Forwarder profitability faces pressure despite US-Iran peace deal
Freight forwarders are expected to see profitability remain under pressure despite a peace deal being reached by the US and Iran.
The founder and chief executive of forwarder profitability platform OntegosCloud Oliver Gritz said that the forwarding market will be hoping the peace deal will lead to a period of reduced supply chain disruption and a more stable operating environment.
However, he added that many challenges actually emerge during recovery periods.
“There’s a common assumption that when disruption declines, profitability improves,” said Gritz. “In reality, some of the greatest pressure on margins can emerge during the transition from volatility to stability.
“For example, a customer may expect freight costs to fall as soon as geopolitical tensions ease and insurance markets begin to stabilise.
“However, the forwarder may still be operating with elevated insurance premiums, higher fuel prices, disruption-related contingencies, repositioning costs and contractual commitments negotiated during a more volatile period.
“When customer expectations adjust faster than operating costs, the result is often margin compression rather than margin recovery.”
He added that procurement teams are likely to seek lower transportation costs, while temporary surcharges come under greater scrutiny and competitive pricing pressure intensifies.
“The first thing that recovers is customer confidence,” said Gritz. “The last thing that recovers is often profitability. That’s where margin pressure emerges.”
Gritz added that maintaining commercial discipline, protecting margins, recovering revenue consistently and converting operational recovery into financial performance may become a much more important differentiator than many expect.
“The freight industry has become highly effective at navigating disruption,” said Gritz. “The challenge facing forwarders now is different. Stability is expected to return, but profitability does not automatically follow.
“The companies that recognise that early will be in the strongest position as the market moves through the second half of the year.”
“Stability may return in weeks but profitability and specifically cost conversion may take quarters.”
This week, US president Donald Trump signed a 14-point agreement with Iran that will result in the opening of the Strait of Hormuz, an essential artery for the transport of oil that has been closed since the start of fighting in February.
The closure has massively pushed up jet fuel prices while the fighting itself has resulted in supply chains shifting away from the Middle East, although operations have been returning since airspace reopened.
The higher cost of fuel also put consumer spending under pressure.
Responding to the news that a deal was likely to be signed, the US Airforwarders Association (AfA) earlier this week cautiously welcomed the agreement, which it said could help ease pressure on consumers and businesses in the US, and the wider global economy.
“The airfreight industry now needs clarity on how the Strait of Hormuz will reopen and free passage will be enforced,” the AfA said.
The news was also welcomed by Logistics UK, although the organisation warned that a return to pre-conflict operations could take time.
“Reports that the conflict could soon be over will be welcomed across the globe, but it will be months before supply chains are operating as they were pre-conflict,” said Logistics UK chief executive Ben Fletcher.