Small forwarders buckling under weight of big guys

More and more small freight forwarders are being forced to shut down as intense price competition from bigger players is ruining their business prospects, industry sources said last week. "This will be a year of accelerating consolidation, as more and more forwarders are (going) out of business," said Grzegorz Bielowicki, the president of Euroad forwarding company. The number of companies rendering forwar-ding services has fallen by more than half over the past two years, he said. Freight forwarders take shipment orders from clients and either execute the orders themselves or contract them out to carriers. Some 1,000 to 2,000 companies in Poland claim to be forwarders, although most of them are carriers that try to provide forwarding services, according to Franciszek Jaśniak, the president of the Polish International Freight Forwarders Association (PIFFA). The precise number is about 500, he added. "There are many people in the market that have a fax machine, a chair, one client and one cooperating carrier," said Bielowicki, who estimates the freight-forwarding market to be worth about €1 billion. Although the industry is still fragmented, the largest 20 forwarders already control some 20% of the market share for services - a percentage that will rise as small forwarders continue to drop out of sight.

Cutthroat biz Such small operators are now losing ground as they suffer from a price war that the current economic recession and they themselves created, industry sources said. The forwarding business is more homogeneous than other industries, and companies find it difficult to differentiate their services from competitors, inviting fierce price competition, Bielowicki said. Rates began tumbling in 1998 and have now slipped by nearly 15%, he said. In addition, mounting pressure from clients for cheaper forwarding services has forced small carriers and forwarders to drop their margins below profitability levels, they said. "Through price competition, we have killed many foreign carriers in this market, but now we're killing ourselves," said Janusz Łacny, the president of the Association of International Road Carriers in Poland. Others agree. "Price is the client's decisive criterion now," said Tadeusz Zasadziński, the marketing director at Warsaw-based forwarder Przedsiźbiorstwo Spedycyjne Trade Trans. As a result, small forwarders have to forego capital investments to improve their services as prospective clients move to larger providers, according to Bielowicki. "Small firms are not able to invest in an IT system and to monitor their carriers," he said. And while small firms have the advantage of selling less expensive services than the big players, which are required to include va-rious fixed costs in their prices, carriers are shunning small forwarders since they are less reliable than larger ones, Łacny said. "A small forwarder can take a (shipment) order for little money," he said. "But many of them may live for a while and then they go bankrupt without paying their liabilities either to their contractors or to the state." Łacny, who owns a medium-sized carrier, said that some of his firm's receivables from small forwarders are unrecoverable. "A few firms owe me money, but so what?" he said. "They've announced bankruptcy, and all I can do is turn to God and weep." Small forwarders are also falling victim to payment delays that are plaguing the eco-nomy. Bielowicki said that customers who used to pay for services after 30 days two years ago are now making him wait 70-90 days. Since Euroad pays its carriers after about 45 days, the firm needs more cash to pay its suppliers. "In such a situation, a big forwarder can take a loan, shift capital from other positions or use factoring services," Bielowicki said. Such options, however, are unavailable to small forwarders, which has added to the increasing number of shutdowns, he said. "Small operators often don't know how to talk with a bank, or banks demand too high interest on loans," Bielowicki said. "Or the bank doesn't even want to provide credit, saying that the small firm has too few resources to guarantee repayment."