Freight Forwarder

Publication Date :

12 Dec, 2022

Blog Author :

Edited by :

Reviewed by :

Table Of Contents

Freight Forwarder Meaning

Freight forwarder arranges for the movement of goods from one point to another within the country or outside. They use any form of transport, including the sea, rail, air, or road. The shipment may belong to an individual or a corporation.

They do not move the shipment but arrange for the transport by entering into contracts with carriers who might use single or multiple modes of transport. The freight forwarder services are proficient in logistics and ensure that the cargo is picked and dropped from and to the right place and time, at the correct price, and in original condition.

Freight Forwarder Meaning

A freight forwarder is an agent who arranges cargo transport from the owner to a delivery point by using the carriers' services.
They use carriers which might be air, road, rail, or sea, to move the goods either within the country or abroad. The shipment may belong to an individual or a company.
Freight forwarder companies have a well-developed logistic team to ensure the cargo reaches the correct destination in its original condition.
They may use single or multiple modes of transport for the process.

How Does A Freight Forwarder Work?

A freight forwarder acts as an agent to transfer goods within or outside the country using carriers who work through rail, road, air, or sea. Freight forwarder services ensure the cargo reaches the destination on time and in its original condition.

They have expertise in preparing transportation and financial documents for the transport of goods, preparing freight agreements, supervising cargo transfer, arranging for customs clearance, inspection at airports or ports, etc. The usual documents include an invoice, the shipper’s declaration, a bill of lading, etc.

Freight forwarder companies who deal with international cargo have additional competence in handling the documentation process at the international level. They act as an intermediary between the transporter and the companies or individuals who need this service. There are various processes involved, including transportation, storing goods before and after shipment, and tracking them till they reach the destination.

Many transport companies take the help of logistics or supply chain processes to the forwarders who act as agents to move the cargo. Thus, they act as a transport architect on the shipper’s behalf and are experts in customs documentation and negotiation with carriers.

Role And Responsibilities

The freight forwarder process has several responsibilities, as follows:

Knowledge in transport – Forwarders should have substantial experience in different modes of transport.
Customized solution – They should be able to understand what kind of shipping arrangement the customer wants and design solutions according to it.
Cost-efficient solution - The forwarders must arrange for transportation that is the most cost-effective as well as efficient.
Storage- This is important for cargo transportation since storage is essential before and after being shifted from its source to its destination.
Forwarding arrangement – The cargo should be forwarded per the client’s instructions, including the time, day, and location.
Negotiation skills – They should have excellent negotiation skills regarding the freight charges with the shipping companies.
Booking transporter – They must book the transporters as per the day and time required by the clients.
Documentation handling – Various documents are involved in the process, including customs, shipping, negotiation-related documents, bills of lading, invoice, etc.
Arrange for pick and drop - The central part of the freight forwarder process is picking and dropping off the cargo, which must be done with great care, on time, and properly arranged. The goods should reach the destination in their original condition.
Border crossing documents – The international freight forwarder has to handle some extra documents in case of an inter-state or inter-country transfer.
Manage insurance – All goods transported are insured. Thus, if something happens during the movement, it is necessary to arrange for the claim.

Examples

Some examples related to a freight forwarder will help in understanding it better.

Example #1

FF Logistics, a freight forwarder at a global level, has an office in Alaska. It specializes in road and sea transport and caters to all sectors.

It got a contract from Jones & Company, which is into medicine manufacturing and distribution and whose sales office is located in California, to transfer the manufactured drugs from its plant in Alaska to its sales office and distribution center.

FF Logistics picked up the cargo after proper packaging and arranged for storage near the port for loading in transporter containers, Sea King Pvt Ltd. After completing customs formality. Sea King Pvt Ltd loaded the cargo in containers. Finally, it reached the Port of Long Beach, the oldest port in California. There the goods are unloaded, and FF Logistics does custom clearance and takes them to the destination, Jones & Company’s sales office. The responsibility of FF Logistics ends here.

Example #2

DHL Global Forwarding, an international freight forwarder, rolled out special flights focusing on the manufacturing, healthcare, and technology segments. DHL specializes in sea and air services and has seen a rise in demand for its service from the above sectors.

The newly introduced flights connect Asia Pacific to Europe and the United States. The COVID pandemic initiated this move since the demand increased to mainly transfer healthcare-related cargo like test kits and medicines. The company's already-established network and top-class service to its clients, combined with a surge in demand from the healthcare, manufacturing, and technology sector, prompted it to take this step.

Example #3

According to Kuehne+Nagel, the world's most immense sea and air freight forwarder, the logistics market is volatile even though the company has been gaining market share for the last three years.

There are many challenges to handle, like shortage of labor and drivers, lack of infrastructure, misplaced containers, etc. Moreover, the fear of COVID has yet to subside. Thus, the changes and challenges are here to remain for some time.

Freight Forwarder vs Customs Broker vs 3PL

A freight forwarder takes care of the shipment and logistics, whereas a custom broker takes care of the rules and documentation of the customs department. A 3PL (third-party logistics) establishment can handle everything, including the work of a forwarder. First, however, let us look at the differences between them.

Freight Forwarder	Customs Broker	3PL
They are responsible for the supply chain and logistics part of the cargo movement.	They handle the documents and procedures related to customs.	They can take care of everything, from picking up the order to delivering it to the destination.
The cost is high.	Cost is limited to the customs process.	Cost is low since all services are combined into one.
They are supervised by the International Federation of Freight Forwarders Associations – FIATA.	They should have a license from U.S. Customs and Border Protection (CBP).	They should have a license from the state where it is operating.
No responsibility for the cargo in transit because the transport company handles it.	Their responsibility is limited to the time the cargo goes through customs-related documents and procedures.	A 3PL agency is responsible for the entire process.
There are delays since they depend on the availability of transporter, containers, labor supply, etc.	Delay is possible if the custom-related rules are followed correctly or documents need to be in place.	Delay is rare since a 3PL handles every part, and they have their labor arrangement, shipping containers, etc.
They deal with both the import and export process.	They are required only required for imports.	They deal with both import and export processes.

Difference Between Freight Forwarder And NVOCC

A freight forwarder is an agent for transporting goods from one place to another using a carrier's services. In contrast, a Non-Vessel-Operating Common Carrier (NVOCC) is also an agent who has contact with transporters, forwarders, and vessel owners to transfer goods from one place to another. Now let us look at the differences between them.

Freight Forwarder	NVOCC
They are agents who coordinate with transporters to transfer goods.	They are agents who coordinate with transporters, freight forwarders, and vessel owners to transfer goods.
They enter into contracts with vessel owners to transport goods.	They rent or lease space in transport vessels for customers.
They arrange for the pick-up and drop of the cargo by themselves.	They deal with forwarders to arrange the pick and drop off of cargo.
They are operators of the supply chain.	They assist in operating the supply chain.
They are governed by the International Federation of Freight Forwarders Associations – FIATA.	Any organization does not govern them.
They arrange for transportation through air, sea, road, or rail.	They arrange for transportation by sea only.
They independently work and keep track of the transporters very strictly.	They have to depend on transporters and forwarders.
All forwarders are not always NVOCCs.	All NVOCCs are always forwarders.
They are agents acting on behalf of the cargo sender.	They act between the cargo sender and vessel owner.
Small and large organizations	hire them. Small organizations usually hire them.

Frequently Asked Questions (FAQs)

1. How do freight forwarders make money?

They earn money equal to the difference between the amount they receive from the cargo sender and the amount they pay to the transporter. It is typically a 3-8% margin on the entire cargo. However, they use the following three metrics to calculate the income.
· Gross revenue - It is the amount the forwarder charges the customer.
· Gross margin – This is the value of the remaining revenue after taking away the cost incurred in the arrangement.
· Net margin - A percentage of net income divided by net revenue that helps judge the return.

2. What are the main concerns of freight forwarders?

They need to deal with many issues. The prominent ones are shortage of containers, rise in competition and consumer expectation, volatility in the shipping prices, delays or problems caused by unexpected issues, changes in rules and regulations, shortage in labor, and misinterpretation of instructions.

3. Who is the largest freight forwarder in the world?

According to the latest data, Kuehne + Nagel deals with an enormous cargo volume worldwide, earning gross revenue of $40838 million annually.