A freight forwarder is a service provider that arranges international freight shipments. Think of them as travel agents for freight, stitching together carriers, customers, regulations, and more. Forwarding is an important field for import and export, so we should know how to choose a good forwarder.
Forwarding – Forwarder’s service and support
Freight Forwarders come in all shapes and sizes. Some smaller forwarders are essentially domestic trucking companies or trucking brokers with little or no involvement in international freight movements. Some specialize, for instance in either ocean freight or air freight.
Below you can see what tasks the shipper has to deal with:
- Provide expert guidance and explain what you will need to know about the shipment, for instance explaining how the key freight documents that they are asking you to provide or sign, fit in with the shipment. They will take you through available shipment options and provide advice.
- Prepare all paperwork, make bookings, and arrange payments for each shipment sector that they are responsible for.
- Act on your behalf with the many other parties involved in the shipment, such as cargo carriers, other freight forwarders handling part of the shipment, and trucking companies. Most forwarders also provide a customs brokerage service and can act on your behalf with customs.
- Troubleshoot if something goes wrong, or is at risk of going wrong.
- Keep you informed of shipment status, and inform you if any risks of delay come up.
Forwarders and custom brokers
If you don’t have a customs broker already, you won’t necessarily need to arrange a separate one as many international freight forwarders can handle the customs process in-house as part of their service. Others work with licensed customs brokers as agents.
Some importers do have a preferred customs broker, and, as an importer, it’s reasonable to ask your forwarder to work with them.
Occasionally, some importers manage customs for their own shipment (in-house or through an agent), which raises the important issue of who should be managing your shipment.
Do it yourself
If forwarders are like travel agents, and fewer people use travel agents these days, then presumably more importers should go it alone. But, this is where the travel agency analogy breaks down. There are few opportunities for smaller importers to arrange international freight directly with ocean or air carriers. But, more importantly, it’s not a good idea. Many things can (and do) go wrong with international freight, creating a risky game for non-specialists to play.
Supplier’s Freight Forwarder (Entire Shipment)
A second option is to let the supplier handle the freight. Many Chinese suppliers have an arrangement with a local freight forwarder, and a few Chinese forwarders will manage the entire shipment. Only accept this arrangement on DDP incoterm (or DDU if your warehouse is specified as the “Named Place For Delivery”). Incoterms are covered in more detail in the Shipping Basics chapter.
This option may look attractive because you don’t have to arrange the shipment. However, you lose any control of the shipment, which is risky given that you are the most impacted player. Besides, it’s unlikely that a Chinese forwarder managing the whole shipment could come in with a much cheaper cost than a US forwarder would charge.
Supplier’s Freight Forwarder (To The USA)
Having the supplier and their forwarder manage the shipment as far as the US port of entry might sound attractive, and it is a common arrangement. However, it also often a disaster waiting to happen for the importer.
Here’s how. It’s quite common for suppliers to offer this option with the forwarder offering ridiculously low rates that importers gladly accept. Sometimes, too, there is someone in the factory getting a kickback from this forwarder.
When the ship arrives at the US port, the forwarder recoups his margin, lost with those ridiculously low rates, by presenting the importer with a ridiculously high bill for local port costs. The forwarder is effectively holding the shipment as hostage, so the importer is forced to pay.
Your Freight Forwarder
In this option, your forwarder manages most or all of the shipment. That is, they take over from when the ship or plane is loaded, from the foreign port, or from the factory floor.
This is your best option because you have a better control of both the shipment and the freight costs.
Most importers work through a US forwarder, but in theory, you could use a Chinese forwarder.
Whichever of these four options you take, you should consider how the incoterm changes how much freight cost you’ll have to pay and how you should negotiate based on landed cost, not on buy price alone.
Forwarding – choosing a forwarder
With over 100,000 freight forwarders worldwide, you need to define your key selection criteria. Here are the most common factors to consider.
Many forwarders don’t deal with vehicles, household removals, bulk commodities like wheat or oversized shipments. You probably won’t be looking to import any of these things, but you may be looking to import a product that air or ocean carriers define as hazardous cargo. Don’t be fooled by the name, because it includes seemingly tame products like toys with batteries.
Check out the forwarder’s geographic coverage. Larger global forwarders can cover the world, but smaller forwarders typically limit their reach to a few popular countries where they have a working relationship with a local forwarder. That said, most of the smaller international forwarders you will come across will manage shipments going from China to the US.
Name-brand global forwarders have the muscle to secure good rates and preferential treatment from the big air and ocean carriers, as well as a broader physical global footprint. That means they attract larger customers, who naturally get preferential treatment. Take the most recent Freightos annual mystery shopping survey. All of the top twenty forwarders were requested to quote, but only seven bothered to quote to a small business.
In contrast, smaller forwarders typically have more time to spend on smaller shipments and with their smaller clients but they may have less attractive prices or fewer technological tools to help manage or track your shipment.
Making a decision on price alone can be a flawed strategy, particularly when you’re trying to save $200 on a shipment of $200,000 worth of goods. For instance, some forwarders discount the first shipment to win the sale but make it back on subsequent shipments. Also, some forwarders hide charges in the terms and conditions to make their quote price look more attractive than those from more honest competitors.
Forwarders who lead on price, almost certainly do so at the expense of service. That may not be a problem, if, for instance, they are services you don’t need. But that will be a problem if general customer service levels are cut. If something goes wrong with your shipment, you want your forwarder to be on top of your shipment. So, if one quote comes insignificantly cheaper than the others, be very wary and see if you can find out why.
Your shipment grows your business, so you want someone you can trust in charge to coordinate airlines, ocean carriers, and (especially) customs agents don’t take favorably to incorrect, incomplete or late paperwork. If your forwarder isn’t on top of your shipment, you risk having to pay more than you bargained for. Smaller forwarders also tend to provide fewer support tools. As a result, nearly 50% of importers still use spreadsheets to track shipments.
A good early indication of a forwarder’s customer service level is how long it takes them to respond to your quote request. If that takes a week or longer, it doesn’t bode well for regular and transparent communication during the shipment.
A few startup forwarders have based their business model on process automation. Their integrated customer-facing systems definitely make for a great user experience. They’re new and still building capability, including their geographic coverage. As of mid-2018, only two digital forwarders can currently manage China-US door to door shipments, but more are joining the game.
In addition, while it may not be apparent, most large providers have sophisticated tool stacks for shipment visibility. However, these may be reserved for larger customers.
Multiple Selection Criteria
That makes for quite a few selection criteria, but assessing forwarders has been hard until now because freight forwarding is still largely offline.
But, that’s changing fast. With instant online freight marketplaces, the details on the quote act as the filters for some of your selection criteria, and the simple quote selection features add the rest. Using a freight marketplace takes the time and guesswork out of selecting freight quotes and forwarders.