Freight Forwarding Manageme nt INDEX 1. Introduction to Freight Forwarding 2. Functions of a Freight Forwarder 3. Seafreight Forwarding 4. Airfreight Forwarding 5. Multimodal Transport Operations 6. Customer Relationship Management in Freight Forwarding 7. Financial aspects of Freight Forwarding 8. Legal aspects of Freight Forwarding 9. Insurance aspects of Freight Forwarding 10. Global networking of Freight Forwarders CHAPTER 1 Introduction to Freight Forwarding What is common among the following companies? 1. DHL (2011 Gross Revenue USD 31.160 Billion) 2. Kuehne& Nagel (2011 Gross Revenue USD 22.181 Billion) 3. DB Shankar (2011 Gross Revenue USD 20.704 Billion) They are the top 3 Global Freight Forwarding Companies with annual revenues in Billions of Dollars in the year 2011 as per the data compiled by Armstrong & Associates, Inc., a recognized leader in supply chain market research and consulting based in USA. The complete list of top 25 Freight Forwarding Companies and the salient features of the business traffic generated by these companies is presented in Appendix 1 at the end of this chapter.It would not take much time to reach the conclusion that Freight Forwarding is a big business with many multinational companies operating successfully. One of the Freight Forwarding companies, Kuehne& Nagel is the majority shareholder of World’s No. 6 ranking Container Liner shipping co.,Hapag Lloyd.A look at the column titled “Traffic Handled & Remarks” will enable you to know that Freight Forwarders are performing the range of activities listed below: What does a Freight Forwarder do?: 1. Carriage of Ocean Freight (represented by number of TEUs – Twenty Foot Equivalent Units of Containers). 29,810,841 TEUs are estimated to be the traffic controlled by the top 25 Freight Forwarders globally. An estimate from Clarkson Research Services puts the global container trade in 2011 as 150.6 million TEUs. Hence, the share of the business placed by top 25 global freight forwarders alone is approximately, 20 %. If you consider all the freight forwarders in the world, the business controlled by them will be around 50 %. This includes the containers booked by Freight Forwarders on behalf of their customers as well as the containers carried by Freight Forwarders as NVOCCs (Non Vessel Operating Common Carriers - This concept will be discussed in detail in Chapter 3). 2. Carriage of Airfreight ( represented by MTs – Metric Tonnes of Air cargo). 13,350,394 MT is the aircargo traffic controlled by the top 25 Freight Forwarders globally. An estimate from Boeing Company issued biennial World Air Cargo Forecast (WACF), 43 million tonnes is the air cargo carried in 2011. Hence, the share of the business placed by top 25 global freight forwarders alone is approximately, 30 %. If you consider all the freight forwarders in the world, the business placed by them will be around 60 %. Besides the above two core functions, there are many other functions that a Freight Forwarder performs. We will be discussing them in detail in the next chapter. Definition of Freight Forwarder: The term freight forwarder originated from “forwarding” (moving from one place to another) of “freight” (goods or cargo). Basically, a freight forwarder is a person or company involved in theprocessing and/or movement of goods on behalf of another company orperson which crosses international boundaries. The freight forwarder provides services in the following two main fields: 1. The movement of goods out of a country on behalf of exporters or shippers, in which case the forwarder would be termed an export freight agent; 2. The bringing of goods into the country on behalf of importers, in which situation the forwarder is called an import freight agent, customs house agent (CHA), customs clearance agent, clearing and forwarding (C&F) agent or customs broker. Historical Perspective: Transportation is vital for the development of human civilization. When transportation is within a community, it is simple. As the civilization develops, people began exploring trading opportunities, from one country to another and that has led to the birth of transportation by sea. The Industrial Revolution of the eighteenth and nineteenth centuries applied steam power to transport and later the development of marine engines ultimately facilitating even faster movement of goods. Along with the development of global trade, the trade support mechanism also developed. One of the important trade support mechanisms is the development of transport intermediaries. At the beginning of the thirteenth century, Venice had a trade route via the Alps to Germany and other European Countries. The merchants of Venice used to employ the services of a middleman, the so-called "Fracture" who was a combination of carrier and forwarding agent. His wagon transported the merchant and his goods and he was escorted by a troop of armed guards to protect life and property against highway robberies. He also arranged for the payment of local dues / tolls on the many border crossings and attended to the change of horses on the stations. The merchandise was conveyed under a consignment note and was soldpersonally by the merchant at destination. Three hundred years later around 1600, the "Fracture" had become an independent operator who knew his way over the lands. He was familiar with the various trade routes and merchandise centers, had organized wagon trains, had set up transportation agencies and transit storage places, had issued bills of lading and collected duties, merchandise values from the consignees. He was the international forwarding agent for the rich merchant princes. At the close of the 18th century the forwarding agent started assisting the merchants in finding new markets and supplies, thus, he contributed in great measure to the extension of trade. In the middle and towards the end of nineteenth century, when the codification of the law of commerce developed, the forwarding agent was called upon to render counsel. Thus, the freight forwarding business developed through an evolutionary process up to the present stage. The evolution can be summarized in to 3 phases as follows: Phase 1: The transport intermediary is simply known as Customs Broker. Levying customs duties by government agencies has been a basic part of trade throughout history. Customs Brokers did the job of collection of customs duties from the traders and facilitate the movement of goods. They handled the preparation of inward entry (clearance) documents and filed the export declarations (shipping bills) on behalf of importers and exporters. Phase 2: The Customs Brokers who were essentially middlemen and agents of the traders were asked by shippers or consignees to identify ships for moving their cargo. The transport intermediary in this phase is known as Freight Forwarder.Customs brokers and agents who acted on behalf of shippers to arrange freight transport and buy space on ships evolved into freight forwarders. These freight forwarders also arranged warehousing either from their own warehouses or hired from other warehouse providers. The freight forwarders were also required by their customers to facilitate road haulage or rail haulage for transportation of the cargo to or from the port. Hence, freight forwarders added transport assets or entered into contracts with hauliers. Phase 3: Today, a modern freight forwarder likes to be called as a Freight Logistics Provider (FLP). Freight Forwarders have also evolved as Third Party Logistics (3PL) Providers doing a range of services in addition to the functions performed by freight forwarders in Phases 1 and 2. Today’s freight forwarders are no longer mere custom house agents. The details of the functions will be discussed in the next chapter. * * * Appendix 1:Top 25 Global Freight Forwarders (2011) Ran Name of Gross Traffic Handled & Remarks k the Revenue Freight ($ Forwarde Millions) r 1 DHL 32,160 Ocean Freight carried: 2,724,000 TEUs including Supply over 2,000,000 cubic meters of LCL cargo. Chain & Airfreight carried : 2,447,000 MT Global Contract logistics revenue is 51 % of total logistics Forwarding revenue for DHL. Exel (DHL Supply Chain – Americas) operates 95 Million SFT of warehouse space in USA. DHL Global Forwarding (DGF) grew through the acquisition of highly respected companies like Danzas in Europe. There are more than 45,000 weekly point pairs for LCL globally. DGF handles over 2,200,000 shipments annually. DHL's scope allows its customers to more easily adjust vendor supply chains. 2 Kuehne& 22,181 Ocean Freight carried : 3,274,000 TEUs. Nagel Airfreight carried : 1,073,000 MT Kuehne& Nagel is the world’s largest ocean freight forwarder providing logistics services from over 1000 locations in 100 countries. Kuehne + Nagel has developed its own land transport management and trucking network for Europe. 3 DB 20,704 Ocean Freight carried : 1,763,000 TEUs. Schenker Airfreight carried : 1,149,000 MT Logistics DB Schenker acquired BAX (significant presence in North America and Asia) in 2006, Spain -Tir in 2007 and Romtrans (in Romania) in 2008. German operations, including Europe’s largest rail freight and trucking operations, are 70% of total revenues. DB Schenker’s European trucking by land transport has 23,000 employees/owner- operators and handled over 80 million shipments. 4 Panalpina 7,358 Ocean Freight carried : 1,310,000 TEUs and over World 1 million tons of non-containerized break bulk Transport cargo. Airfreight carried : 848,000 MT Panalpina has 242 sub-contracted warehouses in 150 countries and is having the distinction of Gross profit (net revenue) of 49% for air freight, 39% for ocean freight and 12% for contract logistics. Panalpina concentrates on six verticals/segments: Automotive, Healthcare, High- Tech, Oil & Gas (major contributor for project cargo logistics), Retail/Fashion, and Telecommunications. Appendix 1: Top 25 Global Freight Forwarders (2011) – contd. Ran Name of Gross Traffic Handled & Remarks k the Revenue Freight ($ Forwarde Millions) r 5 CEVA 9,602 Ocean Freight carried : 783,378 TEUs Logistics Airfreight carried : 550,000 MT Private equity owner, Apollo Management, acquired EGL (Eagle Global Logistics) which was rebranded as CEVA Freight Management in 2007.