TT Talk - Freight forwarders need to act fast on credit risk

Freight forwarders are facing an unprecedented credit risk exposure in today’s volatile international trading environment. As trade regimes evolve across the world, small-to-medium enterprises (SMEs) – the lifeblood of international trade – are struggling to absorb the financial shocks. For freight forwarders, which serve as the logistics backbone for these businesses, the fallout is potentially ruinous. 

Recent years have seen a marked increase in tariff activity across multiple jurisdictions. These tariffs have introduced volatility into global supply chains. SMEs, which typically lack the financial resilience of larger corporations, are disproportionately affected. Many are delaying shipments, stockpiling inventory or rerouting cargo in hopes of future relief. 

The resulting economic turbulence has created a cascade of commercial risks for freight forwarders. As SMEs falter under financial pressure, forwarders face delayed payments, abandoned cargo and the potential for client insolvency. The result is a heightened exposure to credit risk – an area traditionally under-appreciated in logistics operations. 

Why freight forwarders are exposed 

Freight forwarders work at the intersection of global trade and local business. Their role in coordinating shipments, managing customs and ensuring prompt delivery makes them indispensable to SMEs. However, this proximity also makes them vulnerable when clients default. 

Recent TT Club reports highlight a surge in freight crime and cargo abandonment linked to market instability. Goods are increasingly stored in unsecured overspill locations due to capacity constraints in bonded warehouses, making them targets for theft, and forwarders are often left holding the liability for these losses – especially when contractual protections are weak or absent.  

Moreover, the financial strain on SMEs is translating into delayed payments and increased bad debt risk for forwarders. With many SMEs operating on thin margins, even minor disruptions can tip them into insolvency. Forwarders, which may have extended credit terms or taken on financial responsibility for customs duties and storage fees, are left increasingly exposed. 

The challenge is compounded by the fact that many forwarders operate on tight margins themselves and rely on volume to sustain profitability. A few bad debts can have outsized impacts, especially for smaller operators. 

Types of credit risk

Credit risk in freight forwarding is multifaceted. It includes non-payment for services given liability for abandoned cargo and exposure to demurrage and detention charges. In the current economic environment, these risks are amplified. 

A freight forwarder may find itself liable for thousands of dollars in storage fees if a client fails to collect cargo. If it is perishable or hazardous, disposal costs and regulatory fines may follow. In some cases, forwarders may have to absorb the cost of rerouting or re-exporting goods. 

In parallel with economic-induced instability, freight forwarders are also contending with a rise in credit fraud. Fraudulent customers may present themselves as legitimate shippers, settle initial invoices and then rapidly escalate volumes – often switching to air freight – before disappearing without settling accounts. This tactic leaves forwarders with substantial carrier costs and no revenue. 

Industry bodies such as the British International Freight Association (BIFA) say red flags include customers which only request airfreight, avoid customs clearance, accept quotes without negotiation and have a lack of import/export history. Due diligence is essential to avoid falling victim to these scams.  

Mitigating credit risk 

Freight forwarders need urgently to adopt robust credit risk management strategies to survive the volatile trading landscape they are now in. The following best practices are drawn from industry experience and recent TT Club guidance: 

• Strengthen contractual protections – ensure that all your transactions are governed by clear, enforceable contracts. Incorporate standard trading conditions and specify liability limits, payment terms and dispute resolution mechanisms. Where possible, negotiate indemnities for high-risk shipments or clients with weak financial profiles. 
• Conduct credit assessments – before extending credit or taking on financial obligations, assess your client’s financial reliability. Use credit-scoring tools, review financial statements and check payment history. For new clients or those in high-risk sectors, consider requiring upfront payment or third-party guarantees. 
• Monitor market signals – stay informed about macroeconomic trends and sector-specific risks. You should be aware of tariff changes, port congestion and shifts in consumer demand. These factors can signal emerging risks and inform proactive decision making. 
• Invest in insurance and risk transfer – legal liability insurance can provide a safety net, but you should also consider trade credit insurance and cargo abandonment coverage. These products can mitigate losses from client insolvency or uncollected cargo. 
• Enhance operational resilience – improve your internal processes to ensure you “Know your Customer” (KYC) in order to detect and respond to risk early. This includes tracking payment cycles, flagging overdue accounts and keeping open communication with clients. Technology can help automate these tasks and offer real-time insights. 
• Collaborate across the supply chain – work closely with shippers, carriers and customs brokers to share risk intelligence and coordinate responses. Joint efforts to secure cargo, manage delays and resolve disputes can reduce exposure and build trust. 

While the above practices will all help to mitigate your credit risk in the short term, a more strategic adaptation may be a better way forward. This could involve rethinking your client relationships and service offerings, such as focusing on more resilient sectors, diversifying revenue streams or investing in digital platforms that enhance visibility and control. It could also involve moving from a transactional approach to a strategic partnership approach with your customers, with a shared focus on risk management.  

Conclusion 

The global economic landscape is unlikely to stabilise in the near term. Political dynamics, trade negotiations and economic shifts will continue to create volatility, making freight forwarders increasingly exposed to credit risk. 

Political dynamics, trade negotiations and economic shifts will continue to create volatility, making freight forwarders increasingly exposed to credit risk.

Financial failure of SME customers can lead to non-payment for services given, liability for abandoned cargo and exposure to demurrage and detention charges. These same risks can arise from fraudulent customers that disappear without settling accounts. 

There are several immediate steps freight forwarders can and should take to mitigate their exposure to credit risk. Looking ahead, they should also consider moving from a transactional model to a strategic partnership approach. By aligning with clients on risk management, forwarders can not only protect their own interests but also support SMEs in navigating the complexities of global trade.