At a dinner party recently someone asked my friend Jim, “So Jim, what do you do for a living ?”
Jim said “Oh, I am a freight forwarder”
“A who……….!!” comes the reply..
Freight forwarders are an integral part of the supply chain and global maritime trade and although they are involved in all modes of transport (sea, road, rail and air), here I am concentrating on the seaborne trade which accounts for over 90% of the world’s trade..
However, many people are still unaware of Who is a Freight Forwarder and their role in the whole chain..
To explain, there is no one simple and quick explanation as to who is a freight forwarder and what they do..
In the most succinct and layman terms, a Freight Forwarder is a multi-function agent/operator who undertakes to handle the movement of goods from point to point on behalf of the cargo owner..
The essence of freight forwarding is to ensure that the cargo is picked up from the seller and delivered to the buyer at the required place, at the right price and in the same condition that it is picked up from origin using the most suitable resources and routing possible..
As per the WTO, global trade in 2015 was worth USD.16/- trillion.. Out of this global trade, UNCTAD estimates containerised shipments accounted for about 1687 million tonnes (2015 estimate) carried in 177.6 million containers (2015 estimate), covering 998 billion ton miles (2016 estimate).. Staggering isn’t it..??
If you are an importer or exporter imagine having to go through the activities of arranging trade and finance documentation, negotiating freight contracts, monitoring the movement of the cargo, transportation, customs clearances, port inspections and all other activities by themselves for the above volume..
Daunting huh..!! That is where a Freight Forwarder comes in.. A well established and experienced freight forwarder is expected to have below capabilities (either owned or outsourced)
experienced in all modes of transportation – road, rail, air and sea- able to provide cost effective and efficient cargo shipping solutions based on the customer’s requirement
- able to arrange storage for the cargo (usually all big forwarders have their own warehouses)
- able to arrange the distribution or “forwarding” of the cargo as per the instructions of their client
- have the capability to negotiate freight rates with the shipping line
- able to book cargo with the shipping line as per the requirement of the client or under their own contract
- process all relevant shipping documents such as certificates of origin, customs and port documentation, bills of lading and associated shipping/negotiating documentation (Eur1, Certificate of Origin, etc)
- issue their own approved house bill of lading (HBL)
- arrange transportation of the cargo from/to the customers premises and port
- have thorough knowledge of over border cargo movement
- able to arrange customs clearance
So, can just about anyone become a freight forwarder..??
Theoretically the answer seems to be YES..
I say this because there is no global regulation or licensing requirement for anyone wanting to become a freight forwarder compared to someone wanting to become a clearing agent or customs broker which incidentally is different from being a freight forwarder.
As long as one is able to fulfill above duties and the client is satisfied with their credentials, anyone can term themselves a Freight Forwarder..
A forwarder will however need to register with the Local city/revenue authorities, Tax authorities etc as per local regulations for the purposes of issuing an invoice and conducting a forwarding business legally..
As per my knowledge USA with its OTI licensing and China with its Class A,B,C,D forwarder licensing, requires a freight forwarder to be licensed before commencing forwarding operations.. (If anyone knows of any other countries where you are required to be licensed to operate as a freight forwarder, please do share..)
A forwarder may also need to be registered with local customs and port authorities in order for them to file their own manifest, release their delivery orders or issue their bills of lading..
While the big boys in freight forwarding may have their own infrastructure and facilities to handle the functions of a freight forwarder, there are scores of freight forwarders who don’t have their own infrastructure and facilities and outsource most of their activities..
They carry out all or most of the above mentioned activities as a 3PL Logistics provider whose definition includes freight forwarders, courier companies, companies offering logistics and transportation services on a sub-contracted basis..
The term freight forwarder however, is being used quite loosely nowadays and a lot of the companies/people entering the logistics field term themselves a freight forwarder for lack of better understanding of their operation and what to call themselves..
In their own interest and to ensure the prompt handling of their cargo, a customer (importer or exporter) must do their due diligence when appointing a freight forwarder and follow the necessary precautions and safeguards especially if they are importing for the first time or exporting for the first time..
Also be aware that a freight forwarder is different from a clearing agent, a NVOCC and a freight broker..
What are the requirements for starting a Freight Forwarding company for Sea and Air Consignments? Where do i register my company and all the formalities required for setup in Kolkata, India.
Thanks & Regards
Tanishq Khaderia
+91 9830361927
Very helpful and much appreciated.
glad I found your blog, I’m looking forward to learning more through your articles! Cheers Harish
Hello Sir, thank you for the useful information. It will be grateful if you can provide some information about the different roles of second-tier and first-tier freight forwarder separately in maritime shipping.
Your article contains very valuable information. thank you very much. I really appreciate it.
Dear Hariesh ….a 1000 thank yous for your most informing articles , very educative and enlightening especially for people like me in the industry and also taking studies . Would also like to thank all the people who made comments on this particular blog , coming in with wide and different points of view and information made it an even more fantastic read . Cheers from Harare , Zimbabwe .
Thank you very much for your kind words Commander.. 🙂
useful piece of information. Very detailed blog.
The freight forwarder or forwarding agent is an integral member of the international alternate and delivery network; the freight forwarder arranges for the international cargo of merchandise
Hi Hariesh, yet another great piece of information. If I might add a freight forwarder is also a fundemental link between a shipper / consignee & the carrier. In saying this it is imperative that the FF must also have all links to all carriers & mastering how each one operates. To some it maybe simple but essenttially it’s a tool that will enhance the knowlegde of his client at the same time. This also speaks confidence about the FF thus building trust & relationship among them.
It must be quite fulfilling for a logistics agent that represents the cargo or the shipper (be they the exporter or the importer).
To arrange all the multifarious tasks that need to be coordinated (in symbiosis with many different parties) into a smooth flow of both cargo and documents through the supply chain.
Because even on a good run, it takes some doing to perform this role cost effectively- NO WASTED time and effort (cost)
But to just receive a packing list and a forwarding instruction while at your desk, – NEVER to see the product, touch the product or witness any event other than a soft transmission of two data files.
This cannot be invigorating or too exciting.
Another fallacy I see all to often is a company calling themselves an F&C Agent, were actually, though they me be a Freight Forwarder, they never perform any customs clearance formalities. Only export formalities
In SA, and in Europe, many freight forwarders, never handle the cargo, ever see the cargo, ever visit the locations where cargo is handled.
The Freight Forwarder, merely process the formalities by turning data into documents for compliance and customs processing.
Many freight forwarders only speak to or email the transport contractor or cross-dock facility to clarify any possible confusion.
In my lectures, I often encounter learners who work in this industry for many years and yet have never seen a container load, or seen the actual cargo, they merely process information.
I do my best to stimulate them to show more interest in the supply chain and to actually follow the cargo they are forwarding end-to-end. Too often, I encounter whole companies who have no clue as to whether the cargo arrived on time, at destination or in good order. In fact no news, means no claim and that is immensely satisfying to them.
Sad is it not!
Great article thank you! I think an article showing clearly the differences and similarities between freight forwarder, clearing agent, NVOCC and freight broker would actually be very helpful too! As you mention, it’s very confusing, even for people in the industry.
On another note, glad I found your blog, I’m looking forward to learning more through your articles! Cheers Hariesh
Glad you found the site useful Laure.. Pass the news to your peers as well.. 🙂 Cheers..
Very Good Sir I started understanding the basics will look forward for your reply thankyou very much sir
Hariesh,
As usual a concise summary for the educated and a clear introduction for the outsider.
In my experience, freight forwarders can range from the one-man show who simply prepares the paperwork on cargoes which he may never see, through to the “big guys” with warehouses, trucks and even barges, rail lines and rolling stock in some countries, plus their own in-house experts on various related functions.
To increase revenue, some of them add on other functions such as broking, sampling, equipment inspections, hazardous goods packing, etc. which they are not qualified to do.
Every shipper has to carefully balance his requirements and costs to decide whether he is going to use one or more small expert service providers or a large one-stop-shop.
Freight forwarding is certainly not “one size fits all”, and, as your other correspondents have alluded to, the freight forwarder is a small cog in the wheel when things go well, but what responsibility does he accept when cargo is impounded, damaged, lost, stolen, etc.?
Ross Clarke
Hi Hariesh, great article and very enlightening. Thanks.
I would like to have your guidance regarding the issuance of House Bill of Lading (HBL) by a Freight Forwarder more specifically:
1. Is there a law/rule governing the issuance of HBL by a Freight Forwarder?
2. Does a newly incorporated Freight Forwarder have to be part of an International Freight Forwarder Network for it to be able to issue HBL?
3. Which particular conditions a newly incorporated Freight Forwarder have to meet for it to be able to issue HBL?
3. Can you please share a template of a HBL which a newly incorporated Freight Forwarder can use?
Hello Vikash
1) There is no global law/rule governing in the issuance of a HBL by a FF.. In some countries like USA and China you need to be registered with the relevant authorities (FMC and Ministry of Transport respectively in this case) in order to issue a HBL.. But in a lot of countries, it is not required..
2) This is also not mandatory or obligatory, but belonging to a network may provide some commercial benefits and in some networks it also provides payment protection plans and liability cover etc..
3) It is advisable for a forwarder to take the membership of international forwarding associations such as FIATA etc as they will then be allowed to use a FIATA bill of lading which is widely recognised and may also provide some relief in terms of their tried and tested bill of lading terms and conditions..
4) I suggest you visit the FIATA website to check for a template..
Trust this assist..
Hi Hariesh. Thank you for this valuable information – much appreciated
Thanks for the clarifications Hariesh. Very helpful and much appreciated.
license in India – FFFAI – Federation of Freight Forwarders’ Associations in India
Hello Vishal is FFFAI issuing license to become a Freight Forwarder or are they only accepting memberships..?? Licenses are usually issued by Govt. Authorities which FFFAI is not..
Yes impoter’s and expoter’s must be cautious when choosing their freight forwarder.
my question is what is the role and responsibility freight forwarder if the client cargo damaged or burned or cause other property damage during on the liner’s vessel.
Hi Hariesh,As you say another quality article!!!! and great clarification. May I also add in that a Freight Forwarder needs to have staff that are well versed in the handling of all forms of traffic and knowledge of the various international codes that govern international traffic. Like the International Maritime Dangerous Goods Code and IATA regulations and something we do not know mucgh about here In RSA the Cargo Transport Unit code of Practice.
Many Freight Forwarders pack on behalf of clients and when you read the stats released by the TT club in the UK about incidents at sea, and the majority are because of Mis-declaration of cargo. They state Hapag Lloyd noted a 65 % increase in mis-declared cargo involving Dangerous goods.
The CINS Organisation, the shipping industry’s cargo incident notification initiative, also shows that 76% of all recorded incidents for the 36 months to the end of 2015 were due to poor packing processes, including dangerous goods.
So you are absolutely correct, when choosing a Freight Forwarder choose carefully, and the FF’s themselves , the good ones, are on a constant drive to improve their capabilities.
Thanks for the added points Chris.. 🙂
How does a freight forwarder make money?
Apart from the usual operations (warehousing, collection, distribution, picking, fleet
management, etc.) 3PLs also undertake other operations that are related to the
transport of goods.Assembly Services,Packing & Repacking,Reverse Logistics & Packing
Materials Returns,Time-Related Services