Freight Forwarding: Choosing the best partner
May 01, 2011 - LM Editorial
Lost in all the recent discussion of what differentiates a 3PL from a 4PL, comes the question: Whither the common freight forwarder? Once charged with simply arranging the movement of goods through Customs clearance, the role remains in what some experts call “deeper shades of grey.”
“Third- and fourth-party logistics providers are always freight forwarders,” says Shay Scott, director of the Global Supply Chain Institute (GSCI) at The University of Tennessee. “But it’s never the other way around.”
Nor should it be, he adds. Given that not every shipper faces the complexity of penetrating a new global market or extending its existing supply chain across vast “borderless” regions. “A lot of logisticians are taking issue with economists who say the world is flat,” he says. “We know that globalization has been vastly exaggerated, and that relying on a ‘mega-forwarder’ is not always the distribution answer.”
Shay points to the work of Pankaj Ghemawat, of IESE Business School in Spain, who recently authored the book, World 3.0. In it, he notes that the number of American companies with any foreign operations is vastly overstated, and that exports remain a relatively small part of GDP.
“So while some Fortune 500 companies really do need a Fedex Trade Network, or UPS Logistics, or a Penske, many other U.S. exporters only require a basic forwarder,” says Shay.
But that doesn’t keep forwarders from over-promising on their services, he adds.
“Thirty years ago, a small trucker would call itself a freight forwarder,” Shay says. “Then they’d build a warehouse and call themselves a 3PL. And if that worked, they’d offer consulting and call themselves a 4PL. It’s all become rather confusing…and often unnecessary.”
What is necessary, however, is finding the right forwarder for “niche” shipping, says Shay. He notes that U.S. companies doing business in Mexico, for example, might be better off with a small forwarder located near the border. The same holds true for shippers of specialized commodities like pharmaceuticals or hazardous materials.
“The shipper’s focus should not be on the country he’s trying to enter, but the port of entry,” says Shay. “And many of the smaller forwarders have better relationships with Customs at these stations than the bigger players.”
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