Freight Forwarders: A Comprehensive Guide
Freight Forwarders: A Comprehensive Guide
The import and export of goods is a pivotal piece of many businesses large and small. While shipping internationally provides strong business opportunities, it can be very daunting. If you’re unaware of the term “freight forwarders”, it may seem confusing. Is this a manager of distribution? Maybe another term for a freight shipping company? Is it a partner in import and export services?
Truthfully, freight forwarders are none of these things. However, they do take on responsibility for all of them and more. Read on for a comprehensive look on freight forwarders, unraveling the complicated logistics of logistics.
What is a Freight Forwarder?
A freight forwarder is a firm that specializes in the arrangement of cargo shipments on behalf of shippers.
Typically, freight forwarders will provide a variety of supply chain services, including but not limited to:
- Ocean or air freight transportation
- Inland transportation from origin and/or to destination
- Preparation of documentation
- Warehousing and storage services
- Consolidation and deconsolidation
- Cargo insurance and customs compliance
Most freight forwarders will ship through their own bills of lading or waybill. Then, destination agents (freight forwarders overseas) will provide delivery of documents, deconsolidation, and collection or delivery.
In layman’s terms, a freight forwarder is an entity who arranges the import and export of cargo.
What Does a Freight Forwarder Do?
Freight forwarding services utilize existing carrier relationships to negotiate the lowest possible price for the movement of goods. This is performed along the most economical routes possible through the bidding and contract process. In the end, the goal is finding a carrier that provides the best balance of cost, speed, and overall reliability.
They also handle the logistics required for shipping goods internationally. This is a complex burden of a task for most clients.
Freight Forwarders vs Freight Brokers
While sometimes used interchangeably, freight forwarders and freight brokers serve different purposes.
A freight broker works as a middleman, serving to connect carriers and shippers. They do not take any responsibility or possession of freight. This means that they are not liable for claims if cargo is damaged or issues arise. A freight broker will register with the FMCSA (Federal Motor Carrier Safety Administration) for authority as a broker. They carry their own insurance to protect their assets in case of loss or damage.
Conversely, freight forwarders will actually store physical freight for customers, as well as arranging for the transportation of the shipments. While providing the same services freight brokers provide, they serve to ship freight under their own bills of lading, store the freight in warehouses, and take responsibility for insurance. Typically, freight forwarders will not own the ships or equipment the freight is being moved on. However, there are some similar companies, such as Crowley Logistics, who own their ships and also own their equipment.
Freight Forwarding Around The World
There are many different variations, rules and regulations faced by freight forwarders or equivalent alternatives around the world. Below are some specific differences that exist for Canada, the United Kingdom and the United States.
Freight Forwarding in Canada
Canada has a federal department who takes responsibility for the implementation and enforcement of transportation programs and policies: Transport Canada. Additionally, Canada’s Border Services Agency takes responsibility for the enforcement of many regulations affecting international freight forwarding services. The primary point of concern for these government services are various measures of international security.
The CIFFA (Canadian International Freight Forwarders Association) was established in 1948. Its purpose is to protect and support the status, interest, and character of foreign-owned freight forwarding companies. They do this through the establishment of uniform trade regulations and practices. Additionally, CIFFA has an educational role, providing certificate programs for freight forwarders.
Freight Forwarding in the United Kingdom
In the United Kingdom, freight forwarders remain unlicensed. However, many claim membership to BIFA, the British International Freight Association. BIFA serves as a major trade association for companies registered in the United Kingdom that engage in international freight transportation across land, air, rail and sea.
Currently, BIFA has about 1,500 corporations serving as members. These companies are known as freight forwarders, and provide a variety of services within their various modes of service.
Freight Forwarding in the United States
In the United States, companies that handle domestic freight over the road are required to register with the DOT’s FMCSA (Federal Motor Carrier Safety Administration), much like freight brokers mentioned above. These forwarders serve as carriers, accepting freight for transport. They remain liable for the delivery of freight, and do so under their own bill of lading.
International ocean freight forwarders arrange shipments both to and from the United States. These forwarders are required to register with the Federal Maritime Commission as “Ocean Transportation Intermediaries”. The two classification options for transportation intermediaries are ocean freight forwarders and NVOCCs.
- Ocean Freight Forwarder: These are companies or individuals located in the United States dispatching shipments from the U.S. via common carriers. They book or arrange space for these shipments on behalf of the shippers.
- Non-Vessel-Operating Common Carrier (NVOCC): These are common carriers that hold themselves out to the public for ocean transportation services. NVOCC’s issue their own bills of lading or equivalent documentation. However, they do not operate or own the vessels in which the cargo is being transported.
Pros and Cons of Freight Forwarding
As with any logistics services, there are plenty of factors that play into the overall process. While freight forwarding may seem like a win-win situation for customers, there are also some caveats that should be known before diving in.
Below are a few of the advantages and disadvantages of freight forwarding.
Advantages of Freight Forwarders
- Freight forwarder services offer competitive pricing based on service levels needed from a customer. They can also lower prices through the arrangement of consolidation with cargo from other customers. This allows for a single full container load for transport (FCL) and will drastically reduce overall freight charges for LCL (less than container load) shipments.
- Freight forwarders will typically specialize in a specific service area, mode of transportation or market. This allows the company to choose the services the forwarder should handle. In turn, this gives the company greater control over the handling of their shipment.
- Knowledge and expertise are crucial in the import and export of products through customs clearance Freight forwarders have the most up-to-date information regarding customs regulations, and can handle documentation, pay tariffs and handle taxes.
- One of the main advantages of a freight forwarder is their ability to offer services relating to a trade. Some service offerings consist of documentation handling, bills of lading, bank paperwork, cargo insurance and inventory management.
Potential Disadvantages of Freight Forwarders
- In many cases, freight forwarding services are not the owners or operators of the transportation that cargo is being moved on. For this reason, their influence in the happenings on board the ship, rail car, truck or airplane are minimal, and their participation in the transportation steps is hands off at best.
- If you perform all documentation and forwarding, your costs are controllable. However, with a freight forwarder there is no way to really know what kind of a service markup the forwarder is adding. A company might charge $2,500 for land transportation to a destination. However, a freight forwarder can easily state the price as $5,500 and skim the markup off the top.
- Product loss is a hard reality of some shipping processes. Putting trust in a freight forwarder to handle all shipping and packing leads to loss of control for the packaging process. If the freight forwarder is detail oriented, things are fine. But ineptitude can wreak havoc on shipments and lead to losses.