Major global forwarders are gradually concentrating their control of the fragmented ocean and air freight forwarding sectors, according to research by London-based consultants Transport Intelligence (TI).
Using the Herfindahl-Hirschman Index, 'an economic tool that more accurately measures market presence of leading companies than a simple measure of market share,' TI said that since 2007, the top global forwarders are slowly but surely grabbing share away from smaller, localized forwarders.
'In 2005 the index registers a figure of 221.62,' TI said. 'This is higher than the figure of '100 or below,' which would indicate a very fragmented and competitive market structure, but is markedly less than 1,000, which is the marker for more concentrated sectors. One thousand would indicate a sector with large players with substantial pricing power.'
From 2005 to the beginning of 2007 the index fell slightly, to 205, indicating the larger players were losing market share.
'However, by 2008 the market structure appears to turn markedly, hitting 227 in that year and continuing to climb steadily to 258 in 2010,' TI said. 'The quantitative change is not huge but the trend is clear. The sector is consolidating with greater power gravitating towards the top 10 forwarders.'
TI said the index just measures concentration of power, not the reasons behind it.
'These results do raise the question of what is driving this trend,' TI said. 'Is it a passing phase, possibly driven by the recession, or does it reflect a secular change in the structure of freight forwarding? The latter assertion might well have some substance to it. Heavy investment in information technology by larger firms has improved not just productivity, but also the ability to respond to short-term changes in the market. The big global forwarders may also be better positioned to serve larger customers whose supply chain dynamics are so important in driving world trade. Either way the Herfindahl-Hirschman Index suggests that the structure of the global forwarding market is slowly changing.'