Freight forwarding: profit per load, not the turnover passing through

«Forty-two million hryvnia in turnover last year. Forty-two. And at the end of the month I look at my own card and there is less on it than on the card of the logistics manager I hired last spring» — that is how Vitaliy, who runs an eight-person freight forwarding company, opened the conversation.

Sound familiar? The loads keep coming, the trucks keep rolling, clients message you at half past ten at night, and the annual turnover figure is one you are almost embarrassed to say out loud — because people would not believe it. Yet the account always needs to «hold out until Tuesday», when the big client's payment finally lands.

The reason is almost always the same. A forwarder measures himself by turnover. But a forwarder's turnover is the shipper's money passing through your account on its way to the carrier. You do not earn it. You earn the difference between the rate you quote the client and the rate you pay the carrier — and that difference is usually eight to twelve per cent of the number you are so proud of.

In this article we break a forwarding business down into individual loads and individual working days of a logistics manager. Because in forwarding you do not make money on turnover. You make it on loads closed without detention, penalties and cash gaps.

The founder's path: from employed logistics manager to his own desk

Vitaliy spent eight years as a logistics manager at a large transport company. He knew the carriers by name, knew who would take a difficult load on a Friday evening and who would disappear with the cargo at the border. When he went out on his own, he assumed he already had the essential skill — finding trucks and negotiating.

The first year really was about that. He found the loads himself, called the carriers himself, drove the paperwork around himself. The margin looked excellent: take a load at 2,300 euros, give the truck 2,050, two hundred and fifty is yours. Multiply by the number of loads and you get a number worth quitting a job for.

In the second year he hired two logistics managers. In the third, two more and an accountant. Turnover tripled. The feeling that there was three times more money, however, never arrived. Quite the opposite: every month he owed somebody something — the carrier for last week, the bank for the overdraft, himself for the salary he once again did not take.

Why a forwarder's turnover is the most dishonest number in the business

Take the simple arithmetic. Sixty loads a month, an average client rate of 2,300 euros. Turnover is 138,000 euros a month, or around sixty million hryvnia a year. Impressive.

Now subtract what belongs to the carriers: 2,050 euros on every load, 123,000 euros a month in total. What is actually yours is 15,000 euros of gross margin. Out of that you still have to pay four logistics managers, an accountant, the office, the insurance, the bank and the software you keep your loads in.

The gap between «sixty million in turnover» and «fifteen thousand euros of gross margin a month» is not an accounting formality. It is the difference between the business you imagine yourself running and the business you are actually running. And as long as you measure yourself by the first number, you cannot make a single correct decision: not about hiring, not about a discount, not about whether to open another lane.

What the margin on a single load is actually made of

Take a typical load: Kyiv to Warsaw, curtain-sider, twenty tonnes, client rate 2,300 euros. Here is what that load looks like when you count honestly.

A hundred and fifty-seven euros of difference on one load is neither an error nor theft. These are ordinary operating costs that simply nobody attached to a specific order. Multiply by sixty loads and you get exactly the nine thousand euros a month that are always missing when it is time to pay the carriers on schedule.

The cash gap: you are financing the shipper for free

This is the one feature of forwarding you will not find in any other business of this size. You pay the carrier five to seven days after unloading — otherwise he will not take your load next time. The shipper pays you in forty-five days, and a large client in sixty.

Let us see what that means physically. A hundred and twenty-three thousand euros of monthly payments to carriers, a forty-day gap. It means that at any given moment, every single day, weekends included, roughly one hundred and sixty thousand euros of somebody else's money are «in transit» — already paid out by you, not yet received.

This is exactly where the feeling comes from that the business is growing while the money is not. Every new client on sixty-day terms is not an addition to profit; it is a subtraction from your working capital for two months ahead. You are not selling transport. You are selling transport with a free loan attached.

Manager-day: the second unit you have to measure

The first unit is the load. The second is a working day of a logistics manager, because that is what limits how many loads you are physically able to run.

A manager costs you, say, 1,100 euros a month including taxes. In a month he handles twenty loads, so every load consumes 55 euros of his time. But loads differ. A simple run on a familiar lane with a carrier you have known for three years takes an hour. A new client, a new route, a first load with an unfamiliar truck and paperwork that has to be redone twice takes a day and a half.

And here is the point: the second load often brings in the same margin as the first. You spend a day and a half of a manager's time to earn the same ninety-three euros. Until you can see that, you cannot tell your manager «we are not taking this client any more» — because formally he does bring in turnover.

Detention, demurrage and penalties: the costs that are not on the order

The order has two numbers on it: what the client pays and what the carrier gets. Everything else is discovered later.

• Detention at loading. The warehouse is not ready, the truck waits a full day. The carrier invoices the detention — and you pay it, because the client would not agree to.
• Demurrage and storage. The container was not collected from the terminal in time, the meter started running, and it does not ask whose fault it was.
• Redoing the paperwork. The CMR is filled in incorrectly, the client refuses the invoice, and payment slides another two weeks.
• Fines and weight discrepancies. The actual weight did not match the declared one, something was charged at the border, and somebody has to cover it.
• Currency difference. You invoiced the client in hryvnia, you pay the carrier in euros, and forty days passed between those two events.

Each item on its own looks trivial next to a rate of 2,300 euros. Together they eat more than half of your margin.

Your largest client by turnover may be your most expensive one

When Vitaliy first sorted his clients not by turnover but by margin per load and by actual payment terms, the picture turned upside down.

The biggest client — the one he mentioned at networking events — delivered a quarter of all turnover, a margin of seven per cent, and paid on day sixty-five. In other words, every one of his loads had to be financed out of Vitaliy's own pocket for two months in order to earn less than an ordinary one-off order.

Meanwhile two small clients with regular runs on a single lane delivered fourteen per cent margin, paid within two weeks and barely consumed any manager time, because the route was fully worked out.

This does not mean the big client had to be dropped. It means the conversation with him should have been about prepayment or a revised rate — not about giving him an additional volume discount.

Seasonality and rates: a market that moves without you

In forwarding, rates change weekly. Before the holidays there are no trucks and carriers raise their price by thirty per cent — while you have already promised the client an annual rate. In January there is nothing to haul and you take loads at forty euros of margin just to keep your managers busy.

The difference between a company that survives this and a company that breaks on it is whether the owner sees his margin weekly rather than once a quarter from the accountant. If you can see that the average margin per load has dropped from 93 to 60 euros three weeks running, you still have time to rebalance the client portfolio. If you find out in April, you have already taken the overdraft.

What changed once the loads became visible

Vitaliy started treating every load as a separate unit: the client rate, the carrier payment, every associated cost, and the date the money actually arrived. Nothing complicated — every order simply became a line that showed a result rather than a turnover figure.

Within three months three things became obvious. First: two lanes were running at a loss and survived only because «the client has been with us for years». Second: a third of all loads with detention came from one single warehouse, with which a loading window could simply have been agreed. Third: moving carrier payments from five days to ten — perfectly normal for carriers with a long history — cut the cash gap by a quarter.

None of these decisions required new clients or more turnover. They required seeing the load as a unit.

A few closing tips

• Count margin per load, not turnover. Turnover is the carrier's money spending the night in your account.
• Keep two dates on every load: when you paid the carrier and when the client paid you. The gap between them is the credit you are extending to the market.
• Price the manager's time into the load. A difficult client at the same margin is a loss-making client.
• Book detention, demurrage and currency differences against the load where they occurred, not into a general «other costs» bucket.
• Review clients by margin and payment terms at the same time. Large turnover on sixty-day terms is not an asset.
• Look at the average margin per load every week. The rate market moves faster than your quarterly report.

Money does not disappear — you simply do not see it

Forwarding looks like a business with enormous numbers and a negligible profit. In fact it is a business with a perfectly normal margin, eaten by things that were never attached to a specific load: detention, rework, a free loan to clients, and manager hours spent on orders that did not deserve them.

None of these costs disappears on its own. But the moment each of them gets its own load, it becomes visible exactly where the business is losing — and what can be done about it as early as next week.