18.5.2021 | Forwarding

Forwarding set for sharp uptick in volumes in 2021

Following a year in which volumes tumbled, the market is expected to see strong real growth. 

Ti (Transport Intelligence) projects the market will grow by 11.6% in real terms (holding prices and exchange rates constant).

The fast rebound is in part a reaction to the decline in volumes last year. The air freight forwarding market experienced a severe contraction after air travel plummeted and procuring belly-hold space became extremely challenging. The initial economic downturn also had an outsized effect on air freight volumes. With manufacturing coming to a halt, the demand for air freight in just-in-time supply chains fell drastically. Despite being an early casualty of the crisis, the sea freight forwarding market experienced a less severe decline. The impact of lockdowns and other public health restrictions on consumer behaviours provided some respite for the market. It led to a shift towards goods purchases and away from services, which helped the market retain volumes. Recovery was seen during the second half of the year, as consumer demand, on the back of various country-specific fiscal support packages, bounced back.

The year ahead is instead likely to see much stronger volumes. With the vaccine roll-out starting to take effect in developed markets, the more favourable macroeconomic conditions are likely to allow for a strong recovery in the market. According to Ti’s COVID Recovery Tracker (CRT), the market is projected to be 1.9% larger in real terms than in 2019. The air freight market, projected to grow by 14.9% in 2021, has a less certain recovery, with the CRT indicating the market is expected to be just 0.7% larger than pre-Covid levels. The market will benefit from an inventory re-stocking cycle, where sales growth exceeds the rate of replenishment of inventories. This tends to lead to high growth in the air freight market as shippers use the mode to rapidly re-stock inventories to meet demand. With a 7.6% growth expected, the sea freight forwarding market is projected to be 3.5% larger than it was pre-Covid. The market has already seen signs of rapid recovery in some areas, notably on Asia-US trade lanes. The sky-high freight rates and extreme congestion that have recently characterised the market could hinder the recovery. However, in part, at least, these conditions indicate the strong underlying demand recovery in the market.

Over the medium term, the market is projected to grow at a real 2020-2025 CAGR of 5.0%. The air freight forwarding market (CAGR: 5.4%) is expected to see higher growth than the sea freight forwarding market (CAGR: 4.5%). Air will benefit from the inventory restocking cycle that started in late 2020 and continued strong demand in the high tech and e-commerce sectors. Typically, in ‘normal’ economic conditions, sea freight tends to grow at a faster rate than air freight. This is because there is more certainty around likely demand levels, enabling shippers to opt for less expensive sea freight services. However, the inventory re-stocking cycle due to take place in 2021 gives air freight a stronger 5-year growth rate projection.

The CRTs for 2025 show a slightly different take on the market segments. Given the depth of the decline in air freight in 2020, the CRTs for 2025 reveal that the sea freight forwarding market will look stronger relative to its pre-Covid position. The tracker shows the air forwarding market is projected to be 14.1% larger in 2025 in real terms versus the market size in 2019. Meanwhile, sea forwarding is projected to be 20.1% larger. Overall, this means the market is expected to be 16.7% larger than pre-Covid levels, showing a convincing recovery for the freight forwarding market.

Source: Transport Intelligence.