FINDING AND EVALUATING FREIGHT FORWARDERS

 A freight forwarder is a company that organizes the shipment of cargo via transportation modes including ships, airplanes, trucks, and railroads for manufacturers that export products. Freight forwarders do not ship cargo themselves but instead arrange for its transport by common carriers. Freight forwarders also prepare and process the documentation required for international shipments and arrange for transportation insurance and clearance through foreign customs. Freight forwarders charge a fee for their services that covers the total transport cost. Transportation is arranged from the exporter’s factory or from a port in the exporter’s country, to the customer’s destination abroad, typically involving two or more transportation modes. UPS and DHL Worldwide Forwarding are two of the largest freight forwarders. Growth in international trade has increased the importance of logistics and international transportation as strategic tools for achieving competitive advantage. One solution is to take advantage of the services of a freight forwarder. The evaluation and selection of a freight forwarder is a critical strategic decision for managers involved in international operations. In this Management Skill Builder, we focus on a basic approach for evaluating freight forwarders, with a view to choosing one that best suits the exporter’s needs. The freight forwarding industry has become crowded with many competitors. Leading ocean carriers (e.g., Sea-Land, Nedlloyd, and Maersk) now provide forwarding services. Air carriers (e.g., KLM, Lufthansa, and American Airlines) have begun targeting large accounts directly. Recent decades have seen the rise of large international express providers (e.g., FedEx, DHL, UPS, and Flying Tigers) that provide many freight forwarding services cost-effectively, due to their massive economies of scale. In this competitive environment, differentiation has become a critical strategic tool. Freight forwarders are expanding their effectiveness and global reach by expanding office locations; integrating electronic data interchange (EDI) facilities to their booking, tracking/tracing, and management reporting services. EDI is a web-based system that allows firms to exchange all manner of data and information instantaneously. Some forwarders specialize in specific regions, markets, ports, modes, products, or even routes. To handle the greater customization needs of exporters, some forwarders are providing personalized on-site presence and are integrating their systems to those of exporters. Managerial Challenge Evaluating and selecting a qualified freight forwarder is a critical strategic decision for managers in international operations. Freight forwarders are concentrated in large cities, and port cities, typically close to port facilities, transportation companies, and customs operations. By looking online for any such city, a manager can find dozens or even hundreds of freight forwarders. Freight forwarders vary widely in terms of their resources, capabilities, experience, and knowledge. It is estimated that more than 90 percent of all exporting firms have used the services of a freight forwarder. Roughly 75 percent of all international shipments involve the services of a freight forwarder. The rise of internationally active SMEs makes the services and expertise of freight forwarders even more important because smaller firms usually lack the resources or knowledge to conduct international shipping themselves. Increased competition in both domestic and foreign markets has made the services of freight forwarders more important to exporters. First, on-time delivery can put an exporter ahead of many others. Second, firms exporting to emerging markets and developing economies need third parties with experience in these new markets or ports. Finally, parent companies that have increased trade with their foreign affiliates need reliable freight forwarders that facilitate timely transportation services, helping to ensure that production lines operate smoothly.