So you want to become a Freight Forwarder huh..!!

Caution, long but essential read

First question you need to ask yourself is WHY..?? 

It is important that you understand the purpose of wanting to become a freight forwarder..

What is the objective..??

  1. Maybe its your intrigue or love of the industry and your ability to connect people and businesses ;
  2. Maybe because you are tired of the current forwarders in terms of their service offering and their attitude towards business and you think you can do it better ;
  3. Maybe you think you have a set of loyal customers who would support you if you ventured out on your own ;
  4. Maybe its the glitz and glamour that you see some of the freight forwarders exhibiting especially the new startups who the venture capitalists are fawning over ; or
  5. Maybe you are truly well versed in the business and you decided it is time for you to strike out on your own..

Whatever the reasons for you wanting to become a freight freight forwarder, here are 6 points you need to consider and a few things you need to get right first..

1) Understand the role of a freight forwarder

Freight forwarders are an integral part of the supply chain and global maritime trade and may be involved in all or one or more modes of transport – sea, road, rail and air..

A simple definition of a Freight Forwarder is a multi-function agent/operator who undertakes to handle the movement of goods from point to point on behalf of the cargo owner..

The essence of freight forwarding is to ensure that the cargo is picked up from the seller and delivered to the buyer at the required place, at the right price and in the same condition that it is picked up from origin using the most suitable and optimal resources and routing possible..

Once you understand the definition, you need to make sure you understand the role and work of the various entities associated with a freight forwarder such as a clearing agent, freight broker, shipping agent, shipping line, seller, buyer, indenting agent, haulier, warehouse etc etc involved in the business..

Image for Shipping and Freight businessAll these entities have varied and different roles to play in the whole supply chain and it is certainly not easy for a startup with incomplete knowledge to handle all these functions..

Theoretically “anyone can become a freight forwarder” because many countries do not seem to have a legislation stopping anyone from “calling” themselves a freight forwarder or doing business as a freight forwarder..

However, in order to operate as a true freight forwarder there are several process and procedures to be aware of and several responsibilities one needs to assume..

Assuming responsibility could also include costs which may fall on your head as a freight forwarder.. As a freight forwarder you need to know the business well enough to understand who pays what charges in a sea freight shipment and also know which costs you maybe held responsible for..

For example, you need to know the liabilities of a freight forwarder on abandoned cargo and your liabilities on any damages to cargo that may or may not be your fault..

Remember the shipper or consignee is dependent on YOU as a freight forwarder to provide proper information and guide them with their shipments..

2) Learn, know, understand the role of the HS Code or Tariff in the whole gamut of shipping..

Why should I be aware of the HS Code and tariffs and why is this information important for me to become a freight forwarder you may ask..

In recent times you may have been hearing about trade wars and how it is affecting global trade.. This is one of the reasons you need to be aware of HS Codes as your customers are depending on you..

A trade war is created when a country decides to impose trade tariffs or quotas on certain goods that are imported into the country.. Tariffs are taxes that a government levies on goods imported into the country and is usually a percentage of the total CIF cost of the product..

The products are identified using HS Codes or “Harmonized Tariff Schedule” which lists the specific tariffs for various categories of goods..

HS codes published by the International Trade Commission are based on the International Harmonized System and allows countries to classify trade goods uniformly between them so that everyone knows which of the items listed in the schedule it refers to..

The HS Code is the basis on which import tariffs are calculated and any duty, vat or tax is charged..

Without knowing the proper classification of the cargo and which HS code it falls under, you will not be able to handle your client’s cargo effectively or advise your client suitably on the import processes.. The incorrect use of the HS code may result in cargo being confiscated, fines levied, criminal penalties/charges instituted, or result in cargo being returned to the port of load, all at your cost..

Remember the shipper or consignee is dependent on YOU as a freight forwarder to provide proper information and guide them with their shipments..

 

3) Have a deep understanding of Incoterms® which is an integral part of global trade

Incoterms 2020Incoterms® rules are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods and is designed to help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers..

Incorrect interpretation and usage of Incoterms® by an agent has many a times resulted in several cases of money and business loss for both the agent and their customer..

Misinterpretations and incorrect use of the Incoterms® such as the use of FOB for containers, continues in the market purely based on previous incorrect practices..

As a freight forwarder involved in the shipping and freight business, you really need to understand these terms in depth so that you may provide sane and credible advice to your customers and others who may not be aware of the differences in the terms and where and how it should be applied..

You will require this in-depth knowledge especially when it comes to quoting a customer based on the Incoterms® he provides you.. If you are not aware of this, you may very well end up missing to quote vitals elements such as duties, taxes and some other important charges..

Remember the shipper or consignee is dependent on YOU as a freight forwarder to provide proper information and guide them with their shipments..

 

4) Understand the documentary requirements relating to a shipment

Understanding the documentary requirements relating to a shipment and specifically key documents such as bill of lading and cargo insurance documents is absolutely vital for you to perform the activities of a freight forwarder..

For example, the bill of lading is one of the most important documents in the shipping cycle and as a freight forwarder you need to REALLY know and understand the role of this important document and which type of bill of lading to issue for which shipment and to where..Bill of Lading

As an agent on whom the shipper or consignee depends on, you need to be aware of how the bill of lading must be consigned and to whom..

Of course it would also help if the shipper or consignee knows about the process of export or import especially if they are exporting for the first time or importing for the first time..

It is also expected that you know the various intricacies involved in issuing a house bill of lading vs a master bill of lading or issuance of the correct type of bill of lading such as Sea Waybill instead of Original and vice versa..

Depending on the contract of carriage with the carrier, you need to ensure that the bill of lading is issued correctly in terms of the transport mode such as Multi-Modal or Combined Transport or Port to Port..

Incorrect issuance of the bill of lading can cause severe financial implications not to mention delays at the port of discharge for the client to secure their cargo..

You also may need to know what to do when an original bill of lading is lost..

Apart from the bill of lading, a client may also require your expertise on various other trade documentation such as Certificate of Origin, EUR1, Phyto certificates or on certain questions like whether their cargo can be shipped without insurance..

Remember the shipper or consignee is dependent on YOU as a freight forwarder to provide proper information and guide them with their shipments..

 

5) Understanding of Risks and Liabilities

There are several risks associated with the shipping and freight industry and guiding your clients on the risks and liabilities and also understanding your own risks and liabilities as a freight forwarder is an integral part of being a freight forwarder..

trade finance and transport - shipping and freight resource

Below are a few risks associated with the shipping and freight business..

  • Using proper SOPs
  • Arranging proper insurance cover
  • Counterparty risks
  • Jurisdictional risks
  • Contractual carriers

An agent must be able to advise their clients on these risks and must also be fully equipped to deal with these risks and be aware of how to mitigate them if and when it arises..

There may be cases where clients may be importing fake goods (knowingly or unknowingly) for which you may be liable as a freight forwarder..

Another point that most businesses in the industry seem to forget is the usage of proper and comprehensive Trading Conditions that must be incorporated in all communications and this simple act has been known to mitigate several losses to the people involved..

Insurance and risk management cover does not apply only to the cargo, seller, buyer etc, but also applies to a forwarder or clearing agent who must have their own cover to protect themselves.. Entities such as the TT Club provide insurance and related risk management services to the international transport and logistics industry..

Remember the shipper or consignee is dependent on YOU to provide proper information and guide them with their shipments..

 

6) Understand the costs

How to calculate CBMAny shipping and freight business (or any business for that matter) is started with the intention of making a profit.. However, if you are not aware of the basis on which your service must be charged, then you would start losing money from the beginning..

For example, you DEFINITELY need to know how to calculate CBM and Freight Ton and for this, you need to know how to calculate the dimensions of the cargo and be able to work out the CBM and charge the customer basis Revenue Ton or Freight Ton because that is the main basis of charging for many forwarding, warehousing and clearing agency businesses..

If you are not aware of how this works, then it is going to be very difficult for you to be able to charge your customer.. So don’t miss learning this crucial point which can affect you financially..

Some of the customers may not be aware of who pays what charges in a sea freight shipment and may have chosen the wrong Incoterms® for the shipment..

It is your responsibility as a freight forwarder to guide your customer and assist them in getting their costs right..

Also in terms of import duties etc, you need to be able to calculate the correct costs and advise your client on how the invoices and other documentation must be drawn up so they don’t end up paying more than they are supposed to..

Remember the shipper or consignee is dependent on YOU as a freight forwarder to provide proper information and guide them with their shipments..

 

Conclusion

To be a reliable and successful freight forwarder, you need to be clear about the complete processes and procedures involved in the complete supply chain..

This is not as easy as it sounds and many of the successful freight forwarders have gone out on their own only after several years of valuable experience they have gained in getting their hands dirty and handling the business..

Many of the startups and digital freight forwarders, may disagree with this as they seem to be placing their dependence more on technology and digitalisation..

Make technology and digitalisation your friend, but remember, NOTHING beats experience..

Last but not least : Remember the shipper or consignee is dependent on YOU as a freight forwarder to provide proper information and guide them with their shipments..

Also another point to consider is competition.. While this is not as crucial as the above factors for you to become a freight forwarder, it is nevertheless a crucial option you need to look at, especially in terms of sustainability and how much staying power you have against the giants of the industry..

Added to this, the shipping lines are now also entering the fray directly and becoming Integrated Container Logistics & Supply Chain Services providers and offering a range of freight forwarding solutions and clearing solutions to their customers, or acquiring freight forwarding assets..

Not to mention the mergers and acquisitions happening within the freight forwarding industry itself, like DSV’s acquisition of UTi and Panalpina recently or the merger of TNT/FedEx and such..

All these companies have been around, handling shipping and freight business for eons and know the workings of the business and yet they have had issues..

Of course that is not to say that smaller operators will be unsuccessful.. If you know how the business is run and understand all of the above requirements, by all means go ahead and “become a freight forwarder“.. Good Luck.. 🙂

To those of you who are small to medium independent freight forwarders, what has been your road to success in opening up your own freight forwarding businesses..??

What did you encounter on the way..?? It would be great if you shared some tips..

3 thoughts on “So you want to become a Freight Forwarder huh..!!”

  1. Why no one discuss about the credit freight forwarder gives to the customers blocking huge amount of money & taking huge debut why can’t we discuss this serious problem.

    Reply
    • Hi Kuldeep, glad that you are talking about it.. Yes the financial outlay could also be a big factor when trying to become a freight forwarder, but it is part of the business..

  2. what is opinion of other experts on freight forwarders business in Saudi Arabia, is it any bright future in Saudi Arabia give me your views.

    Reply

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