Freight forwarders: a profit center or value added partner?

The continued increase in volume of international freight movement has facilitated rapid growth in freight forwarding companies, but with this growth has come increased risk for both shippers and consignees.

This increased risk is most noticeable in the lack of presentation of documented terms and conditions required by most forwarders, leaving consignees unaware of additional charges, delays and increased liability. CKB

If your organization frequently engages the services of freight forwarding companies, here are three tips to apply in order to reduce risk and increase the return on your investment.

1.You are the customer. Initiating the services of a freight forwarder does force you to abiding by their terms and conditions unless you let it. Your leverage to negotiate terms is dependent on the size and power of the forwarding company, their willingness to negotiate, and the volume of business at stake. I have found that many smaller forwarders do not clearly divulge terms at the outset, seemingly to allow flexibility in the event of issues such as an increased need for short-term cash (i.e. changing payment terms). Decide upon the terms that are of greatest importance, negotiate standing agreements with existing forwarders, and hold the terms as a baseline for future business with new forwarding agents.

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2.Proof of insurance. Many forwarders offer insurance coverage, but are unable to provide clear evidence of policies that would provide sufficient coverage in the event of a disaster. Worse yet, in order to cut costs many shippers do not place insurance on their goods. During the recent grounding of the ship “Rena” off the coast of New Zealand, nearly 90 containers fell into the sea. It is safe to say that not all of these containers were covered by insurance, and for those that were the pittance provided will pale in comparison to the impact of lost business revenue.

3.More than meets the eye. There are numerous costs associated with forwarding freight; however, not all forwarders divulge these costs, choosing instead to provide an all-encompassing fee. The challenge with this approach is that it does not clearly identify the profit margin applied, nor does it provide reassurance to the consignee that all charges are covered within the agreement. Here are some charges that you should confirm are covered:

i.Handling fees, both at point of origin and delivery.
ii.Security fees, including border security and clearance.
iii.Terminal fees, for goods travelling via air.
iv.Documentation fees, including forwarder and other partners.
v.Customs inspection, are additional fees possible, and to what extent?

Having a clear understanding of the risks associated with using freight forwarders can help to drive increased transparency in relationships while reducing financial exposure.