What is Freight Forwarding?

The global shipping industry is a complex web of carriers, NVOCCs, VOCCs, freight forwarding, and more. The sheer scale of the industry is incomprehensible at first glance. For instance, global trade hit an all-time record high of $28.5 trillion in value in 2021.

90% of this value involves the maritime industry in one way or another. Among the various types of businesses and organizations that make up the modern global shipping industry, freight forwarders are perhaps one of the least understood yet most important businesses.

Many major buyers and suppliers globally take extensive assistance from freight forwarders for their business. With supply chains becoming more and more dependent on international trade, freight forwarding is a lucrative opportunity for most businesses.

Freight forwarders can help ensure that international supply chains run smoothly and goods reach where needed on time. In the guide, we will explore what freight forwarding is and the various functions that a freight forwarder fulfills.

What is freight forwarding?

Defining freight forwarding is simple enough. A freight forwarder is an agent/operator that helps businesses handle the logistics within the shipping industry. In simpler terms, freight forwarders help plan the movement of commodities across international borders for businesses around the world.

They handle federal legalities, freight negotiations, documentation, freight consolidation, and more. They help businesses find the most cost-effective way to transport goods between the point of origin and the desired destination. Freight forwarders also essentially act as middlemen between shipping lines and the businesses that want to ship goods.

Importance of freight forwarding

In recent decades, the shipping industry has grown at an unprecedented rate. This growth has been driven by the rise of consumer economies and the continuous growth of businesses around the world. Each of these businesses has its own requirements and its own supply chains.

Thanks to modern economies, these supply chains are often international and extremely complex in their own right. They involve multiple businesses from buyers to suppliers to warehousing companies and more.

Without freight forwarders, the entire logistical pressure would fall on the suppliers or the buyers themselves. Unfortunately, both are usually occupied trying to keep their supply chains resilient and their assembly lines flowing. Freight forwarders act as the important link within supply chains; running it from the back lines.

Key differences between freight forwarders and NVOCCs

Many consider NVOCCs and freight forwarders to be the same entity. However, freight forwarders have a few key differences.

• Freight forwarders are agents: The first major difference between freight forwarders and NVOCCs is that freight forwarders are agents that connect businesses to shipping and shipping lines. Their job is to help the businesses ship their goods from point A to B. They find shipping lines and carriers based on the goods they need to ship. NVOCCs, on the other hand, acts as the carrier for businesses by leasing space and containers on shipping lines.
• Freight forwarders do not own containers or ships: NVOCCs are likely to own a few containers and/or a fleet of ships whereas freight forwarders often rely on shipping lines and NVOCCs for helping businesses.
• NVOCCs are functionally similar to shipping lines: They might not own their own ships or containers but NVOCCs have the same liability as a shipping line. In fact, freight forwarders also make deals with NVOCCs similar to the ones they make with shipping lines. Freight forwarders work based on the guidelines and best practices as listed by FIATA.

The main functions of a freight forwarder

To gain a deeper understanding of a freight forwarder, you must know the main functions that they provide for a business. For someone looking to start their own freight forwarding business, there is a lot they need to specialize in to be successful.

However, to simplify and explain the functions of freight forwarding, we’ll split it into four key categories:

• Finding & Onboarding Clientele
• Packaging & Transportation
• Documentation
• Networking & Building Relationships

Finding & Onboarding Clientele

Probably the first thing a freight forwarder needs to do is find new customers. Successful freight forwarders don’t wait for the customers to find them but rather approach customers themselves.

As a freight forwarder, you should be able to provide better logistics and streamlined supply chains at a lesser cost to your customers. To accomplish this, you need access to global trade data.

Trade data is almost always publicly available through federal bills of lading, UN Comtrade, and various other sources. However, this data is very distributed and most freight forwarders will not have the required technology and personnel to collect and analyze this data to find new prospective customers.

This is where platforms like Trademo Intel come in. Intel is a supply chain and trade data research platform that provides freight forwarders, NVOCCs, and shipping lines with global trade and shipment data, company information, carriers, and more to help them grow their business. You can try Trademo Intel for your freight forwarding logistics today!

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Packaging & Transportation

While not their main function, freight forwarders often help businesses package products for export. The package will be prepared for shipping, depending on how far the destination is and what kinds of goods are being transported.

Freight forwarders usually have tie-ups and long-term deals with trucking companies, rail operators, and shipping lines. Everything from the negotiation of freight charges to the booking of cargo space, warehousing, road transport, and consolidation of cargo must be undertaken by your business.

Documentation

Documentation is the main task for a freight forwarder. One reason why businesses often work with multiple freight forwarders is the documentation process. As discussed in the introduction of this article, the sheer scale of global trade makes it very difficult for a business to ship their goods themselves.

For a freight forwarder to be successful in their business, they need to have a good idea about the various documents involved in the freight forwarding and shipping process. Here is a summary of various freight forwarding documentation that you’ll need to take care of:

• Commercial invoice: The commercial invoice shows the details of goods that are going to be shipped to the destination port.
• Bill of lading: The bill of lading is probably the most important document that a freight forwarder will issue. It outlines the contract between the owner of the goods and the carrier. It is issued by either the shipping company/NVOCC or the freight forwarder if they have permission for it.
• Packing list: The packing list details the serial numbers, dimensions, HS codes, and other details that help identify the cargo for the carriers, consignees, etc.
• Export shipping bill: This bill is created by the exporter and is passed by Customs of the country of origin. Without this bill, a shipper will not accept goods onto their ship.
• Certificate of origin: This certificate is issued by the government entity responsible for Commerce for the exporting country.
• Letter of credit: This is issued by the bank of the buyer and acts as a guarantee of payment to the seller once goods are delivered.
• Hazardous cargo declaration: If the cargo being exported is classified as hazardous by the governments of either the importer or exporter, the export documentation must contain the hazardous cargo declaration.
• Insurance certificate: Insurance certificates are mandatory to protect goods against natural calamities or accidents.

Networking & Building Relationships

The freight forwarding process is complex and involves many companies. It is a freight forwarder’s responsibility to build relationships between carriers, shippers, port officials, and other forwarders.

The shipping industry is built on networking and good relationships. Friction is bad for shipping and a good freight forwarder can juggle multiple partnerships and relationships while optimizing their client’s needs. In addition, good relationships mean that a freight forwarder will be able to get better prices and increase their profits.

Negotiating timelines and rates are also important for a freight forwarder and planner. Good freight forwarders can often balance these two to create sweet deals for themselves and their clients.

Freight forwarding often involves walking on a tightrope for negotiating with clients and other companies. One way to make this easier is to back your negotiations with data-driven intelligence. Tools like Trademo Intel can help you study global shipment data and analyze it to find new ways to assist your clients and grow your business. Try it today!

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Understanding the freight forwarding process

One thing is for sure – freight forwarding is a difficult business and requires the forwarder to take care of a lot of work. Here’s a logical overview of freight forwarding to help you understand how it all works out:

What clients look for in freight forwarders

The competition in the freight forwarding industry is fierce. In addition, there are already a few major players in freight forwarding and the global logistics industry. The most successful freight forwarders in the industry, however, have a simple mantra:

“Transfer goods professionally with the most competitive pricing possible.”

Despite their scale and popularity, they can’t cover the entire world. There will always be businesses that need logistical help. Your freight forwarding business needs to appeal to potential customers and clients and they must be able to find your freight forwarding business. Here’s what most businesses look for in freight forwarders:

• Experience: Experience within the shipping industry will always be your key selling point. A new freight forwarder lacks the same knowledge as an established company. However, a freight forwarder run by people that are familiar with the ports they operate in, emergency routes, overseas customs, and shipping norms will likely succeed.
• Services: A good freight forwarder provides excellent services to its clients. The more services you cover, the better clients you will be able to find for your business.
• Network: Clients want a freight forwarder that has numerous contacts across its operational regions. Freight forwarders with a large network of agents, affiliations, partners, and shipping bandwidth will always be able to convince more clients.
• International tie-ups and recognition: Freight forwarders associated with organizations such as FIATA will seem more authentic and legitimate to clients within the industry.
• Area of Expertise: Every freight forwarder has an area they have expertise in. Some forwarders specialize in transporting hazardous cargo, some specialize in air freight, etc. Whatever your area of expertise, make sure to market it as your USP. Many clients are looking for exactly what you specialize in.
• Pricing: As mentioned above, freight forwarding is all about competitive pricing. The better prices you provide for your work, the more customers you will be able to attract.
• Market Reputation: Last but not least, freight forwarders often find clients based on their perception in the market. Word-of-mouth is strong in the shipping industry so make sure that you get good references from your customers. One way to develop market reputation is to provide proper customer support and service to your clients.

Summing Up

Freight forwarding is a tough but lucrative business opportunity. The goal of this article was to provide you with an overview of how freight forwarding operates and what you need to keep in mind before starting your own freight forwarding business.