International freight forwarding involves shipping product/equipment/material (cargo) from a country of manufacturing (or consolidation) to a country of final destination. A freight forwarder is appointed to handle the cargo, to ensure that this cargo is delivered safely and within the required time. International freight forwarding requires a great degree of coordination, be it documentation, cross-dock management and carrier requirements, to ensure that cargo is delivered as required. Generally, a fully integrated freight forwarder would be able to find the best and most cost-efficient way to deliver the cargo, given the type of cargo, budget and timing requirements. Although not always the case, but a good freight forwarder should be able to guarantee the delivery date and commit to it.
Freight forwarders could be divided into global, regional and boutique. While global freight forwarders would be able to achieve higher economies of scale, hence provide better rates, regional and boutique companies are highly specialized in a particular segment and/or destination. The key areas to look into when selecting the freight forwarder are:
- Agents networks and partners in the countries of shipment
- Expertise in the industry and/or the cargo being shipped
Oil and gas industry is known to have a large number of so-called “project cargo”, which, in many cases, is oversized equipment and requires special handling.
There are different types of freight forwarding and a combination of at least two (multimodal) may exist as well:
Air freight - this is the most expensive and fastest way to ship the cargo (size is a limit). Dedicated freighter / cargo planes are used, as well as normal passenger aircrafts, to ship smaller and non-dangerous cargo, or airmail (up to 30kg). Air cargo accounts to around 35% of worldwide shipment trade, but less than 1% by volume of freight. According to Boeing, between 55% and 60% of worldwide air shipments are done using freighter / cargo planes, with the rest done by passenger planes. However, the share of so called “belly cargo” (using passenger aircrafts) have been growing significantly over the last several years, challenging the position of the freighter segment. Freighter segment is also divided into scheduled and charter flights. Scheduled freight accounts for almost 90%, while the unscheduled (charter) is around 10% of the world air cargo traffic. According to Boeing, world air cargo exhibited a slowdown over the last 10 years (annual growth of 2.6% vs. 6.3%). The highest growing regions are the airlines in the Asia-Pacific and Middle East, together accounting for circa 40% of global market share ( source: IATA).
Ocean / Sea - in most of the cases this is the cheapest transportation mode and sometimes the only available, when shipping bulk, large cargo or as a result of geographic constraints. Ocean freight is the largest by size and accounts for around 85% of the global freight by volume. In general, ocean freight could be divided into:
- Full Container Load (FCL) - various types of containers, such as 20ft, 40ft and 40HC (high cube) are used to ship the cargo. Those listed, are the most common types and sizes, with occasional utilization of 45HC, open top, tunnel containers, flat-racks containers and ISO containers. FCL is used when there is enough cargo to load one container in full.
- Less Than Container Load (LCL) - used when the cargo is not enough to load one container. When LCL is used, rates are calculated based on volume of the cargo shipped. Due to a number of logistical issues, sometimes shipping FCL with space left in it is a more economical solution than LCL.
- Non-containerized - used when the cargo cannot be fitted into a container due to weight or dimension. This, so called out-of-gage cargo, can include generators, turbines, pressure vessels, separation columns, pipes and alike. Generally, freight solutions are designed and tailor-made to the requirement and involve a huge amount of planning and coordination. Vessels used in non-containerized shipments are Barges, Coasters, and RO/RO (roll-on-roll-off) vessels.
- Bulk carriers - special type of vessels are used in order carry bulk products and cargo. Bulk carriers could be of different type and size, capable to transport break-bulk, dry and liquid bulk.
Road transport - as the name suggests, during the road freight, the cargo is shipped by road using various types of vehicles. The list of vehicles utilized in the road freight is very extensive and includes at least 10 different types of vehicles and loaders, depending on the size and dimensions of the cargo. Road transport accounts for around 10% of the global freight by volume.
Rail transport - due to the requirements of railroad systems, this shipment method is either used in certain geographic locations, or as part of the multimodal international transportation. Rail transport accounts for around 6% of the global freight by volume. Rail freight is the cheapest option, but most of the time - the longest. There are number of challenges associated with rail shipments, such as container platforms, container return, track gauge difference and time it takes to build a full-load rail carriage.
Responsibilities -International Freight forwarding is a large effort to coordinate a number of parties. Below is the summary of who is involved and their responsibilities and liabilities.
- Shipper (Seller) is an entity selling the goods / products.
- Transporter is the party who would collect the cargo and deliver it to the carrier.
- Freight Forwarder is a party organizing and managing the complete shipping process. In many cases, freight forwarder will assume legal liability acting as a carrier. The freight forwarder acts as a single point of contact for its clients.
- Carrier is the company that does the physical transportation of the cargo. Carriers could be road, sea, air and rail.
- Shipping Line is an entity that owns / sells shipping space, manages the cargo on the vessel (leased or owned), discharges cargo at the destination point and issues the Bill of Lading. Shipping line does not necessary own a vessel; it may be hired to operate the vessel and act as an agent to sell shipping space.
- Consignee is the entity to whom the shipment is consigned and in most of the cases the party who bought the goods / products.
- Notify Party is the entity that must be notified when the cargo arrives at the point of final destination.
Liabilities & Insurance
- Cargo Insurance - covers any damage or loss of goods during transportation, be it by sea, land, air or rail. This type of insurance is generally procured by the buyer or the seller of the goods and never by the freight forwarder, unless specifically requested. The cost of this insurance and compensation event depends on the value of the cargo, route and the mode of shipment. Most cargo insurance cover the value of the consignment, freight cost and additional 10% retention. Many companies have a global coverage in place to insure all planned and potential shipments, with deductible amount per claim agreed in advance. Duplication of coverage may exist, when a business unit within the larger organization is not aware of this coverage, or when the coverage is requested from the supplier of products shipped.
- Liabilities - In the event the insurance coverage is not in place, there are a number of insurances freight forwarders and carriers would have in place, to cover limited liability for goods lost, damaged or delayed. Liabilities of freight forwarders vary from country to country. Yet, in most of the regions, the freight forwarder is required by law to insure its business activities. Generally, under the limited liability, both the freight forwarder and the carrier are liable to a maximum of certain SDR/kg. SDR stands for Special Drawing Rights and is created by International Monetary Fund (IMF) and consists of a basket of 4 currencies (US Dollar, British Pound, Euro and Yen). The insurance requirements and liability provisions and limits are governed by international conventions, treaties and national associations' standards, such as BIFA (UK), NCFA (USA), NAFL (UAE) and many more. Very often, the client insists on using its standard terms and conditions, which in most of the cases do not match to carriers' or forwarders' terms, in which case both carriers or forwarders have to procure a higher cost insurance to satisfy this requirement and pass on this cost to its clients.
The Incoterms rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC). They are widely used in International supply chain and procurement. Latest incoterms were published in 2020. Below is the summary and responsibility matrix.
CMR - For road transport, Convention Merchandise Routier (CMR) is a non-negotiable contract document used to ship cargo by road. CMR is generally prepared by the carrier, but signed by the shipper
AWB - Air Waybill (AWB) is a non-negotiable contract between the shipper and the airline, transporting the cargo from the airport of departure to the airport of destination. AWB is prepared by the airline or by a transport agent approved by IATA.
B/L - A Bill of Lading ( B/L) is a document confirming the receipt of cargo by the carrier and a written contract for delivery from the port of loading to the destination port. B/L is generally prepared and issued by the agent of the carrier / shipping line and signed by the captain of the vessel or the agent.
RWB - Rail WayBill (RWB) is a negotiable transport document covering transportation of cargo by rail from the station of loading to the station of final destination.
Multimodal Bill of Lading is a non-negotiable transport document covering transportation of cargo by more than one mode of transport. Freight forwarders who are part of the FIATA (International Federation of Freight Forwarders Associations) are allowed to issue this document. .
Commercial invoice - Commercial Invoice is a document that shows the description of goods sold, value and delivery terms. All import duties, insurance and taxes are paid / calculated based on the amount declared in the commercial invoice. The document is prepared by the seller / exporter.
Packing list - Packing list is a document that described the goods sold, its weight, dimensions and packaging details. The document is prepared by the seller / exporter.
Delivery note - is a document evidencing delivery of goods, its description and quantity, and signed by the consignee upon delivery.
COO Certificate of Origin (COO) is a signed document, generally issued by the chamber of commerce in the country where the goods were produced, to show its origin.
Cargo insurance certificate indicates the type of insurance for a particular shipment.
DG Declaration - Shipper dangerous goods declaration is a document used in air transportation, signed by a person who is licensed / accredited by IATA to check and inspect the cargo and certify that it was packed, marked and declared according to IATA dangerous good regulations
DGN Dangerous good note (DGN) is a document used in sea / ocean transportation signed by a person who is licensed / accredited by IMO (International Maritime Organization) to check and inspect the cargo and certifies that it was packed, marked and declared according to IMO regulations carriage by sea. The document also declares type danger of the cargo. .
Container types (Source: EPL Shipping)
Although sounds simple, packaging can play a very important role in safe transportation of goods and may have a significant cost impact on total shipment cost. Too light, the goods may get damaged, too heavy, unnecessary high shipping cost because of weight. Although, the supplier / seller of the goods is in the best position to pack the cargo in most of the cases, it might not always be the best option for the owner of the cargo.
A good freight forwarder would be able to advise the best packaging option, depending on the nature of goods and urgency of shipment. E.g. packaging used for local / domestic shipments will be lighter because of no transshipments. Whereas, with international freight and many loading and unloading operations, the risk of damage is significantly higher, even inside a shipping container. In addition, the ambient temperature and humidity during international transit may cause damage to goods, if proper packaging was not used. Packing goods for export requires specialist knowledge and is a service that the freight forwarder can offer.
In some countries, wood used in packaging and inside the container to secure the cargo, is subject to phytosanitary check and a fumigation certificate must be provided with the shipment. In many cases, the shipment / container can be delayed or returned if such document is not available.
Challenges in Freight Forwarding
- Pipe Handling
- Manufacturer specific pipe handling procedures
- Loading at the site of origin
- Pipe-hooks and slings usage
- Coated vs. bare pipe, End-capped vs. open-ends
- Special and / or hazardous items
- Shortage of special container types
- Carrier may not accept out-of-gauge cargo for container shipment
- High freight rates
- Delays in getting the correct documents ( drawing and dimensions)
- Correct packaging for hazardous materials, in compliance with IATA and IMO
- Segregation of hazardous materials on board the vessel / aircraft, based on classification
- Shipping slots
- Seasonal variation in rates