Five Steps to Ensure Forwarders Cut Costs And Maximize Profits
From the January 2002 edition of Managing Exports
In this period of contraction in international trade, every export manager is looking at cost cutting measures, but the way to really earn kudos with top management is by lowering expenses while simultaneously improving your export operation's performance. In today's Ōbuyer's market” for export services, this is not a far-fetched goalŘparticularly in the key area of getting the most from freight forwarders. To learn more about how exporters today can increase their competitiveness in this area of logistics management, ME spoke with Thomas Cook, managing director of NY-based trade services consultants, American River International.
When used effectively,” Cook explains, Ōthe forwarder can maximize profit, mitigate risk, and spearhead you into successful exporting. Cook is the author of The Ultimate Guide to Export Management (Amacom 2001 - click here to order from Amazon.com), founder of freight forwarder and customs broker at American River Logistics. He is also an instructor at the World Trade Institute of Pace University and for the American Management Association on export management, as well as the author of hundreds of articles on international trade.
How to Get the Best From Your Forwarder
Managing logistics is critical because the bottom-line competitiveness of export trade will be determined by shipping costs and efficiency,” Cook says. Therefore, Ōthe quality of your freight forwarders and the delivery of the international services they provide can make or break your export operation.” To successfully manage this crucial partnership, Cook advises that export pros focus on five key areas:
Export pros should carefully shop around for the right forwarder, including by asking other shippers for referrals and requesting recommendations from carriers. Comprehensive listings of forwarders are available from the National Customs Brokers & Forwarders Association of America (NCBFAA: www.ncbfaa.org) and the Thomas Global Register (formerly the American Export Register) at www.tgrnet.com.
Setting up selection criteria that are specific to your export operation is key, Cook believes. ŌFor example,” he points out, Ōa large shipper may have a fully staffed traffic department and be capable of executing all documentation and negotiating freight rates, thus requiring a forwarder for a niche type of activity, special tasks, and overall logistics consulting.” On the other hand, a smaller shipper may be looking for a forwarder to execute every document from the pro forma invoice to the bill of lading. ŌYou need to survey your needs, which then become the criteria for the selection process, says Cook.
Freight forwarders vary significantly in the skills, capability, and delivery of services they offer. ŌSome forwarders are specialists on certain trade routes, specific commodities, and degree of value-added services,” Cook explains. ŌThat's why some shippers use two or more forwarders for different areas. Cook advises shippers to consider the following as potential criteria to submit to forwarders in order to obtain proposals that can then be compared:
- Documentation, rating, carrier selection;
- Post-selection, packaging, insurance, warehousing, EDI;
- Knowledge of your product;
- Logistics consulting;
- Customs clearance, labeling, hours of operation, rate negotiation;
- Export compliance management; and
- In-house education and training.
2) Logistics Consulting
One of the most important services a forwarder can provide is advice and counsel,” notes Cook. This is one area where significant improvements to an export operation's bottom line can occur, because the right forwarder will make significant contributions to your overall sales, marketing, pricing, and distribution choices.
Cook cites the following example: Suppose you typically sell on a CIF (Cost, Insurance and Freight) basis, and you now are venturing into a totally new market. Your freight forwarder, based on previous experience, may advise you that the claims experience is horrendous in the importer's airport, entry, or port facility and that you should amend your terms to a CFR (Cost and Freight) basis. Such shifts can become key factors in the profitability of transactions. ŌSimilarly,” Cook adds, Ōif you are experiencing frequent damage claims via a particular mode of transit, the forwarder might guide you to changes in packaging that will better protect your cargo and lead to an improved loss experience and more satisfied customers.”
Pricing should always be obtained up-front,” Cook advises. In most cases, he notes, the forwarder can provide a fairly accurate estimate. ŌFor ocean freight, you will typically pay what the forwarder pays to the carrier except for consolidations, NVOCCs, and project work where certain discounts or surcharges may apply,” Cook says. The forwarder generally earns a commission in ocean freight and charges handling fees. In contrast, Ōin other modes of transit, such as by air, you will pay what the forwarder charges you and not necessarily what the forwarder pays the carrier.”
Cook provides the following valuable shipping cost breakdown checklist:
- Domestic Invoice TotalŘAdditional Domestic Costs (may be part of forwarder's fee): Warehousing; Inland freight; Export packing; Loading charges; Shipping and Documentation: Consularization/notarization; Export declaration; Export license; Certificate of origin; Packing list; Bills of lading; SGS inspection; Insurance certificates; Health/ sanitary certificates; Miscellaneous.
- Banking and Finance: Letter of credit; Site draft; Miscellaneous.
- Freight forwarding fees
- Freight: Foreign import costs; Customs clearance; Local delivery; Import license; Miscellaneous.
4) Value-Added Services
A key factor in choosing the right forwarder is the value-added services that a forwarder offers. ŌFor example, if you are entering a totally new market,” says Cook, Ōthe right forwarder will be in a position to provide a significant amount of the data you will need.” Such valuable feedback can cover areas as diverse as export shipping and mode options, costs of shipping, documentation requirements, packaging considerations, warehousing and inland transit options, legal and governmental restrictions, labeling requirements, distributions systems, and compliance management.
Another potential value-added service is providing EDI capability,” says Cook, Ōbut the bottom line here is that the EDI capability needs to reduce costs and provide shipping data in a timely manner and comprehensively to be considered value-added.” Other examples of potential value-added services Cook suggests export managers investigate include hazardous materials capability, export packing expertise, warehousing capability, expertise in marine exposures and coverages, and comprehensive office and agency system.
5) Setting Performance Standards
I'm a strong advocate of making sure that freight forwarders keep their promises and maintain high quality standards leading to cost-effective service and on-time performance,” says Cook. He presents the following five steps that export pros can implement to maintain forwarder performance:
- Keep all commitments, quotes, proposals, and promises in writing.
- Allocate time frames to all jobs. Maintain a diary and follow-up schedule to determine responsiveness and accuracy.
- Have all jobs quoted. If there is no time to quote, then have pricing made available as soon as practical.
- Have your forwarder submit annual stewardship reports and bring in competitors from time to time.
- Demand regular meetings with your forwarder. Gain access to senior management. It is also recommended that you meet with all staff and operating personnel and make sure they are familiar with your account, your needs, and the promises made by the salespeople. Knowing who the operation personnel are is key, as they sometimes become far more important to you than the salesperson.
Cook's The Ultimate Guide to Export Management (click here to order from Amazon.com) is a superb all-around guide to the intricacies of exporting. At $99.95 its 592 pages of hands-on, experience- based strategic advice is a must for any export department library. As in his advice regarding freight forwarder selection and management, Cook presents complex material in a clear, concise formatŘwhether the subject is cargo loss control, risk coverage, international customs services, trade finance, customer service, sales, the nitty-gritty of documentation and compliance, or a myriad of other export issues. Thomas Cook can be reached at 800-524-2493.