Finding and choosing a Freight Forwarder is one of the most common questions we get asked here. Importers are often confused about what a freight forwarder exactly is and how and where to find one.
In this interview with Ron Berger, COO at Fleet, he’ll answer the above questions but also go into detail about some of the other nuances about the world of Freight Forwarder. Fleet is an online marketplace that connects shippers with freight forwarders and other logistics service providers. Fleet revolutionizes the international commercial shipping industry by providing an easy-to-use platform, reliable shipments, fair pricing, and an unparalleled customer experience for shippers of any size.
First things first, what is a freight forwarder?
Fleet: When we talk about freight forwarding, we are talking about shipping goods internationally, usually for importing or exporting purposes. Imagine if you have your own t-shirt design, you already have it manufactured in China; and now you need to ship a container of t-shirts from your manufacturer to your warehouse in the US to start selling; a freight forwarder (FF) is an individual or a company who can help you by managing some parts or the whole international shipping process, which includes picking up your goods from the manufacturer, storing it at warehouses, booking with an ocean carrier, trucking and loading it to the ship, clearing all customs requirements in China and in the US, and delivering it to where you want it to be. Working with a freight forwarder allows you to have one invoice while receiving all these services. A FF can handle not only t-shirts, but almost anything that is manufactured in other countries and needs to be imported into your country, and not only one but also less than a container or as many containers as you have.
Can anyone be a freight forwarder? Or is it a regulated industry?
Most countries require some forms of license to run; but how strict it is – that depends on which country you run your business in.
In the US, it is required to have a government-issued license to operate a freight forwarding business. An ocean freight forwarder is also known as an ocean transportation intermediary, or a NVOCC (non vessel operating common carrier), their licenses are issued by FMC (US Federal Maritime Commission). To obtain the license, your company needs to have at least one employee who has at least three years of experience working in this field. This requirement may be different in other countries.
For air freight forwarding, for security purposes, you need to be designated as an IAC (Indirect Air Carrier), issued by TSA (Transportation Security Administration) which monitors aircraft security for international transport.
Do I need to work with a freight forwarder to book sea freight? Can I simply rent a container on a ship?
No, you don’t need to work with a freight forwarder to book sea freight. You can book your own sea freight with ocean lines but very few of them offer less than container load (LCL) services independent of freight forwarders, because freight forwarders consolidate other people’s cargo (smaller orders) and ocean carriers ship containers.
Let’s imagine I have 5 pallets of goods in Ningbo, China that I need shipped to my garage in Vancouver, Canada. What steps do I need to take and what information is needed?
Step 1: gather information about your shipment: size, weight, commodity, exact addresses of pick-up and delivery, purchase agreement, terms of trade (Incoterms, i.e. FOB, CIF, etc.), what you are paying for, how fast you need your shipment (to determine whether you ship with air or ocean).
Step 2: with all the information, you need to decide if you want to ship it yourself or with a FF. If you decide to ship with FF, you can find a FF in a marketplace like Fleet; where freight forwarders and online resources are both very helpful to guide you through the whole process. If you decide to ship your shipment yourself, you will need to do a lot of research to become familiar with the regulations, practices, and contacts in international shipping in the origin as well as the destination countries.
What do freight forwarders do that I can’t do myself?
Freight forwarders, with years of experience in the field, usually have the following advantages that people who are new to international shipping don’t have:
Connections with other freight forwarders in other countries
Volume pricing with carriers
Credit with carriers
Access to different service providers (trucking companies, warehousing, ocean carriers)
Understanding about importing and exporting regulations in different countries
Experience with inspection and other common mistakes when it comes to international shipping
You can always do all of the above by yourself, but it will take a lot of time and effort to understand and go through the whole process with confidence and without making any mistakes.
What is the advantage of a freight forwarder?
They do all of the above for you, they help you deal with problems when they occur, they will save you a lot of time. Remember, it took them many years to build all the connections and experience to do the job.
Can a freight forwarder arrange for insurance for me? How much does it cost approximately?
Yes, they can. There are different types of insurance out there. For first time shippers, all-risk insurance is what you should ask for, it is priced per hundred-dollar value of the goods. For example, if you have $1,000-value worth of goods, and if the insurance unit price is 45 cents per $100, it will be $4.50 for $1,000- worth of value.
How often do containers fall off the back of a ship?
Rarely, but you should still have insurance.
How do forwarders make money? Do buy they space in bulk at a discounted rate and then sell it on to customers at a higher price?
Freight forwarders mainly make money in three ways:
One: they buy large volume of space with ocean carrier at discounted price.
Two: they charge you for processing documents, along with handling fees and other fees that are not associated with specific expenses but cover the cost for them to operate businesses.
Three: they take commission on selling insurance.
How much of a markup do freight forwarders normally charge? How much volume should I be shipping in a year before I try to negotiate pricing? (2 containers? 200 containers?)
The markup freight forwarders charge depends on the size of the customers. Freight forwarding industry is measured by producing a gross margin of 10-25% of the transportation cost. Freight forwarders can mark up an individual shipment as much as 100%, but they also have clients with big shipments that they have no markup (in return for large volume).
You should always try to negotiate the price, there are thousands of freight forwarders, and there will always be some freight forwarders who want your businesses. Or you can also get as many quotes from different freight forwarders to compare.
International shipping rate is similar to air fare: during peak seasons like Christmas or Chinese New Year, prices go up. The same with freight rate, there’s peak season for shipping where the rate is high – so you should negotiate and compare the different rates that you get.
It seems often the actual cost of the freight is only part of the final price. There are a lot of other documentation charges, handling charges, port fees, etc. It seems to vary significantly depending on the freight forwarder. Is this true?
Yes, that’s true. That’s how freight forwarders make money.
Why do carriers sell to some customers and not others?
Carriers prefer to deal with large high volume customers, because their job is to fill up their ships. They need to minimize their cost of sales (which can be very high if they go after small shippers with small shipping volumes), that’s why ocean carriers focus on selling to customers with highest return.
Ocean container rates have been extremely volatile in recent years. Has air freight been as volatile?
Yes, although not as much as ocean. The rates become volatile for the same reasons: it reflects the balance between supply (number of planes that carry freights) and demand (the amount of goods that need to be shipped). Airfreight rate also depends on fuel: one of the reason the rate this year is relatively low because the fuel is cheaper. When fuel goes up, it can drive the cost for air freight up, even double.
How does it work when the forwarder doesn’t have an office in another country?
There are 3 ways freight forwarders work when they don’t have an office in other countries: Freight forwarders work within a freight forwarder network where they have contacts and can work with other freight forwarders.
Freight forwarders who are not part of a network may reach out to someone who they can partner with on a single shipment.
Freight forwarder may act on their own to put all different pieces together: trucking, warehousing, carriers, etc. They may use different ways to manage the payment with these different vendors.
What is most important when selecting a freight forwarder?
It depends on your needs – what is the most important thing to you when you work with a freight forwarder? If you’re not sure, here are some important factors to consider: price, communication, timeliness, reliability, years in business, company size. It is often hard to find out all of this information online about multiple freight forwarders in order to compare, with the exception of well-established freight forwarding companies like UPS, FedEx, etc.
How can I tell if a freight forwarder is good or bad?
You should look for places where you can find reviews, rating, and references about freight forwarders. The larger the freight forwarder is, the more information is available out there.
What are the pros and cons of me deciding or letting my customer or factory decide?
The pros and cons are all about how much control of the shipping process you want to have or you are willing to give up.
Pros: you don’t have to deal with choosing a freight forwarder to work with, your factory or customer will be responsible for their decision.
Cons: you’re letting your profit margin out of your control. Depending on the incoterm you agreed with your factory, which determines who is paying for what – you will have more risks when your factory decides which freight forwarder to work with.