Freight: Fight or Flight?

It is said that ‘Every crisis is an opportunity.’ Covid-19 pandemic is no different. It disrupted the supply chain management industry and hastened the business transformation process. Currently, the supply-chain industry is looking at greater technology integration, effective cross-regional collaboration, optimized pre-fulfilment speed and stronger supply-chain talent to transcend the current crises, galvanize industry 4.0 implementation initiatives and pave way for industry 5.0

The Pre-alert

Citigroup, United States of America, 1999.

The merger between Citicorp and Travelers Insurance, a large corporation that owned and controlled the investment bank Smith Barney, would in many ways alter the course of history in modern day economic growth of nations and its consequences. At the core, the merger which created the vast conglomerate involved with banking, insurance and securities would directly stand against the fabled Glass-Steagall Act of 1933. Simplified, the act came into force after the Wall Street collapse of 1929 wherein, overenthusiastic commercial banks got into investments in stock market, buying stocks in private corporations for resale to public. The pursuits of these institutions in the hunt for abnormal profits more often than not clouded their judgments, eventually leading to the collapse. The Glass- Steagall act made sure that commercial banks and investment banks are kept forever apart.

Cut to the present, the largest financial conglomerate in the world now (approximately us$70bn)would be empowered to trade in stocks, accept deposits, disburse loans, sell insurance and operate a plethora of financial activities all under one name: Citigroup. The banking lobby wanted Glass-Steagall act abrogated and they managed with politicians on their side. This undoing, however will pave the way for the world to be brought to its knees in the form of a financial catastrophe in just under a decade.

The real estate, especially, the housing boom in USA saw the age of derivatives, be it RMBS (residential mortgage-backed securities) or CDO (collaterized debt obligation). The mortgage houses had to just sell the mortgages to any of the investment banks, like Meryl Lynch or Lehman Brothers. In turn, they were packaged as RMBS or CDO’s the world over to banks such as HSBC or even Japan’s Mitsubishi. The moment of truth arrived in the form of subprime mortgage crisis, that occurred when banks over sold mortgages to fulfil the demand of mortgage backed securities sold in the secondary market.

On 15 September 2008 Lehman Brothers, the giant US investment bank filed for bankruptcy, creating waves of aftershock that ultimately turned out to be a tsunami of destruction and an armageddon in itself. The global money markets froze, and banks and insurance companies across the world got crippled with sheer inability to borrow. The collateral damage and consequences came in the form of trade slippage (biggest fall after great depression) collapse of business confidence and industrial production, exacerbated by the economy’s free fall into recession.

This was a pre-alert; 2020 was ahead of the curve

Triggering the fight or flight response

Warning signals, imminent danger or threat encountered by humans are met with timely reactions, much like a standard operating procedure, preparing the homo-sapiens quickly for a response. The body gets prepared, even without your knowledge providing complete freedom for the mind to activate and choose the response direction: stand to put up a fight or flee, to safety, that is. There is certainly a department in our body to deal with threats, converting itself to a command and control centre at the time of crisis. Consider this, for example, an apparently dangerous or stressful incident can make the heart pound and breathing quicken. Muscles tense up and beads of sweat appear, sounds familiar?

Labelled as the acute stress response, this bodily reaction to stress and threat levels is achieved through the activation of the sympathetic nervous system.

How organisations responds to stressful situations is not different, after all, they are also run by humans. To survive and sustain is a basic human attribute and therefore in the face of danger, decisions are arrived at and companies tend to move in a particular direction, towards the shores, in search of safe banks waiting for the storm to pass. As stressful situations unfurl the immediate reaction is to check for the pointers of direction- fight or flight (flee)?

Ofcourse there are no right or wrong answers here. We have moved from complexities in business to paradoxes- making us quite often to choose between two wrongs.

Virus and epidemiology have been sought after news items in recent times. When calamity strikes, we trace historical roots looking for precedents, eyeing its most profound consequences. Virus was new, the financial armageddon it presented had some parallels.

Globalization and the trade upswing that was set in motion more than a decade before the millennium endeared quite well into mid 2000 before making the closest brush with recession cycle which many of us remember, that had been brought about by the global financial crisis of 2008. Completely man-made, the response to the crisis, originating in USA had to be with governmental intervention in terms of its obligation to save livelihoods and the falling financial institutions. The global financial losses were compared with fallout after Spanish flu of 1912. Little over a decade into the 2008 crisis, it’s hard to recollect whether there was a recovery or a journey to make up the lost wealth, thanks to the geopolitical changes and growth of a new breed of right wing world leaderships.

COVID-19 has disrupted the free movement of people, trade and services, triggering a decline in demand and a slump in supply. Since a shrinking economy has lowered tax collections, relief measures have been funded by ballooning deficits. In turn, these have led debt levels to rise dangerously.

The dark clouds are everywhere and with globalization and global economy on a free fall, the most pertinent question is being brought forward.

The ubiqitous freight forwarder looks for answers- What happens to the freight?: fight or flight?

What eventually happened to the global logistics industry post 2008? The financial crisis of 2008 had a negative impact on the profitability on the logistics industry, with the market capitalisation of the biggest players falling from around $700 billion to approximately $400 billion – the same level it had been in 2004. But the sector has recovered since 2008, with the market capitalisation of the top logistics companies growing at an average of 15% annually over the six years to 2014.

There could be no doubts and arguments about the fact that nothing changed dramatically for the industry other than the trends that were emerging back then were accelerated and brought forward at a greater pace over the next decade well into 2020. We look at some of the prominent ones.

Consolidation (M&A activities)

The global logistics industry was pegged at us$1.7 trillion in 2010. The top 50 organisations, which control about one-third of the global market, saw revenues grow three times faster than for the industry as a whole. At the same time, however, profitability kept dropping: Even before the global economic crisis of 2008 unfurled, EBITDA at leading logistics companies had plummeted by nearly 25 percent from 2004 through 2008. Despite growth in revenues, many of these organisations were unable to leverage their market value robbing their stockholders returns on their investments. One of the primary reasons for this have been the penchant for M&A drives targeted at consolidation. By 2010, the top 40 organisations among themselves had completed close to a whopping 250 M&A transactions, certainly adding bulk in revenue statements. Not difficult to guess that profitability rose only in few and unusual cases among these transactions.


Unarguably, the most important technology trend of this new era(especially the last decade) has been the Internet of Things, a network of smart devices, sensors and the cloud that allows the physical world and computer systems to interact directly. Logistics, a mobility industry in any case came across as a biggest beneficiary, improving its reliability with IOT devices enabling streaming live data within the extended supply chains. Falling data prices along with cheap storage, big data analytics, blockchain and artificial intelligence have been much sought after areas of advancement in supply chain planning and execution functions since the last decade.

Freight platforms

If there was one concept of differentiated offering that the logistics industry brought up, pretty much since the peak of consolidation years around the last decade has been that of the new digital entrants. What was on offer for the customers have been seamless experience they already enjoy as consumers: ease of access, price transparency, and swift, near real time integrated service. Take freight forwarders and carriers. Platform-centric, online marketplaces were able to connect shippers directly with both Logistics Service Providers (LSPs) and carriers. By enabling instant freight quotes, rate management and business intelligence to manage contracts and automate the quotation and sales process, these models developed capacity spot markets that challenged the freight forwarders’ position as the system’s main capacity brokers. Shippers with less complex shipments could easily switch to the new, platform-based services. Carriers, meanwhile, could use the online marketplaces to conduct business directly with shippers.

Integration of services by carriers

Post 2008, the container shipping industry gathered steam on offering its customers packaged solutions and integrated services, that went beyond anything attempted hitherto on ground. The concept, having had moderate results have been progressive through the ensuing years enabling the shipping lines to make the end to end logistics a bigger part of their overall business. Despite the pressure to keep inventory low and facilitate just-in-time deliveries, the large scale adoption by shippers have been elusive owing to myriad of regulations (cross border) and touch-points; something that only the forwarding communities through their offices and network get to manage as a part of their processes. The impetus however has been technology advancements and enhanced shipping complexities that has given a fillip to the shipping lines like CMA CGM and Maersk to upend the scope and size of their investments in more tailored solutions to offering the end-to-end services making the outfits a full company play rather than standalone attempts in navigating larger wallet share of businesses from the cargo owners.

2008 financial crisis & post coronavirus aftermath

The post corona life is likely to be modelled on 2008 financial crisis aftermath, argues Ruchir Sharma, the best selling author of The 10 rules of successful nations in a NY times article. Global trade breached growth levels of twice that of the world economy before 2008, but has barely kept pace in recent years, presumably owing to the geopolitical and global leadership changes. The article projects global trade levels are projected to fall around 15 percent in 2020 — at least three times the expected fall in economic output. That the post virus recovery for the world economy would be subject to divisive trade politics is given, as can be seen from heightened trade wars, amidst protectionist and nationalistic sentiments across key geographies in play now.

Globalization already went on a reverse propulsion, well before the onset of the pandemic. The debt markets are seeing the after effects of deglobalization. Pragmatic expansionism, practiced by leading super powers and emerging economies around four decades back in the post Cold War era, aided by falling interest rates and financial deregulation made way for explosive global lending, which, tripled the world’s debt burden to three times that of its economic output, by the time financial crisis of 2008 unfurled. The credit meltdown it brought hit the business and household confidence hard, cutting access to any further credit and inducing a debtphobia in the process. From Americas to Europe to Asia, the pandemic has done exactly the same, bringing organisations which are heavily indebted to the brink of bankruptcies and collapse, allowing those left over ones to manage with their own survival kits. Much depends on the only class of borrowers left, the governments who still have the confidence to take on further debt, many of them who have already committed trillions of dollars in reforms and stimulus plans to save their work and workforces.

Fight, not flight for the freight forwarder

The coronavirus pandemic has certainly ruptured all previously held beliefs in complexities concerning freight forwarding businesses and have raised existential questions for many of them. The business as usual approach no longer exists.

Amidst fierce competition and falling margin levels, the freight forwarder is historically down on tolerance zones of maintaining the business profitability. The post pandemic shifts in the environment will predicate the forwarder’s relevance to customers changing service requirements. For one, the macroeconomic contraction will affect the logistics services, especially in cross border movements as forbearance on global trade will reduce significantly. A consequential shift aided by nations taking strong positions with respect to sourcing of products will see customer’s supply chain alter considerably, all focus likely to de-risk unpredictability and stock outs in addressing the fulfilment scenarios.

The 2008 financial crisis and its aftermath set up a backdrop of new trajectories for the logistics providers ecosystem as described before, and many of them will endure and accelerate at a faster pace, however, it’s vital to look further and plan for the new normal which will emerge post COVID-19, furtherance of existing trends notwithstanding. Here are some recommendations, what forwarders should be prepared for.

Technology as a tool in enhancing flexibility

Technology is no more nice to have tool for productivity. Another parameter to consider now is about incorporating flexible work force requirements while planning seriously for technology initiatives. The IT systems should have bandwidth, security and protocols that deal with remote working and scalability

Rethink people

Time to automate non customer facing or non core tasks. Logistics service provision relies on repetitive and discontinuous transactional cycles. As much processes that can be standardised or centralised must be done and this can help considerably in people deployment plans.

Move to a digital future

The recent buzz around blockchain and AI applications in logistics industry represents the need to respect and value data and enabling its use as a strategic asset to anticipate and respond to future events. The catch here is for a forwarder to become a data driven enterprise. A data repository which need to be mined constantly and churn out analytics that help its patrons for creating alignment with changes in their market place.

Agile enterprise

Across the spectrum of competing freight forwarders, big or small, the need for being agile in the market place will be critical. The organization has to have the right processes, match technology to enable it, achieve speed, ensure stability and adapt to external environments, contextualise their offering and execute with certainty as markets re-emerge. Make room for physical infrastructures including branches to be converted to virtual hangouts.

Future beckons

Kevin Kelly in his landmark book The Inevitable argues for a dematerialised, decentralised, platform enabled and a cloud based connected world where, for most things of daily life, accessing services on demand will replace their ownership. He argues to derive a deep connection to primeval where homo-sapiens used materials and objects only to be left behind for access later on.

The pandemic and its aftermath has raised fundamental questions on organisations and their sustainability. The logistics service user organisations will be pushed to relinquish positions of operational assets, infrastructure and networks. Freight forwarders will be called upon to inch up the true value chain in performing tasks and understanding operational models of business outside of their skillsets. Sharing of common platforms, accessing networks on demand as opposed to owning them will soon transition into present day norms of doing business.

The future beckons those forwarders who can respond to the stress now, align their resources, create fluidity in their existence, be agile in the market place and adapt to the new normal by recognising the emerging needs of their customer market place and orient themselves for meeting the challenges ahead.

Sumit Varma is an entrepreneur associated with the logistics and supply chain services business. He is a Director with Transys Global Forwarding Private Limited, a freight and logistics solutions company and is based out of Mumbai, India. In a career spanning more than two and a half decades, Sumit has been associated with Print, publishing, pharma and healthcare industries as well. His areas of interest includes airfreight, ocean freight, contract logistics and digital solutions besides following the micro and small enterprises engaged in supply chain businesses.

Follow Sumit @transysGF on Twitter

The opinions expressed are those of the author and do not necessarily reflect the views of Transys Global Forwarding Private Limited, its affiliates, or any of its or their respective professionals or clients. This article was prepared by Transys Global Forwarding Private Limited (TGF) for general information and distribution on a strictly confidential and non-reliance basis.

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