What is Freight Forwarding? [Simply Explained]

Facilitating the transport of goods internationally or domestically has never been easier thanks to the development of freight forwarding services. 

But what is freight forwarding? Well, in simple terms freight forwarding is a service that coordinates the complex steps required to move goods from point A to point B by leveraging third-party transportation carriers.

Whether you are expanding your business with export/import needs or setting up a new logistics business, having a brief idea of freight forwarding will be beneficial. Let’s explore!

Introduction to Freight Forwarding

Let’s say you have an international customer order for your products. You will need to find a reliable and cost-effective way to deliver the goods to your customers overseas.

Unfortunately, this process is not as easy and affordable as you would think given the need to coordinate with multiple carriers locally and abroad, handle customs clearance, arrange payment of duties and ensure compliance with trade regulations. And that’s why freight forwarding comes in, allowing you to deliver products safely, quickly and cost-effectively.

Companies that offer freight forwarding services are known as freight forwarders. Freight forwarders assist their customers (also called “shippers”) in the delivery of goods to the receivers (also called “consignees”). In other words, freight forwarders are intermediaries between shippers and transportation companies (also called “carriers”). They are the architects of supply chain solutions, the problem-solvers who design tailored strategies to optimize the movement of goods.

According to Wikipedia, the first freight forwarding company was established in 1835 in London, United Kingdom. And since then, you have seen many freight forwarding companies established worldwide, reaching a global market size of US$192.5b in 2021.

What do Freight Forwarders do?

1. Get Licensed

Freight forwarders typically need to get the necessary licensing from their local authorities to get started due to local customs clearance requirements.

For instance, forwarders in Singapore are required to be registered with the Singapore Customs and obtain permits from the Maritime and Port Authority of Singapore (for ocean freight), Civil Aviation Authority of Singapore (for air freight) and Land Transport Authority (for land freight).

2. Build Network of Carriers

Freight forwarders diligently seek out the best carrier options tailored to each specific product and destination. They often need to navigate a diverse landscape of transport modes such as air freight, ocean freight and land freight (trucking or railroad).

Here lies the essence of freight forwarding—it’s not about owning the transportation assets itself. Freight forwarders, unlike transportation companies (airlines, shipping lines and trucking companies etc), do not possess an extensive fleet of transport vehicles at their command.

While they may own a truck or two to facilitate local transfers between shippers and warehouses, their true magic lies in their ability to collaborate with an extensive network of transportation carriers across modes.

Picture a freight forwarder as the master orchestrator, seamlessly coordinating with multiple carriers to transport goods from origin to destination.

If you are still unclear, check this short video to understand how a freight forwarder is different from a shipping company: https://youtu.be/zCtPnYkwEEY

3. Prepare Shipping Documents

Upon confirmation of shipping instructions from their customers, freight forwarders must navigate the treacherous waters of customs regulations and ensure compliance, sparing their customers the overwhelming burden of paper processes.

They are the maestros of international shipping, handling the complex documentation required, including airway bills (for air freight), bills of lading (for ocean freight), customs declarations, insurance forms and many others.

4. Consolidation at Origin

At the beginning of every shipment, the freight forwarder receives goods from shippers and stores them in warehouses while they organize the next phase of the transportation.

This process of moving goods from the shipper’s location to the freight forwarder’s warehouse is also known as export haulage.

For smaller shipment volumes, the forwarder also plays the role of a consolidator by combining multiple shipments into a larger shipment for economies of scale.

5. Transportation

In this part of the process, freight forwarders negotiate contracts with carriers, leveraging their vast networks to secure the most efficient and cost-effective shipping options.

From selecting the optimal transportation modes—be it ocean freight, air cargo, or land transport—to optimizing routes and coordinating warehousing and distribution, they weave together a tapestry of efficiency and reliability.

6. Deconsolidation and Distribution at Destination

At the destination port, the freight forwarder may have to break down the consolidated shipment (otherwise known as “break bulk”). The goods are unloaded, sorted and repackaged for onward distribution to the consignees.

Value-Add of Freight Forwarders

Freight forwarders add value to shippers in many ways:

  1. Access new markets: as you can tell from above, coordinating logistics movement across borders and transportation modes is a highly complicated process. Freight forwarders hold the key to unlocking the doors of international logistics by helping you to navigate the complexity.
  2. Optimize costs: by aggregating volumes across multiple shippers, freight forwarders can extract lower shipping rates from the transportation providers than an individual small shipper. They can manage a large group of carriers by leveraging technology such as freight rate management systems.
  3. Improve utilization: for small shippers with less than container load shipment, freight forwarders can consolidate volumes to maximize cargo space.
  4. Obtain real-time visibility: Freight forwarding embraces the wonders of logistics tracking software, conjuring up a world of real-time visibility and tracking. Advanced systems such as cargo tracking software allow businesses to monitor their shipments as they traverse the globe. Therefore, it empowers shippers to make informed decisions, anticipate delays, and delight customers with accurate updates.

Final Thoughts

The beauty of freight forwarding lies in its ability to unlock opportunities and open doors to untapped markets across transportation modes. It tears down barriers, enabling small enterprises to expand their horizons abroad, and empowering multinational corporations to optimize their logistics processes.

If you’re a small business expanding your business horizons overseas or a seasoned multinational seeking 3rd party logistics options, freight forwarding could be the answer to your needs. Just make sure that your freight forwarder is supported by best-in-class freight forwarding software.

If you’re a freight forwarder, experience the transformative power of technology for yourself. Book a free demo today with One Logis, and witness firsthand how our freight management software can streamline your operations, enhance your efficiency, and open the doors to unparalleled success.

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