It’s been a big couple of years for shipping and logistics, as they’ve moved from being a niche topic to a phrase on everyone’s lips.
The explosive growth in ecommerce has coincided with natural disasters, conflicts, and a certain pandemic that restricted the flow of goods across borders. Then came the human resources shortages, alongside the introduction of new regulations, customs, and taxes. (Hello, Brexit!) For ecommerce merchants, shipping, selling, and sourcing internationally has only become more complex in the past two years.
While doable, the process of importing on your own products requires infrastructure, resources, and the ability to navigate logistics processes. But you don’t have to go it alone.
“It’s a misconception that ecommerce companies need to have fairly deep knowledge of international regulations and the process of shipping internationally to be successful with international sourcing,” says Cory Sanderson, Director of Client Solutions at Flexport, a full-service freight forwarding and customs brokerage company.
Enlisting the help of a freight forwarder is the answer. These supply-chain crisis-fighting superheroes (or at least that’s how we like to think of them) not only take the process out of your hands, but help to move your goods more efficiently and cost effectively across borders.
Here’s how freight forwarders work—and how you can get the most out of a partnership with one.
Table of contents
- What is freight forwarding?
- What’s the difference between freight and logistics?
- What is a freight forwarding company? What are freight forwarding services?
- What are the benefits of working with a freight forwarding service?
- How to determine if you need to work with a freight forwarding service
- Global freight stats and market trends in 2022 and beyond
- Freight forwarding FAQ
What is freight forwarding?
At its most basic level, freight forwarding is the process of coordinating the move of raw or completed goods across international borders.
“Ecommerce companies that source [supplies or products] from overseas work with freight forwarders in deeply integrated ways to coordinate production and shipment of their products from a factory abroad to the markets they sell to,” says Cory.
What’s the difference between freight and logistics?
While freight and logistics have similarities, they’re not synonymous:
Prior to the ecommerce boom, logistics mainly meant moving orders from factories or warehouses to bricks-and-mortar stores. This process has become increasingly more complicated over time, with logistics companies now shipping individual orders directly to customers using their own fleet of trucks, ships, or planes.
Then there are third-party logistics (3PLs) companies, which manage warehouse spaces on behalf of merchants, in addition to shipping their goods and managing their returns. Logistics companies operate in both the domestic and international space, and may or may not help ecommerce merchants navigate cross-border customs processes.
A freight forwarder, on the other hand, is less likely to have its own assets such as trucks or boats and doesn’t carry out shipments. Instead, they work directly with a range of logistics companies to negotiate and find the best shipping routes and costs for their customers.
Most importantly, freight forwarders also handle all the paperwork related to international shipping, helping ecommerce merchants navigate the confusing world of customs and export declarations.
“When someone ships a box with UPS or FedEx, they’re used to it arriving in five to seven days. However, freight networks require longer transit times and much longer lead times from order to delivery,” says Cory.
That’s not to say ecommerce merchants need to be shipping an entire container’s worth of goods to use the services of a freight forwarder: “I recently had the benefit of watching a friend's company grow with Flexport from their first shipment that was only a couple pallets in size to them receiving their first full container of product,” says Cory.
Finally, it’s worth noting that many freight carriers don’t work directly with shippers—they only work with freight forwarders, who are specialist intermediaries.
What is a freight forwarding company? What are freight forwarding services?
Experts in cross-border shipping, freight forwarding companies, specialize in helping ecommerce merchants reach international markets through both sourcing and shipping goods outside their home countries.
“An ecommerce company can essentially outsource all of the heavy lifting to a freight forwarder and have access to a network of compliance experts and a full team that will help them make sure that they are moving their shipments via the optimal routings for their requirements, whether prioritizing cost, speed, or other factors, and in a fully compliant way with the governing laws in each jurisdiction that they pass through,” says Cory.
It’s the responsibility of the freight forwarder to work closely with their partners—including carriers that offer ocean, rail, road, and air freight—to negotiate the best possible prices for merchants. Freight forwarders also help to determine the best possible routes, even designing charter routes to optimize speed, cost, and reliability. The goods that they ship may be raw materials to factories, finished goods to warehouses around the world, and even post-consumer shipments for recycling and disposal.
In addition to working with carriers, freight forwarders act as a liaison between suppliers and manufacturers to help manage the customs process.
How does the freight forwarding process work?
Cory gives the example of one of Flexport’s US-based customers, a company that makes reusable stainless steel products. Its products are sourced from a factory in Dongguan, China, which then need to be shipped to its main shipping warehouse in the US and to distributors in Europe. It uses Flexport as its freight forwarder in this process.
Here’s how it works:
- The company builds out its sales and operations planning forecast. It converts this information into purchase orders for individual product SKUs, including information like the type and quantity of each product, the target “cargo ready date” and other parameters that will help the factory plan production and shipping
- As the products are completed and prepared for shipment, the factory books shipments against the PO in Flexport’s system.
- The company provides documents to Flexport, including commercial invoices for customs clearance for Chinese export and US import, and anything else that is required by the exporting or importing countries and/or the ocean or air carrier that will be handling the shipment.
- Using a local in-country team or partner (typically referred to as an “agent”) Flexport works with the company’s factory in China to coordinate pickup, work through export questions and handle hand-off to sea or air terminals, and the full process of tendering a shipment to an air or ocean carrier.
- Once the shipment is in transit, Flexport keeps track of it with the carrier and provides the company with updates or “exceptions” if something (such as a storm) causes a delay. Freight forwarders aren’t responsible for delays—but it will try to resolve them.
- When the shipment arrives at its destination, it’s unloaded, before being inspected and validated against the booking documents. The customs paperwork for the cargo is also checked by the authorities.
- Flexport handles all of the arrangements with the sea or air terminal to get the shipment picked up. This may include providing trucking services to get it to the delivery location requested by the ecommerce merchant. For the company, this would be its main warehouse in the US or distribution centers in Europe.
- If necessary, the company can work with the Flexport’s “destination” team to coordinate any issues that arise, receive updates on delivery timing, and even make changes. (For example, between the time an ocean shipment departs and when it arrives on the other side of the Pacific, plans may have changed for the inventory and it may be advantageous to split a container's worth of inventory and send it to two different locations.) If necessary, Flexport can even handle tasks like labeling or other prep if it's going into a distribution center that has complex inbound requirements, like Amazon.
The process may sound relatively straightforward, but Cory says that he finds many newer ecommerce companies underestimate how many parties touch a shipment over the course of an international move—which is why the expertise of freight forwarders is invaluable.
“For even a simple shipment of 10 cartons of product shipped via air, the cartons will be picked up by a trucker in the origin country, taken to a container freight station (CFS), where they will be prepped for build-up, then taken to an air terminal, which loads them onto that flight. At the conclusion of that flight, the entire process is reversed,” he says. “It’s a trip in which many hands, forklifts, and pallet jacks will likely handle the cargo.”
How do freight forwarders communicate with ecommerce merchants?
While the freight forwarding business has grown exponentially in size alongside the growth in ecommerce, the industry still lags in other areas.
“In the freight forwarding world, it’s only been 10 to 15 years since many forwarders left the fax era,” says Cory.
He notes that some freight forwarders rely on email to submit booking documents, which can make it easy to lose track of details. “Email chains can stretch into the dozens, there may be issues with keeping track of documents and general challenges with coordinating shipments,” he says.
Cory suggests working with a freight forwarding company that has an online booking system, which allows merchants to take advantage of the forwarder’s PO management tool.
“The ecommerce company can upload the PO details into the forwarder’s system. This gives the forwarder visibility into the plan, the project cargo ready dates, and the urgency of the shipments,” says Cory.
The good news is that digital management systems will become the norm as the global digital freight forwarding market expands. Currently valued at over $2.92 billion, it’s projected to reach $22.92 billion by 2030.
How does pricing work?
Calculating freight forwarding costs isn’t straightforward. It depends on a number of factors, including the physical size, dimensions or weight of your shipment, the contents of the shipment, the origin country, the destination, and whether you’re shipping the goods by land, sea, or air.
Fees may include:
- Carrier costs. Although this may be lumped into one line item as a flat fee, it accounts for airline security charges, fuel surcharges, and cargo screening fees. It is also known as the air freight or ocean freight forwarder price. Container costs. If you’re shipping by sea, you’ll either be charged for a full container load (FCL) or a less than container load (LCL). If you’re shipping LCL, you’ll be sharing goods with other shipments, and there may be a cost associated with separating those shipments at the destination. If shipping by air, expect to be charged for a pallet or a container.
- Freight forwarder handling fee. This covers the costs associated with paperwork and documentation, such as preparing bill of lading.
- Insurance. Carriers are legally obligated to have insurance, but you may want to purchase additional insurance to protect your shipment.
- AES fee. This is specific to imports to the United States. It covers the cost of freight forwarders filing electronic export information (EEI) to the automated export system (AES).
- TSA security charge. Another fee specific to US importers, this is charged by freight forwarders to offset the costs of adhering to strict TSA regulations.
- Fees for specialist goods or specific destinations. These may include export license fees (for goods that are deemed controlled exports, such as those that could be used or modified for military use), certificates of origin fees, hazardous materials fees, or legalization fees (a process forwarders go through—primarily in the Middle East—to send documents to a consulate or embassy).
Some freight forwarders, such as Flexport, are redefining how these fees are charged, by introducing simplified, inclusive pricing schemes.
What are the different types of freight forwarding services?
- Ground freight
- Rail freight
- Sea freight
- Air freight
What are the benefits of working with a freight forwarding service?
Freight forwarders can negotiate lower shipping rates
Unless you’re tendering hundreds of shipments a year, you’re unlikely to be in a strong position to bargain directly with carriers. In contrast, freight forwarders have the volume to negotiate—savings that they can then pass along to you, the shipper.
Since they’re working with multiple ecommerce merchants, they can also help to consolidate freight, so that all the companies involved receive a better rate.
Freight forwarders can help resolve supply chain snags
However, working with multiple carriers gives freight forwarders the ability to look into different transportation models and routes for both everyday deliveries and those being sent in times of strife. When capacity is tight, preference is typically given to high-volume customers, which includes freight forwarders and their clients.
(Note: Freight forwarders can help solve supply chain “snags” and not the supply chain “crisis.” They’re skilled at what they do, but sadly not that powerful!)
You’ll only need to manage one relationship
It takes time and resources to manage multiple and sometimes disjointed relationships with shipping companies, from airlines to trucking companies, to customs brokers and insurance agents. Freight forwarders are a one-stop-shop that takes care of everything.
It may help you save time—and lower your operating costs
International shipping is complex—and freight forwarders are specialists. By delegating the task to the experts, you’ll save time, money, and, most likely, headaches.
Cory says that when the reusable stainless steel seller mentioned earlier began working with Flexport, it was equipped with a dedicated team that would handle their shipments.
“The emails they received regarding shipments were nearly eliminated. They gained real-time visibility into their shipments via digital methods and a team that felt like an extension of their own,” says Cory. “[The company's] Director of Operations told us, as have many clients, that the combination of our people and our technology has enabled them to avoid hiring some additional headcount in their logistics function.”
How to determine if you need to work with a freight forwarding service
If you already ship internationally or are thinking about scaling to enter international markets, then it’s time to consider a freight forwarder’s services. Some freight forwarders may require that companies hit a particular threshold of ocean or air shipments, while others—including Flexport—will work with companies of any size.
Global freight stats and market trends in 2022 and beyond
As it stands, the world is still in the throes of post-pandemic disruption, with supply chains struggling to recover. As a result, shipping and logistic costs are expected to continue to rise moderately through 2022.
The good news, says Cory, is the demand for bulky goods that take up space in containers—such as furniture and appliances—is beginning to slow. This coincides with shipping routes returning: airlines are restarting passenger flights and the re-sorting of container ships across international trade routes is underway.
“For complex and somewhat esoteric reasons, we're likely to see elevated price levels remain the norm for another one to two years on ocean freight,” says Cory. He predicts that air freight will return to “normal” levels soon, particularly once Asian countries reopen, as more cargo moves on passenger airlines (in addition to dedicated freight planes).
What is not yet known, he says, is how soon the United States and European economies will fully return to pre-COVID spending patterns, and what the US government will do to rein in inflation.
“If we were to tilt into a recession and consumer confidence takes a strong hit, we could see demand slide fairly quickly and freight prices slide along with it,” he says.
“Ecommerce companies should continue to plan on long lead times through at least the end of 2022, as we are likely to continue to see very busy ports and an overall supply chain system that is still struggling to clear the backlog that formed in 2021. Finally, geopolitical factors like the war in Ukraine (and its impact on flight patterns, energy markets, and consumer confidence) and COVID policies that involve significant impacts and shutdown, as we’ve seen recently in Shanghai, China, will continue to have significant, though largely unpredictable, impacts on the supply chain and freight forwarding world of 2022 to 2023.”
For regular market updates, visit Flexport’s website.
Freight Forwarding FAQ
What is the difference between logistics and freight forwarding?
Logistics companies ship orders using their own fleet of trucks, ships, or planes. Freight forwarders work with carriers to negotiate the best shipping rates and routes for their clients, such as ecommerce merchants, as well as aid in the customs and paperwork necessary to import and export goods.
Why is a freight forwarder important?
Many carriers do not work directly with shippers and instead work exclusively with freight forwarders. For ecommerce merchants, freight forwarders make the process of importing and exporting less expensive, complex, and time consuming. They can also negotiate better shipping routes and rates for their clients.
What is the difference between a freight forwarder and a 3PL?
A freight forwarder helps to move supplies or products across international borders. A 3PL is a third-party logistics company that helps with warehousing and shipping of goods directly to consumers.