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Impact of Freight Forwarders in the Shipping Industry

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Published: Thu, 22 Feb 2018

1. INTRODUCTION

1.1. Introduction

The basic ideology of this thesis is to determine the impact of freight forwarders in the shipping industry of Pakistan. This chapter briefly describes an introduction of the thesis. Being the introductory chapter of the thesis, the present chapter includes the introductory outline of the research as it will lay an emphasis on the background of the research and clearly identify the rationale for undertaking this research.

Liner shipping is characterized by a range of economies of scale and scope suggesting that low cost supply is likely to require some form of industry combination and concentration or cooperation; this could be achieved by a comparatively small number of large global operators. There are many reasons behind it including bad economic situation of Pakistan, Shippers interests in relation to shipping services coincide with the public interest and shippers as profit maximizes generally will have a strong incentive to obtain the best possible service for the lowest possible price

Contextual Frame: The shipping business plays a vital function in the international economy because it carries a large portion of world trade

The Industry trends towards expansion of liner shipping and needs developments in Containerization because they cover scale of economics. With the passage of time the shipping liner industry has moved into an era of affluence, and containerships have been moving require for other Ship types, the demand growth is generally and also several other factors have been putting force on smaller carriers, including upsizing and route network developments. Currently the trends become visible into independent process over vessel allocation and rising profitability suggests that carriers will seek to own additional of their own assets.

Shipping lines is an essential part of Pakistan’s trade, which provides intermediate service input for Pakistan’s merchandise trade merchandise. According to bulk shipping where each vessel carries one commodity on a charter basis, the demand for liner shipping is diverse. The costs of coordinating these diverse demands virtually rule out ship leasing as an efficient form of service delivery. The supply of regular and scheduled liner services provides a means of reducing transactions costs so that exporters with diverse demands are able to access liner shipping services. The trend to larger ships has been accompanied by strong growth in available liner capacity. The reason of significant development in shipping liner business because of its cheap freight rate and the large volume of freight transported. Compared with the other modes of transport, for example air, water transportation offers the cheapest freight rates

The idea third party logistics providers are as basic as deficient to have somebody else do the work for you instead of exporters who facilitate according to maintain their transportation or distribution and as so on. Supply chain management applications have a small amount of capabilities in ordinary. The data must be available to a user anyplace in the world; it must be exact, flexible, visible, and fast. With the help of supply chain software they can attain inventory effectiveness, faster information flow more exact determinations of when and how much material/capacity must be purchased, manufacture or moved and watchful monitoring of events and inventory within and external the venture and electronic enterprise linkage, which replaces manual linkage . These systems can help companies to incorporate similar process spread over different place and limit needless activities, enhancing their skill to cope with consumer requirements and meet goods quality standards

The use of supply chain applications varies in diverse parts of the world. In 2003, North America’s top five 3PL-centric data technologies were applications for…..

  • Warehouse management
  • Shipment tracking and trace/event management
  • Export/import/forwarding/customs clearance
  • Web-enabled communications
  • Transport management

The dilemma of supply and demand is the driving force of people history, and it is directly connected to carry, Normally we cannot produce all the food or goods but we want to consume or use that goods so the requirement to consume we must transport. In the age of trade between farms and villages, today the products we consume travel long distance along global supply chains to reach us. Product, inventory control, transport, and delivery, and particular handling and management are all division of these supply chains. As supply chains become more geographically elaborate, their success depends additional and more on the expertise of competent transport intermediaries (Freight forwarder, or Freight logistic providers).

Supply chains engage lots of groups of trading partners, and logistics is the key to holding them jointly. Logistics is the function of planning, implementing, and controlling the well-organized flow and storage of goods and their associated information. As global logistics become more challenging, and as the savings accessible through supply chain efficiency become more striking

The international freight forwarding business emerged in Pakistan in the early 1980s. originally, the industry comprised a only some organization and focusing on the niche market that focus on the shipment of plants and equipment for the increasing weaving segment of the textile industry, household stuffing companies support families re-locating overseas and multilateral agencies providing food supplies under aid or crisis programs

The job of the International freight forward is to move the supplies from one place to another place on the given time frame and make sure that the delivery will be on time and economical as well. Particularly freight forwarding companies arrange transport from shipper’s factories or storehouse to ports, stuffing or consolidation of cargo if necessary according to the clients needs, documentation, customs clearance, shipping (land, sea and air or combination thereof), unpacking or deconsolidation if necessary and delivery at customer selected location

International freight forwarding firms in Pakistan can be segmented according to figure no 1.1

  1. Primary service providers classification themselves as freight forwarders but efficiently working as brokers offering aggressive tariffs to little and average shippers for LCL cargoes, negotiate highest margins from consolidators search for lesser consignments to full container loads and arrange customs clearance, documentation and payment of custom’s levies.
  2. Middle order firms providing main services provided by primary services acting as selected agents for abroad buyers.
  3. Total solution providers contribution full range of services with access to worldwide networks through abroad associates.

In Pakistan Freight Forwarding companies provide services as intermediaries and made become part of international trade activity, actually the Pakistani’s exporters faced many difficulty if it does not take into description how the goods will be deliver to the market .The matter of freight forwarding must be careful at an early stage of the growth of the export marketing plan as it raise more than a few concerns that require to be address rapidly not only does the exporter require to recognize which to specify and work to, but the method of transport also requirements to be careful ( road, rail, sea, air). Packaging is also another issue that requirements to be considered, as is insurance. Much of the hassle can be taken out of the exporter’s hands by using an efficient freight forwarder, but as with any supplier care requirements to be taken to ensure that the supplier meets the requirements of the organization

Problem Identification/ Statement:The research aim is to analyze the factors that are impact freight forwarders in shipping industry and also analyze the relationship of freight forwarders with shipping lines. In the modern world the trend has been changed in shipping industry now the Forwarding agent is playing a vital role in shipping industry as a middle man with the name of Fright Forwarder between the shipping line and exporters. Freight Forwarder has strong negotiating power to shipping lines due large numbers cargo velum because of the exporter’s preference that do exports through freight forwarder. They take an advantage with the bulk of cargo from the shipper (exporters) and play a role of big intermediaries among the shipping lines, buyer and exporters, and they provide a full of supply chains management and transportation, from the exporters where house to buyer door which is called pin to point service or door to door delivery. Therefore the Pakistani shipping sector and particularly the leading position of Freight Forwarder act as intermediaries between the shipping lines and exporters.

Although this research, the researcher will try to find out the reason of impact of freight forwarder’s in shipping industry, serious emphasis on the relation of freight forwarders and shipping lines, currently major problems b/w Freight Forwarders and Shipping Lines.

1.2.Purpose of Study

This research will provide you better understanding and benefits of Freight Forwarders to the Shipping Lines and the Customers (Importer / Exporter).

With respect to Shipping Lines

  • Decrease the Shipping Lines risk
  • Increase of cargo volume from single customer
  • No pain for warehousing delivery

With respect to Customers

  • Accessibility from any location
  • Reduce in transportation cost
  • Convenience of logistic
  • Pin to point delivery (Warehousing)

1.3. Research Objectives

It will only consist of shipping lines and freight forwarders in Pakistan, specially with concept and practicing of how they doing a business and facilitate to customer no other fields will be considered. This research will only focus the factors which are impact the shipping lines business which may cause an increase in trade, profitability and reduce shipping line risk or any other. That’s why this will not include the all operations and other activities, which raise the revenue of shipping lines. It will only consist of those forwarding companies of Pakistan, which are directly involved with the international forwarders and involve the shipping line business.

Research Questions:

  1. What are the influencing factors of shipping lines versus Freight Forwarders for Exporters and buyers?
  2. What are the major problems of freight forwarders presently with the shipping lines?
  3. What are the major problems of shipping line presently due to involvement of freight forwarders?
  4. What are the relationship between the Freight forwarders and Shipping lines, how they will grow and build up?

Justification / Scope: We are a developing country under foreign investment and internal market. We do not have enough resources to meet even our consumption so to meet our own usage we need export and import world wide, for doing export and import we have two sources world wide which is called shipping lines and air lines which connect to world wide in every destination due to which we are able to consume internationally products and trade our local product world wide for generating revenue.

This thesis is aimed at providing better conceptualization of freight forwarders and shipping lines business. This research will give clear image of the benefits and relationship of freight forwarder for the shipping lines and exporters lines. The findings of this study will help to understand the importance of freight forwarder in shipping industry and how they can use effectively.

International Freight Forwarder:The job of the International freight forward is to move the supplies from one place to another place on the given time frame and make sure that the delivery will be on time and economical as well. They arrange the resources according the needs and requirements of the customer like

  • Transportation from shipper’s factories to ports
  • Packing or consolidation of cargo documentation
  • Customs clearance
  • Shipping (land, sea and air or combination thereof)
  • Unpacking or deconsolidation is required

Customs Clearing Agent: An agent certified by the Central Board of Revenue through the Customs authorities to complete documentation official procedure and assemble, on behalf of the merchant, disbursement of custom duties, taxes etc

Shipping Agent: An agent licensed by the Central Board of Revenue through the Customs authorities for servicing vessels calling at Pakistan’s ports. The agent represents interest of the vessel/carrier and arranges payment of port dues.

Shipper: Merchant or manufacturer or Supplier who’s selling goods to overseas buyers

Consignee: Merchant or manufacturer buying goods form overseas suppliers

SCM: Supply chain management

TEU: Twenty-foot equivalent unit a standard measurement of volume in container shipping. The bulk of containers are either 20′ in length, or 40′ in length. A 20’Container is one TEU, a 40′ container is two TEUs

LCL: Less than container load cargo

FCL: Full container load cargo

SIZE: Freight forwarding companies have been classified according to annual TEUs handled as under:

Small = 360 TEUs Medium + 1200 TEUs Large = 4800 TEUs

POL: Port of load

POD: Port of discharge

We are a developing country under foreign investment and internal market. We do not have enough resources to meet even our consumption so to meet our own usage we need export and import world wide, for doing export and import we have two sources world wide which is called shipping lines and air lines which connect to world wide in every destination due to which we are able to consume internationally products and trade our local product world wide for generating revenue.

This thesis is aimed at providing better conceptualization of freight forwarders and shipping lines business. This research will give clear image of the benefits and relationship of freight forwarder for the shipping lines and exporters lines. The findings of this study will help to understand the importance of freight forwarder in shipping industry and how they can use effectively

CHAPTER # 2 LITERATURE REVIEW

2.LITERATURE REVIEW

The previous chapter describes the background and the problem area of the study. In this chapter we discuss the literature related to the research topic. In this Literature Review, an attempt has been made to develop the conceptual framework of impact of Freight Forwarder in Shipping Industry. This chapter will review the literature on Shipping Line and Freight Forwarder. It will include material obtained from books, journals, academic journals and internet articles.

The shipping industry is very important in the international economy because it carries a large portion of world trade. The Liner shipping is characterized by a range of economies of scale and scope signifying that low cost supply is likely to require some form of industry assimilation and hence concentration or cooperation, this could be achieved by a relatively small number of large global operators .The Industry trend to expansion of liner shipping and need to developments in Containerization which cover scale of economics. With the passage of time the liner business has optimistic into an age of affluence, and containerships have been moving require for other Ship types, the demand growth is generally but several other factors have been putting force on smaller carriers, including upsizing and route network developments. Currently the trends become visible into self-determining process over vessel allocation and rising profitability suggest that carriers will search for to more of their own resources. Rivalry from logistics providers will gradually more dictate how the industry develops. The lower costs of condition of services require the various economies of scale and scope to be capture, a single shipping line may be unwilling to commit several large vessels in order to provide an inclusive, regular, scheduled service where demand is uncertain and where that uncertainty is exacerbate by the possibility of rivals encroaching on the trade.

According to DELTAS, SERFES, SICOTTE the Agents of the various Lines meet and discuss the conditions which are changing from time to time, and which are affected by the competition of vagrant Vessels and decide on the policy to be pursued by all the Lines named with reference to the maintenance of stable rates of freight and to prevent demoralization.

The liner shipping is becoming more concentrated via mergers and acquisitions, while average vessel size continues to grow as carriers attempt to capture scale economies. Rationalization is being driven by technological change and intense competition in most trades which has seen freight rates fall significantly in real terms and profitability decline, according to the researcher the expansion of global shipping companies has increased competition on individual routes. The constitute the total shipping demand of a particular market. The density of demand is then defined as the trade volume per kilometer of coast. This affords an admittedly imperfect demarcation of the system, unless there happen to be clear-cut geographical boundaries.

The picture emerging is of a global liner shipping industry experiencing significant, and rapidly change, the trend towards greater industry concentration via mergers and acquisitions does not appear to have reduced competition. Appears the expansion of global shipping companies has increased competition on individual routes. The Hoffmann said that Asian lines have entered the North Atlantic trade, east-west lines are incoming north-south markets and the feeder services of big carriers are competing with traditional regional lines. In shipping liner service the growth in alternative types and the growing role of freight forwarders has placed increasing competitive pressure on carriers. To a minor extent potential competition in transporting general cargo exists in the form of alternative modes of transport such as air transport and tramp shipping.

Market power is sustainable only where entry barriers to entry or exit is high, the Potential barriers to entry include regulatory and other essentially man-made or institutional barriers or economic barriers driven by characteristics of the market .when the barrier are low for entry and exit the competition will increase and the profitability will minimum accordingly

Shipping liner business mean the process of transporting goods from one place to another that process of transportation may take place through sea, land or water, further more the process have been done underway of buyer and the seller with the negotiate and entering into an agreement/contract based on the mutually agreed upon terms .Their terms would include the description and the quantity of goods, the time by which the merchandise require to be delivered, the price and the documentary requirements. After the agreement is struck, the seller usually contacts the forwarding agents who are responsible for moving the goods from the seller’s location to the ship. The Shippers’ interests in relation to shipping services agree with the public interest and shippers need to required profit-maximizes generally and the shipping lines offer the best-possible service for the lowest-possible price.

In this era the shipper might play the role of the Forwarding agent too if it has the necessary expertise in the area, the following Forwarding agent contacts the shipping line and based on the terms and conditions mutually agreed upon, an agreement is reached for the goods to be transported from the port of origin to the destination port to the shipping line. A custom clearing agent is then assigned by the shipper for the handling of the custom related documentation or even this may be taken care of by the forwarding agent, thereafter the goods are moved by the forwarding agent to the port of origin or the shipping line. The goods can be picked from the shipper’s factory or may have already been moved from the shipper’s premises to the forwarding agent’s premises in which case they are further moved from the agent’s premises to the port of origin of shipping line. Once the goods are loaded on the ship, they are transported to the destination port where a similar process happens while the goods make their way to the buyer’s premises

The cargoes mostly were carried from country of origin to country of destination on a direct service or through involvement of transshipment port. Today shippers have a choice between a direct service and via transshipment port, but due to longer transit times and the possibility of cargo being damaged during transshipment or however, the quality of transshipment services often is comparable to that of direct services.

It is likely to be at least in part to the trade imbalance, which means exporters are competing with increased volume with the involvement of supply liner efficient service.

Freight rates are most major element for the liner shipping services, the requirement of competitive control of liner freight play a major roll in liner business, these general trends are illustrated by various freight rates cited in industry publications .Initially the first task is to identify the relevant markets which will clear define the density of demand for a particular transport service. International trade in bulk agricultural commodities recently has become more important to the world economy. Economists have devoted little attention to international shipping. Transport costs between countries can pose a formidable barrier to trade, similar in effect to tariffs and institutional constraints. Ocean transportation changes can affect the domestic grain transport system of major exporters.

The shipping lines base on service provider from one place to another place according to the requirement of their customer, the nature of shipment which follow of cargoes very frequency. The involvement of transit time, ports of call, and reliability are all important characteristics of service quality, which can, in certain circumstances (for example, ‘just-in-time’ manufacturing or consumable cargoes), be more important than simple price considerations.

An increase in service frequency does not of itself indicate that service levels have improved, For example, if average vessel sizes declined significantly so the level of service may be reduced even though the frequency of service has increased, since the monthly capacity available to shippers would be less and voyage duration would be longer.

Capacity of itself is not an indicator of service levels, it provides an indication of the carriers’ ability to meet shippers’ demand which is important to note that vessel capacities presented here are optimum capacities and do not take into account weight limitations and the fact that some of this capacity may be used for cargo from other countries such as New Zealand. Ocean liner are illustrious from other suppliers of sea transport because they are committed to regular schedule of service between particular port at a price which fixed in the short run more over the shipping line agree to satisfy all reasonable needs of the respective shipper in both quantity and quality of service.

The Globalization of business and the departure of ‘just-in-time’ inventory management has increased shipper preference for intermodal or door-to-door transport services, although facts given to suggests that this trend has been less marked in Australia than in the United States or Europe. While a single transport provider usually coordinates the intermodal service (so that the shipper has a single point of contact and receives a single bill of lading), the physical transport service may be provided by several land and sea carriers so Liner shipping operators have responded to shipper preferences by offering shippers a range of transport options, including door-to-door and terminal-to-terminal services.

The liner industry is necessarily responsive to trends, and nobody appreciated. What changes were going to occur in the second half of the twentieth century? In the late 1940s and 1950s, liner companies were thinking primarily in terms of replacements for those conventional ships that had been lost in the Second World War But reconstruction and returning servicemen with significant back pay to dispose of, created a post-war boom, and wages rose sharply, reflecting labor shortages as well as being partly intended to stave off the expansion of Communist ideology. That situation affected the previously labor intensive liner industry, pushing up crew and shore labor costs and squeezing liner company profitability. After the Eighteen years the Second World War, Carrefour opened the world’s first hypermarket in outside Paris. Five years later the first fully cellular container service started operations, although carriers, who otherwise faced the prospect of block obsolescence and the requirement for simultaneous replacement of the by now 25-year-old replacement fleets that had been introduced after the war, were nervous about introducing a system that, by very specifically defining the way cargo had to be shipped, reduced cargo owners’ ability to call the shots, and particularly affected the sorts of cargo in which British and American liner cargo exporters were strongest modified shipments to specific importers.

Acceptance of containerization by smaller and niche liner operators, labor, port authorities and other vested interest was slow, but cargo-owner enthusiastic participation came much quicker than the liner companies had expected. The surprising growth of demand for container services over the last almost 40 years has been both an annoyance and a lucky thing to the industry. It has put great pressure on carriers’ balance sheets as a result of the unchangeable demand for capital, aggravated by the steady decline in freight rates that has so often been consequence of technical innovation. The world’s growing dependence on container liner services and the size of profits recorded by carriers in the middle years of the first decade of the twenty-first.

As shipping companies adjust to a dynamic and rapidly changing environment so do the financial methods and instruments available to rise funding and materialize vital investment budgets. The core business strategy of shipping companies in recent days is gradually shifting from simple profit maximization to an increase in firm market value.The following achievement of shipping firms should consistently focus on promote investment plans that bear growth potential and have positive returns which outperform more than requirement of costs undertaken. The intermediaries to provide the funds required to financing new investment projects and sustain business growth, fresh funds are channeled to shipping firms in need through the issuance of securities

One significant path to economic development is shipping and this is because of their offer cheap freight rate and the large volume of freight transported and according to compared with the other modes of transport, for example air, water transportation offers the cheapest freight rates Adam Smith, “writing in the last quarter of the eighteenth century (1776), noted that shipping is instrumental to economic development”. In his book The Wealth of Nations he argues that the key economic power in capitalist societies is the division of labor, and the scope of the market determines the extent to which this can be practiced because the limited nature of the business will equally limit the degree of specialization. Shipping as a source of cheap transport, Smith pointed out, opens wider markets to specialization.

The idea third party logistics providers are as basic as deficient to have someone else perform the job for you instead of exporters who facilitate according to maintain their transportation or distribution and as so on. 2007).Supply chain management applications have a small number of capabilities in general. The data must be available to a user anyplace in the world; it should be correct and flexible, visible, and fast. With the help of supply chain software they can attain inventory efficiency, quicker information flow additional accurate determinations of when and how much resources should be purchased, manufactures, or moved and careful monitoring of events and inventory within and outside the venture and electronic enterprise association, which replaces manual linkage .These systems can assist companies integrate similar process spread over different areas and limit unnecessary activities, enhancing their ability to manage with customer needs and meet product quality principles.

The requirement of marketing and customer service exploitation organizations that work together to create and retain potential market positions for end products .Unlike the case of supply chain management, there is no well-established approach to design chain management or marketing chain management, It should be noted, how ever, that through the ideas and practices of concurrent engineering, design for manufacturability, design for logistics, and mass customization, the discipline of supply chain management has already been concerned with its own integration with design chain management. It is evident that in the current business environment of keep competition, of fast technological and market changes, and of demanding customers, the successful delivery of end products and services to the right markets at the correct time requires integrated operations of the marketing chain, the design chain, and the supply chain, In order for the supply chain, design chain, and marketing chain to be integrated, the resulting integrated system may be characterized by a network of knowledge and competence in manufacturing and distribution, and in design and marketing that the companies bring to the table., it seems reasonable to call such integrated systems knowledge supply networks.

The Researcher defines the “Big Middle” as the market space in which the bulk of suppliers compete for the majority of respondent and the preponderance of expenditures occur. It is the space in which retailers wish to exist in their quest for increased revenues, scale economies, and profits, the Big Middle appears in any economy in which huge scale retailing has develop, it is a mind space that lies between other competitive arena, with the help of low-price fringe and the innovative fringe. Low price fringe retailers use basic merchandise and low prices to compete though other elements of the retailing mix are present, they are not the primary reason people shop at these stores. Although a retailer does not have to be in the Big Middle to be successful in the short run, those that become the largest and, by implication, the most successful, are inexorably drawn there over time in their search for scale economies, increased revenues, and incremental profits

The Supply Chain is an integrated process from raw from of material to Finish goods reaches to consumer, the supply chain mainly involves the following process/functions:

  • Procurement
  • Production Planning
  • Ware house and Distribution
  • Logistic

It’s all a function of the “core competency” plan that has producers concentrating on developing and creation their goods, and then hire an external firm direct exactly how those goods will get to the customer

The Brief identifies intermediaries as commonly independent 3rd party that play an essential part in collaborativ


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