Freight forwarding plays a critical role in the supply chain management industry, especially in the coordination for the storage and transportation of goods for importers and exporters. A freight forwarder also handles customs clearance if the cargo crosses international borders at the points of arrival and departure.
In the original sense, that would be a freight forwarder’s scope of business. These traditional roles have evolved over time.
Now many freight forwarders have expanded their capacity and scope of services to be more similar to logistics service providers.
What is freight forwarding?
Freight forwarding is technically a component of the logistics industry, which is a part of the supply chain management industry. It is a service usually offered directly to logistics firms.
Sometimes a seller or manufacturer, which has good connections with freight forwarders, will engage their services directly instead of going through a logistics service provider.
As the word ‘forwarder’ suggests, a freight forwarder simply forwards its client’s cargo from one country to another. Its clients are usually importers and exporters. They can be international traders, manufacturers, suppliers, shippers and so on.
A freight forwarder typically does not carry out the transporting aspect. Instead, it just coordinates for the conveyance of goods to take place by working closely with carriers such as freight ships, freight trains and cargo planes.
The type of goods handled in freight forwarding is usually in bulk or they may be very large items. Cargo or freight that will be transported by ships and freight trains would be placed in 20-foot or 40-foot containers. These may be stored in warehouses allocated for freight forwarding at ports or train stations.
Types of freight forwarders
The types can range from agents to multinational corporations. Small, single-office firms may deal only with clients in their local area or operate at a specific seaport. Multinational corporations may have offices in a number of countries and offer a wide range of services worldwide.
To stay ahead in this very competitive industry, many freight forwarders today offer additional services such as finance, warehousing, sorting, packaging and goods assembly.
One type of forwarder is called clearing and forwarding agent, which can be a person or a company. This type provides clearing and forwarding services which include:
- uploading and unloading services of goods and materials
- export and import consignments
- port terminal handling
- warehouse facilities
Freight forwarding services are not just limited to freight forwarders. Some large export or import businesses have their own freight forwarding divisions.
What does a freight forwarder do?
Freight forwarders can function as an agent or as a contractual carrier. As an agent, it acts on behalf of its client to arrange or contract for the carriage of the client’s goods.
As a contractual carrier, it offers a consolidated arrangement of transport for cargo from several different clients into a single transport unit or package. Then, the forwarder hands this package to a carrier for delivery to a designated location.
From there, the shipments for each of the different clients are extracted and separately cleared through customs. Finally, the goods are released and distributed to their own consignees.
In general, here is a list of tasks typical for a freight forwarding company:
- propose the best routes and carriers for clients
- arrange for warehousing of goods at the port
- carry out freight rate negotiations
- liaise with various carriers or transporters to negotiate on price, insurance and schedules
- process documentation related to a shipment
- book the space on a carrier
- make calculations on cargo by weight, volume and cost
- prepare quotations, invoices and contracts
- obtain vessel details of the carrier
- arrange to have cargo loaded onto a carrier
- track container movement
- prepare and handle customs documentation
- customs clearance for cargo
- pay duties and taxes
- provide clients with cargo insurance
- communicate closely with clients on costs and arrangements
International freight forwarders
In very big countries, such as Russia and China, cargo may need to be moved from one end of the continent to the other. Freight forwarders on this kind of assignment need not deal with customs clearance or import-export documentation.
International freight forwarders come in when goods need to be moved from one country to another, such as from China to Russia. They are more experienced in performing activities pertaining to international shipments.
For instance, they have the added expertise in preparing and processing customs documentation necessary for international shipments. They have expert knowledge of the standards and protocols of customs for different countries and ports.
International freight forwarding would involve more documents such as shipper’s export declaration as well as other documents required by the carrier, or country of export, import or transhipment.
Freight forwarding process
The process can be broken down to 6 key stages:
- Export haulage – transfer of cargo from its original source to the freight forwarders’ warehouse
- Export customs clearance – clearance for the cargo to leave its country of origin
- Origin handling – unloading, inspection and validation of the cargo against its booking documents
- Import customs clearance – customs authorities checking paperwork for the cargo
- Destination handling – handling of cargo once it reaches its destination, including transfer to the import warehouse
- Import haulage – transfer of the cargo from the import warehouse to its final destination
What are the documents required for freight forwarding?
The freight forwarder is responsible for arranging a range of documents for its clients. Shipping overseas involves more documentation and paperwork.
All relevant documents must be in order for the goods to reach its destination without any issues. Here are some of them:
- Commercial Invoice
- Generic Certificate of Origin (COO)
- Shipper’s Letter of Instruction
- Packing List
- Bill of Lading
- Dangerous Goods Certificate or Form
- Proforma Invoice
- Export Licence
- Import Licence
- Material Safety Data Sheet
- Bank Draft
- Forwarders Cargo Receipt
- Booking Note
- Inspection Certificate
- Shippers’ Export Declaration Document
Difference between logistics and freight forwarding?
Logistics is a much broader scope than freight forwarding. As mentioned earlier, freight forwarding is a component of the logistics industry.
A typical example of a multinational logistics corporation is DHL. The company handles all manner of goods from bulk orders to small items such as mail and individual consumer products. Freight forwarding companies handle mainly bulk orders and very large items.
Logistics involves drawing up operating plans, requirements and specifications for all the services needed to complete a delivery order, whether large or small. It provides the entire gamut of logistics services to the customer including inventory management, packaging, re-packaging, and so on.
Freight forwarders are agencies which consolidate the cargo and book the cargo for onward freight using an airline, a shipping line or ground transportation network (rail or trucks) wherever required.
However, they normally do not own any mode of transportation services. They merely book the space with shipping lines or airlines, and negotiate the freight rates.
Most of them have an in-house customs clearance division. In many cases today, they also own and manage warehousing facilities. Bigger companies may also offer inventory management and planning services, similar to some logistics service providers.
How to choose the right freight forwarder company
Here are some criteria for picking a suitable firm for your needs:
The value of cargo often runs into millions of dollars. You would want to choose a forwarder that is known for being trustworthy. Word of mouth recommendation from trusted contacts is usually the way to obtain references. Otherwise, if this is not available to you, you can use FreightDeadBeats to check whether a freight forwarder is reliable.
2. Right experience
Different types of goods have different natures; therefore, different requirements for proper handling and storage. You would want to choose a forwarder which has enough experience in handling your type of freight.
3. Good network
Not all freight forwarders possess their own vehicles. Large carriers such as ships, airplanes and heavy duty trucks are costly to purchase and maintain. Thus, it is normal for freight forwarders to work closely with transport companies to fulfil your delivery order. A freight forwarder with a good network with carriers will be able to find the safest and most affordable deals for you.
4. Right services for your shipment
Correct and complete documentation is critical for the smooth-sailing journey of your goods. The right forwarder must be able to offer these seamlessly.
5. Transparent pricing structure
There are many costs associated with a cargo delivery which you may not be aware of. For example, fuel surcharges, brokerage fees and so on. Right from the start, a freight forwarding company should give you the entire breakdown of costs in its quotation and stick to it.
6. Cargo insurance
There is always risk involved in the shipping of goods. Risk comes in the form of losses caused by delays, damage to cargo during any part of its journey, pilferage or loss. Natural disasters or accidents can strike at any time. Freight forwarders are obligated to offer specific cargo insurance depending on your shipping needs.
Freight forwarding has changed following global business practices. Companies in this field realize the potential of being able to offer more services than its traditional scope; so much so that many have become logistics service providers over time.