an introduction to forwarding - ta_tradelogist101

8/7/2019 AN INTRODUCTION TO FORWARDING - ta_tradelogist101

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As the world economyrecovers, opportunities

increase for U.S. compa-nies to export their prod-ucts. But international shippingremains daunting for many new orrelatively inexperienced exporters,particularly small and medium-sizedfirms. To assist these firms, we offerthe first in a series of articles aboutinternational trade logistics.

A freight forwarder is an agent whoarranges the transportation of goodsfor others. A forwarder functions as atravel agent for cargo or a designer oflogistics. Forwarding includes bookingcargo space for shippers, providingshipping documents, and sometimesarranging other services as varied asshipment packing and cargo insurance.

Many forwarding companies offerassistance in transportation logistics,including freight consolidation,

customs brokerage, warehousing,distribution, and other value-addedservices. Further, they operate net-works of offices and agents for exportand import.

Freight forwarders are generally non-asset-based providers, meaning thatthey do not own planes, ships, andother means of transport. Whenforwarders book cargo space for cus-tomers, they have the flexibility tochoose the best routes and transit

schedules. Forwarders typically haveservice contracts with many air andocean carriers to facilitate economicalshipping around the globe.

Some forwarders are integrators.Integrators wholly own or controlassets such as planes and trucks that areused for their shipping services.Integrators roughly fall into two cate-gories: integrated express carriers, andintegrated heavyweight forwarders.Express carriers transport documentsand small packages, while integrated

forwarders transport heavyweightpackages and other types of freight.

Vertical integration is costly; airfreight

with an integrator tends to be expen-sive yet often the fastest and mostreliable air service. However, integrat-ed service is limited by integratorsinflexible, standardized flight schedulesfor hub-and-spoke operating systems.

Forwarders, nevertheless, benefit fromtheir status as transportation interme-diaries. They are usually much moreflexible than integrators in theirservice offerings, because forwarders

TECHNICAL ADVICE

16 EXPORT AMERICA August 2002

TRADE LOGISTICS 101

by William CorleyExport America

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use many different carriers and trans-portation modes.

Forwarders typically can provide door-

to-door solutions or more limitedshipping options. Integrators mayoffer such services as well, but for-warders have a much longer traditionin operating international networks.

In ocean freight, forwarders are thedominant shippers. In airfreight, morethan 80 percent of internationaltonnage comes from forwarders asopposed to integrators. Further,forwarders provide most of the airlinescargo business, and they also purchase

excess capacity on integrators interna-tional flights. Forwarders, given theirflexibility, may also book cargo spacewith all-cargo airlines.

Freight forwarders are not courier com-panies, which are often associated withwords such as parcel, express, package,and air. A prudent exporter will findthat a forwarder offers more options

and usually better rates than a courierfor anything other than documents andsmall parcelseven if the forwarderbooks cargo space on a couriers aircraft.

New exporters should understand thatfreight forwarders provide essentialassistance in international trade.Forwarders facilitated world trade longbefore the advent of cargo aircraft andcontainer ships, and this experienceovershadows the transportation back-ground of modern couriers and

integrators. Further, forwarders con-tractual relationships with carrierstranslate into rates that exporters alonewould never find. (A simple analogy isthat when we travel, airfare is moreeconomical from an agent, who selectsfrom a variety of airlines and has accessto more information and specialdiscounts, than directly from anairline.) Additionally, due to theservice contracts and inherent com-plexity of trade logistics, many carriersregularly work only with forwarders

and similar agents, and not directlywith small exporters.

While integrators and couriers empha-size airfreight, forwarders are ready tohelp determine whether ocean trans-portation is a viable option. Mostworld trade (in volume terms) travelsby container ship. Airfreight isobviously faster, but it is significantlymore expensive: long-distance airfreightrates per kilogram are commonly sevento 10 times higher than long-distanceocean freight rates.

About 40 percent of world trade (in

value terms) moves in cargo planes andin cargo holds of passenger aircraft.Airfreight is suitable for perishablegoods; it may also include light,high-value commodities such as semi-conductors and electronic componentsessential to running industry orfulfilling an inventory shortfall (andunexpected consumer demand). Oceancargo often includes goods such asautomobiles, toys, and householdappliancesitems whose bulk, weight,

and steady consumer demand allowslow transportation. The question,then, is whether a forwarder can helpan exporter ship cost-effectively and yetmeet both the production schedule ofthe exporter and the requirements ofthe exporters customers overseas.

Freight consolidation offers additionalsavings. Exporters need not have thecargo to fill a standard air or ocean con-tainer in order to benefit from the costsavings full loads have over individual

shipment rates. For instance, freightforwarders may combine the individualshipments of several exporters, therebyobtaining a full container rate from acarrier. Although the forwarder ofcourse marks up the carriers freightrate to sell cargo space to his customers,individual exporters benefit from a sig-nificantly reduced rate for individualshipments in a consolidated load.Alternatively, an exporter with a fullload again receives the benefit of theforwarders container rate.

TECHNICAL ADVICE

August 2002 EXPORT AMERICA 17

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CCoonnss iiddeerr iinngg tthhee OOpptt iioonnssEffective use of transportation equipmentand modes reduces shipping and logistics

costs. However, export planning entails allsorts of considerations, from inventorylevels and manufacturing lead times tocustomers preferences and transporta-tion options. Ocean export is generallymuch cheaper than air export, but thetransits from warehouse dock to con-signee door are measured in weeksinstead of days.

Freight forwarders can assist exporters inchoosing and managing transportation,particularly if both parties are flexible and

forthcoming. To facilitate rate quoting andmode selection, exporters should be pre-pared to answer a host of questions aboutthese and related issues:

Commodity (description and use)

Destination (ports/cities)

Pieces, weight, dimensions

Terms of sale

Terms of payment

Number/frequency of shipments

Routing/transit requirements

Insurance requirements.

Further, when comparing different modesof transportation, these are some of theissues to consider:

Speed

Frequency of shipments

Cost

Dependability

Capacity

Availability/accessibility

Additional/special services.


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Forwarding companies can also help

exporters with vendor consolidation,

managing purchase orders from one

customer that affect multiple suppliers.

Depending upon the overseas cus-tomers needs, the forwarder can then

arrange individual or consolidated

shipments of the suppliers fre i g h t .

Si m i l a r l y, forw a rders can assist in

planning cost-effective shipments to

one area for multiple customers of

an export e r, through consolidating

f reight and arranging unloading,

segregation, and delivery of individual

shipments by an overseas forwarding

office or agent.

Trade logistics invo l ves planning.

Ex p o rters should not only apprise

themselves of transportation alterna-

tives but also try to anticipate shipping

re q u i rements. Planning tends to

reduce costs, particularly if an exporter

can consolidate shipments and select

s l ower modes of transpor t a t i o n .

Fo rw a rding companies provide an

important array of services that facili-

tate supply chain management.

Howe ve r, exporters should shop

around before shipping, asking for rate

quotes from several forwarders, inte-

grators, or couriers, depending on

exporting needs. Exporters will find

that generally freight forwarders have

the service and expertise to handle

many transportation issues more eco-

nomically, efficiently, and effectively

for regular shipping. s

TECHNICAL ADVICE

Its More than Just Shipping Something Out ofthe Country

Freight forwarding encompasses dispatching shipments on behalf of othersto facilitate shipment by a common carrier. The services of a forwarder maybe very extensive and are often essential to getting an exporters goodsfrom the United States to an overseas customer. A forwarder not only canarrange export but also (with an overseas office or agent) import, clear-ance, and delivery.

Service Offerings

Freight forwarding services may include, but are not limited to, the following:

s Booking, arranging for, or confirming cargo space

s Ordering cargo to seaport/airport

s Preparing and/or processing export declarations

s Preparing and/or processing delivery orders and dock receipts

s Preparing and/or processing bills of lading

s Preparing and/or processing consular documents, or arranging for theircertification

s Arranging for warehouse storage

s Arranging for cargo insurance

s Expediting shipments in accordance with U.S. government exp ortregulations

s Preparing and/or sending advance notifications of shipments or otherdocuments to banks, shippers, or consignees, as required

s Handling freight or monies advanced by shippers, or remitting or advanc-ing freight, other monies, or credit in connection with the dispatching ofshipments

s Coordinating the movement of shipments from origin to vessel/aircraft

s Giving expert advice to exporters on letters of credit, other documents,licenses or inspections, or problems related to the dispatch of cargo.

These forwarding services follow in part the list for ocean forwarders in46 CFR 510.2.

Industry Standards

The Federal Maritime Commission licenses U.S. freight forwarders for oceanoperations. U.S. forwarders may also be affiliated with various industryorganizations, the best known of which is the International Air TransportAssociation (IATA). IATA has approved cargo agents (only airlines can bemembers of IATA); IATA is not a licensing body.

Forwarders may receive training and certification to ship dangerous goods (alsoknown as hazardous materials). The relevant accreditation comes from bodiessuch as the International Civil Aviation Organization, the U.S. Department ofTransportation, and the International Maritime Organization. s

18 EXPORT AMERICA August 2002

FORWARD THINKING

an introduction to forwarding - ta_tradelogist101

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