Summary of reliable and efficient methods for selecting freight forwarders
Wherever there are people, there are rivers and lakes. The freight forwarding industry is generally an industry with overcapacity and oversupply, with a large number of people, so the river is particularly deep. Due to the fact that most domestic export goods are quoted FOB, logistics under FOB quotation are operated by foreign designated freight forwarders, so the profits of international logistics are also obtained by foreign designated freight forwarders. Occasionally, there are few inquiries for CIF or CFR, and some freight forwarders with irregular operations may fight for such business by hook or by crook.
Before domestic manufacturers formally send a Booking Form to freight forwarders, they must have a certain level of basic skills to avoid being manipulated by others.
1
Choose the most suitable freight forwarder for yourself
Ten sales calls, nine international freight forwarders. This is a social reality that I quickly realized after being promoted to department head.
Of course, this indicates the rapid development of China's foreign trade, but at the same time, it also highlights the proliferation of freight forwarding companies. The most important difference between choosing a freight forwarder and other suppliers is that the cooperating freight forwarder is usually changed frequently.
Freight forwarders, abbreviated as "freight forwarders," are divided into primary and secondary agents. The first level agent refers to the freight forwarder who picks up the container from the shipping company, while the second level agent refers to the freight forwarder who picks up the container from the first level agent. First level agents are generally larger in scale than second level agents, and those who claim to be market makers in company introductions or business negotiations are mostly first level agents. First level agents have cheaper prices and better services, but second level agents also have their own advantages in cooperation due to their flexible management.
You don't necessarily have to buy cheap and high-quality things from wholesalers. If the cargo volume is huge and can be loaded onto half a ship at once, you can bypass the freight company and directly book containers or even ships with the shipping company, and the price is certainly the cheapest. If the cargo volume is only one or two containers, it is also possible to book directly through a shipping company, but the price may be more expensive and the service may be worse than picking up the containers from a freight forwarder, similar to the retail service in a wholesale market.
When the cargo volume is only one or two containers or even loose cargo, both primary and secondary agents can be considered as potential partners for cooperation. Due to directly obtaining containers from shipping companies, first tier agents have a relatively large demand for cargo volume on a single route. Therefore, the company's business focus will be on this single route, and the price will be relatively cheap. It will also be easier to handle problems at the destination port. This is commonly referred to as the "advantageous route" in the freight forwarding industry. There are more channels for second tier agents to book containers, with flexible business models and understanding of market conditions to absorb at low prices. Therefore, there may be more routes with certain price advantages than first tier agents, but there may be no "advantageous routes".
In the case where the cargo volume is not sufficient to directly book containers with the shipping company, if your export orders are all to the same region, then a first tier agent operating this route is your best choice. It is also necessary to choose one or two secondary agents as candidate suppliers to cope with occasional orders from other regions. For manufacturers whose destination countries for orders are constantly changing, it may not be realistic to always look for a first tier agent with "advantageous routes". In this case, a second tier agent would be a better partner for cooperation. Due to the uncertain source of container booking for secondary agents, maintaining contact and inquiring with multiple secondary agents simultaneously is an effective means of reducing costs.
The core personnel in the freight forwarding industry are sales and document operation positions. Some companies may have employees take on both sales and operations roles due to their small scale or marketing reasons, which can make customers feel more responsible and considerate at the beginning. But in reality, having one person hold two positions can lead to low work efficiency and difficulty in accumulating professional knowledge for employees. When choosing, it is best to avoid companies without dual job responsibilities. In addition, under the same conditions, freight forwarders with NVOCC certification are more trustworthy.
2
Designated freight forwarder and local freight forwarder
As mentioned earlier, if the quotation method for foreign trade orders is FOB, the logistics costs and responsibilities after the goods are loaded onto the ship will be borne by the foreign merchant. Therefore, the foreign merchant will designate a freight company (Appointed Forwarder) before shipment, allowing the seller to transport the goods to the destination port through this freight company. After the seller makes a booking with the designated freight forwarder, the freight forwarder will directly confirm the shipping schedule and quotation with the foreign party, and then send the confirmed shipping order to the seller. The seller only needs to deliver the goods to the designated location and complete the customs clearance procedures before the deadline.
The local charges before boarding, including truck fees, customs clearance fees, etc., are borne by the seller, while the destination port fees such as sea freight and insurance fees after boarding are borne by the foreign party, and the import clearance work at the destination port is also borne by the foreign party.
The local fees paid to the designated freight forwarder are generally higher than the normal standard, and some sea freight surcharges may also be included as local fees to be paid by the seller. The seller can request the freight forwarder to provide a quotation confirmation before shipment. If the fees are too high or should not be paid by the seller, negotiations can be made with foreign merchants, but foreign merchants, especially those in developed countries, generally do not easily change their freight forwarders.
If the quotation method for foreign trade orders is CIF or CFR, the logistics operation costs and responsibilities before the goods arrive at the destination port are traditionally borne by the seller. The customs clearance work and costs after the goods arrive at the port are borne by the foreign party. The insurance premium is borne by the seller under CIF and by the foreign party under CFR.
The freight company responsible for this transportation is chosen by the seller themselves, and these Chinese freight companies that handle the entire logistics process are generally referred to as "local freight forwarders". Sellers can entrust the entire logistics process to a local freight forwarder, or break down the entrusted work into delivery to a trailer company, customs clearance to a customs broker, insurance to an insurance company, and ocean freight to a freight forwarder. Orders with low export volume are suitable for entrusting freight forwarders to work in a one-stop manner to improve efficiency, while orders with high export volume are suitable for decomposing entrusted work to reduce costs.
Some well-known multinational companies in the logistics industry, even whose success stories are written into the textbooks of famous business schools, appear as designated freight forwarders. You will find that they charge high fees, reply to emails slowly, cannot be reached by phone, and their service attitude may not be very good. Some foreign trade sellers may not be able to argue with them, but in most cases it is fruitless.
Due to the fact that the marketing and project work for logistics orders of these multinational corporations are all completed in the countries where the foreign companies are located, the offices set up in China (or only designated freight forwarding departments) are likely to only serve as liaison roles and do not create profits. Therefore, their staff not only have severely overloaded work and low income, but their performance is also likely not linked to services in mainland China. The staff of these multinational companies must have received good education and outstanding abilities, and their job performance is not a matter of their quality, but rather a division of labor design problem caused by foreign trade practices. Foreign trade personnel should not treat themselves as customers when dealing with FOB designated freight forwarders.
3
Identify the freight forwarder's quotation
The following is a typical ocean freight quote from Shenzhen to Tokyo Port in Japan provided by an in-house freight forwarder (the amount used does not represent the market trend):
OOLLSK: 2/3 4 days to arrive, USD200/330 + THC + DOC
After receiving the inquiry, the freight forwarder's response should include at least five basic information: shipping company, port of departure, shipping schedule, ocean freight and surcharges. In the quotation of this example, OOLL is the name of the shipping company (the author's virtual shipping company name); SK is the abbreviation for Shekou, which means the port of departure is Shekou Port in Shenzhen; 2/3 means that the ship will close on Tuesday and depart on Wednesday, with a shipping time of 4 days, arriving at Tokyo Port on Sunday; The sea freight for a 20 foot container is $200, while the sea freight for a 40 foot regular container or 40 foot high container (HQ) is $330; Additional fees include Terminal Operating Charges (THC) and Document Fees (DOC). Surcharge usually does not specify the specific amount, as each company charges a standard fee, unlike ocean freight salespeople who have the freedom to adjust the quotation (so ocean freight bargaining is necessary). Different freight companies may have slightly different pricing methods, but their interpretation of the content is the same.
In fact, in addition to the five basic information mentioned above, there are also some information in the quotation process that the seller must know but the freight forwarder will not actively report in most cases, including additional fees that the destination port customer needs to bear and the exchange rate denominated in US dollars at the time of payment. The following will be introduced in two paragraphs.
Each sea freight container requires a significant additional fee, which is either paid by the seller at the port of departure or by the buyer at the destination port. For example, from Shenzhen to Tokyo Port in Japan, in addition to THC and DOC mentioned in the above quotation, there are additional fees such as BAF (Fuel Adjustment Surcharge), YAS (Japanese Yen Appreciation Surcharge), and EBS (Emergency Fuel Surcharge). If the freight forwarder does not list the additional fees, his meaning is that these additional fees will be charged to customers at the destination port. Except for common surcharges such as ORC (fees for receiving goods from the place of origin, commonly found in ocean ports), THC (fees for near ocean ports), and DOC, there is no universal consensus that most surcharges are paid by the seller or buyer.
Therefore, the current industry practice is that designated freight forwarders will push these fees to Chinese sellers as much as possible, while local freight forwarders will default to leaving these fees for foreign merchants to pay. In the quotation to Tokyo Port in Japan, some honest local freight forwarders may quote BAF for the seller to pay, which may make the seller feel that the cost is high.
In most cases, domestic companies will pay in Chinese yuan for fees denominated in US dollars. Freight forwarders or shipping companies will provide an exchange rate for companies to refer to for payment. Most freight forwarders quote exchange rates much higher than the current US dollar buying rate. For example, on September 9, 2013, the US dollar buying rate was around 6.10, and the freight forwarder may require you to pay at 6.40. When calculating the shipping cost, the seller must first convert the US dollars to Chinese yuan before calculating. For example, if the freight forwarder quotes a shipping fee of 330 US dollars, the actual cost in US dollars on the same day is USD330 × 6.4 ÷ 6.1=USD346.23, which means that the customer needs to pay USD346.23 for the goods in order to pay the freight forwarder's USD330 fee.
