Freight Forwarders

Freight Forwarders and Other Transport Options

Photo courtesy of Asiana USAOpens in new window In addition to the transport options explored in previous postOpens in new window, there exist other important entities in transportation systems. These entities, whether unimodal or multimodal in scope, include nonoperating third parties that provide various services to shippers. The major alternatives are:

1. Freight forwarders
2. Shippers’ associations
3. Intermodal marketing companies
4. Brokers
5. Small package carriers
6. Third-party logistics service providers

Freight Forwarders

Freight forwarders purchase long-distance transport services from truckOpens in new window, railOpens in new window, airOpens in new window, and water carriersOpens in new window. Then they consolidate numerous small shipments of different shippers into large shipments.

After transporting the bulk load through one or more of the basic modesOpens in new window to a destination, they split the load into the original smaller quantities. The transportation cost per pound of small shipments is higher than that of the large shipments.

The difference between the large and small shipments’ rates offsets the operating costs of these companies. This is why forwarding agents offer lower rates to the shippers than they can obtain directly from the carriers. Moreover, these companies can also provide more complete and faster services to the shippers.

Freight forwarders can be classified as surface or air forwarders, based on the transportation modes they use. Also, a forwarding agent can be considered as an international forwarder if it is specialized in shipments to other countries or as a domestic forwarder if it specialized in shipments within the country.

Shippers’ Association or Cooperative

These associations consolidate the small shipments of their members into vehicle-load freight so that small and medium shippers can also benefit from the economies of scale.

They contract with motorOpens in new window, railOpens in new window, airOpens in new window, and waterOpens in new window carriers to physically move their members’ cargo, benefiting both shippers and carriers.

Shippers take advantage of the lower rates, and the carriers benefit from better equipment utilization, as well as the economies of large and often long-distance shipments. Shippers’ associations are not classified as common carriers, and in the United States the Interstate Commerce Commission (ICC)Opens in new window has never had jurisdiction over them.

Intermodal Marketing Companies

Shippers’ agents or intermodal marketing companies (IMCs) are important intermodal links between shippers and carriers. These agencies are much like shippers’ associations in their operations, but they offer specialized TOFC or COFC services to shippers.

They purchase large quantities of piggyback services at discount rates and then resell the available services in smaller quantities to the shippers. Similar to shipper’s associations, these companies are not licensed by the ICC, and their importance is increasing as the use of intermodal transportationOpens in new window is growing in today’s world.

Brokers

Besides providing timely information about rates, routes, and capabilities to bring shippers and carriers together, brokers also provide other services such as rate negotiation, billing, and tracking. These agents are subject to the same regulations that apply to carriers, and they are all licensed by the ICC.

Brokers help shippers, especially those with no traffic department or minimal traffic support, to negotiate rates, supervise their shipments, and perform what they may not be able to carry out because of resource constraints. Brokers can also help carriers find business or obtain back hauls and return loads that increase their efficiency as they transport “full” equipments rather than “empty” ones.

Small Package Carriers

Small-shipment delivery services can be important transportation options for many shippers. Electronics firms and cosmetic companies, as well as book distributors and catalog merchandisers, are examples of these shippers. Well-known small package carriers include the US Postal Service’s parcel post, United Parcel Service (UPS), and air-express companies.

Parcel post is a delivery service provided to companies that ship small packages. Low cost and wide geographical coverage are the competitive advantages of parcel post because it offers both surface and air services, domestically and internationally.

Size and weight limitations, transit time variations, and relatively high loss and damage ratios are the main disadvantages of this service. Another disadvantage of this service is its inconvenience to shippers, because packages must be paid for in advance and deposited at a postal facility.

UPSOpens in new window is a private package-delivery company. It transports small packages, so it competes directly with parcel post for shipping small parcels, especially in the United States. The primary business of UPS is the time-definite delivery of documents and packages internationally. UPS has extended its services in three main segments: domestic package services in the United States, international package services, and supply-chain and freight services.

UPS’s advantages include its low cost and low time-in-transit variability, as well as its wide geographical coverage. The disadvantages of UPS include specific size and weight limitations and inconvenience because small shippers must deposit their parcels at a UPS facility. However, UPS provides pickup for larger shippers.

Since its inception in 1973, the air-express industry has expanded significantly, mainly because of its high levels of customer service. Because these companies can offer overnight or second-day delivery services nationally or internationally, they are valuable shipping options for those shippers who need to transport their products quickly.

Federal Express (FedEx)Opens in new window, UPSOpens in new window, and AirborneOpens in new window are some of the most well-known examples of the air-express industry. Substantial revenues and considerable profits of these companies illustrate the importance of rapid-transit services with high consistency to the shippers.

Third-Party Logistics Service Providers

Nowadays, more companies are outsourcingOpens in new window their logistics functions to third-party logistics service providers, as the emphasis on supply-chain management has increased.

Third-party logistics providers, commonly referred to as 3PLs, provide their clients with several logistics services, such as freight forwarding, packaging, transportation, and inventory management, as well as warehousing and cross docking.

Because these services are handled together by 3PLs, most companies consider these service providers as one-stop outsourcing solutions that can do the jobs more efficiently, allowing the companies to focus on their core business.

Third-party options can lead to cost reductions and customer-service improvements, especially for those small and mid-sized companies that cannot afford to develop their own distribution networks. Instead, they outsource their product distribution to 3PL providers so they can compete in today’s global market.

The cost savings gained through this channel is mainly because of reduced transportation charges. In addition to cost saving in transportation, fixed capital investments and labor and operating costs are reduced through this option.

Moreover, these companies may benefit from the available cash previously tied up in inventory. It should be mentioned that the ultimate objective of outsourcing logistics functions must be enhancing customer satisfaction through the improvement of delivery systems. However, often too much attention is paid cost reduction and in making logistics alliances, rather than in improving delivery performance and customer satisfaction.

Freight forwarders, shippers’ associations, shippers’ agents, brokers, small-package carriers, and 3PL companies are all viable transport alternatives for a shipper in the same way as the six basic transportation modes and the intermodal combinations.

The optimal combination of shipping options should be determined by a company’s logistics executive. This decision depends on several issues, including the master production schedule, customer-service objectives, the existing physical facility network , and standards and regulations.

Another substantial issue in determining the right modal choice or combination of transport alternatives for a company is the product characteristics or the “physical nature of the product, which is explored here.