Behind the scenes of ‘freight forwarding’​ — the different types of freight forwarders and how best to choose your freight partner?

For those of us who work in supply chain management and its related industries, it can be a real challenge to easily describe to others what we do. Despite the fact that supply chain management touches each of our lives on a daily basis, it can often be difficult for outsiders to grasp — and for the experts to explain in a way that is easily understood. Let me try to break this piece to talk about the logistics superheroes (also called as ‘freight forwarders’) who prefer to stay behind the scenes, the different types of freight forwarders who exist today and how to actually choose the best freight partner that is responsible for moving your cargo.

For starters, a freight forwarder is an agent responsible for the movement of goods on behalf of the cargo owner. Let’s take an example of something that weighs over 200 kilos which cannot be sent as a parcel through the postal service. It qualifies as freight, and can require several separately owned vehicles to deliver it across land, sea, or air from its source like a factory to a destination like a retail store. Freight forwarders enable shippers to get the best deal in each defined leg of the journey, and duly perform the necessary hand-offs as goods pass through customs. To this extent, they serve as an operational layer, over and above the logistics layer. They have direct relationships with carriers like truck owners and massive container vessels. Their responsibility can typically be split into 4 stages -

• Stage 1: Origin handling — This is the first step in which goods are moved from the shipper’s location to the freight forwarders’ warehouse. Land transport such as trucking, or rail is usually required for this purpose. Depending on the distances involved, this stage, which is also referred to as ‘export haulage’, can take anywhere between a day to a few weeks
• Stage 2: Export Customs Clearance — Before the goods can leave the port, it needs clearance from the authorities in the country of origin. The forwarders will submit details about the cargo and all supporting documents. This is technically part of the customs clearance process, which most freight forwarders will be equipped to handle. If they are not, they will contract a third-party customs broker service.
• Stage 3: Import Customs Clearance — Once the shipment arrives at the destination port, the authorities on that side will have to check the documentation. This part of the process can begin before the shipment even arrives. The freight forwarder or customs broker can make sure that all the necessary documents have been checked and cleared prior to the ship’s arrival.
• Stage 4: Destination Handling — Once the cargo arrives, the forwarders and authorities will exchange and sign off on the necessary documents. The goods are then hauled from the warehouse to its final destination.

However, their role in some cases can also be limited to one specific stage amongst the ones mentioned above. The renowned and the largest freight forwarders in the world include DHL, Kuehne + Nagel and CEVA Logistics etc., (click on this link to know more about the top 25 global freight forwarding companies)

The concept of a service that directly connects a service provider, such as a person who wants to rent out an apartment, and a user who is looking for temporary accommodation, is nothing new. Companies such as Airbnb or Uber powered by a strong tech stack, have successfully established themselves in their respective sectors and also amassed huge investor attention on the public markets. Further, Uber expanded into the logistics industry, not only in the United States but also in Canada and Europe with its Uber Freight venture, to digitise the traditional process of matching shippers and truckers based on market prices, load details etc., The story was not much different once ‘digital freight forwarders’ entered the logistics industry and began competing against the traditional freight forwarding companies. Flexport and Forto (formerly known as ‘Freighthub’) are the two largest digital freight forwarding companies, which have also attained the unicorn status (click on this link to know more about the top digital freight forwarding companies that have emerged in various countries).

Now, how exactly is a digital forwarder different from a traditional freight forwarder? The perceived difference between the two is that the former delivers these outcomes digitally -more so with regards to instant quoting, booking, visibility, instant data retrieval, e-documentation, invoicing, centralized data storage and related analytics etc., In today’s context, one could also argue that every forwarder has become digital to some extent (or) is constantly evaluating avenues to digitize their operations in some fashion. According to a study by BCG, there are several ways in which digital forwarders leverage technology to improve experience customer and make their business processes more efficient as detailed below:

On selecting the freight partners, most shippers take a call based on basic parameters drawn from common experience like quality and cost of service. Remember when you opt for a particular freight forwarder, you are choosing an agency that you can trust, and who can be a partner in your success. The Marginal difference of 5%-10% per shipment between two different forwarders should not ideally matter as you are entrusting a forwarder with the entire cargo value which could be worth several thousand dollars. To ensure that you are evaluating this partner in a holistic fashion, I would urge you to bake insights from the 8 different criteria as pointed out by Gartner below:

At Freightify, we are on a mission to democratize technology and empower the global freight forwarding community to better serve their customers using the right technology. If you are a 3PL/ freight forwarding company (both digital or traditional) looking to kick-start/ upgrade your digital transformation process, please feel free to reach out to discuss how we can help you scale your business.