intermediaries in logistics

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Types of Intermediaries that can be seen in Supply chain management

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Why intermediaries

1UNIVERSITY OF PLYMOUTH

Dr. Richard Gray

MBM5229INTERNATIONAL LOGISTICS AND SUPPLY CHAINSVINTERMEDIARIES IN INTERNATIONAL LOGISTICSINTRODUCTION

Various types of intermediary have a role to play in international logistics. They have existed for centuries and have remained prominent into the 21st century. Despite predictions of their demise throughout the second half of the 20th century, intermediaries in international logistics such as freight forwarders have proved to be resilient and adaptable. They have not only survived but also developed new functions with the advent of containerisation, simplified documentation systems, and advances in information technology.

OBJECTIVESAt the end of this unit you should be able to fulfil the following objectives:

Understand the interaction between the trading and logistics channels

Appreciate the complex relationship between ownership of goods and transport decisions in international trade.

Identify the functions of intermediaries in trading channels.

Identify the functions of intermediaries in logistics channels.

Understand the nature of vertical marketing systems.

Appreciate the different relationships between shippers and freight forwarders.

Identify the different types of complexity likely to influence the use of intermediaries.

Appreciate the relationship between the carrier and the logistics intermediary.

Identify the changing role of the freight forwarder.

Identify changes in industry barriers related to international logistics.

Assess the potential for global logistics providers.

TERMINOLOGY

At the end of this unit, you should also be familiar with the following terminology:

4PL

Administered VMS

Asset holding

Asset ownership

Asset-based

Assortment and volume convenience

Borderless world

Break bulk

British International Freight Association (BIFA)

Commoditisation

Common carrier

Contactual efficiency

Contractual VMS

Conventional channel

Corporate VMS

Customer service

Customer support

Diversification

Facilitator

Flow management mega-sector

Forward integration

Freight forwarder

Global logistics provider

Globalisation

Groupage or consolidation service

Hard integration

Hybrid service

INCOTERMS 2000

Information complexity

Integrator

Logistics channel

Logistics intermediary

Logistics provider

Management-based company

Market coverage

Market information

Mega-carrier

Network complexity

Non asset-based provider

NVOCC

Ocean carriers

Ocean transportation intermediary (OTI)

One-stop shopping

Outsourcing

Principle of postponement

Process complexity

Product availability

Product complexity

Product transformation

Reverse integration

Service differentiation

Single European Market (SEM)

Soft integration

Trading channel

Transport architect

Transportation supermarket

Value-added logistics (VAL)

Vertical marketing system (VMS)

1.INTERACTION OF TRADING AND LOGISTICS CHANNELSLogistics intermediaries are typically facilitating the smooth operation of a channel for goods. Facilitators such as freight forwarders are important, because although they do not buy, sell or own the goods moving through a channel, they assist in the efficient performance of the channel.

Marketing channels exist for services as well as for goods. The logistics channel is itself a marketing channel of a service such as shipping or forwarding. However, because the logistics channel provides a support service for a marketing channel for goods, we need to consider the interaction of the two channels - the goods (or trading) channel and the logistics channel. As a starting point, let us assume that the simplest system consists of two parallel channels (Figure 1).

The carrier is the supplier of shipping services to the shipper, and the shipper is the supplier of goods to a customer.

In a marketing channel for goods, otherwise known as a trading channel, a simple system is between two organisations, the supplier and the customer. A typical example is the flow of goods between manufacturer and retailer. However, there is often a wholesaler or other intermediary between those two organisations. Similarly, intermediaries such as freight forwarders exist in logistics channels, situated between a shipper and a carrier. Logistics intermediaries have traditionally performed a range of functions, particularly associated with international transport. Such functions include groupage or consolidation services, and preparation of shipping documentation. Figure 2 develops the example given in Figure 1 to show the two channels with intermediaries.

What is a shipper?

In a logistics channel, the shipper can be either supplier or customer in the trading channel, or indeed both. The term shipper is sometimes applied rather loosely, and is frequently equated with the exporter. Often there is an assumption that there is only one shipper in an international movement of goods. However, a shipper is, more precisely, the trader in whose name, or on whose behalf, a contract of carriage of goods is concluded with a carrier or other type of logistics organisation. In other words, the shipper is legally responsible for paying the freight charges. However, international transport is often a complex process involving the use of more than one mode of transport between departure from the exporters premises and arrival at the warehouse of the importer or consignee. It is not unusual for more than one party to be paying for different stages of the total transport flow. For example, the exporter may pay as far as the departure port in the country of export, and the importer pays for the international transport and the delivery in the importing country.

1.1Relationship between ownership of goods and logistics responsibility

The trading channel is concerned primarily with the transfer and negotiation of ownership of the goods moving along the channel. In international logistics, the transfer of ownership of the goods is closely associated with the transfer of responsibility for organising logistics activities, particularly transport. As we saw in an earlier unit, this transfer of responsibility has become more or less standardised over the years through the establishment of widely recognised terms of sale or terms of payment known as INCOTERMS, of which the most recent version is INCOTERMS 2000. The terms of sale define the contract clauses in international trade and make clear the rights and obligations of the parties to the sales contract up to or from a particular location. This is often a port so that the terms may be for example, FOB (free on board) Hamburg. The terms denote where the risks and costs of the transit are transferred from the supplier to the customer for the goods.

From the logistics standpoint, a seamless, integrated movement throughout the supply chain is desirable. However, the terms of sale may influence logistics decisions since they need to be followed precisely by the parties in the trading channel. Shippers may be required to conform exactly to the requirements of a letter of credit; otherwise, they will not be paid. This can lead to fragmented decisions about transport that are not conducive to integrated logistics. A similar problem may occur when an exporter wishes to consolidate shipments to a number of buyers in a destination country, or one of those buyers wishes to do the same for a number of suppliers in the exporters country. Whose requirements should predominate? Of course, in many cases, even with split liability and responsibility, the exporter and importer will collaborate to obtain the most mutually acceptable arrangement. In such cases, there is a role for a logistics intermediary to co-ordinate multiple deliveries or multiple suppliers, although the question will then arise as to which member of the trading channel selects the intermediary in the logistics channel.

2.THE FUNCTIONS OF INTERMEDIARIES2.1Intermediaries in a trading channel

In a trading channel, a wholesaler intermediary is likely to perform six groups of tasks each for his supplier and for his customer. The six tasks performed for the manufacturer or supplier are to:

Provide market coverage (because there are many dispersed customers);

Establish sales contact (able to provide a substantial sales effort);

Hold inventory (thus reducing the manufacturers burden and risk through holding too much inventory);

Process orders (enables the manufacturer to overcome the problem of dealing with a large number of orders);

Provide market information (the wholesaler keeps good intelligence contact with customers); and

Give customer support (goods are exchanged, returned or repaired).

The six tasks performed for the customer are to:

Ensure product availability (making it easy to get goods);

Provide customer service (undertaking repairs etc.);

Give credit and financial assistance;

Provide assortment convenience (bringing together combinations of products from different manufacturers);

Break bulk (buying large volumes from manufacturers and breaking them into smaller orders);

Give advice and technical support (on inventory planning, store layout etc.).

2.2Intermediaries in a logistics channelWhen we turn to the tasks of intermediaries in a logistics channel, there are similarities, but also important differences. Therefore, a different categorisation is required. The four classes of task primarily performed for the shipper are:

Transport services

Logistics centre services

Information processing services

Professional advice and support.

The three classes of task performed for the carrier are:

Marketing services

Asset holding

Assortment and volume convenience.

Logistics channel intermediaries also undertake roles more usually performed by trading channel intermediaries such as wholesalers. In such cases, they are effectively acting as an intermediary between the shipper and the trading partner. There is nothing new about this; for example, freight forwarders have undertaken customs clearance for many years. However, in recent years there has been a substantial increase in these types of activity, often called value-added logistics.

Tasks performed by logistics companies acting as intermediaries between the shipper and trading partner fall into the broad classes:

Inventory management of goods

Information processing services

Product transformation

Delivery.

Table 1 provides a list of specific tasks performed by logistics channel intermediaries. It would be wrong to consider the list as exhaustive, because logistics intermediaries are constantly seeking new avenues of profitable activity. Provided there is no legislative restriction, many activities have potential for inclusion. Trading channel intermediaries may also perform logistics functions - a typical example of this is where a wholesaler operates a road freight fleet. Figure 3 shows the relationship between members of the trading and logistics channels including the broad classes of functions.

Table 1: Functions of logistics intermediaries

INTERMEDIARY BETWEEN SHIPPER AND CARRIER

Shipper-oriented services

Transport services

Operate transport

FTL (full truck load) or FCL (full container load) transport

LTL (less than truck load) or LCL (less than container load) transport

Position equipment

Local collection and delivery

Transport co-ordination

Door-to-door delivery service

Pool shipments with other companies

Establish international network

(Inter) modal co-ordination

Book vessel space

Obtain best transport service

Consolidate shipments

Vehicle scheduling

Route planning

Transport equipment control

Inventory control of transport equipment

Order transport equipment

Repair transport equipment

Logistics centre services

Consolidation

Transhipment

Export packing for transport requirements

Obtain warehouse space

Information processing services

Tracking and tracing

Trace and expedite shipments

Payment and collection of money

Pay freight charges

Pay port charges

Collect payment from consignees for shipments

Pay customs duties

Manage value added (or sales) tax advances

Present documents to the bank

Pay goods through draft or letter of credit

Prepare, issue or obtain documents

Prepare certificates of origin

Prepare commercial invoices

Issue bills of lading

Issue air waybills

Issue export declarations

Obtain and prepare consular invoices

Obtain proof of deliveryObtain export licenses

Contact relevant agencies or authorities (e.g. for food or drug imports)

Professional advice and support

SelectionSelection of warehouse location

Selection of transport equipment

Selection of logistics operators

Obtain insurance cover

RecommendationEvaluate logistics services

Advise on exports and/or imports

Advise on terms of sale

Give legal advice

Recommend routes and services

Advise on special features of goods (hazardous goods, special licences, special packaging restrictions)

Advise on special requirements of countries (e.g. duties, taxes, import restrictions)

Advise on packaging

NegotiationNegotiate contract with logistics operators

Settle insurance claims

Negotiate best carrier rates

Table 1 continued.

Customisation

Offer tailored service beyond the standard offer

Advise on or arrange alternative service if problem (e.g. port strike)

INTERMEDIARY BETWEEN SHIPPER AND CARRIERCarrier-oriented services

Marketing services

Collect and pay freight charges

Provide local knowledge

Provide international network

Asset holding

Own and operate transport equipment (e.g. roll-on/roll-off trailers, containers)

Own and operate logistics centres

Own and operate IT systems

Assortment and volume convenience

Consolidation of shipments (e.g. LCL)

Break bulk

Geographical specialisation

Global or regional network (contribute to carriers network)

Industry specialisation (e.g. food, clothes)

Subcontract within the logistics sector

INTERMEDIARY BETWEEN SHIPPER AND TRADING PARTNER

Shipper-oriented services

Goods inventory holding

Inventory management of goods

Management of inventory location

Order picking

Reshipment

Vendor management

Disposal of old or obsolescent products

Information processing services

Document preparation

Invoicing

Customs clearance

Order processing

Product advice to consignees

Bar code scanning

Product transformation

Main objectives Postponement

Make goods country-specific

Make goods customer-specific

FunctionsAssorting

Mixing and blending

Marking

Bar coding

Packaging or repackaging

Labelling or relabelling

Replace or repair damaged goods

Install components

Add parts and manuals

Delivery

Organise delivery according to shippers customer service standards

Shipment consolidation

Cross-docking

Install product at consignees premises.

3.WHO DOES WHAT IN A LOGISTICS CHANNEL?

All marketing channels tend to change their structure over the years. For example, in the trading channel for foodstuffs, wholesalers have declined in importance as large new retailers have appeared on the scene. In the international logistics channel, freight forwarders have adapted their role to cope with containerisation and other developments. However, whatever changes take place, certain underlying principles remain. Although it is possible to remove or replace institutions in a marketing channel, the functions performed by them usually still have to be carried out by someone. For example, who makes the final delivery to an importer after the goods have arrived at the port of the importers country? The importer could collect the shipment from the port, it could be delivered by a freight forwarder, or by a local transport company, or the international carrier may provide a door-to-door through transport service. Nevertheless, whoever does it, the function must take place. Provided there are no legal constraints, clearance of goods through customs could be by an import clearance agent or broker or by the exporters freight forwarder, or even by the importing company itself. If two countries establish a free market, the function of customs clearance may no longer be necessary. Functions do disappear, but generally they persist, and given no legal restriction, they can be performed by various types of institution. Simply because a company calls itself a forwarder or logistics provider or carrier, it does not mean that it necessarily performs a particular set of functions or activities.

The following extract shows the problems in the EU for freight forwarders and customs brokers associated with the transition into a single market from January 1993.

Lloydslist.com March 6 1992Freight forwarding jobs fall victim to the single market J. Brewer They are the victims of the introduction of the single market in the European Community - 100,000 of them. That is the total of people who will lose their jobs in 1992 in freight forwarding and associated business, in readiness for the great transition, as January 1, 1993, is rung in. The jobs are not merely in danger. There is no question they will be lost. Any nation dragging its feet in introducing the barrier free age will be open to court action by Brussels or by sections of industry, resulting possibly in enormous fines.

The latest figure for vanishing jobs is worse than estimates drawn up only a short time ago, which spoke of 85,000. The European Commission is conducting a survey which will try to gauge the exact numbers, and the social consequences. Few governments, and few in Brussels, took immediate heed of the plight of the displaced thousands.

The victims are nearly all highly-trained experts in all aspects of customs procedures. They have spent their careers interpreting tariffs, quota systems, the provisions of the common agricultural policy, health controls. Any mistake has opened them to fines or reprimands from Customs.

Some have already gone, most will be lost to the industry for good.

However, even in this desperate situation, the following article shows how adaptable forwarders can be and how they are able to develop new functions.

Lloydslist.com 12 February 1993

Special Report on Dover: Market hits customs jobs D. Osler

THE customs clearance industry, until recently a major employer in the Dover area, has inevitably been hit badly by the introduction of the European single market. It could mean the loss of another 10,000 jobs in east Kent, already an economically depressed area after widespread redundancies in coal-mining and the maritime industries.

Sources believe there are now just 40 customs brokers in the town compared with more than 70 at the end of last year and well over 100 during the 1980s. Many of those remaining are hanging on rather than face the facts, and will inevitably go under. There is not enough business for the number of agencies who have remained in Dover, said Brian Madderson, managing director of George Hammond. His own company had two clearance offices - one for imports, one for exports - employing 38 people at the beginning of last year. While it has kept on 10 staff to look after non-EC goods, there have been 28 redundancies. A lot of queries originate from former customers, unsure of what the new procedures mean, and are handled on a non-remunerative goodwill basis.

One company which has adopted a successful strategy for survival is Holmes Freight and Logistics, which began life as a customs clearance agency 15 years ago. Although its workforce has been halved from 25 three years ago because of the downturn in clearance work, Holmes has recently seen its forwarding efforts rewarded with second place in an east Kent small business of the year competition and a special commendation in the British International Freight Association awards.

We are getting awards to say we are doing something right, said managing director Gary Holmes. About four years ago, when the implications of the single market became clear, we diversified back into freight. You had to look beyond what you were used to. It was obvious that nothing was going to be left, and we wanted to survive. Holmes Freight and Logistics has concentrated on specialist services for such prestige clients as Philips Electronics and American Express, moving sensitive computer equipment for the credit card outfits Moscow cashpoint. It has forged good business links with Turkey and the former Eastern Bloc. What we are very good at is problematic cargoes the big boys cannot make any money out of, said Mr Holmes.

4.VERTICAL MARKETING SYSTEMS

Conventional channels consist of unrelated companies that buy and sell from each other; a manufacturer trades with a wholesaler, a wholesaler with a retailer, but without any longer-term relationship or affiliation. In the past few decades vertical marketing systems (VMSs) have become more prominent. These systems include strategic alliances, joint ventures, partnerships, and integrated supply chains. There are three basic types of vertical marketing system:

Administered VMS

Contractual VMS

Corporate VMS.

An administered VMS is similar to a conventional channel, except that there are closer links between the management of different organisations. For example, large retailers such as Marks and Spencer in the UK or Walmart in the USA are able to exert substantial control over their suppliers and, in effect, lead the channel. This applies particularly where a retailer is the sole customer of a manufacturer.

A contractual VMS is a development of the administered VMS but the arrangements between the organisations are formalised by contracts. There are various types of contract, a popular version during the past few decades being the franchise. Franchises are also popular in service channels including logistics, particularly the small parcels sector. For example, Interlink Express Plc in the UK is a franchised organisation offering collection and delivery services mainly for parcels. It has over 100 franchisees and claims to provide the level of detailed attention to service normally only expected from a small business.

A corporate VMS exists where a single firm owns companies at different levels in the marketing channel, for example, where a manufacturer owns its retail outlets. A prominent example is the oil production and distribution industry where large oil companies (the oil majors) such as Shell have been to the fore in establishing a corporate VMS structure. This starts with the extraction of oil from the ground through refining and transport to retail delivery at the filling station and other marketing of petro-products. Fully integrated VMSs in the oil industry have become less prominent as oil-producing countries have taken greater control of their own exploration and production, and franchises have been made at the retail stage.

Vertical integration can be summarised as hard or soft integration. Hard integration is where a company takes ownership of another channel level, or in other words becomes a corporate VMS. Soft integration refers to other administered or contractual forms of VMS such as franchising. Companies concerned with organising channels therefore have a hard or soft decision to make. This is directly comparable with the make or buy decision, where a company decides either to make its own products or components, or to buy them from other suppliers through outsourcing.

4.1Vertical integration in international logistics

Vertical marketing systems experience both forward and backward integration. In the relationship of carrier + intermediary + shipper, integration of functions can take place between the shipper and intermediary, or between the carrier and intermediary. The ultimate level of integration is where the shipper performs all the functions in the logistics channel. However, in some areas of logistics there has been a move away from shippers providing their own logistics resources particularly transport. For example, in international shipping, in 1971 the oil majors owned 21% of the world tanker fleet, but by 1994 they owned only 9% of the fleet. Another example is, in Great Britain, the relative decline of total road freight tonnage carried by shippers themselves (called own account transport) since 1980. This was mainly because of an improvement in the quality and range of services offered by professional hauliers.

5.THE RELATIONSHIP BETWEEN SHIPPER AND INTERMEDIARYThe success of intermediaries often depends not only on the quality of transport or other logistics services offered, but also on the relationship with shippers. This is an intangible quality, difficult to measure. Nevertheless, forging a stable relationship between the shipper and the intermediary can play an important part in establishing competitive advantage. It also means the establishment of efficient communication between the shipper and the intermediary. There are different types of intermediary in international shipping. For example, a ship manager may operate a ship on behalf of a shipowner and conduct business with shippers or charterers. The most prominent type of intermediary in international logistics is the freight forwarder, and much of this unit is devoted to consideration of the role of the forwarder.

Three broad classes of relationship exist between forwarders and shippers:

The traditional approach

Shippers undertaking their own forwarding (forward integration)

Forwarders undertaking shippers export distribution functions (reverse integration) .

5.1The traditional approach

In the traditional approach the shipper has a close relationship with just a few, or even only one forwarder. The forwarder carries out most of the traditional forwarding functions (preparation of documentation, booking transport, paying charges, providing information etc.). In other words, shippers use forwarders to deal with the complexity of international shipping. A close relationship as the basis for being a successful intermediary is nothing new. In the past, forwarding was often a family business with a long tradition of accumulated knowledge based on contacts established in many countries.

In earlier times, methods of communications and transport were much slower and exporters or importers needed someone available at ports, overseas and in close contact with customs authorities. Few exporters could have the expertise or resources to deal with problems in so many places, or with the complex documentation associated with international shipping and trade. Many exporters or importers would also see the local freight forwarder as an expert consultant (often unpaid!). These traditional functions are still required today by some, particularly smaller shippers. A modern development of this role is monitoring the supply chain, not only providing feedback to the shipper but even taking action where necessary, if for example there are changes in the market for the goods being shipped. In Unit 4 Third Parties in International Logistics a 4PL company was defined as a firm that assembles and manages the resources, capabilities, and technology of its own organisation with those of complementary service providers to deliver a comprehensive supply chain solution To what extent is this different from the traditional approach to freight forwarding?

5.2Forward integration

Another state of affairs exists where exporters undertake their own forwarding. In this case, the exporter has adopted all or some of the traditional forwarders functions, particularly in the areas of preparing documentation, dealing directly with carriers and export packing. One reason for this development has been the increasing simplification of trade and transport documentation during the past thirty years or more. Another reason is the changing pattern of trade for many countries. For example, since Britain joined the European Community (now European Union), many exporters have focused predominantly on the European market. In the 1990s, British trade with Europe tended to be approximately 60% by value of all UK trade. Previously the number of export destinations was likely to be much higher, and it was difficult to deal efficiently with, say, over a hundred separate markets without using a freight forwarder.

A further reason for exporters not using forwarders is the simplification, or greater visibility of the international freighting market. For example, groupage or consolidation services tend to be better advertised than formerly. Simplified intermodal services are common on some routes.

5.3Reverse integration

The third type of relationship, called reversed integration, is where freight forwarders undertake export distribution functions normally performed by the shipping department of the exporting company. In this approach the forwarder, although a separate institution, becomes functionally part of the exporting company. The forwarder is responsible for such functions as selecting international transport mode and operator, selecting domestic transport; warehousing, packing, order processing, export invoicing, and customer enquiries. Direct responsibility for inventory management is less likely to fall into this category, although this is changing with improved electronic means of control and communications and the expanding scope of value-added logistics services. Again, some would see this as a role for companies called 4PLs rather than forwarders. Whats in a name?

6.OUTSOURCING TO INTERMEDIARIES

Since the 1980s, many companies, particularly manufacturers, have returned to focusing only on their core business. There have been various reasons for this, often associated with the increasing need for manufacturers to give all their main attention to production and marketing in a world of changing consumer preferences and shorter product life cycles. Many companies have also pursued a policy of reducing the number of staff to achieve greater cost efficiency and to eliminate or minimise problems associated with employment legislation. The outcome has been an increase in outsourcing, or the transfer of certain business functions to independent companies or third parties. This applies to many areas such as advertising, recruitment, and even aspects of manufacturing itself. One of the main areas suitable for outsourcing has been logistics. For example, as mentioned earlier, in the UK there has been a substantial growth in the use of third parties for road freight transport.

Of course, this unit is concerned with a further stage of outsourcing; the use of an intermediary between the first and third parties, most notably, between a shipper and an international transport company such as a shipping line. Whether or not a shipper uses an intermediary may of course be down to the individual preferences of a specific manager. However, it is likely that the management of a shipper company will need to consider whether it wishes to get tangled in the complexity associated with international logistics, discussed earlier in this course. There are three basic types of complexity likely to influence the use of intermediaries:

Network complexity

Process complexity

Product complexity.

Network complexity increases with the number of trading partners, countries and regions, and the number of stock-keeping units (SKUs) and origin-destination combinations. Process complexity is associated with how critical is timing in a supply chain. Product complexity is related to the special requirements of products, for example dangerous goods.

6.1Intermediaries help to overcome complexity

Intermediaries can play a crucial role in overcoming some of the problems of each type of complexity. For example, network complexity may result from the use of a large number of shipping lines, each of which the shipper has to contact. However, the shipper may employ an intermediary such as a freight forwarder to undertake such contact. Thus, using a freight forwarder leads to greater contactual efficiency, a concept introduced earlier in this module.

Process complexity can be reduced by outsourcing various tasks such as special labelling, or the addition of country-specific features to products.

In contrast, product complexity may prevent the use of intermediaries. For example, if the product is dangerous, such as certain chemicals, the shipper may prefer to maintain close control throughout the transit.

Another form of network complexity is associated with information systems, and is better termed information complexity. The quality of information systems is as important as the quality of the actual transport, and intermediaries have always provided a service in dealing with information complexity. For example, they have been expert at overcoming the complexities of paper documentation for international transport and trade. In the modern context, they are able to offer a specific service providing a link between electronic information systems that are not entirely compatible. Larger logistics providers are likely to be more successful in this area since they are able to invest substantially in such systems. For example, large investments in technology improvements have been made by intermediaries such as AEI ($16 to $20 million a year) and Fritz who invested about $35 million in information technology systems integration in 1996. Fritz was subsequently taken over in 2001by UPS who are famous for even larger investment in IT some $1 billion a year.

7.THE RELATIONSHIP BETWEEN THE CARRIER AND THE INTERMEDIARY

[N.B: Some students will have already come across parts of sections 7, 9 and 10 in Unit 2 Logistics and Maritime Business in the module Introduction to Logistics.]

Intermediaries in many fields of business activity are renowned for their ability to adapt to changing circumstances. In international logistics, the death of the freight forwarder has been wrongly predicted a number of times, for example with the advent of containerisation in the 1960s. At that time, forwarders in Europe were able to adapt in a number of ways, such as by purchasing or leasing their own containers or road trailers, or by starting new groupage or consolidated services. However, if there is no legal requirement for an intermediary, their very existence is always under the spotlight, particularly where traditional industry barriers are disappearing. As a reaction to threatened extinction, intermediaries need to be aware of a number of strategies. These include ensuring that their service can be differentiated from that of their competitors, diversifying their activities into new areas, or specialising in particular niche activities. They also create new organisational structures in a number of different ways such as through mergers or joint ventures, or through growth within the organisation. At the same time, of course, other participants in the logistics supply channel do not stand by as passive observers. Carriers, container shipping lines in particular, may see the income from value-added services as a lucrative way of increasing their portfolio of services. Therefore, it is necessary to examine the scope for action of both intermediaries and carriers.

7.1Problems of service differentiation

From the carriers standpoint, successful areas of freight transport run the danger of commoditisation (the term commodification is also used). This is where an efficient service is comparable to a commodity market where there is little difference between the products of different suppliers. It has happened in freight services as different as the ocean container market and the express parcels market in Europe. However efficiently undertaken, where a service is seen as simply shifting boxes, it is difficult to differentiate between particular services, leading to a lack of loyalty to particular service providers on the part of shippers. Where there is little or no potential for even greater efficiency, it is necessary to establish a service that can be differentiated from that of competitors.

One way of overcoming this problem is to establish a strong brand image, as attempted by the so-called integrators. In principle, an integrator is a company undertaking all operations without delegation to another operator, and usually such companies have a strong brand name (e.g. Federal Express, TNT, UPS, DHL). In practice, integrators often make use of subcontractors or franchises, particularly for collection and delivery, but under the umbrella of a single brand name. The use of franchises allows the brand to be more widely visible than would otherwise be possible. Integrators made their name originally in express parcel services, both domestic and international, and in airfreight, but are expanding into other markets.

Convenient labels such as integrator or freight forwarder are probably becoming inappropriate in the general turmoil of changing markets in international freighting. For example, different forms of cross-sectoral alliances have appeared in the express services sector. Airlines have purchased equity of integrators, forwarders have formed alliances with integrators. Other integrators and forwarders have not made such links. A profit famine in one business area encourages companies from that area to enter a related business that they perceive as more profitable. This development is evident in the two areas susceptible to commoditisation described earlier. Thus, ocean carriers specialising in container movements seek to become more general logistics providers, and express parcels operators expand into services carrying larger consignments.

One example of the modern period of cross-sectoral development is shown in the following article.

Lloydslist.com 4 November 2002

Rebranding Danzas may hit 150 head office jobs Forwarder will disappear into DHLby Roger Hailey Up to 150 jobs are set to go at the Danzas head office in Basle as Europes oldest freight forwarder is rebranded under the DHL logo. Parent company Deutsche Post, whose $6bn spending spree has seen it acquire DHL, Danzas, Air Express International and ASG, announced the move last week.

The German post and logistics giant also predicted that group net operating profit will rise 40% by 2005 to Euros 3.1bn ($3.05bn). Most of this will be achieved by integrating all the group companies in the express and logistics businesses Danzas, EuroExpress and DHL under the single DHL umbrella at a one-off cost of Euros 800m.

From April next year the European land transport division, Danzas Eurocargo, and the supply chain arm, Danzas Solutions, will be integrated into DHL. Danzas AEI Intercontinental, responsible for air and ocean freight, will continue to operate from Basle under the name DHL Danzas Air & Ocean. Danzas will remain a legally separate company. Danzas Eurocargo will be integrated into DHL Express and DHL Freight while Danzas Solutions will disappear into DHL Solutions. The three enlarged units will be managed centrally from the DHL headquarters in Brussels.

Express industry consultant Paul Jackson said the Deutsche Post rebranding of its subsidiaries to DHL was a smart move. He continued: DHL is one of the top 10 brands in the world, up there with IBM and Coca Cola. They paid a lot of money for the DHL brand and it makes sense to use it. They say that a successful brand has three things: recognition, trust and love. I think that, of all the acquisitions made by Deutsche Post, only DHL is really recognised, trusted and loved. However, other pundits suggested that Deutsche Post still had a long way to go in the US, where the DHL brand is less well known for domestic traffic than either UPS or FedEx.

Some eyebrows were raised when Deutsche Post, through its Danzas arm, bought US freight forwarder Air Express International for $1bn three years ago. The AEI name, well known for its international business in the US and Asia, was quickly subsumed under Danzas. Now, in turn, Danzas becomes the small print under DHL.7.2Diversification of activities

Generalisations are not always easy, particularly when attempting to explain how the international shipping and logistics industry is restructuring itself at the beginning of the 21st century. However, certain patterns are identifiable. There are three influences on how the industry is restructuring, and they are likely to have an impact for some time. These are:

The changing expectations and requirements of shippers The search for new markets by the shipping and logistics industry

Opportunities for change appearing through developments in information technology and through the actions of government.

7.2.1The changing requirements and expectations of shippers

The changing requirements and expectations of shippers emerge from four areas:

Acceptance of logistics concepts

Complexity of international logistics

Growth of globalisation

Advances in information technology.

Firstly, there has been a growth in the acceptance of logistics concepts and the consequent establishment of supply chains in which low inventory levels and short delivery times are paramount. Secondly, the complexity of international logistics, compared with logistics practised in a single country, creates difficulties in operating an effective supply chain. Both of these developments are likely to lead to shippers wanting an effective long-term relationship with at most a few, but often just one logistics company able to understand and participate in the supply chain.

The third development has been the growth of globalisation discussed in a later unit. A borderless world means that some goods go to markets world-wide from a single or just a few production plants. However, at the same time, the final product entering a national market will often need to have specific language labelling or be adapted to comply with particular national requirements or laws. In other words, products need to be country-specific. Applying the principle of postponement, such changes, or secondary production, need to take place close to the market. This has created a need for so-called value-added logistics (VAL), a service increasingly offered by logistics providers who formerly restricted their activities to transport and warehousing. The fourth development is the change in expectations of shippers brought about by the substantial advances in information technology during the past two decades. Shippers now expect to be able to monitor the delivery of their goods with much greater precision than previously, thus enabling much tighter inventory control, such as through the application of just-in-time principles.

7.2.2The search for new markets by the shipping and logistics industry

All of the developments described in the previous section are still current, and further changes will inevitably take place. Successful logistics providers will be those who can satisfy the needs created by these developments. However, the shipping and logistics sector is not merely reacting to market opportunities, but also has problems of its own that demand a search for new markets. Container shipping lines in particular have through their very efficiency turned their services into a commodity where it is difficult to differentiate one company from another. This leads to depressed prices and ultimately lower profits. Therefore, they need to seek out new markets. Another example is the changing role of the freight forwarder in a climate of professional uncertainty and threatened markets. This issue is discussed in more detail later in this unit.

7.2.3Developments in information technology and the actions of government.

All logistics activities are taking place in a changing environment. Advances in information technology provide opportunities for information services, which may become as important a part of the service offered by a logistics provider as transport operations themselves. It has even been suggested that we should no longer speak of a freight transport sector, but instead of a flow management mega-sector. The other major external change in recent times has been the deregulation and privatisation of industry, including freight sectors. Many governments throughout the world have accepted the need for deregulation and privatisation. This has created problems for some areas in the international freighting world, such as the plight of customs brokers in some European Union countries following the establishment of the Single European Market in 1993 when their business suddenly disappeared. On the other hand, it may also present opportunities for restructuring the sector, such as the introduction of new intermodal operations.

What is likely to be the outcome of all these developments? Some commentators suggest that shippers are seeking a single logistics point of contact, sometimes referred to as one-stop shopping. Others propose that there should be wide-ranging services offered by global logistics providers or mega-carriers. There seems to be a widely-held view that medium-sized logistics providers will be squeezed out of the market, but that there is a place for niche operators offering specialised services. The specialisation may be in a particular geographical market or in a limited product range with special features. It may be to provide highly specialised functions such as project forwarding, where the main skill lies in co-ordinating deliveries from a large number of suppliers to a project such as the overseas construction of a factory or hospital.

7.3Asset ownershipAn intermediary needs to make a decision about the extent to which he commits himself to asset ownership such as transport vehicles and other equipment. Of the choices available to shippers, an important decision is between using asset-based and non asset-based providers. The former operate their own equipment, purchased or leased, whereas the latter offer primarily human resources or management skills. A similar contrast is made in the European freight transport scene between third party logistics providers and the Logistik-Generalist, a term used by Swiss-Germans. Whereas the former use their own equipment and operate services, the latter adopt a co-ordinating role using the services of different operators. This sharp distinction allows shippers to select the type of service to suit their own needs. For example, smaller shippers may not wish to be involved in detailed negotiations with a number of asset-based operators and therefore prefer to use a single non asset-based (or management-based) company to find the best set of services for them.

Problems arise when the shipper encounters what Africk and Calkins call hybrid services, where subsidiaries of asset-based companies offer management services. Although they may operate as independent companies, they are likely to give preference to the transport or other physical services of their own parent company. This may not be detrimental to the shipper, but it may also limit the flexibility of the service provider in building a customised package of services, given the temptation to choose the possibly second-best service of their affiliated company.

Ocean carriers are of course heavily asset-based and therefore have an advantage over forwarders when dealing with shippers who are seeking asset-based providers. Where individual carriers are unable to offer a sufficiently wide range of assets, there is always the possibility of alliance membership. Another solution to offering a wider service is slot chartering which enables a rapid response to changing customer demand without enormous investment in assets.

7.4One-stop shopping

One-stop shopping is a term derived originally from shoppers making all their purchases at a single large store. It became popular as a concept in international logistics during the 1980s, although it has not developed as widely in practice as some commentators anticipated. There are various definitions of one-stop shopping for logistics services which all assume a single company acting as a transportation supermarket. It will provide a range of services for all transport modes, as well as other logistical services such as inventory management or warehousing. The minimum requirement of one-stop shopping is, with the available support services, to make intermodal transport effective (e.g. tracking systems, EDI). Other activities associated with one-stop shopping are likely to be warehousing and the various value-added logistics activities such as repackaging or relabelling, or tailored logistics services which replace functions otherwise undertaken by the shipper. The claimed benefits to the shipper of one-stop shopping are a better service combined with simplified transactions, greater control and fewer in-house staff. The reason for the lack of success in widespread acceptance of the concept are claimed to be associated with problems of integration and communication systems, as well as shippers placing too much emphasis on short-term costs.

The lack of success with one-stop shopping in shipping or logistics may result from a misunderstanding of the usual benefits of retailing. It should not mean that a single carrier provides a wide range of services or offer services over a wide range of routes. This would be the equivalent of a single manufacturer producing all the goods sold in a department store or shopping mall. In general, a manufacturer produces large numbers of a limited range of products, whereas a retailer carries a limited number each of a wide selection of products, offering the consumer a substantial choice. The retailer has the function of providing assortment and volume convenience in the marketing channel. Retailers should provide one-stop shopping, and the retailers of international logistics are intermediaries such as freight forwarders.

8.THE ROLE OF FREIGHT FORWARDERS

8.1Problems of definition

Freight forwarders are the great survivors of international logistics, and over the years the role of the forwarder has been adapted to cope with changing circumstances. It is, in fact, difficult to provide a precise definition of a freight forwarder, even for a publication of the Institute of Freight Forwarders in the UK which stated

A freight forwarder is a company involved in the international movement of goods on behalf of another company or person. It must be said immediately that the term freight forwarder is extremely difficult to define, meaning different or more specific things in various countries.

Another publication by the British International Freight Association (BIFA), which replaced the institutional wing of the Institute of Freight Forwarders, describes the role of the freight forwarder as follows:

The traditional role of the freight forwarder was as an agent who merely arranged transport as an intermediary and prepared shipping documentation. Originally referred to as a shipping and forwarding agent the terminology is, much like the industry, changing constantly. In the UK there are no legal definitions to identify the different roles of the freight intermediary as there are in many other countries. These days the activities of the freight services operator are performed by companies who call themselves under different names; e.g. air cargo agent, road transport operator, NVOC (non-vessel owning carrier)

In more recent years, the forwarder developed from his role as an agent acting as an intermediary and now the forwarder more often than not takes on the role of the contracting carrier, whether or not the actual carrier of the goods. Few shippers have been aware of this shift and fewer still understand the implications.

8.2The changing role of the freight forwarder

The predominant role of the forwarder over the years has changed. Until the 1960s the principal activity of a forwarder was the preparation of documents, and to a lesser extent the provision and organisation of transport. In 1970 the British National Economic Development Office (NEDO) investigated the state of freight forwarding in the UK. It found that the traditional forwarding function could be divided into documentation; planning and costing routes; booking and co-ordinating freight; arranging ancillary services such as warehousing and packing; consolidation; paying charges due to carriers, ports, customs etc.; advice to shippers; and providing information to help prepare quotations. All these activities remain valid functions of freight forwarders and portray the forwarder in the role of agent to the shipper.

However, a forwarder may also offer services as a carrier and act as a principal. At the end of the 1960s, it was considered that forwarders did not have much of a future in preparing documentation, because of the move towards world-wide simplification of international trade and transport procedures which have continued to this day. However, forwarders have always shown themselves adaptable, and, following the container revolution of the 1960s became prominent as groupage operators, otherwise known as consolidators. The freight forwarder issues a house bill of lading or similar document to his principal, and, in turn, the carrier issues a bill of lading to cover the entire consolidated consignment (e.g. full container load) to the forwarder. In the United States a distinction is made between forwarding and consolidation, performed by an NVOCC (non-vessel operating common carrier). This aspect is discussed in more detail later in this unit.

Many of the roles described above apply to the role of the forwarder in both the exporting and importing company. Many forwarders are international companies, or have close arrangements or joint ventures with overseas forwarders. A role which is particular to the importing activity of a forwarder is the clearance of goods through customs. In Britain, the same companies undertake both export and import functions. In some other countries, the government requires separate official licensed customs brokers to clear imports. They are responsible for accurate import clearance documentation showing correct values, quantities and classifications of goods so that the government does not lose revenue from the duty payable on imports.

8.3Whats in a name? The forwarding profession in the UK.

It seems as if forwarders have had a longer-term problem with their identity, at least in the UK. Consider the history of the professional association associated with freight forwarding. A London Shipping and Forwarding Agents conference was formed in 1897, rapidly followed by the establishment of the British Association of Shipping and Forwarding Agents in 1901. The Institute of Shipping and Forwarding Agents was established in 1944 towards the end of World War II. It changed its name to the Institute of Freight Forwarders in the 1960s following the introduction of containerisation and roll-on/roll-off services, when some larger forwarders became significant owners of transport assets such as containers and road trailers. In 1989, the Institute of Freight Forwarders changed its name to the British International Freight Association (BIFA) for its trading or company members, although the name Institute of Freight Forwarders (IFF) was kept for individual professional members. In 1997, there were some 1100 corporate members of BIFA, out of more than an estimated 3000 freight forwarders in the UK. However, the BIFA members accounted for about 80% of business handled by forwarders. The British freight forwarding market in 1996 was estimated at around 7bn.. Finally, the Institute of Freight Forwarders changed the name of its professional wing for individuals to the Institute of Freight Professionals (IFP) on 1 January 1998.

Thus, the word forwarder has now disappeared from the names of both the trade association and the professional body in the UK, although it continues to be widely used The final name changes have taken place during an era of uncertainty about the roles of different types of organisation. It has been an era of growth of logistics and supply chain management, and challenges to traditional forwarders from integrators, distribution companies and shipping lines. There have also been substantial developments in information technology. Freight forwarders have tended to focus on transport and, in some cases, specific transport modes (e.g. air freight forwarders). BIFA is aware that it needs to represent its members interests in other areas of logistics and supply chain management.

9.DISAPPEARANCE OF INDUSTRY BARRIERS

Industry barriers determine who does what in the broad area of international logistics and shipping. They may be imposed by law or regulation, so that in some countries there are separate official licensed customs clearance agents, required by the government to clear imports. As industry and trade evolve further it is likely that the structures become outmoded and not entirely suitable for the new situation. For example, the Single European Market (SEM) was introduced from 1 January 1993 and, according to Article 13 of the Single European Act, the SEM is "an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured". The effects of this development on intermediaries such as freight forwarders were discussed earlier in this unit.

9.1Non-vessel operating common carriers (NVOCCs)

The USA provides an interesting case of industry delimitation in international shipping. Under US legislation there is a clear distinction between foreign (or ocean) freight forwarders and NVOCCs (non-vessel operating common carriers), unlike in some other countries such as the UK. Under earlier US legislation (the Shipping Act 1984) NVOCCs (sometimes also called NVOs) were designated as being in the business of freight consolidation, offering an international LCL (less-than-container-load) service to smaller shippers and acting as customers of the ocean carriers. Although they do not operate ships, as common carriers NVOCCs provide publicly filed tariffs of freight rates. Freight forwarders, on the other hand, perform the traditional forwarder functions such as arranging transport and trade documentation, dealing with letters of credit etc. In this respect, they are sometimes called transport architects seeking customised solutions to suit their clients. They do not have common carrier liability.

Ocean carriers in United States international trade have been regulated since the Shipping Act of 1916. At that time it was recognised that the nature of international shipping required a degree of non-competitive collaboration to prevent excessive lowering of freight rates in times of overcapacity, such as through seasonal fluctuations or imbalance of trade flows. The designation of common carrier was adopted as a counterbalance to ensure a fair service to shippers. Common carriers have certain responsibilities such as the publication or filing of tariffs, and acceptance of any shippers cargo under normal circumstances.

Under the Ocean Shipping Reform Act of 1998 both freight forwarders and NVOCCs came under a general classification of ocean transportation intermediaries (OTIs) licensed by the Federal Maritime Commission (FMC). The FMC regulates ocean common carrier services. Because both liner companies and NVOCCs are operating as common carriers they have certain exemptions from antitrust (anti-monopoly) laws. The 1998 Act is a move towards greater deregulation although the two categories of intermediary still perform different functions. The 1998 Act seeks to establish a more dynamic marketplace, but at the same time to allow the FMC to monitor and act on any developments that reduce competition or distort the market.

There has been some criticism that the Act favours larger shippers and carriers because of continuing restrictions on NVOCCs, who still cannot negotiate with shippers, although they can do so with ocean carriers. NVOCCs get around this restriction by joining shippers associations, which are non-profit making associations formed to obtain quantity rate discounts from carriers, as well as enabling greater opportunity for balanced flows of containers and cargo. One such shippers association, the National Customs Brokers and Forwarders Association of America (NCBFAA) has 600 members controlling 50,000 to 100,000 export containers and 200,000 to 300,000 import containers a year. An important development is that individual ocean carriers, rather than groups of carriers or conferences, can negotiate a confidential contract with shippers. This follows established practice for land-based transport where longer-term relationships have become much more prominent, and where the carrier offers a range of services apart from transport. Many road freight carriers now call themselves logistics providers instead of transport companies. The future is uncertain as far as the role of intermediaries in ocean shipping is concerned. Smaller shippers are likely to require intermediaries who do more than just offer a consolidation service. A single intermediary may need to offer both NVOCC and forwarding services for a range of both ocean and overland routes, which could be viewed as something approaching one-stop shopping. The following article shows how ships agents have redirected themselves in the above context of uncertainty.

Lloydslist.com 4 April 2001

Ship agents join forces to form global freight transportation companyJanet Porter

Ship agents from around the world have banded together to form their own freight transportation company. Flash Line, a non vessel-owning common carrier, has been set up by 65 agents from about five dozen countries who want to diversify into new areas of business as traditional ship agency activities continue to be squeezed.

The founding shareholders are all members of Multiport, the global network of ship agents, although Flash Line stresses that the joint venture is not a Multiport initiative. Not every Multiport member has an interest in Flash Line, while non-Multiport agents would also be welcome to participate. The fledgling NVOCC, which has the same status as an ocean carrier but takes space from other shipping lines rather than operating its own tonnage, believes its strength lies in its global reach through its shareholders.

"Our target is to create volume for global contracts," Flash Line chairman Albert Hoek told Lloyds List. Flash Line holds a Federal Maritime Commission security bond and is insured through the TT Club. Each share cost $1,500 with membership limited to one shareholder per country.

10.GLOBAL LOGISTICS PROVIDERS

The term logistics provider is increasingly more widely used, being sufficiently broad to cover all possible activities in a rapidly changing market. It reflects the breakdown of barriers between the different categories of transport carrier and intermediary in a deregulated environment. Indeed, the disappearance of barriers goes much wider than transport, so that a single company, or a group of affiliated companies, may offer a broad range of logistics services including transport, warehousing, inventory management and other value-added services.

Favourable use of terms like global and mega suggests that large-sized companies are desirable. Certainly, many commentators take this for granted. The term mega-carrier is sometimes used to refer to the very large companies that have come to dominate certain freight sectors because of concentration of ownership, sometimes following deregulation of the sector. In this sense, it is associated with the oligopolistic nature (i.e. a limited number of main players found in any market) of many sectors of business or industry. In the shipping industry the liner trade is an example of oligopoly with shipping lines forming conferences or, in recent times, alliances. Used in this way, the term mega-carrier can refer to a large company offering a narrow range of services, such as just an ocean container service. Elsewhere, in the European context, it has been used to refer to very large companies with a combination of a geographical presence and a well-developed portfolio of transport and logistics services. Sea liner companies have a number of advantages to enable them to become this type of mega-carrier, notably the wide reach of their services, their long-standing skill at raising substantial finance, their wide customer base, and their wide range of markets. The last-mentioned use of the term mega-carrier has more in common with the concept of one-stop shopping.

If any type of institution is going to offer a global logistics service, ocean carriers have an existing advantage in breadth and depth of service. They have grown both internally and through strategic alliances or mergers with other carriers. However, they also have a problem as far as shippers perceptions of them are concerned. Ocean carriers may not appreciate the full range of shippers needs, or would necessarily make choices of logistics providers that are in the shippers interests. Also, they may not be able to offer sufficiently sophisticated information tracking systems at the level of the purchase order, or to be able to manage pipeline inventory. Some container lines (e.g. Maersk) have global product groups in various industry sectors such as automobiles or chemicals intended to gain and provide product-specific logistics expertise. Other players in the market are also following this lead. The following excerpt shows recent decisions by P&O Nedlloyd. Note that they intend to focus on maritime intensive supply chains.

Lloydslist.com 25 June 2002P&O Nedlloyd launches new logistics brand By Janet Porter

P&O Nedlloyd has split its shipping and logistics activities into two separate business units. A new division, with its own dedicated staff, will be marketed under a different name, P&O Nedlloyd Logistics, that will be formally launched on July 1. The Anglo-Dutch carrier has been providing logistics services for a number of years, with its Global Logistics Division first established in 1996 and an internally branded Value Added Services unit in place since 1999.However, P&O Nedlloyd is now taking this process further with the launch of a new brand in order to make a clear distinction between shipping and logistics. P&O Nedlloyd Logistics will be headed by Johan Nanninga, who said yesterday that the new division would be a separate profit centre expected to make a significant contribution to group turnover. Three sectors will be targeted by P&O Nedlloyd Logistics: industrial and chemicals; retail; and fast moving consumer goods.The range of services on offer will range from simple customs clearance to complex supply chain solutions including warehousing and distribution. The new business unit will differ from logistics activities provided by sister company P&O Trans European because of the emphasis on supply chains that are maritime intensive, said David Charlesworth, sales and marketing director of P&O Nedlloyd Logistics.

While services will be targeted principally at P&O Nedlloyds customer base, the logistics division will not be confined to the liner shipping services of its parent company.

P&O Nedlloyd Logistics sees itself as an independent fourth-party logistics provider, with relatively few assets but expertise in distribution and freight management.A survey of senior transport and logistics executives has claimed that there is no obvious serious provider of global logistics services, and rhetoric far exceeds reality. For such executives a global logistics provider must fulfil a number of criteria: to be best in class in all aspects of the logistics supply chain; to offer virtually global coverage at a consistent quality; to provide seamless - no bumps in the road service between different parts of the service; to provide easily available and detailed information about shipments and inventory. Such requirements are very demanding and it would be difficult for a single company to supply them if it only made use of its own services.

11.CONCLUSIONS

It is difficult to make firm conclusions about the future role of intermediaries in international logistics at the beginning of the 21st century. This unit has described a number of functions that are typically, although not necessarily performed by intermediaries such as freight forwarders. We live in a world of change in shippers expectations, in government attitude, in information technology, and within the international shipping and logistics industry itself. Figure 4 attempts to show how this environment of change influences the typical functions of intermediaries. This chapter has discussed various possible outcomes such as one-stop shopping and the emergence of global logistics providers. Different types of organisation, both intermediaries and shipping lines are competing for the retailing of international freighting and other associated logistics services.

SHIPPER

CARRIER

Figure 4: Influences on the functions of intermediaries

Figure 3: Relationship between trading and logistics channels including classes of functions

CUSTOMER AS SHIPPER

SUPPLIER AS SHIPPER

TRANSPORT

INTERMEDIARY

CARRIER

CUSTOMER

GOODS

INTERMEDIARY

FOR GOODS

Goods inventory holding

Information processing services

Product transformation

Delivery

FOR LOGISTICS SERVICE

Transport services

Logistics centre services

Information processing services

Professional advice and support

FOR LOGISTICS SERVICE

Marketing services

Asset holding

Assortment and volume convenience

LOGISTICS

INTERMEDIARY

CARRIER

SUPPLIER OR CUSTOMER AS SHIPPER

FOR GOODS

Service availability

Customer service

Credit and financial assistance

Assortment convenience

Breaking bulk

Advice and technical support

FOR GOODS

Market coverage

Sales contact

Inventory holding

Order processing

Market information

Customer support

GOODS

INTERMEDIARY

SUPPLIER

CUSTOMER

Figure 2: Parallel goods and transport channels with intermediaries

TRANSPORT

LOGISTICS CHANNEL

TRADING CHANNEL

Figure 1: Goods (trading) and transport channels in parallel

GOODS

CUSTOMER

SUPPLIER

SHIPPING

AND

LOGISTICS

INDUSTRY

CHANGE

GOVERNMENT

AND

TECHNOLOGY

CHANGE

SHIPPER CHANGE

Lower profits

Powerful new information technologies

Logistics and supply chain concepts

Deregulation and privatisation

Globalisation versus differentiated markets

New structures possible

Increased information expectations by shippers

Division between primary and secondary production

Demand for VAL

Complexity of international logistics

Shippers want partnership with umbrella logistics company

Efficiency of integrators

Commoditisation

Search for new markets

Professional uncertainty of forwarders

POTENTIAL OUTCOMES

One-stop shopping?

Global logistics providers?

Mega-carriers?

Niche operators?

IMPACT ON INTERMEDIARY FUNCTIONS?

BETWEEN SHIPPER AND CARRIER

Shipper perspective

Information processing services

Transport services

Professional advice and support

Logistics centre services

Carrier perspective

Marketing services

Asset holding

Assortment and volume convenience

BETWEEN SHIPPER AND TRADING PARTNER

Shipper perspective

Goods inventory holding

Information processing services

Product transformation

Delivery

Efficiency of container operators

SUPPLIER

TRADING CHANNEL

LOGISTICS CHANNEL

Rosenbloom, B (1995) Marketing Channels: a Management View 5th ed.The Dryden Press, Fort Worth TX.

Refer also to Unit 3 Institutions in International Distribution.

Interlink Express web site http://www.interlinkexpress.co.uk

Stern et al (1996) Marketing Channels Prentice Hall-International, Upper Saddle River, NJ

Drewry Shipping Consultants (1995) The Oil Tanker Fleets Drewry Shipping Consultants, London.

See Unit 4 Third Parties in International Logistics.

For a discussion on the nature of relationships in ship management see Panayides, Ph.M. and Gray, R. (1999) An empirical assessment of relational competitive advantage in professional ship management. Maritime Policy and Management, 26, 2, 111-125

Davies, G.J. and Gray, R. (1985) Purchasing International Freight Services, Gower Publishing, Aldershot

Rao, K. and Young, R. (1994) Global supply chains: factors influencing outsourcing of logistics functions International Journal of Physical Distribution and Logistics Management 24, 6, 11-19

Quoted in Coyle, J.J., Bardi, E.J. and Langley, C.J. (2003)The Management of Business Logistics, 7e,South-Western Publishing (p.442)

Eurostat (1996) Statistical Portrait Of The European Union. Facts Through Figures, Office For Official Publications Of The European Communities, Luxembourg

Rao, K. and Young, R. (1994) Global supply chains: factors influencing outsourcing of logistics functions International Journal of Physical Distribution and Logistics Management 24, 6, 11-19. Rao and Young make this point about 3rd parties in general, but it is equally valid for intermediaries in particular.

McKnight, B., Meynial, P. and Snow, W. (1997) Shippers can capitalize on freight forwarder consolidation Transportation and Distribution, February, 61-62.

Lloydslist.com 15 Jan 2001 UPS sets performance targets after Fritz takeover by Roger Hailey

European Conference of Ministers of Transport (1996) Express Delivery Services: Report of the 101st Round Table on Transport Economics ECMT, Paris.

European Conference of Ministers of Transport (1995) Transforming the Structure of the Freight Transport Sector: Report of the 99th Round Table on Transport Economics ECMT, Paris.

Africk, J.M and Calkins, C.S. (1994) Does asset ownership mean better service? Transport and Distribution, May, 49-61.

European Conference of Ministers of Transport (1995) Transforming the Structure of the Freight Transport Sector: Report of the 99th Round Table on Transport Economics ECMT, Paris.

Containerisation International (1998) Scale versus scope, January, 52-53

Semeijn, J. and Vellenga, D. (1995) International logistics and one-stop shopping International Journal of Physical distribution and Logistics Management 25,10,26-44.

Gates, A.C., (undated) A Brief Introduction to Freight Forwarding The Institute of Freight Forwarders, London

British International Freight Association (1997) The International Freight Guide BIFA, London. Page 1.

The term NVOCC (non-vessel operating common carrier) is widely used.

NEDO was subsequently disbanded in 1980s by the Thatcher government

Details taken mainly from the BIFA Yearbook 1993.

British International Freight Association (1997) The International Freight Guide BIFA, London

Key Note Market Report (1997)Freight Forwarding (10th ed.) Key Note Publications, London

BIFAlink (2002) A forum for logistics, Issue 147, December, p12.

(American Shipper (1999) April, p.72.

Cooper, J., Browne, M. and Peters, M. (1991) European Logistics: Markets, Management and Strategy Blackwell, Oxford.

See also the P&O Nedlloyd Logistics web site http://www.ponlogistics.com/

McKnight, B., Meynial, P. and Snow, W. (1997) Shippers can capitalize on freight forwarder consolidation Transportation and Distribution, February, 61-62.

International Logistics and Supply Chains (V2002) Dr. Richard Gray ([email protected])28