On October 21, DSV reported third quarter air freight volumes of about 561,000 metric tons, down 3 percent from a year earlier, while average gross profit per ton rose 8 percent in constant currency. The company named its own yield management initiatives as 1 of the reasons for the lower volume, alongside weaker European activity and some customers moving cargo from air to sea. Air Cargo News and STAT Times both carried the figures on October 21 and 22.
Set the company aside and keep the arithmetic, because it describes every forwarder. Gross profit is tons multiplied by gross profit per ton. 3 percent fewer tons at 8 percent more per ton is 0.97 multiplied by 1.08, about 4.8 percent more gross profit from a smaller book. Yield management in forwarding is not a pricing technique. It is the decision about which freight not to carry.
The arithmetic of declining
Every shipment has a contribution: the gross profit it earns less the variable cost of handling it, which includes documentation, exceptions, customs queries, invoicing disputes, and the days of working capital between paying the carrier and collecting from the customer. In the operations we have seen, that contribution is a long tail. Most shipments earn a comfortable contribution, and a visible minority earn less than they cost to handle.
An illustrative book of 1,000 shipments a month makes the point. Suppose the bottom decile earns $80 of gross profit each and costs $120 to handle. Declining those 100 shipments removes $8,000 of gross profit and $12,000 of handling cost. Gross profit per shipment rises, volume falls 10 percent, and the operating result improves by $4,000 a month. Fewer tons and more gross profit per ton is the shape of the quarter's figures, and the illustrative book shows a mechanism that produces that shape.
Why volume wins anyway
If the arithmetic is this plain, why does volume keep winning? 3 reasons, all structural.
First, volume is visible and contribution is not. Tons are counted at the dock. Contribution requires a cost to serve per shipment, and most forwarders do not have one, so the sales organization is measured on the number it can see.
Second, volume buys procurement. A forwarder's rate with a carrier depends on the tons it commits, and a block space agreement has minimums. Freight that earns nothing on its own can still be paying for the buy rate on everything else. Declining it may raise the cost of the freight that stays. That is a real trade, and it is why yield management cannot be done shipment by shipment. It has to be done at the level of the lane, where the procurement commitment lives.
Third, the fixed cost does not leave with the freight. The branch, the system, and the salaried staff are there whether the bottom decile ships or not. A forwarder that declines volume without resizing capacity has improved its gross profit per ton and left its overhead ratio worse. The improvement is only real when the freed capacity is filled with better freight or taken out.
The number that decides
The question is never whether to be a volume forwarder or a yield forwarder. It is where on the frontier between the 2 the book sits, and in which direction the next shipment moves it. That requires 1 number per shipment: contribution after variable cost, including the procurement value of the tons, netted against the capacity it consumes.
A forwarder with that number can decline freight with confidence, because it knows what it is giving up and what it is keeping. A forwarder without it is guessing, and the guess usually lands on volume, because volume is the number everyone sees.
The quarter's figures say that choosing freight is a strategy a large forwarder is willing to report. The arithmetic says it has always been one.