A Look At the Top 5 Challenges Facing the Freight Forwarding Industry Today

Freight forwarders are as nervous about the future as any other type of company these days – and for good reason. It’s hard to think of another industry facing more uncertainty with many of the macro-trends happening in the world right now. These challenges include everything from the impact of technology and the state of the global economy, to how newly elected U.S. President Trump is promising to shake up global trade.  

Macro-economic reasons aside, there is also plenty going on within the industry that freight forwarders should be watching. Here are 5 of the most crucial ones.

Competition

Freight forwarders are up against more competition than ever. Part of the reason is that many logistics companies that traditionally defined themselves as something else (say an as ocean carrier, or even a warehousing company) are now providing forwarding and NVOCC type services. And of course, everyone is talking about how even Amazon is getting in the game as well – which leads us to the next challenge.

Commoditization

Many, if not most, shippers view transportation as a commodity. All they care about is that the delivery gets made. Meaning, they place little value on service and a lot on price. This makes it hard for forwarders to differentiate themselves from other providers – especially when there are always those who’ll try to win on price. Some forwarders are learning they can better compete and maintain margins by offering new or better technology that improves the customer experience.

Ocean Volatility

Ocean shipping is a big part of what forwarders do. It’s also a very unstable business, based on complicated rates and contracts that take an expert to understand. Many times this makes it hard for forwarders to understand their cost structure – which obviously makes it even harder to provide accurate and reliable quotes to customers. The seemingly random nature of GRI’s and surcharges only adds to the problem. There have been recent calls to simplify the complexity of all these things but there won’t be relief for forwarders any time soon.

Tender Management

A big part of most forwarder’s business comes from responding to tenders. Because the volume of these bids is so high, and each is usually so complex, they are a big drain on resources. Smart forwarders are focused on improving their tender management process to make sure they are bidding accurately and fast, but also on the best types of business for them.

Rate of Change

There are constantly new market challenges for forwarders that need to be accounted for. A recent example is the trend for ocean carriers to form alliances. With almost no notice, these can affect the rates and contracts forwarders have with the carriers, as well as service. The aforementioned effect of technology is changing how forwarders (and their competitors) can manage their business – as well as service their customers. Lastly, market expectations continue to focus on ever faster and cheaper deliveries.

For all these reasons, freight forwarders need to work harder than ever to differentiate themselves in their business – while continuing to focus on service. What the best forwarders know is that just as important as competitive rates are giving customers better service options and technology to support decision making.

The Simple Strategy To Control Detention and Demurrage: Know Your Free Time

It looks like shippers and forwarders finally have had enough. It’s not a surprise to us, the topic of detention and demurrage at US ports is something we’ve discussed frequently.

Our post: How to Use Free Time to Reduce Detention and Demurrage

And, our whitepaper: Use Free Time to Reduce Detention and Demurrage Costs

There are multiple reasons these unnecessary charge have become so common, but of course your feelings may depend on your perspective. Shippers argue it’s about revenue protection for terminals and ocean cargo companies in a struggling industry where everyone is trying to scrape by. The counter argument is that it is infrastructure limitations and regulations that are the reason these cost are necessary.

The JOC.com recently published an article about: US shipper, trucker petition could trigger detention and demurrage relief

The article discusses a petition gathered by a group of US-based shippers and service providers to create a rule preventing ports and carriers from charging detention and demurrage when “uncontrollable” circumstances make it impossible to pick up or return a chassis according to their contracted free time.

From the article, “Shippers, consignees and drayage providers do not create and cannot avoid these events,” the coalition said. “They cannot control the weather. They do not choose the terminals that carriers use. They are not parties to port labor collective bargaining agreements.”

“Shippers have grumbled for years that demurrage and detention fees are being used to generate revenue, rather than to clear out containers to improve terminal fluidity or to incentivize prompt return of equipment. Although a lack of financing from coalition members for the legal push has prevented shippers from filing a formal regulatory request — until now.”

With time, this will play out. But shippers and forwarders are probably better served in the short term to focus on what they can control now that influences detention and demurrage – free time.

Our perspective is that this problem is primarily an issue of rate and cost visibility. The reason is all shipments have a contracted free time in the rate or contract. Yet, few forwarders or shippers take the time to consider this constraint when they are routing a shipment.

Considering free time allows the number of days the companies has to pick up and return the chassis to be included in the routing decision – just like the freight rate and transit time.

The reason this happens is free time is a line item buried in most contracts. It is different based on the port and carrier, and other shipment details. Most companies do not have an efficient way to find their free time on an individual shipment basis. Lacking this, they’ll use an average or estimated amount of free time when planning and quoting a shipment.

Knowing and using contracted free time allows freight forwarders to not only quote shipments more accurately, but develop routings that ensure charges at the ports don’t pile up.

Hopefully, the challenges at the ports for all parties will lessen with time. Until then, taking the necessary steps to include free time in each routing decision is the best thing forwarders and shippers can do to reduce the additional costs from detention and demurrage.

Four Ways Technology Helps Freight Forwarders Reduce Risk

Freight forwarders and NVOCCs face a lot of every day risks in their business that technology can easily solve. Many of them are the result of exposure to the routine challenge of managing the complexities of global shipping – like rate management, responding to RFQs, and general competition in the market place.

Still, many companies are slow to adopt technology solutions that help overcome these types of challenges. The failure of companies to keep up in this way is a mistake – here are four ways technology enables freight forwarders to reduce key risks in their business, and for their customers.

Rate Accuracy

A forwarder’s entire business is based on the process of buying transportation services at one rate, and selling it to their customers at a higher rate. The difference in these costs is how they make money – period, end of story. Yet, many forwarders have no automated way to ensure accuracy with their freight rates and have no idea of their own cost basis.

Calculating global freight rates is a complicated process, and subject to GRIs, surcharges, and countless other fees that are constantly changing. Lacking freight rate management technology, calculating the cost basis for a forwarder is impossible. This creates risk and makes every quote a potential money-loser.

Service Commitments

Every global shipment involves a lot of coordination – with things like paperwork, sailing schedules, origins, local carrier partners, and countless other details. Lacking access to any of this information, like sailing schedules or the ability to verify space on a particular ship, leaves customers at risk to missing the specific sailing they were counting on to meet their own service commitments for deliveries. Technology makes it possible for providers to verify this type of information for shipments and ensure they’ll make their customer’s expected delivery time.

Routing Decisions

Every shipment involves a lot of important decisions – like what carrier to use and what mode. But primarily it’s about balancing the cost and service requirements to get the best of both. Yet, lacking technology to support decision making, there is risk of failing to meet the either. The choices are always complex – with hundreds of options for even the simplest international shipment. Technology is the ONLY way to support decision making that will reduce the risk of bad routing choices by guaranteeing the best choice is made for every shipment.

Happier Customers

Technology also lowers risk of losing business by enabling forwarders to provide better service to customers. Real time connections to carriers allows more up to date track and track, for example. API and EDI connections reduce the reliance on phone calls and emails for load status updates. Technology can even make the documentation and customs clearance process smoother by digitizing much of the required paperwork and information. In the end, forwarders are able to provide a more reliable and positive customer experience when they are supported by technology.

It’s the freight forwarders that embrace technology adoption that lead the industry. Logistics technology shouldn’t be thought of as a ‘nice to have’ – it’s integral to any forwarder’s operations and key in reducing risk for the business, and their customers. 

How to Use Free Time to Reduce Detention and Demurrage

Free time is the most important cost factor in ocean shipping that most companies ignore.

How so? Not considering free time contributes to unnecessary detention and demurrage costs on up to 25% of ocean freight shipments, according to one of the world’s largest NVOCCs.

This growing issue affects logistics services providers and shippers alike, and is exasperated by the current state of the ocean cargo markets – specifically with regards to the ongoing problem of port congestion.

Free time is a contract line item just like any other fee or surcharge, yet it is rarely considered when making routing decisions. The reason is that it’s hidden in contracts and typically overlooked thanks to all the other everyday complexities of ocean freight rate management – like tracking updates to carrier surcharges and GRIs. Free time is seldom front of mind when ocean rates get calculated and shipments are booked. Yet few of the industry’s 1,300+ ocean surcharges that garner most of the attention can add 11% to a shipment’s cost each day.

Free time is crucial and should be considered with every routing decision, right along with a shipment’s all-in rate and transit time.

Contributing Factors to Increased Detention and Demurrage

The average free time is about five days, providing precious little time to pick up, unload or load, and return a container to the depot.

Despite our stance that shippers must take accountability for better understanding and using free time, there are legitimate market conditions that make this difficult.

Among the biggest is that vessels are getting larger and taking longer to discharge. At the same time ocean carriers, ports, and terminal operators are not providing additional free time willingly. Ports will continue to get more congested, and, unfortunately, there are no free passes when a container is late. 

Adding to the challenge is chassis availability. This market has changed, and the chassis is no longer supplied by the operators. Again, no sympathy if the chassis leasing companies run out during busy periods making it impossible to move a container.

There will always be situations where shippers simply cannot access cargo or return a container, and as a result exceed free time. Still that’s no excuse for failing to take steps to address the problem.

While the issue itself is simple enough, the solution is not. Without a new approach, demurrage and detention charges will only increase.

Solutions for Preventing Unnecessary Free Time Violations

Market forces aside there are tactics for managing free time to minimize costs. Two solutions with the greatest impact include using data for better decision making, and improving communication within your operation and with carriers.

Using this information is required for good decision making, but the challenge remains in how to go about accessing it. With most shippers having multiple carrier contracts and no good way to find and compare free time, how realistic is it to expect it will be used on a consistent basis? You need to find a way. The solution starts with an organized approach to freight rate and contract management, and continues with technology that supports your current workflows for calculating rates and quotes accurately including free time.

A less obvious upside to better free time visibility is that when you have additional time, you can use it. Extra free time makes it possible to avoid expenses such as storage, handling costs, or other accessorials at the point of pick up or delivery. But you have to know your free time to take advantage.

It is important to note that application of the terms demurrage, detention, and combined demurrage/detention varies from country to country, but the concept and workings mostly remains the same.

With up to 25% of all ocean shipments incurring detention or demurrage, free time should be considered with every routing decision. Don’t allow market conditions and outside factors like port congestion be an excuse for not addressing the problem.

Knowing free time and the potential for additional charges helps shippers make the best routing decisions. It requires diligence on the part of shippers and freight forwarders to understand their free time tariffs and consider those constraints with every routing decision.

A longer whitepaper version of this article is available for download  – here.

Data Interoperability and the Logistics Technology Stack

Logistics technology has made huge strides in the last 8 to 10 years. Once thought of as an industry that always lagged in the adoption of technology – both shippers and service providers now have access to applications that can transform the way they run their business.

This is a topic we’ve written about a lot on this blog. Throughout this post, we’ve linked back to several of them.

Blog Post – Overcoming the Hurdles of Logistics Technology Adoption

Blog Post – How Do You Choose the Right Supply Chain Software

Not so long ago, that was not the case for several reasons. For one, the technology that did exist was really expensive. The term logistics technology was synonymous with TMS (Transportation Management System) or WMS (Warehouse Management System) – with these usually just being a module within a huge ERP system. The advent of smaller, more easily implemented SaaS based solutions has changed this for companies of all sizes and made many types of #logtech infinitely more accessible.

A second reason is that there are many specialized applications that satisfy a more narrow range of functions. This has enabled companies to build their own “Logistics Technology Stack”, which combine technology from different providers to create a customized solution. The benefit here is that this stack serves a company’s needs better than a more expansive software that may do a lot, but not not any one thing all that well. These new types of solutions are made possible by using applications that help facilitate data interoperability and make the experience seamless for users – who can then “cherry pick” the solutions they want.

Blog Post – How Freight Forwarders Can Use Gap Analysis to Fix Missing Pieces in their Logistics Technology Stack

Freight rate and contract management is a great example of a process within shippers and service provider’s operations that can benefit from specialized technology.

Blog Post – 6 Ways Freight Forwarders Profit From Rate and Contract Management Technology

Take a freight forwarder – most rely on technology (such as Cargowise One) to manage many parts of their business operations. Our platform, QMS, integrates with Cargowise so that the ocean rates and contracts managed in QMS can be accessed seamlessly in Cargowise. Similar examples also include rate sharing that is possible between QMS and 7L for air freight rates, and a similar connection for pulling in LTL rates from Banyan Technologies.

Blog Post – It’s Time to Gain More From Your Logistics Technology Stack

The point is this – companies are no longer beholden to large TMS or other types of technology platforms that try to be everything to everyone. Functions like ocean rate and contract management are highly specialized and have NOTHING in common with other modes like Truckload. And like it or not, there is no one system that does everything all that well.

Taking advantage of the web services and APIs provided by different types of technologies allows both shippers and logistics services providers to build a combination of logistics applications that do exactly what they need it to do. This makes for a better solution for users, while keeping costs low.