Thunderstorms continue! A number of freight forwarders are disappearing

The freight forwarding industry is in chaos.

"The freight forwarder I worked with ran away" is perhaps one of the most troublesome issues for cross-border sellers. As competition in the industry becomes fierce, freight forwarders are inevitably going through a reshuffle. This year, there have been many incidents of freight forwarders going bankrupt, defaulting on payments, and running away. From Shanghai to Shenzhen, from small freight forwarders to well-known giants, the naked freight forwarders have been knocked down one after another, and the sellers who have been purged have suffered heavy losses.

Along with this, the list of defaulters of freight forwarding companies has spread rapidly in the industry, involving more than 100 logistics companies of all sizes across the country, with the amounts ranging from tens of thousands to hundreds of thousands, and up to millions. However, recently, the editor found that these freight forwarders on the list have slowly disappeared.

Affected by the global economic situation and the gradual decline in freight rates, the profit margins of logistics companies continue to be under pressure, and even the leading freight forwarding companies have seen a decline in profits. In order to save the declining trend, some shipping companies plan to increase freight rates in mid-August. Another increase in freight rates may affect sellers' shipments.

With multiple scandals happening simultaneously, is the freight forwarding industry facing a wave of people running away?

Freight forwarders go bankrupt every year, but this year there are more. Especially since July this year, many freight forwarders have gone bankrupt, including Shanghai Yu* Supply Chain, Shanghai Jin* International Logistics, Shenzhen* Sheng, Shenzhen* He, etc. They are mainly engaged in air and sea transportation to the United States, or sea transportation to Mexico. The following is an incomplete statistics↓

Ai ** Logistics, located in Shenzhen, was established 8 years ago and the company's capital chain was broken;

Shanghai Yu *, Shanghai Jin*, and You* are located in Shanghai and were established 5-10 years ago. One of their actual controllers fled to Japan and owed more than 50 million yuan;

Shenzhen Ze **, Shenzhen Chang**, Shenzhen Zhong**, located in Shenzhen, were established within 5 years and owed a large amount of freight to overseas warehouses;

Shenzhen Mi *, located in Shenzhen, had its capital chain broken, 31 cabinets seized, and more than 60 companies involved;

Zhejiang * Heng, established less than 4 years ago, the person in charge absconded with 14 million yuan and then disappeared;

*He Supply Chain , located in Shenzhen, was established last year and is now deserted;

From the current situation, these freight forwarding companies that have been in trouble are mainly concentrated in Guangdong and Zhejiang. They were established between 4 and 10 years ago. Most of them have problems with their capital chain, such as having their containers detained or a large amount of freight owed. Most of them chose to run away after the company went bankrupt. And they all have one thing in common: the companies are involved in multiple lawsuits, mainly freight forwarding contract disputes.

While the freight forwarding bankruptcy incident has not stopped, the overseas warehouse scam that led to the seizure of 80 containers of a Shenzhen freight forwarder has once again entered the cross-border circle.

It is reported that a Chinese named A rented an overseas warehouse from a landlord last year when the warehouse leasing market in Los Angeles was depressed, and enjoyed the preferential treatment of rent-free period for the first 6 months. Since there was no rent, Chinese named A reached cooperation with several domestic dedicated logistics companies by relying on the "killer weapon" of receiving goods at low prices and providing container unpacking services.

But the good times didn't last long. In February this year, the rent-free period ended. Chinese A tried to raise the price to buy the goods, but the customer didn't accept it and simply refused to cooperate. At this time, Chinese A thought of a way: rent the warehouse to Chinese B at a very cheap price. Chinese B paid the rent to Chinese A on time, but Chinese A only collected but didn't pay. After owing rent for several months, he was sued by the landlord.

The ending was obviously expected. The police directly brought people to seal up the warehouse, and all the goods and vehicles were detained. According to people familiar with the matter, there were 80 containers in the warehouse, 40 heavy containers and 40 dismantled containers, all of which were goods from the Shenzhen freight forwarder. According to local laws, even if the deposit is paid immediately, it will take 3 months to decide on the bail for the goods. At present, the first-leg freight forwarder is still trying to conceal it.

It is not difficult to see that low prices are always a killer weapon, but abnormally low prices are often problematic. This logic can also be applied to freight forwarding bankruptcy incidents. Generally speaking, freight forwarders that are prone to accidents are mostly new companies that have been established not long ago, but you cannot deny the possibility of freight forwarders that have been established for a long time having bankruptcy incidents.

Some sellers reported that on the eve of the Spring Festival, Henan Tai * Logistics was completely deserted. The goods in the park warehouse and the staff in the office building had long disappeared. Many owners who found out about the accident rushed to defend their rights, but they came to nothing. However, according to feedback from many sellers, Tai* Logistics has been in business for more than ten years and is well-known in the local area. The company's delivery and payment are very timely. Until the day before the accident, the company's order-taking platform was still working normally.

So why did Tai* Logistics, which had already gained the trust of a large customer base, also run away? Industry insiders gave the answer, which is that the competition in the industry is becoming more and more fierce, and the reshuffle trend is becoming more and more obvious.

Earlier media analysis data showed that more than half of freight forwarding companies have a lifespan of only about 5 years. Qichacha data also confirms this point, with the cancellation rates of freight forwarding companies established 3-5 years ago and 5-10 years ago being 51.4% and 81.4% respectively. As the industry accelerates its reshuffle, the number of freight forwarding-related companies that have been cancelled and revoked will reach 44,600 in 2023.

When the tide of high freight rates recedes, the naked freight forwarders will also surface. With falling freight rates and serious internal competition, companies that cannot make ends meet have naturally become routine, which has also greatly reduced the trust of many shippers in the freight forwarding industry. It is not uncommon for freight forwarders to get into trouble, but some sellers have been hit many times and can only sigh helplessly: "I am so unlucky."

According to feedback from sellers, their goods have once again entered a freight forwarding company that went bankrupt. When mentioning this freight forwarding company, sellers angrily said that it was full of tricks and was harvesting its peers in reverse. First, it registered a shell e-commerce company, pretending to be a direct customer, and then collected goods from the freight forwarding company; then it pretended to be a seller, found other freight forwarders and said they wanted to send express delivery, and asked the freight forwarding company for payment period; finally, it took advantage of the short and fast operation cycle of express delivery and the difference in payment period to defraud freight.

Due to the huge volume of suspected goods and the rapid receipt of goods abroad, many freight forwarding companies discovered the abnormality too late and were unable to intercept and detain the goods, resulting in both freight and goods being defrauded. According to statistics, the company defrauded more than 8 million yuan in freight from peers and sellers, and more than 20 freight forwarders were also involved. At present, many freight forwarders have chosen to report the case to the police station, and the Longhua District Police Station has already filed a case.

It is undeniable that one of the main reasons why freight forwarders often go bankrupt is that the external environment continues to fluctuate, impacting the logistics industry and accelerating the reshuffle. In the eyes of some sellers: "There are frequent inspections and accounts that are leaking water. It seems abnormal if there are no bankruptcies in a month."

Dishonest freight forwarders were exposed, and a number of bankrupt companies disappeared

In the cross-border circle, there have always been various blacklists, and the logistics industry is no exception. In order to avoid pitfalls of freight forwarding companies with problems, a freight forwarding blacklist has been widely circulated in the industry, involving hundreds of logistics companies of all sizes across the country, including not only the well-known head logistics giants, but also many small and medium-sized freight companies that have been established for a short time.

A deeper look into this blacklist reveals that it mostly covers dissatisfaction with the freight forwarders' services, promised timeliness, and response attitude.

The reasons why freight forwarders are pitfalls were recognized by many peers. The most complained point was the large price fluctuations and the inconsistency between the goods before and after delivery. The second most complained point was the private unpacking and loss of items, not following the agreed logistics method, defaulting on customs clearance fees, and running into water accounts. There are countless reasons to avoid pitfalls like these, and even worse, some sellers confessed that they had encountered freight forwarders withholding bills and blackmailing them.

However, considering that most of the blacklists are filled out anonymously and are subjective, the truth of the above remarks remains to be verified, and we suggest that everyone be rational. But it is undeniable that the chaos in the industry is accelerating the reshuffle of freight forwarders.

Relevant data show that the number of newly established freight forwarding companies has been declining year by year in recent years. There were 89,000 in 2019, and only 15,900 in 2023. In a "List of Maritime Freight Forwarders and Multimodal Dishonest Executors" released by the Ningbo International Freight Forwarders Association, we can see many freight forwarding companies that have gone bankrupt.

More than 100 freight forwarding companies in Ningbo, Fujian, Zhejiang, Shanxi, Shanghai, Yiwu, Shenzhen, Hangzhou, Qingdao, etc. were involved, and the amount of money executed ranged from tens of thousands to hundreds of thousands, and as much as millions. Searching for any of the companies at random, you can find that they all have their own risks, dishonest people being executed, judicial cases, and restrictions on high consumption. Many companies have had their business licenses revoked, or even closed down and disappeared.

The most dishonest behavior of freight forwarders is predictable, and nothing is more dishonest than running away with the money. Some of them collect goods at low prices, ship goods at high prices, and refuse to pay the upstream dealers; some, after receiving the goods, claim that customs have inspected them and ask the owners to raise funds to redeem the goods; some, after collecting the goods and freight, simply close their doors and cannot be found; some even default on paying employees and rent.

The industry is accelerating its reshuffle, cross-border logistics companies are constantly going bankrupt, and freight forwarding companies that have been branded as dishonest are gradually disappearing. A relatively common phenomenon is that freight forwarding bankruptcies are attributed to the company's strategy of attracting goods at low prices. In 2021, a large number of freight forwarding companies are rushing into the market, exacerbating the already fiercely competitive market environment. For this reason, many freight forwarding companies have taken a different approach, choosing to offer low prices to attract goods, and then allocating them to the next buyer at a high price to earn the difference.

For the cargo owners, on the surface, they get a more favorable price, but in reality, the cargo and freight become the "prey" of others. In this case, once the capital chain is broken, there is a great possibility of ransom of the cargo or even running away. The Shenzhen *He we mentioned earlier is such an operation that has been exposed. One cargo owner was deeply touched by this and said that the original freight was only 6 yuan/kg, but the actual ransom fee was as high as 20 yuan/kg.

The industry has long discussed the issue of low-price cargo solicitation. The logistics industry is highly competitive, and a large number of freight forwarders choose to attract customers with low prices to maintain the company's operation. However, it brings a series of harms, including the break of the capital chain, the inability to perform contracts normally, the destruction of the market price system, the triggering of vicious competition in the industry, the impact on the normal operation and development of the company, the decline in service quality, and the reduction of monitoring and safeguard measures for goods during transportation.

Once you fall into the trap, your fate is to have frequent internal problems. Without a technical moat, more and more people have poured in, and coupled with the significant downward trend in freight rates, many freight forwarding companies have gone from initially running out of money to being unable to continue, and finally running away.

For this reason, many freight forwarding companies have begun to save themselves. Many companies have previously announced that in view of the current situation of the shipping market and the liquidity to maintain the company's financial health, they have decided to cancel the existing accounts for customers who cannot pay on time, or even suspend services.

Another reason for the collapse of freight forwarders is that sellers are experiencing a cold reception, sales are decreasing, and the demand for shipments is decreasing. Affected by the overall environment, cross-border sellers are also gradually withdrawing. A freight forwarder who has just entered the industry said, "When I was going around to develop new customers, I found that many companies were empty."

People in the logistics industry have a deeper understanding of the current cross-border market. In their view, the incremental market is gone forever, and they feel more like the cold before the arrival of winter. Small freight forwarders are hanging on half-dead, and they have to ask for low prices if they want to receive goods, but low prices do not bring any profit, and competing with large companies is like hitting a rock with an egg. Naturally, there are continuous financial scandals, and the profitability of freight forwarders is no longer what it used to be.

Shipping prices are rising again, and shipping companies plan to increase freight rates by $1,000

According to media surveys in the first quarter of this year, 73% of small and medium-sized freight forwarding companies experienced a decline in revenue. Among them, 26% of small and medium-sized freight forwarding companies experienced a decline in revenue, with a decline of more than 50%, and only 20% of small and medium-sized freight forwarding companies experienced an increase in revenue compared with the same period last year.

As the world's largest freight forwarder, Kuehne + Nagel's performance has also shown a downward trend. In the first half of this year, Kuehne + Nagel's turnover was approximately US$12.981 billion, a year-on-year decrease of 9%; its gross profit margin was approximately US$4.79 billion, a year-on-year decrease of 8.1%.

In terms of details, the net income of the marine logistics business was approximately US$4.558 billion, a year-on-year decrease of 17%, and the container cargo volume reached 2.099 million TEUs. In terms of air logistics business, the net income in the first half of the year was approximately US$3.811 billion, a year-on-year decrease of 4%, and the air cargo volume reached 1.008 million tons, a year-on-year increase of 5%.

While both turnover and profits declined, cargo volume in the first half of the year increased slightly by 5,000 TEUs, which also reflects the current market situation. This is under the premise that Kuehne + Nagel made layoffs.

Not only Kuehne + Nagel, but also logistics companies such as Sinotrans and Huamao Logistics are under pressure. Data shows that although Sinotrans recorded a year-on-year growth rate of 3.50% in net profit in 2023, its total revenue shrank by 6.94% year-on-year; Huamao Logistics' revenue and profit both fell by more than 30%.

The decline in freight forwarding company performance is also closely related to freight prices. The Shanghai Export Container Freight Index shows that freight rates on all routes have fallen for four consecutive weeks. Among them, the decline in the West Coast of the United States has remained at 6% for three consecutive weeks, and the declines in the Mediterranean, East Coast of the United States, and Europe routes have widened to 5.18%, 2.21%, and 1.68% respectively.

In order to save the declining freight rates, shipping companies including COSCO SHIPPING, MSC, CMA CGM and Evergreen Marine have planned to increase freight rates on their US West Coast and East Coast routes, with an estimated increase of between 9% and 15% starting from August 15.

Currently, many shipping companies have notified their customers that starting from August 15, the freight rates for each 40-foot container in the East and West Coast of the United States will be increased by US$1,000, thus curbing the downward trend of freight rates. The Shanghai Containerized Freight Index shows that the freight rate from Shanghai to the West Coast of the United States has fallen by about 7% from the previous week, averaging US$6,663/FEU, but is still higher than US$1,943 a year ago.

Although the freight rate increase can ease the operating pressure of shipping companies, it will directly increase transportation costs for shippers, especially for companies that rely heavily on trade routes from Asia to the west coast of the United States.

Prior to this, the freight rates from Asia to the East Coast of the United States showed a downward trend, down 2% from the previous week, and the average freight rate remained at US$9,557 per 40 feet, but the capacity of this route was basically the same as the same period last year, exceeding 2.75 million TEUs. The freight rates from Asia to Europe were also relatively stable, averaging US$4,991 per 40 feet, and there is no news of an increase.

Market analysis agency Linerlytica reported that the capacity of routes from Asia to the West Coast of the United States and Mexico has increased significantly, breaking the previous tight supply and demand balance, and the problem of declining capacity utilization is particularly prominent. In addition, freight rates may rise in late August. An industry insider said that since BYD has negotiated to ship 30,000 vehicles to Brazil, the delivery period may be brought forward to late August. It is expected that the freight rates on the South American East Coast route will soon reverse, stop falling and rise, and the prices of other routes may also be affected.

Freight forwarding companies have different views on this. Some freight forwarding companies said that the current market demand is not enough to directly drive up freight rates, unless there is an emergency that leads to insufficient capacity. Other freight forwarding companies said that if there is sufficient cargo volume, shipping companies can increase freight rates by reducing the number of flights, and price increases may be possible.

The third quarter is a traditional peak season, with shopping carnivals such as Halloween, Thanksgiving, Black Friday and Christmas holidays, and its freight volume is still highly anticipated. Industry insiders expect that the shipment volume will be concentrated from late August to mid-October. However, the port strike may have a certain impact on freight.

The International Longshoremen's Association ( ILA) said it will revise its final contract demands at a wage board meeting next month, and if no agreement is reached, port worker members along the U.S. East Coast and Gulf Coast may strike in early October.

In this regard, the U.S. shipping industry has a polarized attitude. Some industry insiders said that "it coincided with the U.S. election, and the ports would compromise on the agreement and there would be no strike," but some shippers warned that "if an agreement cannot be reached, it will have a considerable impact on the U.S. economy."

If there is a strike at ports in the eastern United States, it will bring huge challenges to the local supply chain. In addition, the obstruction of peers due to the drought in the Panama Canal and the ongoing Red Sea crisis are flashing warning signals. Currently, American retailers are placing orders in advance to cope with possible shipping disruptions and even the risk of freight rate increases. Relevant sellers should also pay attention and choose the right time to prepare stocks.

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