Freight forwarding market remains highly fragmented

By Danny

Judging by their financial results, some of the leading freight forwarders are increasing their market-share. Yet, objective methodology suggests there is little evidence of increased consolidation in the sector.

Applying the Herfindahl-Hirschman Index methodology shows that there has been remarkably little change in the structure of the freight forwarding business, either in sea or in air freight. The Herfindahl-Hirschman Index methodology applies a weighted system to market share data in order to determine the dominance of leading players. Using a scale of 0 to 10,000, a value of below 1,000 indicates a ‘un-concentrated’ market, while a value of between 1,000 and 1,800 indicates a ‘moderately concentrated’ market. If the number is above 1,800, the market is said to be ‘highly concentrated’.*

The freight forwarding market had an index value of 255 in 2011. This indicates a fragmented market with high levels of competition. While a very gradual upward trend in the index was seen between 2007 and 2010 (implying that larger players were gaining market share), the index fell back slightly in 2011.

Calculating the Herfindahl-Hirschman Index value for the whole forwarding sector would be very difficult, in that it involves the impractical task of identifying the market share of every individual company operating in the industry.  However, using market share data for the leading few players provides us with a reasonably accurate idea of the level of consolidation within the industry.

Through a break-down between air and ocean forwarding, this level of concentration is consistent across both industries; although the index for air freight indicates slightly more fragmentation compared with ocean freight. This is perhaps a little surprising bearing in mind the role of such forwarders as DHL, yet it only serves to highlight that despite their clear position as the biggest forwarder in air freight, they hold a very modest overall proportion of the market.