Freight Forwarding

Updated on January 3, 2024
Article byAnkush Jain
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Freight Forwarding Meaning

Freight forwarding is the strategic planning and coordination of transporting goods internationally on behalf of shippers. It includes warehouse planning, customs brokerage, cargo insurance, port expenses, consular fees, and other charges. Freight forwarding services are the backbone of the global logistics industry, without which the productivity of global markets would be in jeopardy.

Freight Forwarding

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It is a process that bridges the gap between the consigner of the goods to the consignee at the destination port. A specialist freight forwarding agent carries out the strategic planning and execution, often referred to as a freight forwarder. In addition, they carry out the negotiations, customs paperwork, cargo tracking, etc.

Key Takeaways

  • Freight forwarding is transporting a consignment or multiple consignments on behalf of the consignor or shipper.
  • An experienced professional adeptly carries out the processes and documentation of transporting goods across countries called a freight forwarder.
  • It saves the organization’s time and energy to focus on its core functions and outsource this meticulous process of transporting to a professional.
  • Freight forwarders usually get the job done with little to no hassle and at much lower prices.

How Does Freight Forwarding Work?

Freight forwarding is a process that involves the movement of goods in a coordinated and strategized manner on behalf of the shippers or the consignors since companies may incur a large sum of investment to set up logistics equipment, skilled labor, technology, and experience.

Therefore, they tend to outsource the task to an adept third party to carry out the function that connects them with their clients internationally. These freight forwarders can carry out the task cost-efficient and professionally. Due to their healthy rapport with the officials, they get appropriate rates and schedules.

They are travel agents but for large consignments or cargo. They bring different countries in different parts of the world together with timely delivery of goods, promoting trade and uplifting the economy. However, delivery delays can cause a shortage of goods, and subsequently, the rise in demand can also affect a price hike.

The global freight forwarding industry is estimated at $191.71 billion, transporting over 11 billion tons of goods annually. They are the connecting point of trade between different corners of the world.

The consignor or the shipper contacts a freight forwarder with the proposal for shipment to outsource the logistics function. The forwarder then uses its network to ensure that the shipper’s goods reach the consignee efficiently and cost-effectively.

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Process

International freight forwarding is a complicated process. After the shipper and the freight forwarder draft an agreement, it has six physical procedures, and three stages of paperwork involved before the goods reach the consignee. Moreover, the clearance processes and the fees involved are procedures best left to an expert in the field. Therefore, let us understand the process step by step:

#1 Documentation For Export

The necessary documentation might vary from country to country, but the information declared is generally the same irrespective of the document’s format. A few important documents include a commercial invoice, bill of lading, packing list, certificate of origin, insurance papers, and export shipping bill. In addition, a letter of credit and declaration of hazardous cargo are required if it applies to the particular shipment.

#2 Haulage

It is the transportation of goods from the consignor’s location to the office where freight forwarding services are carried out. The time taken to deliver the goods from the shipper’s warehouse to the freight forwarder’s office depends on the nature of the goods, distance, and mode of transportation.

#3 Checkpoint

Freight forwarders inspect the goods after the export haulage is completed to check for damages or to tamper with the goods during transportation.

#4 Customs Clearance

Before the goods leave the country of origin, it is mandatory to secure clearance from customs officials in the origin country. This process requires documentation of the nature of goods and the destination country, among other things. This process is carried out by the shipper or the freight forwarder, depending on their agreement.

#5 Origin Handling

The freight forwarder’s agents handle a variety of obligations in the origin country before the consignment leaves for the destination country. It begins with unloading the goods, checking the invoice for booking information, and loading the goods on the cargo ship.

#6 Customs Clearance Upon Import

The customs officials in the destination country verify the consignment documents before allowing them to enter their country. The catch in this process is that the agent completes this process before the shipment reaches the destination country.

#7 Destination Handling

Once the goods reach the destination country, the freight forwarder or their agents unload the goods, review documents, and submit the carrier bill.

#8 Import Haulage

The goods are transported to the final consignee’s warehouse or factory. This transportation can be carried out by either the consignee directly or the freight forwarding company’s agents might deliver it, depending on the contents of the agreement.

Examples

The freight forwarding industry follows a lengthy and complicated process to ensure the transport of goods is carried out in a timely and pocket-friendly fashion. It can be confusing to understand the process due to the number of processes and checks involved. Let us understand the concept better with the help of the examples below:

Example #1

Ricky manufactures electric spare parts in Vermont. His clientele is spread across the United States of America. He wanted to expand his business to other countries like Mexico and Canada. After considering the cost of infrastructure to carry out the export, he and his team decided to outsource it to a third-party freight forwarding company.

A friend introduced them to Matthew, a licensed freight forwarder who owned a limited company. He and his agents picked up shipments from Ricky’s warehouse, carried out customs clearance, transported the goods from the destination, and delivered them to their new clients in Mexico and Canada.

The costs were cheaper than Ricky’s estimates, and the time taken was also efficiently managed, which helped the company grow at a faster pace.

Example #2

In 2021, when one of the largest cargo ships in the world caused a blockage in the Suez Canal route, it disrupted the trade of over $10 billion each day. In addition, it delayed the shipments and deliveries by weeks or even months.

In the aftermath of this trade disaster, the freight rates were at all-time highs in the U.S. and Europe. Additionally, the demand for the goods led to a severe price hike.

Importance

The freight forwarding industry acts as the backbone of trade activities globally. The sheer volume of trade attracts the need for experienced professionals who use their specialized skill set to carry out these highly complex procedures. Below are a few points that signify the importance of freight forwarding services:

  • Outsourcing the mammoth function of logistics to a third party for the transportation of goods locally and internationally gives the organizations to concentrate more on their core functions.
  • Hassle-free deliveries help businesses to track their shipments and make commitments with surety in terms of the time taken for delivery.
  • An experienced freight forwarder can ensure that the costs incurred and the time taken for the transport across countries is minimal and justified as they are adept with the processes and the procedures involved.
  • The paperwork involved in successfully delivering a consignment is monotonous and lengthy. Outsourcing this time-taking process to a third party can ensure the accuracy of the documentation and save time for the outsourcing companies.

Freight Forwarding vs Logistics

Freight forwarding and logistics are closely linked functions that often need clarification. Regardless of the similarity in their primary function, there are differences on various levels that set them apart. Let us under the differences in detail with the help of the table below:

BasisFreight ForwardingLogistics
FunctionThis is a process of transporting goods on behalf of the shipper to their destination country or client.Logistics refers to a more comprehensive approach and often specializes in one type of logistics.
OwnershipThe freight forwarders generally contract with more than one shipping line to transport their client’s goods. They do not own any shipping lines; they only provide the service through their expertise in the domain.Logistics companies usually hold exclusive ownership of all their assets, including fleets of planes, ships, and trucks.
SpecializationThey contact the shipping lines according to the product specification and help transport them safely. They help transport goods irrespective of their nature.Logistics companies usually specialize in certain areas of transport, such as long haul, dry box, cold storage, etc.
Scale of workThey ensure that the goods reach the desired location through the best option available in terms of time taken and cost.Logistics companies cater to a broader scope of work, especially while delivering hazardous material from one country to another.

Frequently Asked Questions (FAQs)

1. How to start a freight forwarding business?

After thoroughly analyzing the requirements of a business of this nature, an individual can attain the required amount of expertise in the variety of documents and processes involved or hire someone who can do it on their behalf. Additionally, the individual can register the company as a self-employed company or a limited company.

2. What is freight forwarding in logistics?

In the wide range of activities involved in logistics service, forwarding freight is the process where a freight forwarder does the transportation of goods on behalf of the consignor or shipper. It is carried out based on the freight forwarding agreement between the forwarder and the consignor.

3. What is international freight forwarding?

When goods are transported to a country different from the country of origin through road, rail, marine, or air by a third-party forwarder, it is called international freight forwarding.

4. How many types of freight forwarding?

Most often, the transportation of goods is carried out through trucks, ships, or airplanes. However, depending on the nature of the goods, the specifications of the mode of transport change. For example, for transporting hazardous materials or perishable goods, necessary adjustments must be made to the vehicle.

This article has been a guide to Freight Forwarding and its meaning. Here, we explain its process, examples, importance, and comparison with logistics. You can learn more about it from the following articles –

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