OPINION: How freight forwarders add value to the logistics chain
03 / 10 / 2017
There have been reports of air cargo carriers plotting to establish direct relationships with importers and exporters so they can by-pass third-party freight forwarding services for the movement of goods.
The arguments put forward by the carriers considering this no doubt go something along these lines: by removing a link from the logistics chain, we remove a cost. If we can work directly with companies to ship their goods, we can offer them better value.
But the question importers and exporters have to ask themselves is this: can carriers really replicate the service delivered by freight forwarding specialists?
Do they have the expertise or the resources to, for example, liaise with ground handlers in countries across the globe, arrange storage and delivery of the goods, or prepare documentation for payment, customs and insurance?
To be able to fulfil these functions, carriers would have to extend the remit of their operations quite considerably. This in itself would add costs which in all probability would cancel out any proposed savings from cutting out the middleman.
Freight forwarders exist to deliver these services in the most efficient and effective way possible. Therefore, rather than adding costs to the logistics chain, they actually add value which a cargo carrier would find it very hard to replicate. Here are five reasons why.
Freight forwarders are independent of any carriers. A key part of their role is finding and negotiating the best value freight charges on behalf of their clients.
Take freight forwarders out of the equation, and it would be up to individual importers and exporters to research and arrange their own charges direct with the carrier. Carriers will no doubt advertise preferential rates, but how would you verify them? Freight forwarders are experts who through their contacts and experience are set up to arrange the best rates available.
Because of all the business they can put a carrier’s way through numerous different clients, freight forwarders are in a strong buying position to drive down prices. Left to negotiate their own rates, very few shippers would have the same leverage, and would end up paying higher rates than an agent could negotiate on their behalf.
If an importer or exporter entered into a shipping arrangement direct with a carrier, there would be the question of oversight. Who would be responsible for ensuring they were getting best value from the service, or that everything was being carried out as required? The relationship with your carrier would need to be managed by someone with the requisite knowledge and expertise within the company.
Just as many companies now outsource functions like IT and marketing, there is value in contracting a freight forwarding agent to take on this role on your behalf over having to recruit internally.
Carriers have very different commercial objectives to freight forwarders. They will operate the most profitable routes, and aim to attract as much business as they can for those routes.
Freight forwarders have to take a much broader view. Rather than focusing on a particular number of routes, it makes sense for them to be able to provide services wherever a customer may need them. Therefore they establish global networks of contacts so they are able to facilitate the movement of goods wherever the client requires.
These global network of partners freight forwarders establish cover the full range of services required in the transportation of goods. Relationships with other freight forwarders, with carriers, with ground handlers and warehouse operators, with customs and financial brokers and local logistics services, are all part and parcel of what freight forwarders offer. The result is a truly end-to-end service, taking responsibility for delivering seamless movement of goods from door to door.
Finally, the complexity of international shipping should not be taken lightly. Documentation and administration is a key part of the process, with the need to meet legal and regulatory requirements across different jurisdictions. Shipping and export documents, bills of lading, document delivery, letters of credit and customs declarations are all critical.
Getting something wrong on the paperwork can lead to punitive additional costs or even fines.
For peace of mind, it makes sense to employ qualified, experienced professionals who understand the precise requirements in every jurisdiction. Getting things right first time saves a lot of hassle and money in the long run.
Alliance Shipping Group is a provider of sea and air freight services worldwide.