Freight forwarders: the most profitable secret in exporting today.
The numbers speak for themselves. A survey published in Transportation and Distribution magazine revealed that 97 percent of responding Fortune 500 companies are actively involved in global commerce. And on average, international shipments represent 25 percent of their outbound tonnage. But while Goliath rumbles forward, David is not asleep.
Survey results indicated that small- and medium-sized firms are also engaging heavily in international trade, with overseas shipments accounting for 28 percent of their outbound tonnage.
With the ever increasing emphasis on international trade, what are the key factors to maintaining a profitable exporting business? Experts say one is to make sure that your product is truly wanted; success is often linked to a quality product with a strong reputation. But just as important, and often overlooked, is the part that keeps the exporter's engine hitting on all cylinders: the international freight forwarder. Freight forwarders are a vital fink for shippers, serving as a crucial intermediary in the maze of global logistics.
Keeping Exporter's Ducks in a Row
A popular intermediary in global trade, the international freight forwarder facilitates the cross-border movement of goods. Handling the details of export shipments, freight forwarders provide a vast number of services that help shippers save time, money, and keep the exporting process running smoothly. The international freight forwarder should not be confused with the various other third-party expediters which service companies wishing to export goods.
A "shippers association," explains David Clements, a salesperson for the Harper Group, Inc., a San Francisco, Calif., freight forwarder with more than $432 million in annual sales, groups shippers which export like commodities together and "goes directly to ocean carriers to negotiate transportation rates."
In contrast, a "customs broker" is responsible for handling the importation of a product into a country. Wayne Burl, assistant vice president of transportation with A.N. Deringer, Inc., a 400 employee customs broker and freight forwarder in St. Albans, Vt., says that as a broker they "clear goods into a country, mainly taking care of the customs paperwork" while as a freight forwarder, they "arrange for the transportation of those same goods."
But to add yet another twist, some freight forwarders are now going by the name "third party logistics provider" because they are becoming involved with the different logistical aspects of the exporting process such as warehousing, documentation, customs clearance, and duty drawbacks. According to Clements, freight forwarders are no longer confined to solely arranging transportation on carriers and preparing shipping documents. Many of the larger freight forwarders, such as the Harper Group, have expanded their operations to become full service forwarders, branching out into the entire gamut of services which need to be addressed when a product is shipped.
"The traditional role of a freight forwarder used to consist exclusively of the port-to-port transportation of goods," Clements maintains. "But today this role is changing because shippers want to hire a single source to handle all of their transportation needs. Transportation departments within companies are expensive and full-service freight forwarders have the ability to lower both administrative and transportation costs and provide more accurate exporting information." Clements concludes that in the '90s, the term "full service" is coming into play. "Most companies don't want to pay numerous vendors to manage their exporting needs," he says.
Statistics Don't Lie
While statistics don't always ten both sides of a story, there certainly is no disputing the fact that they are more than irrelevant detail. And the fact that 92 percent of the firms that responded to Transportation and Distribution magazine's survey said that they enlist the services of an international freight forwarder, is a definite confirmation of their widespread popularity in global trade. Furthermore, as reported by the magazine, nearly 75 percent of all international shipments involve the use of a freight forwarder. But why is this so? What can a freight forwarder do that makes it worth spending your money on their services?
Why Should You Use a Forwarder?
Despite the existence of internal resources, most shippers still rely on freight forwarders for at least some aspect of their export needs. One reason for this may be, according to Ed Kaplan, president of Oceanair, Inc., a freight forwarder located in Boston, Mass., because many shippers today are looking for the value-added services that freight forwarders provide.
"A big advantage to using a freight forwarder comes in terms of the tracking and tracing capabilities available," states Kaplan. "Today's customers are looking for expertise that goes beyond just being able to move a piece of freight."
William Maron, chairman of the Freight Forwarding Committee of the National Customs Brokers and Forwarders Association of America and president of Maron Shipping Agency Inc. in New York, N.Y., feels that the usefulness of a forwarder is demonstrated in "its capability to serve as an extension of an exporter's traffic department." Maron points out that this enables the exporter to avoid hiring a large shipping and distribution staff. "By using a forwarder, an exporter could have one shipment today and 15 shipments tomorrow and not have to adjust its volume; that is the responsibility of the freight forwarder," Maron emphasizes.
For many companies, shipping costs can make the difference between winning and losing market share. So it's no secret that another advantage forwarders have is their ability to negotiate favorable rates with carriers.
"Because of their shipping connections, freight forwarders can often negotiate a cheaper ocean freight rate than we can," says Andy Motsko, manager of international traffic and billing for Fuller Company, a Bethlehem, Pa. cement plant machinery producer with total annual sales of $250 million. Furthermore, Motsko says that freight forwarders "constantly stay on top of the latest trends in the transportation industry."
Regardless of their size, the maze of documentation regulations, licensing requirements, and shipping rates can consume time and create much confusion for companies trying to export their products. It is at this point that forwarders can play a vital role in the shipping process.
"We handle export documentation for such large companies as Sta-Rite Industries, Speed Queen, and S.C. Johnson, as well as for companies with only five employees," says Jean Albers, executive vice president of Foreign Forwarding, Inc. in Milwaukee, Wis. Albers states that when it comes to documentation, in particular, letters of credit, because of the complication involved, "no company is too large or too small to enlist the services of a freight forwarder."
Survival of the Fittest
Today's global market is putting increasing pressure on freight forwarders, both large and small, to provide door-to-door service with single-provider accountability. Most experts profess that diversification will be a key for forwarders to survive in the changing world of international shipping. Does this signal the demise of the smaller, less diversified freight forwarder?
"I can see the squeeze already starting to happen," contends Clements. "It is very expensive to provide warehousing in every port in the world and have huge computer tracking systems running 24 hours a day." But Clements still feels that there will be room in the market for the small, niche forwarder who can focus on a particular commodity and excel in specific areas such as letters of credit or customer service.
Joe Matthiesen of Sta-Rite Industries, a manufacturer of water systems products in Delavan, Wis., agrees, maintaining that he prefers to use a small forwarder because "you get more personalized service and you are more a part of their business." But he weighs this against the buying power and clout" that the large forwarders have with steamship lines and airfreight companies.
What To Look For in a Forwarder
If you believe that using a freight forwarder could be beneficial to your exporting business, experts list a few characteristics freight forwarders should possess.
Taking a view from the forwarder's desk, Kaplan says that shippers closely scrutinize the services the forwarder provides while also weighing their decision heavily on the pricing of the services. But not to be forgotten is "the financial stability of the forwarder making a bid for your business," he reminds.
Kaplan further emphasizes that many shippers look for value-added services such as the expertise his company, Oceanair, provides on letters of credit (L/C). They have a tracking system which allows customers to find out the status of their individual L/C anytime. They also provide reports which indicate the amount of time it takes for payment after the bank receives the L/C.
"A great deal of our letter of credit business is for businesses that we don't move freight for; many customers choose us as a value-added service for L/Cs only," says Kaplan. "We are not only helping traffic managers, but treasurers and credit people as well. We realize the demand is great for specialization in these transactions."
Another quality to look for in a forwarder, according to Bob Laude, controller for Pick Heaters in West Bend, Wis., is response time to any questions that you, as a shipper, may have. "Along with the amount of time it takes a forwarder to get back to me," Laude says, "I also look for forwarders who are friendly and easy to work with."
Matthiesen, whose company's annual sales exceed $200 million, often enlists the services of a freight forwarder and expects forwarders to "show expertise" in their knowledge of documentation and their selection of a carrier. "I expect the forwarder to choose a carrier that provides a quality service at a competitive price," he says.
What's In It for Credit?
Many credit and risk managers who handle oceangoing shipments consider freight forwarders to be one of their biggest assets. When creating a risk management program for the high seas, these professionals realize that transporting goods is a team effort and freight forwarders play an essential role on that team. From instructing how to pack goods for shipment to advising about country risk, freight forwarders help guide exported goods to their final destination.
"While they will say they are not credit experts, forwarders can advise which countries are safe to ship to and which are not," states Laude. "Their knowledge of the shipping industry can help any credit department make an educated decision when it comes to extending credit for shipments going overseas."
Forwarders Provide Advantage
In business today, it is essential to make use of every available resource. And an exceptional forwarder can be a big advantage for companies trying to break into the difficult foreign market.
Laude feels that the money his company spends is "well worth it" because of the competitive edge freight forwarders provide. "When it comes to international sales, there is no better source to help you get accustomed to the documentation process," he says. "Being led through unfamiliar situations can help you stay ahead of your competition."
Matthiesen agrees, saying that "without a doubt" freight forwarders provide an advantage over his competition that does not use them.
If your company exports goods and has never used a freight forwarder, don't think that it is too late to start. ff you do, you may miss out on one of the biggest bargains and best kept secrets in the international logistics pipeline today.