well as freight forwarding services to provide integrated logistics services for clients. This trend includes the provision of services across international borders and is expected to continue as the industry moves into the mature phase of its life cycle and as globalization progresses. Many major players note that the majority of growth is derived from international markets, especially those emerging in Asia.

Agency and brokerage servicesAgency and brokerage services make up 49.7% of industry revenue. This segments share of revenue has been fairly stable because clients consistently require agencies and brokerages to engage in international trade operations. Customs brokers advise importers in determining proper classifications and calculating the value of goods being transported.

Additionally, importers require information surrounding international quota and tariff regulations. Brokers operations often expand beyond customs as they have to contact other government agencies, such as the US Department of Agriculture (USDA) on meat importation, the US Environmental Protection Agency (EPA) on vehicle emission standards or the US Food and Drug Administration (FDA) on product safety.

The development of online application and processing systems has created competition for customs brokerage services in recent years as larger clients bring customs processing in-house. However, according to Section 641 of the Tariff Act, the Treasury must individually and personally license customs brokers, and brokerages must obtain a separate license. A copy of the insurance policy must be filed with the Surface Transportation Board at the US

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

31-33 Manufacturing in the US Manufacturers use freight forwarders to arrange the transportation of production components.

42 Wholesale Trade in the US Wholesalers require freight forwarding services to manage the movement of goods.

44-45 Retail Trade in the US Retailers demand various services for packing, storage and documentation.

48-49 Transportation and Warehousing in the US Transportation providers use brokerage services to find new clients.

KEY SELLING INDUSTRIES

48-49 Transportation and Warehousing in the US Transportation and warehousing is an important supplier to this industry. It provides services that freight forwarders utilize for transportation and consolidation of freight.

48211 Rail Transportation in the US Freight forwarders hire railroads to transport stock for customers.

48311 Ocean & Coastal Transportation in the US Freight forwarders lease space on ships to transport goods.

48411 Local Freight Trucking in the US Freight forwarders subcontract local transportation activities.

48412 Long-Distance Freight Trucking in the US Freight forwarders subcontract transportation services to trucking companies.

Supply Chain


Products & Markets

Products & Servicescontinued

Department of Transportation for the protection of the forwarders customers. To be licensed, a freight forwarder brokerage or agency must pass a comprehensive test. Therefore, due to the complexity of customs regulations and licensing costs, many business will continue to outsource these services to industry operators.

Freight forwardingFreight forwarders advise clients on the best rates, routes and modes of transportation to or from any area in the world and account for 43.8% of industry revenue. Forwarders match services to clients, ensuring that products are moved in the most timely and cost-effective way. The large volume of freight handled by forwarders gives them advantages over individual shippers or integrated carriers. The freight-forwarding segment has not fluctuated greatly for the same reason agencies and brokerages remain relatively stable: clients engaging in international trade requires these services.

This segment may change in coming years as a result of increasing awareness of environmental issues. Freight forwarders will likely work to increase

efficiency and reduce the environmental impact of various modes of transportation. This segments share of revenue is likely to increase as this movement creates unique work and worker requirements, which calls for more workers with specialized skill sets.

OtherOther freight-related services include storage and distribution services. This segment generates about 5.3% of industry revenue. Very few operators offer these services because many lack the infrastructure and facilities required. Generally, only the larger operators offer these additional services.

Process consulting is a growing product segment for the industry, albeit from a very small base. This segment accounts for about 1.2% of industry revenue. It generally involves industry participants that provide consulting services to importers, exporters and other companies. This segment advises the company about methods, process, technology, systems and transportation modes. Some companies also provide information regarding integrated logistics management and warehouse operations.

Products and services segmentation (2014)

Total $102.4bn

49.7%Agency and brokerage services43.8%

Freight forwarding

5.3%Other freight-related services

1.2%Process consulting



Products & Markets

Major Markets

ManufacturersThe manufacturing sector supplies an estimated 62.0% of industry revenue. During the recession, manufacturing activity in the United States declined

heavily in line with weak consumer spending and inventory destocking. As a result, the share of industry revenue generated by manufacturers contracted slightly. Demand from emerging

DemandDeterminants

Over the past 25 years, the industry grew strongly and enjoyed an increasing share of GDP. This trend has closely followed movements in trade volumes; the greater the volume of trade, the greater the need for transportation arrangements and brokerage services. Freight transportation arrangements are more influenced by the volume of imports into the United States, which increases demand for industry services regarding customs regulations for finished consumer goods and semi-finished inputs to domestic production. Stronger growth in exports due to emerging market demand is slowly shifting the use of industry services toward exported goods.

The manufacturing sector depends on timely and reliable deliveries of raw materials, or semi-finished products as inputs to further processing. It also requires finished products to be transported to warehouses or distribution centers. The freight forwarders may

arrange for transportation to domestic or overseas markets. The trend toward just-in-time (JIT) inventories has also created increased demand for transportation services as manufacturers seek smaller and more frequent deliveries. JIT allows companies to improve profitability by purchasing materials only as needed, thereby reducing inventory costs. Those companies thus need freight forwarding brokerages and agencies more often, boosting demand for this industry.

The major determinant of manufacturing demand is consumer spending. The downturn in consumer spending during the recession negatively impacted imports of finished goods as well as domestic goods. As international trade and domestic manufacturing recover from the recession and continue to grow, demand for industry services will continue its upward trend.

Major market segmentation (2014)

Total $102.4bn

62%Manufacturers

23%Importers and wholesalers

15%Others



Products & Markets

International Trade Despite its reliance on traded goods for revenue, the Freight Forwarding Brokerages and Agencies industrys services cannot be imported or exported.

Companies in the industry arrange the domestic and international transportation of many different types of freight including goods and commodities, among others.

Major Marketscontinued

economies for US manufactured exports helped to offset some of the decline in domestic demand.

Importers and wholesalersServices to importers and wholesalers generate about 23.0% of revenue. Over the past decade, the import and wholesale sector has been on the rise due to gradual liberalization of markets and trade links with countries that feature low input costs. This growth in trade led to greater import penetration of US markets. However, the global financial crisis and the global recession reshaped the market. Falling demand from wholesalers caused imports to plummet in 2009. Imports have grown

since 2010 as wholesalers began to rebuild inventories as the economy recovered, increasing this markets share of industry revenue.

OthersThe other markets make up about 15.0% of industry revenue and include a range of small niche markets, such as small-volume transportation for retailers and direct-to-public services. Generally, the direct-to-public services are focused on physically large, valuable or fragile goods such as cars, art and antiques. This market has rebounded from recessionary lows as Americans have slowly renewed demand for luxury goods.


Products & Markets

Business Locations 2014

MO1.9

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

VT0.1

MA1.6

RI0.2

NJ4.3

DE0.2

NH0.2

CT0.7

MD1.2

DC0.1

1

5

3

7

2

6

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8 9

Additional States (as marked on map)

AZ1.6

CA14.5

NV0.6

OR1.2

WA2.7

MT0.4

NE0.5

MN1.5

IA0.8

OH2.9 VA

1.8

FL9.4

KS0.6

CO1.2

UT0.8

ID0.4

TX11.0

OK0.6

NC2.4

AK0.3

WY0.1

TN1.8

KY1.1

GA3.4

IL5.9

ME0.3

ND0.3

WI1.4 MI

2.2 PA2.7

WV0.1

SD0.3

NM0.2

AR0.7

MS0.4

AL0.9

SC1.1

LA1.2

HI0.4

IN1.7

NY8.3 5

67

8

321

4

9


Mid- Atlantic

Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes


Products & Markets

Business Locations Most industry activity is concentrated in states dominated by manufacturing, trade and other commercial activities: the Southeast, West and Mid-Atlantic regions. Because of its large population and commercial base, the Southeast region has the largest share of industry establishments at about 24.5%. The Southeast represents 25.4% of the US population and houses major US ports. The region also hosts a large proportion of rail freight employees and rail maintenance and support enterprises.

The West is the second-largest region in terms of industry establishments with 19.7%. Ports on the West Coast are major transit points, especially for goods entering the country from Asia. Freight is then transported via roads and railways from ports on the West Coast to the East Coast. California has three of the largest container ports in the United States: Los Angeles, Long Beach and Oakland. Asian products bound for the East Coast can save a week moving through Los Angeles compared with a 25-day trip via the Panama Canal.

The Panama Canal expansion project could divert demand away from West Coast ports, as cargo ships will be able to traverse the canal more quickly and possibly transport products directly to Southeast ports. The project, which is expected to be completed in 2014, will make the canal bigger, so that more and larger ships can pass through it. More than double the ships and goods will be able to make it through the canal when the project is done. As a result, the canal will allow previously unable vessels to travel through to the US Atlantic and Gulf coasts. In the meantime, ports in the East and Southeast are investing in expansion projects of their own in preparation for the potential traffic increase. West Coast ports have focused investment to increase their competitiveness; they seek to streamline

and speed the flow of goods moving to and from the ports of Los Angeles and Long Beach, with other improvement projects planned.

As a traditional manufacturing base, the Great Lakes region houses a significant share of establishments. This share is proportional to the number of consumers, as the region holds 16.7% of establishments and 15.5% of the population. Establishments in the Southwest states benefit from freight generated by nearby low-cost producers in Mexico and Central America. Additionally, populations and demographics of the United States are shifting. Traditionally, the highest proportion of the population and the industry centered on the Great Lakes and Mid-Atlantic regions, however, the US population over the past 10 years has shifted to the Southeast, Southwest and the West. Business locations, particularly manufacturers, have also been shifting to the Southeast. Over the next five years, the industry is anticipated to continue to shift toward the Southeast and the West.

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EstablishmentsPopulation

Distribution of establishments vs. population



Cost Structure Benchmarks

The cost structures of companies in this industry vary depending on a variety of factors, such as if participant employ workers, the number of workers, the value of contracts gained and the companys geographical reach.

ProfitThe industry has a low market share concentration and is very competitive, which leads to low industry profitability. In addition, the majority of service costs are passed on to consumers in the form

Key Success Factors Ability to quickly adopt new technologyClients are increasingly seeking forwarders with strong information technologies for monitoring purposes.

Understanding government policies and their implicationsAs this industry includes customs brokerages, it is essential to understand the changing customs tariffs and schedules.

Access to quality personnelBecause the customs-broking function is built on personal trust, having access to quality personnel who can develop

and maintain excellent customer relations is essential.

Having contacts within key marketsThe industry revolves around connecting shippers and carriers. Hence, a firm with contacts across various commercial and geographic markets is able to arrange a greater number of transportation offerings.

Provision of superior after sales serviceSuperior service to clients before and after transactions are completed enhances service quality and creates opportunities for future transactions.

Market Share Concentration

The Freight Forwarding Brokerages and Agencies industry is estimated to have a low level of concentration, as the top four players are expected to account for about 25.5% of industry revenue in 2014, up from 23.1% in 2009. Despite the presence of international players, the industry is dominated by small- and medium-size enterprises, with close to 55.0% of all companies employing one to four people and more than 70.0% of establishments consisting of nonemploying entities, such as independent customs brokers. However, industry concentration has increased over the past five years due to the recession, which forced smaller operators to exit the industry or be acquired by larger players due

to low demand for freight transportation services.

Over the five years to 2019, as the overall economy continues to grow, more brokerages and agencies will be needed to handle the increasing number of shipments due to growth in cargo traffic. Many shipments require multiple modes of transportation as well, so operators in this industry will be needed to manage the processes. As demand increases, the industry will attract new entrants, but existing players will be in a better position to take advantage of these opportunities. Technological advances are also expected to increase the scope of larger players as customers increasingly demand real-time tracking services.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

of transportation charges and fees for additional services, so profitability does not typically fluctuate as much as revenue. However, profit margins are forecast to improve markedly over the past five years as revenue growth outpaces various industry costs. The average industry profit margin is projected to expand from 3.6% of revenue in 2009 to 6.1% in 2014.

PurchasesThe majority of industry costs are related to purchasing transportation services from other companies and warehousing operations. Purchases are expected to consume 58.0% of industry revenue in 2014. At the same time, larger forwarders and brokers tend to save money by consolidating shipments from multiple customers and concentrating buying power. As a result, larger players are able to

negotiate favorable prices from direct carriers than customers would otherwise be able to negotiate themselves. Sourcing and brokerage fees are also major costs, such as the cost of subcontracting services to smaller specialized players and renting equipment for particular consignments.

WagesIndustry wages are estimated to consume 14.0% of industry revenue in 2014. The industry requires highly skilled personnel with detailed understanding of customs regulations and tariff duties. Employers are reluctant to dismiss staff even in dismal economic conditions, so most cut back hours to reduce costs while maintaining employees and their knowledge base. In addition, most brokers earn wages based on commission per transaction; during periods of fewer client transactions, wage costs essentially fall with revenue. Wages are

Sector vs. Industry Costs

Profi t Wages Purchases Depreciation Marketing Rent & Utilities Other

Average Costs of all Industries in sector (2014)

Industry Costs (2014)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

1007.5

18.9

7.01.85.6

31.5

27.7

6.1

14.3

5.3 0.32.0

58.0

14.0




Basis of Competition Overall, the Freight Forwarding Brokerages and Agencies industry has a high level of competition. Companies in the industry not only compete against one another, but they face competition from shippers in-house operations.

Internal competitionThe Freight Forwarding Brokerages and Agencies industry is very competitive and expected to remain so in the foreseeable future. Price, quality of service, information systems capability, global network capacity, reliability and responsiveness are all primary factors that contribute to success in the industry. One of the largest points of competition has been the increased use of logistics, which has heightened competition from large integrated carriers. These companies took full responsibility for cargo and promised shippers door-to-door service over great distances. This proved to be difficult for small forwarders and brokers to overcome and so, to negate some of the effects of this threat, smaller freight forwarding brokerages and agencies continue to call attention to their ability to provide customized service that large carriers do not offer. Larger freight forwarding brokerages and

agencies, however, have established more overseas networks in response to this globalization.

An increasing number of industry operators are emphasizing customer service as an integral function of their supply chain management processes. This growing attention to service has led to innovation within the tracking portion of the business. Customers inquire as to the status of their shipment; in response, industry operators have innovated new ways for customers to track their package, including online freight tracking, which provides a real-time location and estimated delivery date.

External competitionFor the most part, external competition stems from in-house operations of major shippers. While this is not a major threat at the moment, this threat could increase as global networks grow and consolidation continues. For example, major player United Postal Service is not only the second-largest freight forwarder, but also the worlds largest package delivery company. UPSs ability to gain considerable market share in both industries highlights the growing threat of external competition.

Cost Structure Benchmarkscontinued

anticipated to grow in coming years as a shortage of skilled labor causes industry participants to outbid each other for top candidates. This is evidenced by Expeditors Internationals decision to adopt an incentive compensation program where key personnel are rewarded for the performance of different operating segments.

OtherOther costs include those costs associated with general and

administrative expenses. Rent and utilities, which include purchased fuels for transportation and electricity, account for about 5.3% of revenue. Depreciation costs are relatively low and account for only 2.0% of industry revenue. Most players do not own transportation vehicles, warehouses or storage units. Instead, companies in the industry mostly act as intermediaries between transportation suppliers and customers.

Level & Trend Competition in this industry is High and the trend is Steady



Industry Globalization

This industry is inherently globalized by the nature of its business. While there are numerous small domestic operators, the major players in the industry have operations that span internationally. Major players C.H. Robinson and UPS have hundreds of branches throughout the world and earn a significant amount of their revenue from international operations. Meanwhile, Germany-based Deutsche Post AG delivers mail from to

40.7 million households globally and operates in the United States through its DHL unit. Similarly, Switzerland-based Kuehne + Nagel is one of the worlds leading freight forwarders and logistics operators with over 1,000 offices in more than 100 countries, including the Untied States. As the world economy continues to grow, international shipping, and therefore industry globalization, is expected to increase with it.

Barriers to Entry Barriers to entry in the Freight Forwarding Brokerages and Agencies industry are low. Once a new player has established itself, growth can be very difficult. It is relatively easy to set up a single route or to specialize in a particular area, but true economies of scale exist in national and international operations. Thus, major players have developed extensive systems that involve terminal facilities and tracking technologies to service shippers needs. Additionally, low capital investment and high fragmentation add to ease of entry in the market.

After entering the industry, sufficient volume must be generated to be eligible for discounts from the different modes of freight transportation. Larger forwarders with specialist facilities can advertise an

international network and are in a better position to attract business. Consequently, competitive conditions for smaller forwarders are fierce. To survive, smaller players can specialize in niche markets with particular routes and align themselves with local customers.

Barriers to Entry checklist LevelCompetition HighConcentration LowLife Cycle Stage MatureCapital Intensity MediumTechnology Change MediumRegulation & Policy MediumIndustry Assistance Low


Level & Trend Barriers to Entry in this industry are Low and Steady

Level & Trend Globalization in this industry is Medium and the trend is Increasing


Player Performance Headquartered in Eden Prairie, MN, C.H. Robinson Worldwide (CHRW) is one of the largest third-party logistics companies in the world. Operating through a network of 285 offices, the company serviced more than 46,000 active customers and handled about 12.7 million shipments in 2013. CHRW has contractual relationships with more than 63,000 transportation companies, including motor carriers, railroads (primarily intermodal service providers), and air freight and ocean carriers. In November 2012, CHRW expanded its global freight-forwarding network and market presence through its acquisition of Phoenix International Freight Services, an international freight forwarder based in Chicago. CHRW earned $12.8 billion in revenue in 2013.

CHRW provides freight-transportation services and logistics solutions to a range of customers, selecting and hiring the appropriate transportation for each shipment. The company works with truckload and less-than-truckload (LTL), intermodal, ocean and air carriers. CHRW often consolidates partial LTL shipments for several customers into full truckloads. The company transports freight by a combination of truck and rail through its intermodal service. CHRW is also a licensed ocean transportation intermediary and certified indirect air carrier. The companys customs brokers are licensed and regulated by US Customs and Border Protection to assist importers and exporters in

meeting federal requirements governing imports and exports. In addition to these services, CHRW provides value-added logistics solutions, such as freight consolidation, supply chain consulting and analysis, optimization and reporting.

CHRW is a leading developer of interactive information technology. The company has developed systems that can automatically select the optimal mode of transportation, build and consolidate shipments and identify appropriate carriers based on customer requirements. The CHRWTrucks web-based platform and mobile application allows contract carriers to access available freight, perform on-line check calls, keep track of receivables and upload scanned documentation. In October 2012, the company launched Navisphere, a single platform offering sophisticated business analytics and enabling customers to communicate worldwide with every party in their supply chain across languages and currencies.

Financial performanceOver the five years to 2014, CHRWs revenue generated by US transportation services is forecast to increase at an annualized rate of 13.7% to $10.2 billion. The company has produced strong results after revenue fell in 2009 as a result of contracting commerce during the recession. As developed economies began to regain strength and emerging markets continued to prosper, revenue rebounded, driven by higher volumes in nearly all of

Major CompaniesC.H. Robinson Worldwide Inc. | Deutsche Post AGUnited Parcel Service Inc. | Other Companies

80.0%Other

C.H. Robinson Worldwide Inc. 9.9%

Deutsche Post AG 5.9%

United Parcel Service Inc. 4.2%SOURCE: WWW.IBISWORLD.COM

Major players(Market share)

C.H. Robinson Worldwide Inc. Market share: 9.9%


Major Companies

Player Performance Deutsche Post AG (DP) is Europes largest postal service provider. Based in Germany, the company delivers mail to 40.7 million households globally. DP participates in the US Freight Forwarding Brokerages and Agencies industry through its DHL unit. The company is one of the worlds leading providers of express delivery and logistics services, including freight-forwarding, transportation-management and warehousing services and distribution. Overall, DHL-branded segments account for more than half of DPs total sales.

The company began as a government-owned enterprise that handled mail-related services in Germany. Since the company went public, its operations have expanded dramatically despite the German governments 30.0% ownership. DHL Global Forwarding has US origins in Air Express International (AEI), founded in Miami in 1935. It was the first freight partner of Pan American World Airways. AEI grew with the US Postal

mail-distribution service, but its international expansion began in 1953. AEIs global operations grew steadily over the next 50 years, including notable acquisitions such as ocean freight forwarder Votainer in 1993, customs brokerage service providers Radix Group in 1995 and J.V. Carr in 1996. Deutsche Post acquired AEI in 2000.

DHLs main activities include express delivery, global forwarding and freight and supply chain services. Within the global forwarding and freight division, DHL provides air and ocean freight-forwarding services, in addition to transport management and customs clearance. The company has more than 850 branches to facilitate its global forwarding operations. Within the supply chain division, DHL offers warehousing, distribution, managed transport, logistics consulting and other value-added services. The company focuses on the consumer, retail, technology, healthcare, automotive and energy sectors.

Player Performancecontinued

the companys transportation modes, the Phoenix acquisition and higher prices, including the impacts of higher fuel costs. However, for these same reasons, profit

margins have declined due to an increase in administrative expenses related to the Phoenix acquisition and higher transportation costs.

C.H. Robinson Worldwide Inc. (US transportation operations) fi nancial performance*

YearRevenue

($ million) (% change)Net Income

($ million) (% change)

2009 5,347.0 -17.3 412.7 5.9

2010 6,761.1 26.4 454.1 10.0

2011 8,061.4 19.2 540.2 19.0

2012 8,827.0 9.5 524.8 -2.9

2013 9,599.5 8.8 513.9 -2.1

2014 10,156.3 5.8 528.3 2.8

*EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD

Deutsche Post AG Market share: 5.9% Industry Brand Names Deutsche Post DHL DHL


Major Companies

Player Performance The United Parcel Service (UPS) is the worlds largest package-delivery company, delivering over 16.9 million packages for 1.5 million customers to businesses and individuals in over 220 countries. The company is also a leader in global supply chain management, providing logistics solutions that lower costs, improve services and provide highly customizable supply chain control and visibility. UPS offers ground, air and ocean freight shipping and related services, including freight forwarding and customs brokerage, to customers around the globe. Founded in 1907 as a private messenger and delivery service in Seattle and currently headquartered in Atlanta, UPS earned $55.4 billion in 2013.

UPS is organized into three primary business segments: US domestic package, international package and supply chain and freight. Within the supply chain and freight segment, the company operates its industry-specific forwarding and logistics business. UPS is one of the largest air-freight carriers domestically and top international air-freight forwarders globally. As a non-vessel-operating common carrier, the company provides ocean freight full-container load and less-than-container load shipments between most major ports worldwide. UPS is also one of the largest customs brokerages globally by both the number of shipments processed annually and the number of brokers


Financial performanceOver the five years to 2014, DHLs revenue from US global forwarding and supply chain operations is forecast to rise at an annualized rate of 9.3% to $6.1 billion. As with most companies in the industry, falling global demand during the recession resulted in a dramatic drop in revenue in 2009. Revenue bounced back strongly in 2010 and continued to grow through

2012. However, global forwarding revenue decreased in 2013 due to lower air and ocean freight volumes. Lower freight volumes resulted from a decline in demand from several large customers in the technology and manufacturing sectors. In response to this volatility, DHL has focused on efficiencies and increased operating profit from a loss in 2009 to a gain of 3.8% of revenue in 2014.

Deutsche Post AG (US global forwarding and supply chain operations) fi nancial performance*

YearRevenue

($ million) (% change)Operating Income


2009 3,880.6 -38.0 -3.2 -65.0

2010 5,460.9 40.7 141.0 4,458.6

2011 5,646.4 3.4 183.7 30.3

2012 5,900.1 4.5 212.2 15.5

2013 5,766.6 -2.3 213.1 0.4

2014 6,056.4 5.0 230.0 7.9


United Parcel Service Inc. Market share: 4.2%


Major Companies


worldwide. UPS offers customs clearance, trade management and international trade consulting services.

In addition to freight forwarding and customs brokerage, the company provides a range of logistics solutions. For instance, UPSs distribution services allow companies in the healthcare, high-tech, retail and aerospace industries to streamline supply chains, minimizing their capital investment and positioning their products closer to their customers. In addition, the companys postsales services support goods after they have been delivered or installed in the field. These businesses complement one another because each service allows customers to store, import, export or transport freight entirely through UPS.

Financial performanceOver the five years to 2014, the companys US forwarding and freight revenue is forecast to rise at an annualized rate of 2.4% to total $4.3

billion. Since the recession, UPS has continued to work on growing its supply chain and freight division by using customizable logistics solutions. While many retail and high-tech companies use UPSs services, UPS is branching out into the global healthcare distribution market, which has high growth potential. In January 2010, UPS announced UPS Healthcare Facilities expansions in Kentucky, Singapore, Netherlands and Canada. These factors have helped drive growth up from recessionary lows. However, forwarding revenue decreased in 2012, primarily due to lower rates in UPSs air forwarding business as a result of industry overcapacity in key trade lanes, particularly the Asia-outbound market. This trend was exacerbated in 2013 by lower tonnage in the companys air forwarding business because of weak overall market demand, particularly in the technology and military sectors, as well as competitive pressures.

United Parcel Service Inc. (US forwarding and logistics operations) fi nancial performance*

YearRevenue

($ million) (% change)Operating Income


2009 3,857.7 -16.5 235.4 -33.2

2010 4,477.0 16.1 452.2 92.1

2011 4,516.9 0.9 449.2 -0.7

2012 4,463.4 -1.2 11.2 -97.5

2013 4,143.8 -7.2 508.5 4,440.2

2014 4,342.7 4.8 534.5 5.1



Major Companies

Other Companies Kuehne + NagelEstimated market share: 3.7%Founded by August Kuehne and Friedrich Nagel in 1890, Kuehne + Nagel (K+N) is one of the worlds leading freight forwarders and logistics operators. Headquartered in Switzerland, the company has over 1,000 offices in more than 100 countries and employs over 63,000 people. K+N operates six segments, with air freight, sea freight, road and rail logistics and contract logistics being the largest segments and comprising the vast majority of the companys revenue. In recent years, K+N has tried to grow their business through acquisitions. To this end, the company acquired Universal Freight Services LLC, Oman in 2013 and Link Logistics International, Australia; Flowerport Logistics, Netherlands; and AgriAir Logistics, Netherlands, in 2012.

Over the five years to 2014, IBISWorld expects that K+Ns US industry-relevant revenue will grow at an annualized rate of 6.3% to $3.8 billion. After a drop in revenue in 2009, the companys revenue has grown strongly every year. K+N has been able to grow their business through acquiring companies and by decreasing their exposure to risky and turbulent European markets. This is evidenced by Europes share of revenue falling from 67.0% in 2009 to 60.0% in 2013. Given these factors, K+Ns US industry-relevant is forecast to increase 6.3% in 2013, earning the company a 3.7% market share.

Ceva Logistics Inc.Estimated market share: 2.0%Ceva Logistics provides international air-freight forwarding, including transportation and logistics-related services. Headquartered in the Netherlands, Ceva designs, implements and operates supply chain solutions for multinational and large and medium-size

companies on a national, regional and global level. The companys freight-management services consist of international air and ocean and domestic freight forwarding, customs brokerage and other value-added services. Cevas contract logistics services include inbound logistics, manufacturing support, outbound/distribution logistics and aftermarket/reverse logistics.

Ceva operates in more than 1,000 locations in over 170 countries, employing more than 44,000 employees. The company has built leading market positions by providing customized logistics solutions that address industry-specific supply chain requirements. The company develops cost-effective solutions to a range of industries, including the automotive, technology, consumer and retail, energy and industrial markets. As demand from these sectors continues to grow in 2014, Cevas US industry-relevant revenue is projected to rise 4.4% to $2.0 billion.

Expeditors International of Washington Inc.Estimated market share: 1.7%Expeditors International of Washington was formed in 1979 as an ocean-freight forwarder. Since then, the Seattle-based company has grown to a global leader in logistics services, including air and ocean freight consolidating and forwarding and customs brokerage. The company uses unaffiliated air and ocean shippers around the world. It buys large blocks of wholesale cargo capacity on those carriers and resells space to others at rates lower than carriers can offer. In addition, Expeditors International provides value-added services at the destination, such as warehousing and distribution, time-definite transportation services and consulting services, none of which generate a significant amount of the companys revenue.


Major Companies

Other Companiescontinued

Expeditors International derives its revenue from air freight, ocean freight and customs brokerage. Over the five years to 2014, the companys US industry-relevant revenue is forecast to grow at an annualized rate of 10.6% to $1.8 billion. After plummeting in 2009, revenue surged 36.8% in 2010 as the company benefited from rising international trade activity. Revenue growth continued in 2011 as customers continued to seek out customs brokers with sophisticated computerized capabilities, including rapid

responses to changes in the regulatory and security environment. However, revenue declined in 2012 because of an overall decrease in the global air-freight market. This was primarily due to improvements in technology, which are resulting in increasingly small and light consumer electronic products, as well as improvements in customers supply chain efficiency. Increased demand from existing and new customers helped propel revenue in 2013 and is projected to drive growth in 2014.


Capital Intensity The industry displays a moderate level of capital intensity, with wages expected to account for 14.0% of revenue in 2014, while depreciation costs amount to 2.0%. On average, industry operators invest about $0.14 in capital equipment for every dollar spent on labor. Most establishments do not operate their own transportation operations, so more than 50.0% of costs are attributed to the payment of freight carriers. Capital investment in equipment and infrastructure is relatively low for most operators. However, the large multinational operators deliver integrated logistics services that include transportation and warehousing, which require higher levels of capital expenditure.

In contrast, small to medium operations are more labor intensive with manual sorting and packing

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

ManufacturingRail Transportation

Wholesale Trade Ocean & Coastal Transportation


Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Freight Forward-ing Brokerages &

Agencies

Transportation and Warehous-

ing

Economy

Level The level of capital intensity is Medium


Operating Conditions

Revenue Volatility As a support industry, operators are vulnerable to the health of upstream industries, which they cannot control. Revenue fluctuates with trends in the quantity of domestic shipments, international trade and real GDP growth but tend to be more dramatic than those observed with GDP. While slowing growth in consumer spending and

manufacturing do impact industry revenue, shifts in trade values have a greater impact. As a result, industry revenue has been volatile over the past five years. This variability is a result of the recessions widespread effect on upstream and downstream industries.

Over the past 25 years, the Freight Forwarding and Brokerages industry has

Technology& Systems

Overall, the Freight Forwarding Brokerages and Agencies industry has a moderate level of technological change. It is increasingly important for operators in this industry to invest in business-to-business e-commerce technology and online ordering systems since their customers may install or already have these systems in place.

Barcode technology is used extensively to sort small freight and parcels. The latest technology in radio frequency identification (RFID) is coupled with modern advances in two-dimensional barcode (light wave) technology. In the past, RFID has been used for basic tasks such as the evaluation of postal performance, but there have been larger innovations in RFID technology in the industry. RFID technology is a wireless link to uniquely identify objects or people, which allows for greater efficiency and fewer human errors. Electronic tags are attached to an item and then scanned with an RFID reader. RFID tags are much more versatile than bar codes; RFID tags can store larger amounts of information

and can be updated at any point of travel. Additionally, RFID tags can be scanned even if the tag is on the inside of a package and the reader can scan hundreds of tags simultaneously. This technology has been increasing over the past five years, becoming less expensive as well, and is expected to grow over the next 10 years. Additionally, the new data-dense, invisible ultra-violet snowflake magnetic ink imprints uses wireless logistics technologies that make it possible to track and view assets virtually.

In January 2008, UPS became the first package carrier to offer customers a paperless international shipping option and a package return capability to 98 countries and territories. UPS Paperless Invoice enables customers that ship small packages internationally to go paperless. This process integrates order processing, shipment preparation and commercial invoices. UPS Paperless Invoice allows shipments to clear customs using electronic data in lieu of error-prone paper forms.

Capital Intensitycontinued

systems in place. Larger operators remain relatively labor intensive, with skilled labor required for freight forwarding and customs brokerage services. Depreciation costs are fairly low, as the industry has limited assets

in mobile plants such as trucks, planes, railroads and ocean-going vessels. The average annual wage per employee is relatively high, at about $49,600, which reflects the high skill levels that are required.

Level The level of Technology Change is Medium

Level The level of Volatility is Medium



Regulation & Policy The National Customs Brokers and Freight Forwarders Association of America Inc. provides some self-regulation by providing professional accredited courses to its members. For instance, it offers the Certified Ocean Forwarders program that grants the distinction of professional ocean freight forwarder to qualified individuals.

Customs brokers are well-regulated and licensed by the US Treasury Department. The Federal Maritime Commission (FMC) licenses ocean freight forwarders, while the International Air Transportation Association (IATA) accredits international air cargo agents. Surface freight forwarders are accredited by the Surface Transportation Board and provide cargo insurance. According to Section 641 of the Tariff Act, the Treasury must individually and personally license customs brokers, and brokerages must obtain a separate license. A copy of the insurance policy must be filed with the

STB for the protection of the forwarders customers. To be licensed, a freight forwarder brokerage or agency must pass a comprehensive test.

Following the September 11, 2001 terrorist attack on the United States and the subsequent war against terrorism, the Federal Aviation Administration (FAA) introduced a new security-related directive pertaining to cargo that originates from a foreign location destined for the United States via a passenger aircraft. Carriers must review all documentation submitted by any forwarder prior to uplifting any shipment. This includes, but is not limited to, the waybill, manifest and commercial invoice. The FAA also requires carriers to contact each shipper directly to verify the contents of the shipment. If the shipper cannot be identified or contacted by the airline, the shipment will not be accepted for carriage.

Revenue Volatilitycontinued

become increasingly dependent on international trade as a revenue stream. Accordingly, industry revenue has fluctuated in line with trade. The depreciation of the US dollar has added

to revenue volatility. IBISWorld projects that revenue volatility will decline over the next five years as the economy and industry return to more normalized growth patterns.


Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualized revenue growth (%)30 10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale


A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level & Trend The level of Regulation is Medium and the trend is Steady



Industry Assistance This industry is not directly affected by tariffs. However, customs brokers need to understand the prevailing tariff schedules. The National Customs Brokers and Freight Forwarders Association of America provides training and advocacy services for its members.

Trade facilitation programs conducted by the Office of the United States Trade Representative indirectly assist international trade between the

United States and the rest of the world. Programs include free trade agreements, Bilateral Market Access Agreements and the Generalized Systems of Preferences (GSP). The GSP is a program designed to promote economic growth in the developing world and provide preferential duty-free entry for about 5,000 products from nearly 150 designated beneficiary countries and territories.

Regulation & Policycontinued

All companies involved in ocean, truck or rail forwarding must be licensed by either the FMC or the Interstate Commerce Commission. Since deregulation of the US air transportation

industry, air freight forwarders have not been subject to formal licensing requirements; however, most air cargo agents involved with international forwarding are endorsed by the IATA.

Level & Trend The level of Industry Assistance is Low and the trend is Steady


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

Total Trade Value ($b)

2005 73,835.6 15,435.3 54,207 49,947 219,304 -- -- 10,273.1 N/A 3,553.92006 76,452.6 17,197.4 56,868 52,335 237,760 -- -- 11,325.7 N/A 3,811.02007 89,567.1 18,338.5 70,812 65,974 265,074 -- -- 11,858.0 N/A 3,998.22008 88,996.1 19,825.4 72,303 65,913 296,989 -- -- 13,707.2 N/A 4,030.52009 76,966.1 16,786.7 70,172 63,971 278,475 -- -- 12,187.9 N/A 3,559.82010 87,109.9 18,667.0 72,076 65,951 269,280 -- -- 12,189.8 N/A 3,993.72011 95,429.3 20,638.5 68,753 63,220 271,881 -- -- 13,428.1 N/A 4,226.92012 98,844.9 21,623.1 70,850 65,096 280,480 -- -- 13,881.2 N/A 4,345.62013 100,651.5 22,266.2 70,728 64,932 283,853 -- -- 14,091.3 N/A 4,432.32014 102,400.3 22,673.5 72,394 66,464 289,467 -- -- 14,353.1 N/A 4,655.72015 107,611.1 23,646.8 73,329 67,181 299,514 -- -- 14,967.4 N/A 4,922.42016 112,854.0 24,667.1 75,946 69,499 311,757 -- -- 15,637.9 N/A 5,152.02017 118,189.8 25,703.9 77,010 70,339 322,249 -- -- 16,270.7 N/A 5,342.92018 122,925.6 26,587.8 79,549 72,605 333,771 -- -- 16,887.6 N/A 5,514.72019 127,619.0 27,452.4 80,525 73,387 343,268 -- -- 17,450.2 N/A 5,659.5Sector Rank 3/42 6/42 6/42 6/42 7/42 N/A N/A 7/42 N/A N/AEconomy Rank 96/1301 124/1301 116/1300 111/1300 135/1301 N/A N/A 123/1301 N/A N/A

IVA/Revenue (%)

Imports/ Demand

(%)

Exports/ Revenue

(%)

Revenue per Employee

($000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2005 20.90 N/A N/A 336.68 13.91 4.05 46,844.11 0.112006 22.49 N/A N/A 321.55 14.81 4.18 47,635.01 0.122007 20.47 N/A N/A 337.89 13.24 3.74 44,734.68 0.122008 22.28 N/A N/A 299.66 15.40 4.11 46,153.90 0.132009 21.81 N/A N/A 276.38 15.84 3.97 43,766.59 0.122010 21.43 N/A N/A 323.49 13.99 3.74 45,268.12 0.132011 21.63 N/A N/A 351.00 14.07 3.95 49,389.62 0.142012 21.88 N/A N/A 352.41 14.04 3.96 49,490.87 0.142013 22.12 N/A N/A 354.59 14.00 4.01 49,642.95 0.142014 22.14 N/A N/A 353.75 14.02 4.00 49,584.58 0.142015 21.97 N/A N/A 359.29 13.91 4.08 49,972.29 0.142016 21.86 N/A N/A 361.99 13.86 4.10 50,160.54 0.142017 21.75 N/A N/A 366.77 13.77 4.18 50,491.08 0.142018 21.63 N/A N/A 368.29 13.74 4.20 50,596.37 0.152019 21.51 N/A N/A 371.78 13.67 4.26 50,835.50 0.15Sector Rank 41/42 N/A N/A 9/42 39/42 35/42 20/42 6/42Economy Rank 942/1301 N/A N/A 491/1301 818/1301 1014/1300 626/1301 124/1301

Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Total Trade Value (%)

2006 3.5 11.4 4.9 4.8 8.4 N/A N/A 10.2 N/A 7.22007 17.2 6.6 24.5 26.1 11.5 N/A N/A 4.7 N/A 4.92008 -0.6 8.1 2.1 -0.1 12.0 N/A N/A 15.6 N/A 0.82009 -13.5 -15.3 -2.9 -2.9 -6.2 N/A N/A -11.1 N/A -11.72010 13.2 11.2 2.7 3.1 -3.3 N/A N/A 0.0 N/A 12.22011 9.6 10.6 -4.6 -4.1 1.0 N/A N/A 10.2 N/A 5.82012 3.6 4.8 3.1 3.0 3.2 N/A N/A 3.4 N/A 2.82013 1.8 3.0 -0.2 -0.3 1.2 N/A N/A 1.5 N/A 2.02014 1.7 1.8 2.4 2.4 2.0 N/A N/A 1.9 N/A 5.02015 5.1 4.3 1.3 1.1 3.5 N/A N/A 4.3 N/A 5.72016 4.9 4.3 3.6 3.5 4.1 N/A N/A 4.5 N/A 4.72017 4.7 4.2 1.4 1.2 3.4 N/A N/A 4.0 N/A 3.72018 4.0 3.4 3.3 3.2 3.6 N/A N/A 3.8 N/A 3.2

2019 3.8 3.3 1.2 1.1 2.8 N/A N/A 3.3 N/A 2.6Sector Rank 30/42 26/42 8/42 8/42 16/42 N/A N/A 21/42 N/A N/AEconomy Rank 886/1301 824/1301 432/1300 389/1300 563/1301 N/A N/A 694/1301 N/A N/A

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the real growth or decline in industry metrics. The inflation adjustments in IBISWorlds reports are made using the US Bureau of Economic Analysis implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industrys contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industrys life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industrys products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a companys profitability. It is calculated as revenue minus expenses, excluding interest and tax.

Industry Jargon

IBISWorld Glossary

INTEGRATED LOGISTIC SERVICES Provision of transportation activities from door to door through the vertical integration of the supply chain.

JUST-IN-TIME (JIT) A strategy implemented to improve profitability by reducing inventory and purchasing the raw materials that are needed for the immediate term only.

LESS-THAN-CONTAINER LOAD (LCL) Shipments that do not occupy the space of a single standard cargo container.

LESS-THAN-TRUCKLOAD (LTL) When carriers fill trucks with merchandise from several companies, as opposed to one firm. Combining multiple shipments allows carriers to be more efficient.


Jargon & Glossary

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than 20%; high volatility is 10% to 20%; moderate volatility is 3% to 10%; and low volatility is less than 3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

IBISWorld Glossarycontinued

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