Freight forwarders have become indispensable partners for shippers that do business globally. Here's how to get the most out of your relationship with them.
Seven years into the "new century," supply chain management has become more global, more complicated, more demanding, and less forgiving. Trade barriers are down. Competition is up. Stakes are higher. Margins are lower. Ironically, many of these complexities are the product of re-engineering--well-intended and often successful attempts by thousands of companies in the 1990s to "reconnect with their inner competencies." Re-engineering bespoke a bold new vision: leaner companies, with restructured operations and business processes, where core competencies were deified and ancillary functions were outsourced or deconstructed.
The rapid growth of third-party services tracks to these events--particularly re-engineering and its call to "emphasize what you do best and seek external support for the rest." Heeding that call, large numbers of companies downsized their in-house logistics organizations, leaving a smaller staff focused on engaging and managing third parties. However, the engagement of these in-house liaisons did not always compensate for the loss of functional skills. Leveraging the expertise of third parties clearly is a viable strategy; but many companies depleted their internal ranks so severely that they lost the ability to understand what they need or how to get it.
That's certainly the case for many shippers when it comes to working with international freight forwarders--one of the oldest types of third-party logistics (3PL) companies. Freight forwarding's breadth, depth, and scope have evolved to meet the demands of today's businesses (see "What Can a Freight Forwarder Do For You?" on Page 38). But more than ever, companies may be challenged by questions such as, "How do I identify the right freight forwarding partner?" --"How do I ensure that I'm getting what I pay for?"-- "Which metrics should I use to evaluate the freight forwarder's performance?"
To help companies make the right decisions about entering and managing a freight forwarding relationship, we offer the following five rules of thumb:
1. Focus on improvements to the entire Supply Chain
Supply chain improvement is a complex and demanding master that is best served by meaningful collaboration among trading partners. Collaboration is vital because the goal is universal: removing excess costs from the supply chain. To date, no company, shipper, or carrier can say that it has been 100 percent successful in this endeavor, meaning there's always more to go after. Another reality, unfortunately, is that many shippers tend to confuse cost reductions with rate reductions. This mindset often leads to a zero-sum tug of war between shippers, carriers, and agents.
Degrading business relationships to the level of wrangling over rate negotiations is not the way to effect improvements across the supply chain. Instead, shippers should be challenging their freight forwarders to improve overall supply chain performance by developing more cross-enterprise, integrated solutions. These solutions can drive out, rather than simply redistribute, supply chain costs by reshaping and redesigning distribution channels, cutting down on handling, and shortening overall transit times. Another example of a proven way to enhance networkwide performance is through better matching of shippers' volumes to carriers' capacity.
Barriers to supply chain improvement arise when internal stakeholders are unfocused and misaligned. Without clear or compatible goals, the efforts of these individuals or departments frequently result in gridlock. Consensus attainment becomes a battleground over territory and influence. In particular, multinational companies often compound this problem by segregating logistics organizations into multiple structures, with independent ownership of various segments of the supply chain (e.g., domestic versus international; inbound versus outbound; air versus ocean versus land). Without some sort of centralized mission and governance, Peter and Paul spend most of their time robbing each other.
2. Share Key Information
Newsflash! Freight forwarders function most effectively when they know, with reasonable certainty and dispatch, how much freight will be coming at them from their customers. Not surprisingly, this gives them the ability to plan more effectively and thus ensure that the best rates are applied for each required service.
The bottom line here is that forecasts need enough granularity to be meaningful and useful. For example, notification that a company will be shipping 2 million kilos from Hong Kong to New York is not much of a forecast. Breaking it down into 12 monthly estimates is only marginally better.
Basically, freight forwarders need sufficient details in order to avoid over-committing on some days and under-committing on others. For example, a truly helpful forecast might include last year's historical volume by lane; broken down by month of year, week of month and day of week; and adjusted with known or planned changes, such as the opening or expansion of plants, distribution centers, or stores.
It is equally important to move from a "shipped on schedule" mentality to a demand-based logistics model that is driven by the date customers need merchandise. This allows forwarders to effectively plan how product can be shipped most effectively.
Eliminating e-auctions for freight forwarding is a key step in building a more stable and sustainable business model. After all, information sharing, collaboration, and trust are rarely aided when shippers seek to turn their forwarders' services into a commodity play. This does not mean avoiding competitive bidding or strategic sourcing for a clearly defined set of services. It means not playing a price-only game.
3. Establish Meaningful, Regular Communications
Make conducting regular, meaningful dialogue with freight forwarders a priority. Include them in your supply chain strategy and goal-planning sessions. This will help them understand your business and its objectives, and it will allow them to respond with creative, practical solutions. And be sure that all third-party interactions involve each organizational area upon which logistics has a significant impact.
Quality communication and data exchange is also a function of well-established and integrated IT capabilities and systems. Particularly valuable are technologies that help shippers avoid duplicative data entry (which inevitably produces higher error rates and less-reliable service), streamline communications with third parties, and control costs by automating repetitive functions such as electronic data interchange (EDI).
4. Consult the Experts
It may seem counterintuitive, but many shippers don't fully understand how carriers work and interact. Consider a shipper that tenders hazardous and non-hazardous products to its forwarder, and then requests that they be handled as a single shipment. Although hazardous material may represent only a small portion of the total, the freight forwarder has no choice but to treat the entire shipment as hazardous, which adds significantly to the shipper's cost.
The message here is twofold: Despite the fact that supply chains are getting more global and more complex, companies are less able to rely on in-house expertise. As a result, it's increasingly critical to understand and leverage the expertise of freight forwarders and other third parties. Companies that rely on their forwarders to provide functional skills--but then fail to take advantage of the latter's insights and strategic depth--are being wasteful.
5. Continually Monitor and Measure Performance
You can't manage what you can't measure. And you certainly can't demonstrably improve it. Both freight forwarders and shippers benefit from employing clearly defined metrics and measurements, along with regularly scheduled performance reviews and realistic plans for correcting service problems.
Effective metrics management can be attained through the use of decision-support technology by both shipper and forwarder. Typically, achieving this requires transportation management or supply chain-event management systems to provide enterprisewide visibility mapped against service-performance criteria.
How To Choose A Freight Forwarder
As shown in the sidebar on Page 38, freight forwarders offer a wide range of capabilities to their customers. Every shipper, of course, will have its own freight forwarding priorities. However, the fundamental activities involved in seeking out a freight forwarder are similar for most companies, geographies, and industries:
Identify potential partner(s)
Evaluate feasibility and quantify potential benefit
Develop capability requirements
Produce a Request for Information (RFI) or Request for Proposal (RFP)
Use the responses to narrow down the list of potential partners
Assess and evaluate potential partners' capabilities, experience, and amenability to risk-sharing
Develop a short list of the best providers
Develop an implementation plan and commence implementation.
The common threads across all of the steps outlined above are comprehensive due diligence and a deep understanding of the most important (that is, desirable) capabilities.
A well-defined plan, with clear goals for improving supply chain performance, is another building block of a successful relationship. Shippers who know what their freight forwarders can do, should do, and are doing have a better chance of thriving with a lean, but knowledgeable, internal supply chain organization.
What Can a Freight Forwarder Do For You?
Brooks A. Bentz
Freight forwarding is a broad moniker that covers organizations with one or two people in a single, small office, to global organizations with hundreds of offices around the world, and everything in between. Commonly defined as "entities that orchestrate the movement of goods on behalf of a shipper, exporter, or importer," most freight forwarders:
Research and plan optimal shipment routes
Coordinate packing, shipping, delivery and/or warehousing
Obtain, check, and prepare documentation to meet customs and insurance requirements, packing specifications, and compliance with regulatory and fiscal guidelines
Provide consolidation services to small shippers without dedicated capabilities, as well as to shippers of all sizes that have opted to outsource all or part of their logistics functions
Arrange for insurance and assist clients with the handling of claims
Arrange payment of freight and other charges and/or collect payments on behalf of the client
Perform real-time tracking and tracing of goods
Act as a broker/advisor in customs negotiations
Coordinate arrangements with couriers and specialists for special (for example, hand-carry) services.
Brooks A. Bentz is a partner in Accenture's Supply Chain Practice. He has many years of experience as both a consultant and a practitioner in transportation and logistics operations.