Shipping cargo is a major element of distribution, whether it’s importing inventory from an overseas manufacturer or delivering large wholesale orders to business customers. Freight forwarding can simplify logistics by increasing speed, accuracy, and quality of service.
Freight forwarding is the use of a third party to arrange freight transport. These third parties, known as freight forwarders, coordinate the logistics of shipments from one location to another between the owner of the cargo and the transportation operators.
In most cases, freight forwarding involves international transport from a manufacturer or warehouse to another destination—often an intermediary warehouse, the cargo owner’s fulfillment center, or a large-scale customer, like a retailer. Freight forwarding services manage the entire journey, which may involve multiple stops and modes of transport, including air, sea, rail, and ground transportation.
Freight forwarders are not to be confused with carriers. The carrier is the freight operator—the company that owns and controls the planes, trains, ships, or trucks. Freight forwarders act as middlemen between the carriers and the owners of the goods that are being shipped.
Today, the line between freight forwarders and carriers is often blurred, with some carriers and forwarders providing similar services. To better understand the distinctions between these companies, it helps to know the four phases of the freight-forwarding process.
The process starts with a client contacting the forwarder to arrange freight services. Imagine that a U.S.-based direct-to-consumer brand needs to send its inventory from a Chinese manufacturer to its domestic 3PL’s warehouse. After the initial contact, the forwarder arranges the origin handling process with one or more carriers. This involves the freight being transported from the manufacturer’s facility to the origin port.
The forwarder ensures the cargo has customs clearance for exports. It's then sent via sea or air through the international carrier the forwarder has arranged. Port and customs documentation can be challenging without the expert help of freight forwarders. Since they have a rapport with and deep knowledge of foreign governments and other entities, they’re better equipped ensure everything goes smoothly.
Once the freight arrives at the destination port, the cargo must satisfy all import customs requirements. Once again, freight forwarders know exactly how to handle this process to minimize delays and other risks.
Finally, the forwarder arranges for land transport of the cargo to its final destination. To do this, the forwarder works with multiple carriers to find the right options based on the client’s needs and budget. A freight forwarder can help find the most efficient routes and carriers for each client's needs.
A freight forwarder is a company or firm that provides freight forwarding services. Some forwarders are larger than others. Think of a forwarder as the middleman between a business that needs to move cargo and all the other parties involved, from carriers to warehouses and local governments. The forwarder is the intermediary for the arrangement of every aspect of the logistics journey.
The freight forwarder handles all the communication and logistics planning from origin to destination. In addition to arranging overseas cargo transport by air or sea, a freight forwarder arranges any necessary inland shipments. Because there are so many details involved in freight transport, planning is complex. However, freight forwarders offer a dedicated service and have the necessary knowledge, tools, connections, and experience to ensure inventory arrives on time, intact, and in compliance with applicable import and export regulations.
Let’s use a hypothetical example to illustrate the role of a freight forwarder.
Ryan’s Baseball Caps is a direct-to-consumer brand based in Philadelphia. RBC uses a manufacturer in China to produce its hats, then imports them to a warehouse in New Jersey for order fulfillment. RBC contracts with a freight forwarder to get its hats from the factory to its 3PL’s fulfillment center.
The freight forwarder liaises with various carriers to move the baseball caps across the following points:
As the freight forwarder organizes the baseball caps’ journey, it will compare carriers’ rates, lead times, and service routes to find the optimal solution that gets them to New Jersey in a reasonable amount of time for the best price.
There are many potential benefits for ecommerce companies that choose to use forwarding, including cost savings, greater potential scalability, and increased compliance with complicated import and export laws and taxes.
Since forwarders have access to a global network of carriers, they’re often able to identify the most cost-effective route for cargo. Their negotiating power with those connections may yield better rates or volume discounts. Some also offer value-added services that help companies save on fees that would otherwise be charged by other vendors, like the 3PL.
With their expertise in transportation sourcing and customs, forwarders help businesses reach new markets, especially internationally. They also provide other helpful insights that can facilitate better decisions for growing companies.
With the efficiency they provide, freight forwarders minimize delays and streamline transport. Their networking skills and customs knowledge also help to move freight quickly.
As businesses scale, their shipping needs grow with them. With freight forwarding services, businesses have more flexibility to accommodate growth. As shipments increase in regularity and size, the complexity of managing cargo across manufacturers, carriers, and destinations grows exponentially, making the knowledge, skills, and services of freight forwarders all the more valuable.
Moving goods across international borders comes with a host of complex legal requirements, from taxes to customs. A freight forwarder takes on the responsibility of ensuring compliance in these important matters and handles the paperwork on their clients’ behalf. Since freight forwarders are dedicated to international transport sourcing, they also keep up with changes in customs and international laws. If those affect future shipments, they will advise affected clients.
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While a freight forwarder coordinates freight transport, a 3PL offers services related to fulfillment, which is the final leg of distribution—from warehouse to customer.
Third-party logistics services include warehouse activities in addition to logistics management. In contrast to a freight forwarder, a 3PL offers more services—including pick and pack, kitting, bundling, and returns—and often provides software that helps their customers with inventory management and order management.
When it comes to shipping, 3PLs provide parcel shipping, and their customers benefit from negotiated rates with shipping carriers, which are typically lower than standard advertised rates due to the sheer volume of packages a 3PL ships. Occasionally, a 3PL will offer freight forwarding or coordination for domestic shipments and wholesale orders.
Freight forwarding and shipping differ in three primary ways:
By definition, freight is the transport of bulk goods—the cargo is often palletized, meant to be broken up upon arrival at its destination. Shipping can be used to refer to both freight and small, individualized packages, like those that would be sent directly to a customer’s residence.
Freight forwarding is the process of organizing logistical details between cargo owners and transportation operators, while shipping is the act of actually moving the goods.
A freight forwarder may arrange for a specific cargo load to go from Point A to Point B through multiple freight or shipping companies—Company 1 might take the goods from the factory to the origin port, while Company 2 carries the goods across the ocean and Company 3 delivers the goods to the client’s warehouse.
Shipping companies usually don’t work with other shipping companies. A large shipping carrier like FedEx will carry a package to its destination using only FedEx vehicles and employees, whether it’s traveling 10 miles or 10,000. However, a shipping company may coordinate with a freight forwarder to handle one leg of a long journey, even though that cargo is later picked up by a different shipping company.
As previously mentioned, there are exceptions to this rule. Some freight forwarding companies also own their own fleet of transport vehicles, and some shipping companies offer freight forwarding services; but in general, freight forwarding is logistical coordination while shipping is the physical movement of goods.
If you think freight forwarding may be right for your business, Airhouse can help. We assist in creating strategies with logistics solutions that reduce costs and boost efficiency. Schedule a call with us to learn more.
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