An International Freight Forwarder Information Technology Essay

Introduction

Nowadays, there are very high competition in logistics and freight forwarding business. Each company is trying to build new strategies or create some value added in service in order to get the company competitive advantage and respond to customer need correctly. Freight forwarder is a company who specializing in arranging storage and shipping of merchandise on behalf of shippers. They usually provides a full range of services including: tracking inland transportation, preparation of shipping and export documents, warehousing, booking cargo space, negotiating freight charges, freight consolidation, cargo insurance, and filing of insurance claims. Freight forwarders usually ship under their own bills of lading (called house bill of lading). Bill of lading is a very important document which it signed by a transporter of goods (carrier) and issued to the shipper of goods (exporter) that evidence the receipt of goods for shipment to a specified person. When international trade has expanded quickly, bill of lading is not only the document that specifies the list of goods, but it is the right document of the receiver endorses by valuable compensate and it’s still a document that the bank and the financial institution might give the credit to the holder.

Once all consignment is confirmed from exporter the company will provide documents (shipping particular) to exporter for booking/reserving the vessel space before loading the cargo and send it back to the company in order to approve then the company will send it to carrier/liner for issuing ocean bill of lading to the company. And company also issues a document to exporter called house bill of lading.

1.1 Company Background

AAA Co.,Ltd. has been established since 1991. Be able to handle all the shipment starting from the beginning up to the end by mean of International transportation, custom clearance, inland transport, warehouse & inventory management, distribution management etc. AAA Co.,Ltd. as the holding company of the group companies, it’s provided a full range of worldwide logistics services, including air/sea freight forwarding, Project cargo handling and customs formalities services. It is a certified internationally acclaimed ISO 9000 (version 2000) company which enabling provided services in both local and global marketplaces.

1.2 Company Services

AAA Co.,Ltd. provided full range of service including air and sea which they have worldwide network in many countries such as USA, UK, Singapore, Honk Kong, Taiwan, China, Japan, etc. Also they have inbound cargo, outbound cargo and transit cargo.

1.2.1 Sea Freight Services

FCL (Full Container Loaded). We offer service in all continents and more than 250 countries around the world with many all type of containers we provided.

LCL (Less than Container Loaded). We offer consolidation service to all major countries worldwide.

1.2.2 Air Freight Services

Direct flight, flight in transit, airport to airport

1.3 Competition and company’s competitors

1.3.1 International Freight Forwarder

Now Thailand have freight forwarder company about 300 – 500 companies

Members of Thai International Freight Forwarders Association TIFFA have 155 companies

Small entrepreneur 82 companies

Medium entrepreneur 36 companies

Large entrepreneur 12 companies

The top 5 companies who occupied the highest market share (all companies are international company franchise)

Nyk Logistics (Thailand) Co.,Ltd. (Japanese company’s franchise) occupied 15.75 %

Expeditor (Thailand) Co.,Ltd. Occupied 13.57 %

Schenker (Thai) Ltd. 4.95 %

DHL Global Forwarding (Thailand) Limited 4.88 %

EGL Eagle Global Logistics (Thailand) Ltd. 4.87 %

Figure 1.2: Proportion of highest market share in freight forwarding company

Source: Thailand Development Research Institute, TDRI

1.4 State of problem

Now this business has high competition every company try to know customer expectation and satisfy the customer’s need. Freight forwarding is service business which does not sale the product. The company that can provide good and fast service to customer can be got the competitive advantage. Then, we try to provide the fast service to customer. We found that outbound department that responsible for issue export document to customer still have operated time problem and affect to another department such as delivery staff deliver bill of lading to customer lately. The affect of delivery delay for example, the shipment from Bangkok to Hong Kong, the transit time is 5 days which original bill of lading must deliver to shipper/exporter before vessel departure or within the day of departure date. Once the shipment arrive at destination but original bill of lading still on the way, the consignee still cannot release the cargo which it cause consignee must be wait for original bill of lading. And also as long as the cargo stays at the port, the demurrage charges still increase. Then it increase consignee cost. So, it has encouraged the companies to adopt the newest electronic system to increase company competency.

Procedure Outbound Department

Received shipping particular from customers

Put all details in program system and correction of documents

Print draft house bill of lading to customer for correction by fax or e-mail

Customer confirm back to outbound department

Print original house bill of lading and send to manager for approve and sign.

Pass complete set of bill of lading to customer service

Customer service staff prepares job order to delivery staff to deliver all documents to customer

From the process above time spend is around 3-24 hours only for prepare documents which now the problem is that more time spend for prepare the document, more time late for delivery of document. Also some customer office located in outbound and other province it may take 1-2 days to get bill of lading. In case, if customer would like to revise some detail in original house bill of lading while delivery staff is on the way to send it to customer, delivery staff must go back to office in order to get revise original bill of lading and then deliver to customer again which it cause late delivery for another job or we have to hire outsource messenger to deliver new document to customer and also cost of delivery will be increase.

1.5 Research Objectives

To study of how to implement and start the electronic bill of lading (E- B/L) project

To explore possibility of project success in term of financial value, time benefit, etc.

1.6 Scope of the Research

To study in bill of lading issue procedure from start to end

To develop time operate in prepare export document for outbound department by using electronic bill of lading

To study the cost and time of implement for using electronic bill of lading

1.7 Limitation of research

Due to this project is on process which is still not complete applied in company, we just begin to apply electronic bill of lading at the beginning of this year, 2009 which the information may not be enough in order to analyzed. Some information that we will get is for estimation only which it may different from the actual data.

1.8 Significance of the Study

The expected of benefit that will get from this research has support to both company and customers which are;

High customer satisfaction

To enhance our service quality in term of customer convenience

To differentiate our service from local competitors

Excellent working process & system

To prepare on IT revolution project

To reduce cost and processing time

Healthy group of companies

To create business opportunity in increasing revenue and excelling to our competitors

To reduce cost of B/L delivery in either transportation or mail

1.9 Definition of Terms

Freight Forwarding Services means services of any kind relating to the carriage, consolidation, storage, handling, packing or distribution of the Goods as well as ancillary and advisory services in connection therewith, including but not limited to customs and fiscal matters, declaring the Goods for official purposes, procuring insurance of the Goods and collecting or procuring payment or documents relating to the Goods.

Freight Forwarder means the person concluding a contract of Freight Forwarding Services with a Customer.

Carrier means any person actually performing the carriage of the Goods with his own means of transport (performing Carrier) and any person subject to carrier liability as a result of an express or implied undertaking to assume such liability (contracting Carrier).

Shipper means someone who prepares goods for shipment, by packaging, labeling, and arranging for transit, or who coordinates the transport of goods

Consignee is the person to whom the shipment is to be delivered whether by land, sea or air.

Customer means any person having rights or obligations under the contract of Freight Forwarding Services concluded with a Freight Forwarder or as a result of his activity in connection with such services.

Goods mean any property including live animals as well as containers, pallets or similar articles of transport or packaging not supplied by the Freight Forwarder.

Ocean Bill of lading (OBL). The document issued on behalf of the carrier describing the kind and quantity of goods being shipped, the shipper, the consignee, the ports of loading and discharge and the carrying vessel.

House Bill of lading (HBL). Issued by a freight forwarder to a shipper as a receipt for the goods being shipped with other cargo as one consignment. Its similar to ocean bill of lading.

Container means any container, flat, pallet or other form of cargo carrying unit or equipment referred to on the face hereof or in or on which any Goods may be unitized or otherwise packed or stowed either when received by the Carrier for carriage hereunder or at any subsequent time prior to delivery

Port of loading means place where shipments are loaded and secured aboard a vessel.

Letter of credit (L/C) means written commitment to pay, by a buyer’s or importer’s bank (called the issuing bank) to the seller’s or exporter’s bank (called the accepting bank, negotiating bank, or paying bank). A L/C guarantees payment of a specified sum in a specified currency, provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe.

Demurrage charge means a charge required as compensation for the delay of a ship or freight cargo beyond its scheduled time of departure

Chapter II

Literature review

2.1 Introduction to the freight forwarding

In the 17th century, freight forwarding services consider to begin when the trade and market started growing up. The expansion of the area of operations do not allow the companies to carry out all operations and meet the requirements for loading, discharging and storage of goods on their own as they previously had done. For this situation, the company needs to use the services of the third parties when the specialized services are necessary to assure the deliver of a product for the final consumer.

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The company in services business who do not have own vessel which held to important of development in international shipping. They have the experience in the shipping process. Generally these companies often process the business transaction in 2 characters

1) To be manage service of an agent that helps in prepare the documents, act as customs agent and coordinate between exporter/importer and other institute

2) To hire other transportation entrepreneurs who have owned vehicle/vessel to ship the cargo to their customers.

Traditionally, the role of the freight forwarder was simply to undertake transportation on behalf of exporting companies. However, they must provide a whole range of additional services to keep up with the competition. The key role for most freight forwarder is export transportation, documentation advice, storage which many forwarders now have their own depots and warehouses and are willing to store goods for exporters for a number of reasons. These may include exporters wanting goods out of their own premises to make room for more stock, but not wanting to actually export the goods yet, so they may use the forwarder’s warehouse. And order picking some companies may store a large quantity of goods with forwarders, which may be broken down and consolidated into orders when they are processed at the company’s premises.

2.2 Activities of freight forwarder service

Forwarders are generally intermediaries and normally utilize the documents, such as bills of lading and consignment notes, issued by the carriers involved in the transport. They may be authorized to issue the document themselves as agent for the carrier.

Advise the route, how the cargo deliver to destination and advise the suitable transportation mode.

They can reserve the necessary space on a vessel, aircraft, train, or truck.

Preparing all concern documents to exporter such as Forwarder’s Certificate of Receipt, Forwarder’s Certificate of Transport and House bill of lading.

Preparing price quotations by advising on freight costs, port charges, insurance costs, and their handling fees.

They provided the packing methods that will protect the cargoes during transit or they arrange to the cargoes packed at the port or containerized.

Freight forwarders can also make arrangements with customs brokers overseas to ensure that the goods comply with customs export documentation regulations.

Normally a company has take manage to transport the goods to a customer from origin to final destination unless a customer wants to manage by themselves. In step of shipping a company can manage by themselves or can hire outsource to manage it. So a company should have worldwide network in order to support the requirement of a customers because a customer would like to use the company’s service that able to manage the transportation in worldwide.

2.3 Leveraging IT to manage transport logistics

Information technology is one of the most powerful enable the company rapidly change the way in operates. Each evolution step in technology from the telephone, to the fax and now the Internet has a major impact not just the company conduct in business, but the role of the company itself. Information technology often enhances customer value in ways that are not captured by performance measures such as improved delivery time and service. Brynjolfsson(1996) state that IT reduces the cost of complexity and negates the competitive advantage of economies of scale. Sauvage(2003) argued that in a highly competitive business characterized by time compression, technological effort becomes a critical variable and a significant tool for differentiation of logistics services. With real time communication and information sharing capabilities, track and trace capabilities and the electronic competent can approach the customer to use company services. Stough, 2001 state that this has forced third party logistics (3PLs) to look for accurate and real-time information on the status of the entire shipment process to increase planning capacity and to improve customer service levels. The use of specific technological capabilities may facilitate more effective integration across companies in the Information and communications technology supply chain. For 3PLs, Information and communications technology capabilities can assure the rapid customization of products and maintain competitive lead-times. 3PL must be flexible and able to provide a variety of services based on the customer’s demand. The result is that competitive advantage in the 3PL industry will be based increasingly on creating value for customers as many value-added activities are directly or indirectly dependent on information and communication technology applications (Crowley, 1998).

2.4 Bill of lading history

There is unclear evidence for emerging of bill of lading (McLaughlin,1925-26). In the time of Greek-Roman period, a merchant has notebook for record the detail of goods that loads to vessel. In 11th century, begin from the practice of Italy with the law of “Maritime Ordinance of Trani of 1063” that all vessels must have a vessel clerk who writes down all detail of goods that was loaded in the vessel. In 14th century, in the customs of the sea has regulated that vessel clerk must have register book and a merchant should notice the clerk about the goods otherwise, vessel owner will irresponsible in the damage to that goods. These documents include an account, receiving goods and payment, destination port. In this century, there is the evidence in document instead of agree in words between a merchant and a vessel clerk. The history of bill of lading begin from a merchant must travel with their goods which it is inconvenient then they find the way to do not travel with their goods by duplicated document from register book with signature of vessel owner and in this documents has specifies condition of transportation of goods.

2.5 The character of bill of lading

The bill of lading generally performs three functions. First, it certifies that the goods as described on the bill have been received (received for shipment bill of lading) or actually shipped by the carrier (shipped bill of lading) (Clive Maccmillan Schmitthoff, 2000) Second, it is evidence of a contract of carriage. The bill of lading mention not only the apparent condition of goods, but also their quantity, weight, identification and leading marks, number of packages, and the date of receipt in the case of received bills of lading, or date of shipment, in the case of shipped bills of lading. Finally, it functions as a transferable document of title. Therefore, Cf. Allied Chem (1985) state that the ownership of the cargo may be transferred by the endorsement of the bill of lading which the carrier’s obligation to deliver is tied to the possession and presentation of the bill of lading. The transfer of the bill of lading serves as a transfer of the possession of the goods, it does not necessary to transfer the property in the goods. Property in the goods passes to the buyer as the contract of sale and can be made conditional, for example upon payment of full price. Traditionally, bills of lading are issued in sets of three or more originals. If the various parts of the bill of lading are in the hands of different persons, the ship owner must deliver the cargo to the first person presenting a bill of lading on the condition that they have no notice of any other claims to the goods (Clive Maccmillan Schmitthoff, 2000). Bill of lading are not useful in cases where the goods are not intended to be re-sold during transit or if there are no problems in payment, for example in sales between branches of a single company. However, a bill of lading is necessary when a number of re-sales are much enough, when payment is by documentary credit, or when the seller needs the security of a document of title. In the case of bill of lading will not reach the consignee before the goods arrive at destination, consignee will use letter of indemnity as a temporary substitute for the original bill of lading.

2.6 The advantages and disadvantages of traditional bill of lading

The national reports of Greece, A.Kiantou-Pampouki (2000) discussion of the advantages of the traditional bill of lading that the function of the bill of lading as negotiable commercial paper that makes the transfer of rights in the goods easy, especially by endorsement and delivery of the bill of lading, but also there are some disadvantage of traditional bill of lading, the modernization of the shipping industry has resulted in arrival of the goods at the destination port, not in arrival of the shipping documents. Transfer of the bill of lading and the right to release the goods may take some time. The arrival of document at the port of discharge is usually delayed to a bank along the way of purpose of documentary credit. Paul Todd(1990) state that delay arrive of the bill of lading at the port of discharge is a primary problem with the use of traditional bill of lading which also create additional costs relative to the custody and insurance of the goods, also it cause total transportation cost increase. High cost is also another disadvantage of paper bill of lading is the high cost of issuing and processing the document. Amelia H. Boss(1991) argue that the cost of rising and the delay involved in their issuance and verification from 10 to 15% of total transportation cost. The replacement of bills of lading with nonnegotiable electronic documents is not always possible, some traders and banks prefer to deal with negotiable documents that would give the security. Legal problems also arise due to the fact that the laws still remain limited to the paper bills of lading.

2.7 Substitutes for traditional bill of lading; Sea Waybills

Computer and telecommunications technology has attempted to incorporate the three functions of the bill of lading (receipt of goods, contract of carriage, and document of title) into telecommunicated messages. The negotiable document of title function has not been fully incorporated into a paperless bill which does not mean that paperless bills have no banking value. Georgios I Zekos (1999) state that a negotiable document of title is valuable collateral, as it allows quick, easy and inexpensive possession and release of the cargo. The national reports Paul Todd (1990) indicated a trend toward an increased use of sea waybills as substitutes for traditional bill of lading. A sea waybill is a non negotiable document that evidence of the contract of carriage and of the receipt of the goods by the carrier. It is not a document of title and it cannot be used to transfer ownership of the goods. A sea waybill do not need to be presented for taking delivery of the goods, the carrier delivery to the consignee who need only prove his identity. Sea waybills have advantages over traditional bill of lading which they avoid complex documentary process and reduce the carrier’s risk toward the consignee. However, they have also disadvantages which they are not negotiable and accepted by banks for documentary credit, they do not afford the security that traditional bill of lading provide. A buyer who has prepaid for the goods faces the risk that that seller may direct the carrier to change the identity of the consignee while the goods are in transit.

2.8 EDI systems

The use of electronic communication in international commercial has attention in recent years. E-commerce assists information in travel quickly and efficiently, reducing paperwork and saving. Communication among computer is common way to contact between parties. Computers are used to communicate with those outside the company such as suppliers, customer, transporter and bank. The term of electronic data interchange (EDI) is the interchange of commercial data structured on the basis of approved standard messages between computer systems in predetermined formats (Amilia H. Boss,1991). Moreover, EDI support international transactions of distance and time differences through the practically instantaneous transmission of data. EDI is rapidly increasing due to advantages of saving of time by speeding up processes of document transfer and transaction completion. Richard B. Kelly(1992) state that EDI cause to easy of doing business over long distances, the reduction of cost involve in completing business transactions, decrease of the number of middlemen and the increase accuracy and standardization of business communications.

Closed EDI is used by a closed user group where the parties have probably enjoyed a good working relationship and already trust each other. Also trading partners who are already known to each other and have had previous business contact. Open EDI procedures are considered to be public available, remotely accessible and directly executable. Interconnectivity is a requirement for open EDI. Hence, closed EDI provides point to point electronic communications between trading partners. It is a technology that is used to replace the paper based pattern of existing trading relationships. By contrast, open EDI supports machine process able formats and the interchange of digital in formation. The advantages of using EDI in a company can result in the improvement of the competitive position of this company. To perceived EDI benefit can be direct and indirect to the company, there are mostly company saving related to the internal efficiency. Strategic advantages can include the following: an enhanced flow of business activities; the use of just in time (JIT)(Georgios I Zekos, 1998) management can facilitate the delivery of goods; improvement in the time that documents need to be transmitted.

2.9 Bank and EDI

While most letters of credit communications between banks and beneficial are still paper based communications among banks themselves. The bulk of Interbank letter of credit messages shifted from paper communications to teletransmissions. Uniformity and standardization in EDI messages has made it possible for the computers communicating through EDI to exchange and process data without rekeying the data (Electronic Data Interchange, 1990). Electronic of paper instruments replace the paper work in international trade. Funds transfer by electronic means is the most efficient way of effecting payments for goods and services sold in international trade. Technological developments in the area of information technology have made for relatively cheaper and faster international electronic funds transfer services. The cost of processing paper payment instruments is higher than processing a transaction by electronic. EDI system called “SWIFT” (Society of Worldwide Interbank Financial Telecommunications) is currently used in international commerce by the banking industry for the communication of commercial letters of credit among banks worldwide. SWIFT was established to facilitate the transmission of bank to bank financial transaction messages (Boris Kozolchyk, 1992). These millions of transactions take place every day in a legal vacuum. However, the success SWIFT has experienced in processing letters of credit proves the feasibility of transferring ownership of large sum of money electronically.

Electronic communication has transfers of ownership during transit. When company received the original paper bill of lading from shipper they will issue a test key or code to the shipper. When the shipper negotiated the bill of lading, they will notify company by computer and gave the buyer a portion of the test key. The buyer will also notify to company. Only after receiving and testing both messages the company records in the registry the name of the buyer as the new owner. The company also recorded this information on the original paper bill of lading in its possession. When the goods arrived at destination, the company will transmit a code to the carrier and to the last owner of record. The code allows the owner to claim delivery of the goods. Also the text of a sea waybill may be electronically transmitted to the port of destination and the consignee may receive the goods from the carrier without presentation of the original bill of lading. (Robert P.Merges & Glenn H. Reynolds, 1986). The bill of lading data is transmitted electronically but for information purpose only.

2.10 Legal and Technology challenges to the implementation of electronic bill of lading

The United Nations Commission on International Trade Law (UNCITRAL) has identified domestic laws that require the documents to be in writing and sign. The Uniform Commercial Code states a writing include printing, typewriting and other international reduction to tangible form. An important attribute of a traditional writing is that it cannot be change without leaving a trail of the change. In contrast, most electronic data can generally be changed or erased (R. David Whitaker, 1991). Computerized records that are made in the ordinary course of business can satisfy the statute of frauds writing requirement because the intent of the party to record the transaction and they can confirm that a contract exists (Stasis M. Williams, 1991). A question to electronic transaction is who will bear the liability for error messages, failures in communication, and system breakdowns. Liability must be in a fair and predictable manner which the UNCITRAL Draft EDI Rules give some guidance by providing that the parties are liable for direct damage caused by failure to follow the rules, except when the failure is caused by unexpectation situation beyond a party’s control (UNCITRAL Draft EDI Rules, Article 15).

Many barriers to paperless trading exist because of the divergent documentary practices of carriers, bankers, and shippers. In an electronic environment, the challenge is to preserve the marketability of electronic records that replicate paper data, in particular by securing their authentic, unique, and confidential the electronic system (David Frisch & Henry D. Gabriel,1995). Also electronic bills of lading have not received the full support and confidence of all the participants in international business, due to it concerns about security and the authenticity of such documents. Legally, it is difficult to develop an electronic document which has the function of negotiability and therefore allows for transfer of ownership from the seller to the buyer by delivery. However, the use of electronic bill of lading is a business rather than a legal decision. The law may provide the legal framework for the function of electronic bill of lading in the same way and same effect as the traditional bill of lading. However, the use of electronics bill of lading concerns for privacy, accuracy of information and for security of transactions and acquisition. Its concern for technology rather than legal solution.

2.11 Digital Signature

Digital Signature was first proposed in 1976 by Whitfield Duffie, at Stanford University. A digital signature transforms the message that is signed so that anyone who reads it can know who sent it. The use of digital signatures employs a secret key (private key) used to sign messages and a public key to verify them. The message encrypted by the private key can only be verified by the public key. It would be impossible for any one but the sender to have created the signature, since he or she is the only person with the access to the private key necessary to create the signature. In addition, it is possible to apply a digital signature to a message without encrypting it. This is usually done when the information in the message is not critical. In addition, this allows people to know who compose the message. Because of the signature contains information so called “one-way hash”, it is impossible to forge a signature by copying the signature block to another message. Therefore, it is guaranteed that the signature is original. Written signatures are considered legally valid to demonstrate the signer’s identity and intention to be bound by the content’s of a document. Hence, written documents and hand- written signatures play the role of securing the identity of the submitting party and the submitted information. Signatures serve a particular legal function: a) Identification of the signatory, a person has performed an action; b) Proof of t