What is Freight Forwarding? Definition, Benefits & Risks

Exporting goods overseas is time-consuming and complicated.

One wrong decision and freight costs can skyrocket, greatly impacting your profit margins.

If you’re sending goods internationally, third-party freight forwarding services offer a frictionless solution. Here we explore what freight forwarders do, the benefits and risks of working with one, and how the freight forwarding process works.

Let’s dive in.

What is freight forwarding?

Freight forwarding is the facilitation of safe, cost-effective shipping of goods from one destination to another. This service usually includes negotiating prices, storing goods ready for transport, enabling the transport of goods, and dealing with the customs process.

Freight forwarders are not the same as carriers or 3PL providers as they only manage a portion of the order fulfilment process. Think of a freight forwarder as a broker with benefits: charged with the management of the shipment process, controlling costs, and improving the quality of delivery.

• Learn more: The Complete Guide to Supply Chain Management

What does a freight forwarder do?

Freight forwarders facilitate the movement of goods from one destination to another on behalf of a product business. A freight forwarder acts as the middle-person between a merchant and the shipping and transportation companies that will deliver their goods where they need to go.

Freight forwarders act as a broker for shipments, helping to overcome any legal and financial barriers that can slow the shipping process.

The core responsibilities of a freight forwarder include:

• Building a network of trusted carriers. Freight forwarders build a network of reliable carriers and negotiate freight charges on behalf of their customers. Customers usually expect freight forwarders to control costs.
• Managing all documentation. Freight forwarders handle the documentation involved with transporting goods overseas and organise all shipping under their own bill of lading.
• Organising the customs process. If a freight forwarder doesn’t have their own customs brokers in-house, they’ll typically hire a contractor in the relevant countries to organise this process on your behalf. They stay up to date on relevant customs regulations so you don’t have to, and if they’re an Authorised Economic Operator then they may have access to a streamlined customs clearance process.
• Managing inventory during the shipping process. For many freight forwarders, this means storing your inventory in their warehouse until the necessary paperwork comes through, or until the carrier arrives and picks it up. They will also monitor your goods through to their end destination.
• Insurance of customer goods. As they are taking charge of your inventory, freight forwarders will often take out insurance for its protection.
• Freight consolidation. Consolidating freight is a service offered by most freight forwarders that enable the shipper to save costs and reduce the emissions of their deliveries.

Freight forwarding can be performed by a single forwarding agent or several agents from a freight forwarding company. Their wealth of logistics expertise and carrier relationships also enables them to act as shipping consultants that can help with procurement and supply chain planning.

How does freight forwarding work?

Freight forwarding begins with logistics planning for a shipment of goods and deals with the movement of those goods through the supply chain. Included in this process are the negotiation of freight costs, customs clearance enablement, shipment tracking, and freight consolidation.

The freight forwarding process in 8 simple steps:

• Carrier procurement
• Export haulage
• Origin handling
• Export customs clearance
• Shipment tracking
• Import customs clearance
• Destination arrival and handling
• Import haulage

1. Carrier procurement

The first step in freight forwarding is selecting the right carriers for the job. This involves sourcing the necessary transportation companies and negotiating freight costs on behalf of the shipment owner.

Most freight agents will have existing relationships with various carriers which they can leverage to control costs and shorten delivery times.

2. Export haulage

Export haulage is the transfer of goods from the shipper’s location to the freight forwarding company’s warehouse. This warehouse is referred to as the origin warehouse.

The freight forwarder will organise the collection and delivery of these goods on behalf of the shipper.

3. Origin handling

Origin handling begins with receiving and unloading the goods at the origin warehouse.

The freight forwarder inspects the goods for damage, confirms any documentation, and matches the original order with what arrived. If everything is correct and in good condition, they’ll then check for restricted items or anything that could stop the goods from clearing customs.

If there are issues, the forwarding agent will pause the shipment and contact the shipper to advise. Otherwise, they can move on to the next step.

4. Export customs clearance

To export goods out of the country you’ll need the approval of customs agents at the origin destination. This step is known as export customs clearance.

The freight forwarder will submit the relevant documentation and work with customs agents to check over the goods. They will confirm that the documentation is an accurate reflection of the goods and that there are no restricted items.

Once the cargo has been cleared by export customs, it is loaded onto the vehicle that will take it to its destination country.

5. Shipment tracking

Once the goods are on their way, the freight forwarder will monitor their progress to ensure they arrive safely – providing shipment updates to the shipper. If there are any delays, the forwarding agent will communicate with the carrier to determine their impact.

6. Import customs clearance

Import customs clearance is a secondary inspection of the cargo and paperwork being shipped. It occurs when the goods arrive at the destination country. Any unexpected import fees are often paid by the forwarding company which will pass the invoice on to the shipper.

7. Destination arrival and handling

Upon completing the customs clearing process, the freight forwarder will store the cargo in an import warehouse until a carrier arrives to transport the goods to their final destination. They’ll also receive all the relevant paperwork, including invoices, inspection certificates, and declaration documents.

8. Import haulage

Once collected by the carrier, it’s the freight forwarder’s job to ensure that all goods and documentation arrive safely at the destination.

In some cases, the consignee may collect the goods from the import warehouse themselves. The freight forwarder’s role is to ensure the shipment is intact and correct when the consignee arrives to take it.

Freight forwarding vs shipping lines

Freight forwarding refers to the services required to import and export goods on behalf of a company. Shipping lines, on the other hand, manage and operate the carrier vehicles that physically relocate those same goods. Freight forwarders work with shipping lines to organise the delivery of goods they have been charged with importing or exporting.

Freight forwarding vs 3PL

Third-party logistics (3PL) companies provide a range of logistics support services to product companies. Some 3PL providers include freight forwarding as a part of their service or outsource those tasks to another company. Other 3PLs do not deal with customs clearance and import/export documentation at all.

The primary difference between a 3PL and a freight forwarder is that 3PLs frequently handle additional product management tasks like inventory management, order fulfilment, and supply chain management.

Benefits of working with a freight forwarder

• Convenience: Freight forwarders tackle some of the most time-consuming, complex elements of the logistics process. Outsourcing this to someone who knows what they’re doing can make shipping goods internationally a lot easier.
• Certainty: Freight forwarders will have a network of carriers they trust and a lot of experience dealing with transporters and customs agents in different countries. When you use their service, you gain access to battle-tested, streamlined processes and business relationships.
• Improved delivery speeds: Working with someone who knows how to streamline international shipping has the potential to improve delivery times and minimises the risk of shipping delays.
• Avoid fines: When the importing and exporting of goods are handled by an experienced professional, there is a reduced risk of getting fined for incorrect paperwork or trying to ship restricted goods.

Risks associated with freight forwarding

• Added costs: Freight forwarders charge a service fee, which can add to the total freight costs of your shipment. However, their connections to carrier companies – coupled with reduced labour on the shipper’s side – can also work to reduce these costs.
• Reliance on a third party: If you choose to use a freight forwarder, you must rely on their network. This restricts your ability to procure the best balance of quality and price from carriers unless the forwarding agent is willing to look beyond their network.
• Loss of control: Working with any third-party agent means giving them necessary control of certain tasks and letting go of that control yourself. You should only work with a freight forwarder if you understand and are satisfied with the control you are giving them.

Is freight forwarding right for you?

Freight forwarders can take the stress out of international shipping by acting as managers of the process. They’ll make sure your goods are stowed safely, prepared to pass customs clearance checkpoints, and arrive intact at the end destination.

But they come at an extra cost and all the risks associated with relying on a third party.

Before hiring a freight forwarder, gather quotes from multiple forwarding agents and analyse the time, cost, and risk aversion benefits of working with one.