The fate of SME forwarders in a world of ‘mega’ players

At the top of the freight forwarding tree, the major players are getting bigger and bigger, either through acquisitions or organic growth.

While the sector remains heavily fragmented and the biggest market share for any single company is estimated as being no more than 10%, what is the outlook for small and medium-sized (SME) forwarders when scale is the prevailing mantra?

Philipp Gillmann is managing director and head of Transportation & Logistics EMEA, at Barclays Investment Bank. Based in Frankfurt, he has advised clients – forwarders, ocean shipping lines, and venture capital funds – on some of the major M&A deals in the sector in recent times.

Benefits of Scale

In an interview with AJOT, he provides some insights into what the future may hold for SMEs and how they can survive, even thrive, in a sector dominated by their larger rivals.

Gillmann began by underlining that in forwarding, much more so than say, contract logistics, there are clear benefits of scale, defined as having end-to-end visibility and control over the whole logistics chain.

He took as an example a forwarder handling files for a shipper who exports tens of containers of power tools from China to Europe in containers every week. The necessity of scale is apparent; scale on the ‘origin’ services side – consolidating the shipment and getting it to a port in China, scale in getting competitive shipping rates from major ocean shipping lines and airlines and scale in negotiating contracts with sub-contractors. Scale is in being able to organize the ‘destination’ services too and also comes in the form of sophisticated digital systems and in the way the entire flow is handled in terms of visibility and customs.

Niche Verticals

Turning to SME forwarders, Gillmann said that while there remain some who continue to do business for firms in the Fortune 500, their number is likely to decline over time and be limited to their customers’ relatively modest ‘niche’ cargo volumes.

“Indeed, I think serving specific verticals is where the future of SME forwarders’ probably lies, at least in part. For example, there are many, many big forwarders who have shied away from certain verticals, perishables being one.”

He recalled a major M&A deal where the target had built up a solid presence in perishables and was handling a broad range of fresh produce – avocados from Mexico or flowers from Kenya. Following the acquisition, the buyer shed a large part of this business – through both sale and closure – because of the complexity of the business and given margins were not huge as procurement organizations behind shipper customers, namely importer grocery chains are probably among the most savvy negotiators.

Nor are the larger players that keen to be involved in certain logistics and handling services and this too provides opportunities for specialist SMEs, he noted.

Racehorses, Fine Art, Rock Concert Equipment….

Gillmann pointed to other niche verticals with specialist freight transport and forwarding requirements including wild or exotic animals being transferred to zoos or natural sanctuaries, horses flown to racing events across the world, and the shipment of high-value goods, where smaller forwarders are making their mark.

Family-owned Italian freight forwarder, Ferrari, has carved out a niche for itself in luxury watches, jewelry, and fine art, and recently launched an IPO on the Amsterdam stock exchange.

Another example comes from North America where Rock-it Cargo started with shipping rock concert equipment and has since extended its services to live touring, and luxury goods, including cars, sports events – it is the official logistics provider of the FIFA World Cup 2026 – and other experiential events.

As a general rule, the more niche the vertical, the less attractive it is to the bigger forwarders, he observed. This gives some SMEs the opportunity to survive on their own for longer because they serve trade lanes that other people don't want to serve, or they handle goods that other people don't want to handle or because the addressable market is just not big enough to interest a big player.

“However, to re-iterate, when it comes to larger, more mainstream cargo volumes, there are clear benefits of scale because a shipper wants access to a global network, visibility, and good terms (on rates). They want their logistics partner to have significant control over the logistics chain.”

Consolidation Among Smaller Players

Gillmann also shone some light on moves by SME forwarders to acquire their agents in different countries, with the aim of achieving network enhancement and greater competitiveness.

Commercial relations between the two normally function along the lines of halving the gross profit per TEU or tons of cargo, which weighs on the SME’s margin as it still has the job of handling the shipment file which can generate a lot of associated costs, he explained.

Furthermore, agents are realizing they may be better off selling out to SMEs because it gives them the opportunity to either get a decent purchase price or become a shareholder in the larger entity and potentially win business on the back of the broader global network that has emerged. As for the SMEs, they can sell a certain country or region, Australia and New Zealand for example, more efficiently if they fully control the business and can market their brand name.

“This is why we've seen a number of mid-sized forwarders go down this path and acquire their partners from all around the world to build more integrated and coherent networks. To me, the willingness of smaller agents to sell themselves to mid-size forwarders can be hugely synergistic.”

Gillmann cited the case of a medium-sized forwarder who has made no fewer than 45 so-called “add-on” acquisitions of agents and small companies to build a truly global footprint and network.

“From the outside, such businesses may look like a real hotch-potch of things that have been put together in an unorganized fashion; however, if you do the integration right, keep key people and customers, and foster entrepreneurial spirit then such platforms can create tremendous value” he added.