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The Changing Role of the Freight Forwarder

file photo courtesy of Diamantino Rosa
file photo courtesy of Diamantino Rosa

By Joe Zehner and David Scoggin 2019-09-21 18:49:06

The freight forwarder has been the “go to” industry for shippers wanting to transport goods to international markets.  

The freight forwarding industry blossomed after World War II when the world was being rebuilt. The oceans were alive with commerce. Food products, building materials, etc. -  the goods of life replaced the goods of war. Manufacturers and shippers needed to move all these goods to market. 

However, the companies that manufactured the goods often were not experts in transportation and logistics. Help was needed to get their goods to a seaport, onboard a ship and to create documents to move them legally, efficiently and safely to their foreign customers. Enter the freight forwarder. The freight forwarder is licensed by the Federal Maritime Commission and can act as an agent for the shipper of the goods.   

It is important to recognize that the manufacturer of the goods is not always the shipper. Depending on the terms of sale, the shipper may buy the goods from the manufacturer and be responsible to arrange movement of the goods to the customer. Banks are usually heavily involved in these transactions so the inland and shipping documents are always of great importance to avoid unnecessary delays and additional costs. There are many vendors involved, and all will need prompt payment. Shippers are not always equipped to handle the many duties and will employ a freight forwarder who specializes in these services.  

When I entered the shipping industry in the mid-1960s, working for a ship agency, many freight forwarders were local firms often with only one office  at major ports. Some forwarders did have multiple offices but were usually regional in reach. 

A freight forwarding industry exists in most developed countries. European forwarders were the first, in my experience, to begin establishing offices in the U.S. They offered shippers the ability to have the same forwarder firm at both ends of the transaction. In some cases, large foreign forwarders would purchase existing U.S. forwarders who had established accounts. U.S. forwarders appear to have focused on Central and South America to extend their reach. Naturally there are exceptions.    

Forwarders would usually assist the shipper in ocean carrier selection based on sailing schedule, service reputation, ocean freight rates and other factors. In some cases, the forwarder would negotiate the ocean freight rates with the ocean carrier on behalf of the shipper. In some cases this practice is still used. 

The forwarder would arrange overland transportation which could be by truck, rail or barge. This was prior to the advent of container traffic as we know it today. Cargo moving breakbulk required much more handling and was subject to more damage or loss. In the case of bulk shipments such as grain the forwarder was also involved in arranging inspections and sampling of the cargoes. Taking of samples prior to loading is essential to handling of claims upon discharge. This can apply to all types of bulk cargoes including bulk liquids.

Forwarders would book space with an ocean carrier and confirm the details of the shipment, including the delivery date of the cargo at the carrier facility. A dock order/dock receipt was prepared with all details of the shipment including the overland carrier information, foreign port of discharge and a full description of the cargo; including commodity, type of packing, number of packages and dimensions and weights. Measurements of the cargo were, and still are with breakbulk shipments, essential as many ocean freight rates were based on weight or measure basis, to provide the carrier optimal revenue. 

From my personal experience most of the measuring in the 1960s was done with a yard stick which had a large brass fitting on the first end to hook on the end of the cargo. Dimensions were recorded on a dock receipt which was then provided to the truck driver and sent to the ocean carrier's office for calculation. Package count was also essential as quantity is always checked by customs worldwide to facilitate any claims of shortages, etc. A copy was sent to the forwarder's office as well and any disputes over the measurements were settled between the parties prior to loading.  

Condition of the cargo is also noted and any condition issues are settled by the parties prior to loading. This method is still used for breakbulk shipments. Some cargoes were delivered by rail in box cars which were placed at the ocean terminals sheds and forwarders would arrange rail cargo unloading with their own personnel, or contract personnel (another revenue source). Some forwarders maintained “gear yards” where equipment for car unloading was stored. As the shipper of the goods was not always located at or near the port of loading the forwarder was the “eyes on” for the shipper at the port.  

Naturally, container shipments have eliminated much of this, as the ocean carrier receives the container on the basis of quantity and condition and description of the cargo in the container as “said to be” by the shipper. In the case of Hazardous Goods shipments, the freight forwarder will provide all necessary documents with required HAZMAT information which is provided to them by the manufacturer. Proper marking and labeling of this type cargo is essential.

The freight forwarder would prepare and provide the ocean bill of lading. This is the essential document  for the ocean transport of the goods and in most cases represents the contract of carriage. Proper description of the goods which are as “said to be” by the shipper as well as all other pertinent information including the shipper, consignee, vessel name and voyage number, flag, port of loading and discharge are listed.  

In the 1960s and 1970s this was all on paper with many copies produced for all parties involved in the transaction. Correctness, particularly if a Letter of Credit was involved, was essential for the shipper and forwarder to handle with the bank involved without delays and extra costs. If the shipment is handled on an intermodal basis the origin and final destination are shown. Any exceptions such as condition issues and other remarks and shown on the bill of lading such remarks are critical in handling of cargo claims.    

Another important service offered by most freight forwarders is arranging cargo insurance. Most ocean bills of lading set limits on claims. It is necessary for shippers to have cargo insurance in case of damage or loss of cargo. It is always important to be aware of the terms of the bill of lading. 

In the 1960s and 1970s, often the shipper would put the forwarder in funds to pay the ocean freight to facilitate the release of bills of lading. With the advent of electronic banking and credit agreements this has been changed. Now the prospect of cryptocurrencies for all payments may become common practice when blockchain technology is used. This includes payments to inland carriers and all ancillary providers of services.

International courier services as we know them today and the electronic transfer of documents to foreign destinations did not exist the 1960s, so quick dispatch of documents was needed for the documents to get to the port of discharge prior to arrival of the vessel at the discharge port. Shipments to many Latin American countries required “legalization” of bills of lading and manifests by the countries local consul. This allowed the governments of the destination country to regulate commodities. In the case of short transit times often documents were placed onboard the vessel prior to departure from the loading port, in some cases the vessel had to wait for documents. This would be unheard of today.

In the latter part of the 20th century with the growing dominance of containers, ocean carriers began to offer intermodal rates. With this type of shipment the ocean carrier would handle the trucking of the empty containers to the inland supply point, and return of the loaded container to the ocean carrier's seaport terminal. This eliminated the need for the forwarder to make these arrangements. 

As services diminish, so do revenues. Containers have eliminated the need for most cargo services at the seaport including: freight handling, measuring, counting, marking, sampling, recooping, repair, which are required for breakbulk shipments.

Documents are now transmitted electronically including the filing of Shipper's Export Declaration by means of the AES system. If the shipper/supplier of the cargo has access to this system, they can file directly through Customs and Border Protection who polices this function for the Bureau of the Census which is part of the Department of Commerce. There are vendors who offer these services for a fee if the forwarder does not have access to filing software.

Recently, the largest containers have begun utilization of blockchain technology to incorporate all elements of the shipment, from end to end, to provide secure transactions and efficiently and timely service. Essentially the carrier will control their own destinies by eliminating unnecessary and costly delays, and provide better service. To this end, several large carriers have acquired freight forwarders/customs brokers.  

In addition, large online markerters are offering logistics services, including forwarding and trucking, in order to streamline shipments and create additional revenue streams to increase profitability. One of them has hinted at the possibility of buying ocean vessels, to compete with existing ocean carriers. It is inevitable that these companies will be offering bundled services directly to customers.  

Project forwarding requires more expertise, but is not immune from threats. Container carriers are courting this segment, by encouraging manufacturers, engineers, and other parties to configure cargoes for movement in containers – for greater security, less damage and easier inland transport. In recent years, we have seen the consolidation in breakbulk carrier industry, in part due to the migration of project cargoes into containers. There will always be heavy lift and over sized cargo requiring all the services associated with breakbulk cargoes.  

What effect will this have on the forwarding/customs brokering industry? Most likely consolidation will be necessary for survival of the fittest.  

Many of the local or regional forwarders have been bought by international firms or have been eliminated. There are even plans for technology to replace ship's staff with autonomous vessels.  Autonomous trucks will deliver containers to computer driven terminals and load containers on autonomous vessels. Just-in-time shipments are reducing the need for large warehouse facilities, artificial intelligence is finding it's way into shipping. Will there always be a need for people to monitor the technology? We certainly hope so. 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.