Essential Factors In Freight Forwarding Industry Marketing Essay

Starting from last decades, an increasing number of companies have gradually realized the importance of business in a global unity. Some U.S. firms have found that it is essential to assess offshore sourcing alternative to a competitive logistics organization. Meanwhile, by developing export markets, a great number of companies have reasserted the importance and necessity of effective logistics systems and networks in a global context. Companies, no matter how great are the scales, are seeking for operations and strategies to provide competitive edge through efficiency, effectiveness, and differentiation (Coyle, Bardi, & Langley, 2003).

The planet we are living in is growing at an unbelievable pace. The world is like a village where every country is closely connected to each other. The growth of international trade is made achievable by the cooperation and coordination by logistics providers all over the world. Our world is becoming more and more prosperous because of the boom in logistics activity. A company is willing to produce anywhere as long as the cost is low and transportation is convenient. As a matter of fact, in order to get adapted to the ever-changing world, logistics managers are urged to increase their knowledge in terms of conceptualizing, modeling, and executing logistics initiatives that can be applied to the globe.

This chapter deals first with freight forwarding, one of the most important global strategic channel intermediary businesses. Then, the essentials of freight forwarding are discussed respectively. Finally, the chapter discusses about distribution management for freight forwarders.

2.2 Introduction to Freight Forwarding

According to BusinessDictionary, freight forwarding stands for a business specializing in arranging storage and shipping of merchandise on behalf of a client. The business includes a full range of services such as “tracking inland transportation, preparation of shipping and export documents, warehousing, booking cargo space, negotiating freight charges, freight consolidation, cargo insurance, and filling of insurance claims” (BusinessDictionary).

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The origin of freight forwarding can be traced back to the tenth century. With the establishment of public warehouses in ports, cities, and the expansion of marine trade, the industry of freight forwarding grows gradually (Li, 2006). Due to the fact that international trade develops all over the globe, the magnitude of international freight forwarding has been greater more than ever (Hoyle, 1996). International freight forwarding has thus become an independent industry, with more than a hundred years of history. Since entering the 1920s, the global collaboration has led to a greater achievement. In May 1926, Fédération Internationale des Associations de Transitaires et Assimilés (FIATA), in English “International Federation of Freight Forwarders Associations” was founded in Vienna, representing the freight forwarding industry by governmental organizations, governmental authorities, private international organizations in the field of transport including the International Chamber of Commerce (ICC), the International Air Transport Association (IATA), the International Union of Railways (UIC), the International Road Transport Union (IRU), the World Customs Organization (WCO), the World Trade Organization (WTO), etc (FIATA, 2005). FIATA has united 40,000 forwarding and logistics firms from more than 130 countries today.

Freight forwarding is now regarded as an activity or service used by companies that involved in global import and export. Freight forwarders act as intermediary between their clients and transportation services. Delivering and distributing products from one place to another involves a multitude of transportation, warehousing and legalities. A freight forwarding service helps its clients to relieve the heavy burden of logistics network. According to the contracts, freight forwarding services promise that products will be delivered to the proper destination by an agreed upon time, and in good condition. The common transportation a freight forwarder utilizes ranges from air freighters and ocean liners to rail freighters and trucking teams. Considerations have been taken to transport the products along the most cost-saving route by some or a combination of transportation approach that balances cost, speed, safety and reliability.

2.3 Essential Factors in Freight Forwarding Industry

2.3.1 Transportation Options

The application of four major transportation modes — ocean, air, rail and truck — has boomed over the past decade, and specialists indicate that the trend continues in the future. Freight traffic reached nearly 800 billion ton-km in 1996 in Europe and this number is still anticipated to grow (Burckhardt, Elhence, & Van Rooijen, 1998). Rail and truck freight forwarding, which accounts for 80 percent of all the cargo transportation, generated a large amount of revenues before 2000 (Rondinelli & Berry, 2000). However, the situation has changed. Nowadays, ocean accounts for the majority of the global activities. The application of multimodal system has also become pervasive more than ever.

Mode

Freight Value ($ billions)

Percent Change since 1993

Freight Tons (billions)

Percent Change since 1993

Freight Ton-Miles

(millions)

Percent Change since 1993

Air

777

96.7

10

45.9

15

63.2

Truck

6,660

42.2

9,197

26.4

1,449

55.5

Rail

388

39.2

1,895

19.9

1,254

29.9

Ocean

867

39.9

2,345

10.2

733

-16.9

Intermodal

1,111

67.0

213

-7.5

226

36.7

Table Transportation Facts

Adapted from Bureau of Transportation Statistics, Freight Shipments in America, 2002.

Ocean

Transport by ship is considered the most prevalent and important global transportation method, accounting for almost 70% of all international trade. The major advantages of water transportation are low costs and large capacity. However, transporting by ocean is criticized for several reasons. Generally speaking, water service takes long transit times than rail. The average speed on Mississippi water system is somewhat between five and nine miles per hour (Wilson, 2000). Apart from that, ocean also has a disadvantage of low accessibility and higher potential for cargo damage. Nowadays, with the widely use of containers, the damage rate has been reduced and the accessibility has been increased through a combination with other transportation modes such as rail and truck.

Air

Air transportation is undoubtedly the very best transportation option in terms of transit times. The short transit times had and will continue to have a dramatic influence on international trade despite the fact that the airfreight rates double those of trucking and exceed those of rail by more than 16 times (Wilson, 2000). The amazing speed of aircrafts combined with a high density of schedule flights has reduced the transit times in international trade from as many as a month down to only one or two days (Coyle, Bardi, & Langley, 2003). Airfreight has a distinguished advantage regarding loss and damage. According to a classic study conducted by Lewis, Culliton, and Steele (1956), the ratio of the claim costs to freight revenue was only around 60 percent of those for rail or truck. However, considering the high rates of airfreight, many companies only choose air to transport high-value, low-density items such as computers and electronic devices, perishable products such as cut flowers and live seafood, and time-sensitive documents.

Rail

The railway is used for moving raw materials (coal, lumber, and chemicals) and low-valued manufacture products (food, paper, and wood products). Although rail is always criticized for its long transit times, the low rates and the heavy load capacity makes rail a good choice for carrying large, heavy, or high-density products over long distances. Due to the limited accessibility, the current application of rail is mainly for inter cities. Europe is the continent in which rail transportation is widely used (FitzRoy & Smith, 1995).

Truck

According to Bureau of Transportation Statistics (2002), trucking industry occupies 64% of the U.S. commercial freight value and 58% by weight. Trucking transportation often consists of two modes — Truck Load (TL) or Less than Truck Load (LTL). Trucking is a lot more expensive than rail, but it offers shorter lead time and door-to-door shipment. Since trucking is direct arriving, it avoids transfer between pickup and delivery. TL operations are less costly. The pricing shows economies of scale with respect to the size of the trailer used. TL shipping is often applied for transportation between manufacturing plants and warehouses, or between suppliers and manufactures (Chopra & Meindl, 2010). LTL operations are relatively expensive. LTL transportation is suitable for shipments that are too large to be delivered in small packages but that composite less than half a TL.

Intermodal

Intermodal transportation is defined to use the combination of all transportation modes, including ocean, air, rail and truck, to move cargos from original point to destination. The term has been used in both passenger transportation and the freight containerization. An intermodal system involves fundamental infrastructure, cargo movement, and information drivers. According to Muller (1999), the concept that linking freight movement by means of two or more transport modes has been discussed for centuries. Now the concentration has been moved to containerization. Intermodal transportation has grown rapidly since 1980s. According to the Association of American Railroads (AAR), the rail intermodal traffic increased about three times between 1980 and 2002, from 3.1 million containers to 9.3 million. Raghunathan et al. (1988) indicates that the rapid growth of intermodal transportation is largely attributed to the reorientation toward deregulation, international trade expansion, and the pervasive application of information technology in the intermodal processes. With the constantly changing environment and demands emerging in the 21st century, the intermodal transportation will be brought into much more attention.

DeWitt and Clinger (1999) points out the four factors that will push the development and growth of intermodal transportation: (a) assessing, understanding and giving feedback to the function of intermodal transportation in the competitive marketplace and harsh customers; (b) the need to stably, constantly and flexibly react to changing customer demands with integrated and flawless collaboration of freight flows via various modes; (c) knowledge of contemporary and future intermodal options, as well as the improvement and development in information and communications and their applications; (d) better maintenance and management of existing infrastructure, and a lot more careful planning and thoughts on future investments.

Nowadays, with the choices to integrate multiple transportation modes, intermodal transportation gives an instant and flexible response in a supply chain context in the global market and distribution channels. Customers in the future will continue to urge a faster and more reliable delivery of their goods from their suppliers. Hence, transit time through the supply chain will continue to be crucial factor for intermodal transportation, meanwhile, quality and reliability are not neglectable. In generalization, the direction of intermodal transportation for the future is faster, smarter, and more profitable.

2.3.2 Warehousing

Traditionally, warehousing served as an activity to store raw materials and finished goods. Manufacturers produced products and stored inventory in warehouses later for selling. Warehousing in the new millennium has a totally new focus than in the past. Many companies set up both effective inbound and outbound inventory control, seeking for continuous competitiveness improvement. Inbound inventory control includes activities from materials arrivals to the delivery of packaged products, while outbound inventory control means the collaboration of inventory management activities between all the trading partners in the supply chain in terms of purchase and delivery issues (Wisner & Stanley, 2008).

Stockpiling, product mixing, production logistics, distribution, customer service, and transportation consolidation are the six major functions of warehousing. As a reservoir for production overflow, warehousing performs the function known as stockpiling, which includes (a) seasonal production-level demand and (b) level production-seasonal demand (Bloomberg, LeMay, & Hanna, 2002). Seasonal production-level demand is incurred by some plants such as eggplant. The demand of eggplant is quite stable throughout the year despite the fact that eggplant is a seasonal product and is harvested only once a year. Warehouses stockpile the eggplant, and wait for the demands from the customers. Level production-seasonal demand is also pervasive. Some products, for instance, sunblocking cream, are highly demanded during June to August, but have almost no demands in the remaining year. Nevertheless, the product can be produced in all twelve months and kept to supply in the peak season. The second function of warehousing is the product mixing. A product line usually contains hundreds of thousands of products. If taking all the characteristics into consideration, products can be divided into different colors, sizes, materials and other specifications. Since customers tend to make orders in a mixture, a product-mixing warehouse for multiple product lines can achieve efficient order filling-up.

Figure

Warehouses also promote production. After receiving a product, warehouses can perform final assembly or subassembly so that the product is localized for customers anywhere. Warehouses smooth the operations and distribution in the manufacturing process as well.

Last but not the least, warehouses provides several value-added services in a logistics system. Freight forwarder will be faced with either TL or LTL shipments of raw materials and finished goods. Shipping less-than-truckload goods long distance is obviously more costly than shipping goods at full truckload. Warehousing allows less-than-truckload goods to be consolidated into a large shipment which can save the transportation costs significantly by transferring the LTL parts shorter distances or establishing a warehouse (Coyle, Bardi, & Langley, 2003). For the inbound logistics of a company, the warehouse consolidates the LTL shipments to a TL, and then ships to the plant of the company. For the outbound system, the warehouse receives a consolidated shipment from multiple plants, and ships out all over the market.

Supplier 1

Volume Shipment

S

Supplier 2

Plant

Warehouse

Supplier 3

Supplier 4

Inbound Logistics System

Plant 1

Warehouse 1

Market

Volume Shipment

S

Plant 2

Warehouse 2

Plant 3

Outbound Logistics System

Figure

2.3.3 Custom Clearance

Custom Clearance

2.4 Distribution Management for Freight Forwarders

2.5 (Decision Support System)