Import Export business – Case Study

The client is a reputed clearing and forwarding agency providing shipment and storage solutions to importers and exporters. The company procures requirements from its customers and then schedules deliveries and storage to match these. The total market can be categorized as import and export business.

The supply chain works as enumerated below:

Exporter/Import                              Client                                    Warehouse/CFS                               Shipping Line

Shipping Line                                     Warehouse/CFS                               Client                                    Importer

The client has seen decline in profits over the last two years. It is trying to identify the reasons for this decline and procure solutions to reverse these trends.

Market Information to be provided if requested:

Although, there are several smaller agencies in the business, the recent crises have resulted in their closing down operations. The client is now among the few companies offering such services and all agencies charge industry-standardized prices.

2010

2011

Market Size ($) Client Sales ($) Industry Price ($) Market Size ($) Client Sales ($) Industry Price ($)
Export 10,000,000 3,000,000 15,000 8,000,000 1,200,000 13,000
Import 5,000,000 1,500,000 8,000 4,000,000 800,000 6,000

Analysis:

Based on the above market information, the following conclusions can be arrived at:

  • Both the import and export market segments have declined based on the total size in terms of revenues.
  • The client share has declined from 30% in 2010 to 17.50% in 2011.
  • The export segment, which is more profitable and the larger among the two is where the client has seen a greater decline in market share, which in turn reduces the profitability.

The price reduction can be assumed to be the result of declining economic conditions, which have reduced the EXIM traffic. Moreover, importers and exporters are now being serviced by the warehouses/CFS directly considering these facilities provide the expertise, experience, and relationships with the shipping lines. In addition, value added services like labeling, packing, customs, etc. is provided by the warehouses/CFS that is resulting in exporters and importers directly approaching these facilities.

The continued economic stress and direct servicing of the importers and exporters suggests consolidation occurring in this industry. Since there do not exist much opportunity to offer any significantly differentiating factors, the client is going to be unable to turn around the profitability. Moreover, converting the business to a complete warehousing/CFS operations requires huge capital expenditure, which is not possible for the client. All these factors recommend the client to identify potential warehouse/CFS providers and exit the business through an equity stake sale.

 

**** Remember the clearance and forwarding agents are third party service providers to Origination/Destination company business model. You may ask how the revenue model works for this company and see if the company is hit by squeezing profits because of the ecosystem. Sometimes the discussion may lead to transfer pricing, rate card, cost plus model and cross border transactions***

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