Global Freight Forwarders: How to stay ahead in global trade
October 01, 2013 - LM Editorial
Besides anticipating changes in compliance and trade law, shippers are asking their freight intermediaries to help them with risk mitigation and for advice on how to penetrate emerging markets. Modal choices and IT investment are also top of mind with global shippers these days. With so many concerns, finding reliable market intelligence and the proper partnership can be a daunting challenge.
In an effort to help global shippers improve their relationships and processes with their freight forwarders, we’ve asked four prominent industry experts to address a variety of issues that will have an important impact on global logistics next year.
Joining us in this dialogue are Bryn Heimbeck, chief executive officer of Trade Tech, a provider of cloud-based trade management applications; David Ross, managing director of global transportation and logistics at investment and business consulting firm Stifel Nicolaus; Beth Peterson, president of the training and global trade consulting firm BPE Global; and Robert Voltmann, president and CEO of the Transportation Intermediaries Association (TIA).
Logistics Management (LM): The “mega” forwarders just seem to be getting bigger. Is there a significant barrier to entry for new players?
Robert Voltmann: Yes, there are some barriers, including knowledge, software, cash flow, and the ability to develop customers. However, we also see a growing striation in the market with the biggest shippers seeking to work with bigger third-partly logistics providers (3PLs) and the mid-sized shippers working with mid-size 3PLs.
David Ross: I agree. The biggest barrier to entry is scale. Without significant buying power in a certain lane, it’s very difficult to add value for shippers whether they’re big players or small to medium-sized players.
Bryn Heimbeck: Breaking old models requires new thinking. The mega forwarders have the strongest claim to unified processes because of the extent of their networks. However, in a global environment, manual management processes can only go so far. There’s room for new forwarders to hurdle these barriers if they have the right technology.
LM: Given the increasing complexity of global trade, do shippers have enough choices when it comes to finding the right forwarder?
Beth Peterson: I believe that they do. Successfully overcoming the complexity of global trade is not the responsibility of the forwarder, it’s the responsibility of the shipper. The shipper must ensure that the goods are correctly valued, classified, and the correct country of origin is identified.
These tasks are not something that the forwarder should be asked to do. The shipper must also make sure that the proper authorizations—import licenses, affidavits, certifications—were obtained prior to shipping. If the shipper gives all the necessary data and documentation to the forwarder, any forwarder should be able to clear the goods through customs.
Voltmann: I say yes. These service providers bring expertise, the ability to hire people, and the power to deploy technology to meet the needs of shippers. The 3PLs are also working with their software providers to automate and meet new challenges. We’re also seeing industry leading domestic 3PLs move into or buy industry leading forwarders to create door-to door solutions.
Heimbeck: Well, there certainly is enough choice in the market and there multitudes of forwarders in every location. The question is, do they all have the capacity to handle business requirements at a unified or standardized level to meet the requirements of a shipper or consignee?
This is especially important in the ever-expanding frontier where local experience and expertise is critical, but where process sophistication has not yet been embraced. In short, if the shipper is pushing the frontier and buying or selling in far-flung areas, then reliance on locals will be increasingly important.
LM: The business also seems fraught with risk when choosing a partner. How do you advise shippers when it comes to managing risk mitigation?
Ross: We advise shippers to look outside the simple transactional costs when trying to determine the optimal mode or supply chain. We also suggest that they consider any potential disruption in the supply chain. How fragile is it? How resilient can it be?
Voltmann: Shippers should have written procedures for hiring carriers and 3PLs, and they must be aggressive in their due diligence. Membership in industry organizations, credit, and performance are all key metrics.
Peterson: I probably sound like a broken record here, but shippers must get their Incoterms right. I can’t tell you how many times we see invalid Incoterms on shipping documents. This guarantees additional cost and delay.
LM: What would you say is the most common mistake shippers make when looking for a capable forwarder?
Voltmann: The biggest mistake is when a shipper buys on price. The other pitfall is not using a written agreement that is fair to both parties.
Ross: Bob is right. Shippers should not be looking for a discount. Peace of mind comes from choosing the most reliable forwarder. I’ll stress that shippers can avoid headaches and save expenses in the long term with this type of strategy.
Peterson: We all seem to be in agreement here. Many shippers only consider the rates. It is equally important to consider capability, such as having a network of partners who can support clearance and transportation at all of their destinations.
LM: Will reliance on information technology continue to become crucial in this business, or will we eventually reach a plateau?
Ross: IT is always changing and improving, so we don’t see a plateau ahead. Forwarders and shippers will need to keep up with the latest trends to make sure that they’re still adding value. It’s an ongoing process.
Heimbeck: If there’s a plateau, it’s a long way off. The capacity of information technology to change the nature of logistics as we know it is epic, and we’re just at the beginning of this major transformation. Many like to imagine that we’ve already seen such massive improvements that there is little left to come, but that thinking is wrong. In tomorrow’s collaborative environment, using the cloud will be the norm.
Peterson: The only way to reach a plateau is to have all of the product and shipment information available in real time. For this to happen, shippers need to step up and proactively provide product and invoice data.
LM: How does the shipper work with the forwarder when it comes to making modal choices? Air versus ocean, for example.
Peterson: The biggest driver is cost. If cost can be reduced through a modal change without an impact on shipper satisfaction, then it’s a good choice.
Ross: Sometimes it’s the shipper that dictates modal choice to the forwarders, whereas in other cases a forwarder can advise on the optimal mode—it just depends on the relationship. Because the forwarder does not own the assets, they should be able to offer objective advice. But I’d say that the best forwarders should take the initiative to propose modal changes to its clients, especially when it sees inefficiencies in a shipper’s supply chain.
Voltmann: Generally, air freight is a mistake. The shipper should review its acquisition and manufacturing processes to see if timing can be changed, but usually the 3PL is capable of bringing that level of move management expertise to the process.
LM: When does it make sense for a shipper to rely on multiple forwarders in the global marketplace? Can the job be handled by just one or two?
Heimbeck: There are a variety of reasons why a shipper could be faced with the decision to select several forwarders, such as specific regional strengths, expertise in air versus ocean, or specialized product movements. The key is to see what commonality they can secure with each one.
Ross: Multiple forwarders should be used on big operations, as different forwarders have various strengths either in lane or product. Sometimes niche forwarders are the best solution in certain industries or lanes, whereas a large, global forwarder may be able to get a shipper the best box rate in a larger, generally commoditized ocean lane.
Peterson: All sound advice. We should also note that specialized forwarders should be sought out when you have sensitive products such as chemicals, oil, and gas and for highly regulated products such as military or licensable goods and shipments that require other government agency review. Fortunately, this is a vibrant marketplace, and today’s shipper is going to win in the global arena if good sense and caution is exercised.
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