If your business ships orders to customers, you know how important it is to get the goods delivered on time. But what you may not know is that there’s a whole industry devoted to making sure your shipments arrive safe and sound. Freight forwarders act as middlemen who handle administrative matters related to the shipment of goods and ensure that goods are on the most cost-effective carriers.
If you own a freight forwarding service or plan to have one, understanding the best practices of freight forwarding is essential. Knowing the basics will help you build a solid system for your business that will only lead to more trust and better results.
What is freight forwarding?
Simply put, freight forwarding is the act of planning and coordinating the movement of goods from one place to another. Individuals or companies who handle it are called freight forwarding agents or freight forwarders.
You might think that freight forwarding and logistics carriers sound similar in theory. But in practice, the two function very differently.
Although freight forwarding entails coordinating and planning the movement of goods, it does not include actually, physically transporting the goods. A freight forwarding agent will only assist businesses with administrative matters and required shipping documentation. This, in turn, simplifies and boosts the work undertaken by logistics carriers.
Businesses that use freight forwarding services get the ease of choosing the transportation modes to deliver the goods. They can, for instance, choose single or multiple carriers to transport their items to their customers or distribution centres.
There are advantages and disadvantages to both single and multiple carriers. The right choice for you can only be clarified by the freight forwarding agent you choose to support your business.
What do freight forwarders do?
Businesses can handle the admin and shipping process on their own. But the entire procedure can quickly become a burden, especially for businesses that are just starting out. These businesses (and even some established ones) may not understand the benefits of bringing on a freight forwarder.
Since freight forwarders typically do not own a fleet of vehicles, they will make contracts with carriers or multiple carriers to move the goods. Depending on their client’s requests, they will use a variety of transportation modes provided by the logistics companies, such as ships, aeroplanes, trucks, and railroads.
Here’s an example so you can understand freight forwarding in action: A freight forwarder can arrange to transport goods from the factory to the port by truck. Once the goods arrive at the port, the freight forwarder will handle the customs clearance process, which requires several documents, such as a customs packing list, Country of Origin (COO) certificate, commercial invoice, and many more.
After the freight forwarding agents obtain customs clearance, the goods will be loaded onto ships or planes bound for their final destination. After the goods arrive at the country of destination, the forwarder will also handle trucks that transport the goods to the warehouse before shipping them to customers.
Freight forwarding services are especially advantageous for businesses that require cross-country shipping. Cross-border shipping is quite complicated since the goods must also pass through customs and import duties, which require compliance with global trade agreements.
Freight forwarders have now begun to expand their services to include more than international shipping now. Many of them also offer domestic services and more:
Different types of freight forwarders
- International vs domestic freight forwarders
Freight forwarding services are frequently beneficial in handling the export and import processes. They are experts familiar with global trade agreements and have relevant connections with the destination country’s international shipping departments etc. This facilitates a smooth cross-border goods movement.
Freight forwarding companies will typically consolidate the freight movement via air, ocean, or land transportation. They ensure that their clients have their goods shipped to the final destination through the most efficient routes.
Since businesses can choose a single carrier to deliver their goods, some freight forwarders specialise in specific modes of transportation. Businesses that hire a single-mode freight forwarder typically do not require door-to-door shipments as they have employees who will pick up the goods at the warehouse.
Many freight forwarding companies also offer domestic freight forwarding services. These are common in large countries with unpredictable geographical conditions and vast remote areas.
Businesses can hire domestic freight forwarding companies to assist them in shipping goods to customers in remote areas of the country. Working with a freight forwarder, instead of handling the process on their own, can reduce the burden on them. Freight Forwarders are familiar with the land and weather conditions and can make recommendations on which transportation modes businesses should use to ensure the goods reach safely and on time.
- Freight forwarders who owns a delivery fleet vs without a fleet
Typically, freight forwarders do not own vehicles. There are, however, those who own their vehicle fleets. More often than not, they are logistics companies that also offer freight forwarding services.
Working with logistics companies that also provide freight forwarding services is beneficial because a single party will handle both administrative management and the delivery of goods to customers.
However, the costs will almost certainly be higher. This is because the chosen service package includes both administrative arrangements and door-to-door delivery services. As a result, many businesses prefer to work with conventional freight forwarders to save on costs. Others may choose to handle delivery themselves to keep tight control of last-mile delivery.
- Freight forwarders with warehouse vs without warehouse
Freight forwarding services usually include warehousing. That means, the fees paid to freight forwarders should include the cost of warehousing goods at ports.
Freight forwarders usually already have their warehouse to accommodate goods on behalf of their clients. But, some freight forwarders do not have independent warehouses and will partner with warehousing service providers.
Challenges faced by freight forwarders
Freight forwarding is a very competitive market. The price of a freight forwarder needs to be
proportional to the speed, security, and legality of delivery.
Unfortunately, due to market competition, many freight forwarders face various challenges, especially if they don’t use tools to streamline their work processes.
Here’s a closer look at the most common issues encountered during the freight forwarding process:
- Unable to provide customers with real-time notifications
Since freight forwarders are responsible for managing the delivery of goods from their clients, they must provide information about the logistics companies they use to deliver goods.
Unfortunately, if your chosen freight forwarder partners with a third-party logistics company, they will receive delayed updates on the goods and where they are. In addition, the real-time location is usually only accessible within a certain time frame, which doesn’t let customers know the exact location of the goods they are expecting.
- Minimal visibility and tracking capabilities for their fleet
Aside from the difficulty of notifying customers in real-time, another thing that burdens freight forwarders is the limited visibility and tracking of the fleet of vehicles. It applies to both conventional freight forwarders with downstream logistics partners and freight forwarders with their own fleet of vehicles.
They cannot monitor vehicle movement when they have limited visibility and tracking capabilities. Unfortunately, this can lead to various issues, such as drivers taking inaccurate routes, vehicle issues that take time to resolve, etc,. all of which result in longer delivery times.
- Too much administration is required whilst handling Manifest, Waybills and PODs.
Freight forwarders must prepare legal documents for both export and import shipments. It varies according to the sending and receiving countries.
These legal documents can be a burden for them, especially since they also have to deal with logistics documents like manifests, waybills, and proof of deliveries (PODs).
- Poor network delivery visibility
To avoid errors and attacks on critical information, freight forwarding companies must ensure clear and complete visibility of the data circulating in the network. Network visibility is a technique that enables them to see traffic entering and leaving their network.
Regrettably, many freight forwarders overlook the security of their delivery network visibility. This is dangerous as they have sensitive information about their clients that could be catastrophic for businesses if there are breaches.
- No capture or reporting of real-time data
Real-time data capture and reporting are critical for freight forwarders to manage their work systems. Unfortunately, many freight forwarding companies have not implemented the feature of real-time data reporting.
Freight forwarders cannot monitor the work being performed without the assistance of these features. This means that any issues will result in rework or delayed corrective action, leading to wasted time and opportunity, further increasing costs.
- High cost of service
Sending goods to and from abroad in large quantities is undoubtedly expensive. Freight forwarding companies will frequently pay these fees in advance, particularly when processing customs clearance at the port. Freight forwarders depend on the smooth processing of their clients’ goods to ensure they’re paid for their services.
As a result, the cost is frequently one of the challenges that many freight forwarders face. They require a large amount of capital to survive and compete with other similar service providers.
- Extended billing cycles due to manual processing
There are often customers who are late in paying their bills to shippers or businesses. They create an extended billing cycle. When this occurs, they must pay an additional fee, causing their total cost to increase. Freight forwarders who manually process logistics deliveries could often end up with extended billing cycles to deal with. Businesses that have entrusted freight forwarders will, of course, hold them accountable because their clients will complain about the extended billing cycle.
- Manual representation of customer service
As a business entity, freight forwarding companies will almost certainly have customer service representative officers. They will be in charge of dealing with customer complaints and enquiries.
Unfortunately, many freight forwarders still perform this process manually. This makes it difficult to record which customers are experiencing problems and what steps the customer service representative took to resolve them. Manually sharing updates results in lost time and increases cost if similar issues happen with other customers.
- Fee discrepancies for delays and exceptions
When a freight forwarding company plans to ship goods through an airport or port, it must also handle the customs clearance. They may experience problems in the process, which causes increased storage costs.
In addition, the freight forwarders may also be subject to a late delivery penalty imposed by the shippers. The fine amount will depend on the agreement they have previously determined.
Important tools that will help freight forwarders
Freight forwarders could explore the tools below to simplify the shipment planning process, reduce costs, and ultimately satisfy their clients:
- Partner management
A partner management tool allows freight forwarding companies to maintain control over their downstream partners’ activities, such as capacity, performance, and costs. The tool will allow them to transfer shipment orders to their selected carriers for order fulfilment while still having the ability to track the shipments. The software will assist freight forwarding companies in notifying their partners about changes to orders, which are captured digitally and reflected to both freight forwarders and their downstream partners.
It also allows freight forwarders to print shipping labels with QR codes. When a downstream partner scans the code, they will receive order assignments automatically.
A bonus point if the software allows freight forwarding firms to share usage with their downstream partners, allowing for an integrated workflow for all parties. Freight forwarders get the visibility they need, while their downstream partners complete speedy deliveries with the software features e.g., optimisation engine and ePOD collection.
- Shipment tracking
Shipment tracking is a tool that allows freight forwarding companies to know the delivery ETA of every order at any given time even when the order fulfilment has been transferred to a downstream partner. A shipment tracking software will automatically calculate the estimated time of arrival and send notifications to customers accordingly. Freight forwarders will never have to worry about customer call centre enquiries again as the real-time update reduces phone calls and emails from their customers.
- Shipping rate cards
Freight forwarders often deal with plenty of administrative work at the end of the month to reconcile billing to client accounts and make payments to downstream partners. A ratings tool will help freight forwarders in two ways:
- Set up rate cards for all client accounts according to SLA
When a particular order comes in from a client, the tool will match pre-defined rates to the client’s account and automatically calculate the total shipping costs. In this way, freight forwarders could easily send over an invoice at the end of every month to their clients.
- Set up rate cards for all engagements with downstream partners
Each carrier would charge differently based on the shipping requirement and freight forwarders can also define these carrier rates in the tool. At the end of each month, the tool would be able to calculate the total work done and match it to the carrier rates, where payment could easily be made by the freight forwarders.
Freight forwarders can actually use this tool to streamline billing processes, while identifying the most cost-effective carrier for certain shipments.
Why is freight forwarding software necessary?
- Lower fuel and labour costs
Freight forwarders and their downstream partners can improve logistics operations efficiency by utilising freight forwarding software. There are several useful features included in freight forwarding software that can assist them in shipment planning.
Furthermore, they can intelligently distribute and maintain the shipment of the goods across a fleet of vehicles. As a result, they will use less fuel because their drivers will not have to travel for non-essentials. They can reduce labour costs because, with a good system, drivers are less likely to overwork, which necessitates additional compensation.
- Provides integration of all functions
There are several scopes of work in the freight forwarding process, including goods movement, warehousing, fleet scheduling, and freight consolidation. A good freight forwarding software will enable integrations to different systems like an ERP, warehouse systems or transport management systems. When data is integrated into a single platform, end-to-end visibility is enabled, and it will result in efficiency across the supply chain.
- Provides analytics and insights
A freight forwarding software will benefit freight forwarders and their downstream partners by providing analytics and insights. These reports will assist businesses in analysing their performance e.g., completed deliveries vs failed deliveries, on-time deliveries vs late deliveries over a specific period.
They can then use these reports to evaluate whether their performance aligns with the determined key performance indicator, or else an improvement process could be initiated.
- Provides visibility across all stakeholders
The freight forwarding process involves numerous stakeholders – beginning with good owners as shippers, freight forwarders as intermediaries, and transportation companies as carriers. With freight forwarding software, all of these stakeholders will have visibility into the movement of goods.
As a result, each party will be held accountable for their part in the process. Ultimately, it will improve delivery performance and offer a better customer experience.
Got more questions?
We know that freight forwarding is complex, even if you’ve read through this article. If you’re looking for a logistics partner to extend your freight forwarding services, Yojee can help. Please get in touch with us below, and we’d love to schedule a demo that shows you how our software and its innovative features can help your business.