News & Press

July 17th 2024

Rogers & Brown

Written By: Wallace Hester, Director of Sales at Rogers & Brown

Our previous articles associated with freight forwarding have described the various functions that go into forwarding, reviewed the general pricing structure for those functions/services, and discussed how forwarding services can also include not just transportation arrangement (“forwarding”) but the actual transportation. This article by no means covers the full scope of transportation as related to forwarding activities; rather, this article is meant to summarize the concept of transportation as a component of forwarding services.

Transportation and Freight Forwarding

It is interesting to consider the key component of transportation being lumped into freight forwarding, given that transportation, as a function of cost, time, and perception, is really the larger of the two in almost all instances. And to be clear, transportation does not have to be included in freight forwarding services. Often and most typically with larger shippers/importers, transportation is excluded from the forwarding services; that is, the buyer/seller or shipper/importer handles the transportation internally. Many reasons may drive this, including size, buying power, Incoterms, freight properties, or a company may have its own equipment.

When it does not make as much sense for the shipper/importer to procure their own transportation, then having the freight forwarder fulfill this function is the best option. These transportation functions are usually brokered solutions and can only be provided by a licensed forwarder (NVOCC, IAC, FMCSA, etc. – See previous article (“Freight Forwarding: An Indispensable Link in Transportation”). The natural next question is: How Much Will it Cost?

If a company is required to provide transportation services to execute an international sale/transaction (hint: know your Incoterms), understanding transportation costs quickly becomes essential to the overall profitability of that transaction. Transportation can get complicated and complex very quickly, as every shipment can be different. The following should indicate what affects transportation costs, whether provided by/through a freight forwarder or by a transportation-provider directly. Here are the primary elements that will drive the costing structure for transportation services:

The Different Elements of Transportation:

Incoterms
What do I have to pay for? Incoterms should be negotiated in any contract/purchase order agreement dictating which party is responsible for which elements of an international freight shipment or transaction (e.g., which legs of transportation is my organization responsible for?).

Mode of Transport / Time Sensitivity
The cost is usually dictated by delivery requirements, and the faster the service, the greater the cost. That is, airfreight costs more than ocean freight, and trucking costs more than rail. One must also consider the best mode based on size, weight, time sensitivity, and other freight characteristics.

Freight Particulars
The cost will largely be based on the size of the consignment. Pieces, weight, dimensions, and packaging are the key elements, along with additional elements for specialized freight, such as hazardous materials details or temperature control requirements, etc.

Equipment Requirements
If ocean freight requires its own container, what size of container? If not, freight can be consolidated with other freight. International truck shipments are similar in that they can move as full-truckloads or less-than-truckloads (consolidated with other freight). Some products require special equipment. For example, bulk liquids can move in large portable tanks, and perishable goods may require refrigerated containers.

Freight Lanes
Understanding the nature of transportation necessary to meet delivery requirements, i.e., difficulty to reach, risk (insurance required?), service offerings available, carrier capabilities, as well as shipper and receiver capabilities for loading and unloading, respectively.

Further, there are many different scenarios in international freight movements, so for ease of explanation, we will consider the three primary legs of most transports (understanding a transport can oftentimes have more than three primary legs). Control and responsibility of a transport are typically broken up by the individual legs for clarity in deciphering the transfer of risk, responsibility, and cost. For the vast majority of international transports, these are the primary three legs:

Leg 1: Movement of goods from origin Door to origin port (Precarriage or Pick-Up)
Leg 2: Movement of goods from Port-to-port (main leg, line-haul)
Leg 3: Movement of goods from Port-to-door (Oncarriage or Delivery)

Alright, clear as mud, right? Well, that is because international transportation is usually not straightforward. Many elements and other factors can complicate transportation and create a situation that is not always super clear. However, having a core understanding of transportation elements and what drives their cost can assist a buyer or seller in best determining and controlling overall costs for their international logistics/supply chain. Further understanding these elements can also allow an importer or exporter to quantify value in utilizing a forwarder to provide transportation services rather than managing directly. With clarity in the water, one has better visibility and can control costs and freight. More often than not, procuring transportation through a freight forwarder enhances the overall value of the services provided.