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FREIGHT LOGISTICS SERVICES IN INTERNATIONAL TRADE
AND ENTREPRENEURIAL OPPORTUNITIES
S.D. Ebidunmi, HND, PGD, MBA
1.0 INTRODUCTION
On the surface, international trade is understood as a simple activity of buying and selling goods where the geographical scope of such trade extends beyond the borders of one country. This notion is as true as the complexity of the multiplicity of services required and involved in facilitating the process of conveying internationally traded goods between their remotest points of origin and destination. These services can be referred to as freight logistics services.
This article is intended to give readers a non-bogus but yet comprehensive understanding of the meaning of freight logistics services, the need for such services, the organizational arrangements available for the provision of these services, the different elements or aspects of these services, and the entrepreneurial opportunities available in this sub-sector of shipping business.
2.0 MEANING OF FREIGHT LOGISTICS SERVICES
The meaning of freight logistics services will surface with understanding of the individual meanings of its three composing words in the context of their specific usage in maritime and international trade circles. Merriam-Webster Dictionary (2016) defines freight in three contexts as: goods that are carried by ships, trains, trucks, or airplanes; the system by which goods are carried from one place to another; and the amount of money paid for carrying goods. The first context is obviously the relevant one as it directly relates to the movement of goods traded internationally. Similarly, the U.S. Department of Transportation (2016) further confirms that freight refers to either cargoes carried or the charges assessed for carriage of cargoes. These definitions indicate that the term “freight” means goods that are transported at a charge by any formal means of transportation.
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logistics in this context would literally involve all arrangements and efforts directed at facilitating flow and storage of goods towards executing an international trade contract.
A service is an intangible product created by the performance of certain operations by a service provider for a service user who benefits, enjoys or undergoes a desired experience as a result of the operations performed. A service is basically differentiated from goods in the sense that unlike goods, they cannot be seen, touched or felt in the physical sense.
To further understand what is meant by freight logistics services, appreciation of the syntactic relationship between these words would be of great help. As implied in the phrase, “services” is a plural noun. “Logistics” is an adjective describing the type of “services”. “Freight” functions as an adverbial qualification of the scope and application of the logistics services. Putting the three words together in the context of international trade, freight logistics services could be succinctly defined as “any of the operations
performed to facilitate the movement and storage of internationally traded goods prior to, during, or after carriage by any formal means of transport”.
Having arrived at this definition which provides a broad understanding of the subject of this article, some prime questions will follow to elicit further understanding. Who are the users of freight logistics services in international trade? What are the different freight logistics services they need? Who are the service providers? The subsequent sections of this article will not only address these questions, but would further explore the entrepreneurial opportunities present in this sub-sector of shipping.
3.0 NEED FOR FREIGHT LOGISTICS SERVICES IN INTERNATIONAL TRADE
The need for freight logistics services in international trade would become clear upon understanding the specific requirements of the parties who trade internationally, the nature of goods that are traded, the statutory requirements to that must be complied with, and the nature of operational and economic influences affecting the success of their businesses. These factors would also suggest the types as well as justification for the specific freight logistics services relevant in international trade.
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or exporting goods. However, majority of these importers and exporters are businesses which are either involved in the buying and selling of production inputs or finished products for ultimate sale to final consumers, ninety percent of which are carried by sea (Organization for Economic Cooperation and Development, 2016) either as full ship loads (liquid and dry bulk cargoes) or as general cargo (containers, ro-ro, break-bulk) on liner vessels.
Charterers who ship liquid and dry bulk cargoes in ship-loads require less freight logistics services because they call at specialized ports and terminals equipped with the necessary facilities for their already streamlined methods and procedures for cargo movements and storage associated with pre-carriage (transportation of consignment from inland point of origin to the loading seaport), on-carriage (transportation of consignment from port of discharge to inland point of final destination), and statutory inspections. For these category of international traders, inspections are less cumbersome as samples are simply taken from the entire ship load and tested. Similarly, documentation and statutory compliance are simple and albeit routine for bulk shipments.
However, shippers of containerized, break-bulk and ro-ro cargoes on liner vessels require several freight logistics services because of the complexity of operational and economic factors that liner trades involve. Some of these factors include the diverse range of cargo types and attendant packing involved, the different transport mode combination options that may be adopted for on-carriage and pre-carriage, the different contracts that may be executed with different carriers and service providers, the different documents required for processing a single consignment, and the high level of statutory compliance and inspections required among others. Each of these factors which require a different set of knowledge and skills to effectively and efficiently address combine to make it difficult, irrespective of the nature of an importer or exporter’s business, to achieve their prime objectives of satisfying their customers and making reasonable returns on their investments. As such they require effective and efficient logistics services to enable them achieve their business goals of timely delivery of the right products, with the right quality, in the right quantity, in good and merchantable condition, and at a reasonable price.
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because these shippers usually have their other areas of business operations or professions. As such it is highly beneficial for them to enter into contracts with companies or firms which specialize in the provision of freight logistics services.
4.0 ORGANIZATIONAL ARRANGEMENTS FOR FREIGHT LOGISTICS SERVICES
Freight logistics services can be arranged either in-house or contracted out to other companies.
If freight logistics services are to be arranged in-house by the international trader or shipper’s organization, it would involve having a well-staffed and adequately equipped shipping division or department and obtaining the necessary licenses and authorization to operate. The cost of setting up and running such a robust section within a shipper’s organization may be colossal, such that the shipper’s organization and scale of operations need to be equally huge in order for it to be economically justified and sustainable. Alternatively and which is the case for most mid-range and small shippers, part or all of their freight logistics requirements may be contracted to other specialized freight logistics service providers. The companies offering these specialized services are called third party logistics service (3PL) companies.
Interestingly, some very big shippers with extensive operations cutting across several business areas and regions may contract different freight logistics services to several 3PLs and further contract the management of all or some of their 3PLs to another non-asset owning company. The non-asset company saddled with the responsibility of managing the 3PLs is known as a fourth party logistics service provider (4PL).
5.0 ELEMENTS/ASPECTS OF FREIGHT LOGISTICS SERVICES
5 5.1 Core Transportation Services
Cargoes traded internationally are transported at one point or the other by one or any combinations of sea, air, road and rail, even though sea transport may be the most dominant in most cases. Several road and rail freighters abound with domestic and regional influences in different parts of the world. However, there are certain notable shipping companies and air cargo companies which dominate international sea and air freight. Sea freight is dominated by the ten biggest shippers namely and in descending order, A.P. Møller-Maersk, Mediterranean Shipping Company, CMA CGM, American President Lines, Hapag-Lloyd, Evergreen Lines, COSCO Container Lines, China Shipping Container Lines, Hanjin Shipping Company, and Mitsui O.S.K. Lines (Ship-Technology.com, 2015). Similarly, the ten biggest air cargo freighters in the world in descending order include FedEx, Emirates, UPS Airlines, Cathay Pacific Airways, Korean Air Lines, Lufthansa, Singapore Airlines, Qatar Airways, Cargolux, and China Airlines (Airlines Box, 2016).
5.2 Ancillary Freight Logistics Services
Apart from the core transportation services offered by ocean liners, air liners, road haulers and rail companies among others, ancillary freight logistics services relevant to international trade are rendered by freight forwarders.
Freight forwarding involves processing full container load (FCL) and less than container load (LCL), break-bulk cargoes, ro-ro cargoes and specialized project cargoes for international transportation by sea, air and other available modes. There are several freight forwarding establishments operating at different levels. The ten biggest global freight forwarding companies by revenue are DHL Supply Chain & Global Forwarding, Kuehne + Nagel, DB Schenker Logistics, UPS Supply Chain Solutions, Kintetsu World Express, Panalpina, Expeditors, Nippon Express, SDV (Bolloré Group), and Hellmann Worldwide Logistics (Hornblass, 2015).
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with the shipping company for the documentary arrangements necessary to ensure the release of cargoes, liaison with customs and other regulatory agencies of government to ensure inspection and release of cargoes, making arrangements for any warehousing requirements, and advising the importer on routing decisions and choice of carriers for on-carriage.
Freight forwarding is the blanket term used to refer to the rendering of ancillary freight logistics services for international trade. While some freight forwarding companies may render holistic freight logistics services, others may specialize in the provision of only one or a few aspects of freight logistics services. Some of the specific aspects of freight logistics services which facilitate international trade include multimodal services, customs brokerage, documentation and statutory compliance facilitation services, cargo insurance, warehousing and distribution, and container freight station and bonded services among others. These services, depending on the specific circumstances, may be interrelated and interdependent with respect to import or export operations. It is worth noting at this point that in addition to or in isolation of offering these services, some freight forwarders go beyond their traditional functions to act as Non-Vessel /Vehicle Operating Carriers (NVOC). Those who assume this status usually book space on board vessels/vehicles of some actual transportation companies and sublet these spaces to shippers, issuing them with transport documents in their name.
5.2.1 Multimodal Services
Multimodal transport services are offered by some freight logistics service providers for specific trade routes that are deliberately designed to cater for transit needs, cost budgets and delivery deadlines as required by certain clients. These service providers arrange for the most optimal combination of road, rail, air, and sea routes for consignment from the clients’ desired point of origin to their desired place of destination. To achieve a streamlined process with effective communication, multimodal transport operators who may be either asset owning or non-asset owning make use of hi-tech tracking technology. They rely heavily on their in-house experts and external business partners to ensure that multimodal shipments, despite their complex nature, are delivered timely as per clients’ expectations.
5.2.2 Customs Brokerage and Statutory Compliance Services
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there are other regulations enforced by other government agencies which certain shipments must precisely comply with. Freight logistics service providers who offer customs brokerage or and these other statutory compliance services must ensure proper documentation of shipments and professional coordination of every other customs brokerage and licensing requirement. This function is necessary in order to mitigate risks and forestall the unnecessary additional costs that may arise in form of fines for non-compliance, and demurrage and utility value loss for delays.
5.2.3 Warehousing and Distribution
Freight logistics service companies which render warehouse services usually involve in the provision of expert analysis of the specific requirements of clients such as periodic demand forecasts and production levels required, inventory requirements, supply lead times and distribution channel effectiveness among others. These analyses usually assists them in offering appropriate advice to clients on the most befitting warehousing services to procure which will yield optimal efficiency and cost-effectiveness, and which would complement already existing processes and procedures. In addition to core warehouse provision for clients’ goods, other value added services that can be offered to enhance quality in this area include vendor managed inventory services, purchase-order management, order fulfillment, kitting, pick-and-pack, rework, and light manufacturing among others (Freight Logistics, 2016).
5.2.4 Cargo Insurance
Different types of shipment such as industrial raw materials, agricultural products and consumer manufactures require different types and levels of cargo insurance to match the different liabilities specific to each commodity. Irrespective of the mode of transportation, freight logistics service providers in this regard must safeguard the value of each shipment not only by advising clients of the different insurance options available, but also by making arrangements for actualizing the chosen policy (ies) and doing so at the appropriate time.
5.2.5 Container Freight Station and Bonded Facility Services.
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agency (ies). Container freight stations can also be used as bonded facilities for temporary storage and accommodation of imports prior to, and for customs inspection and clearance. This helps to decongest busy ports.
6.0 ENTREPRENEURIAL OPPORTUNITIES IN FREIGHT LOGISTICS SERVICES
The most valued asset of most freight logistics service providers is their expertise and know-how which the shippers, save for those big enough to operate a sustainable in-house shipping section, may not have. As such expertise through knowledge and experience are the major requirements for entrepreneurial success in freight logistics service provision in international trade. Put differently, with no or few physical assets, knowledgeable and experienced individuals can partner and set up viable organizations that can render effective and efficient freight logistics services.
The knowledge required to perform freight logistics service functions include but are not limited to thorough understanding of the following main fields:
transport modes and geography: know how in all modes of transport, requirements for packing, handling, stowage and carriage of different cargo types, information technology and transport geography;
statutory compliance: know how in dangerous goods, export/import practice and customs procedures;
risk management: know-how and advice on transport risks, transport insurance, exchange rates and traffic hindrances;
finance and payment: know how in terms of payment, accuracy in all documentary and financial transactions, and ability to calculate and to quote
cross-functional integration and supply chain management: ability to ensure cross functional integration, and good knowledge of the basics of supply chain and logistics management.
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Having theoretical knowledge of the aforementioned is as relevant as having practical understanding of how they apply in real situations. Aspiring entrepreneurs in freight logistics services must strive to acquire substantial practical experience in the specific aspects which they intend to venture into. Such experience can be gained through students’ industrial work experience schemes (SIWES), industrial training programmes, and full time, part time or freelance jobs in transport and logistics establishments.
Armed with ample expertise in terms of knowledge and experience, entrepreneurship in freight logistics business can be either focused on rendering services directly to shippers or directed at providing business development services for already established core transportation companies and ancillary freight logistics service providers. More specifically, business areas offering entrepreneurial opportunities within the freight logistics services sub-sector include but are not limited to those highlighted in the subsequent parts of this section.
6.1 Export Trade Consultancy
This involves identifying export markets for local products, advising local producers on international marketing, and subsequently handling trade negotiations and shipping arrangements for local producers. This service can be rendered to local producers of exportable industrial and agro products in remote areas of the country who have no idea on how to expand their businesses to international markets.
6.2 Liaison with Shipping Lines
Services in this area include advising shippers/through transport service providers on the most suitable ocean freight services to use, booking cargo space and handling documentation for exports, and liaising with shipping companies for documentation and procedures for release of imports. This service can be offered to both shippers in deep hinterland areas, and also to shipping companies offering door-to-door multimodal services.
6.3 Inland Transport Services
10 6.4 Cargo Insurance Services
These services will entail advising shippers on the most suitable insurance covers for imports and exports, arranging and handling documentations for effecting insurance contracts, and in the event of the occurrence of losses, liaising with the insurers with respect to redeeming claims. These services can be rendered either directly to shippers or by acting as agent to insurance companies.
6.5 Marketing Liner Services
Considering the import dependent nature of the Nigerian economy, most liner vessels calling at Nigerian ports return either in ballast or with only few cargoes. Such liner companies and their agents would welcome the marketing of their services to potential exporters for a handsome reward.
6.6 Customs Brokerage and Statutory Compliance
Although this requires obtaining licenses and meeting certain requirements, entrepreneurs could provide consultancy services by using their knowledge and experience to advise and handle documentation and other procedures for established shippers who have the capacity to obtain the necessary licenses and requirements. If handled effectively, this consultancy arrangement may ultimately lead to contractual outsourcing of personnel for shipping services.
6.7 Employee Recruitment and Selection Services
Transportation companies and other established freight logistics companies usually seek the services of various levels of skilled and semi-skilled manpower. Entrepreneurs with sound knowledge and experience in transport and logistics are in a good position to handle recruitment and selection exercises for such companies either exclusively or as consultants to their human resources departments.
6.8 Corporate Training Services
11 7.0 CONCLUSION
Even with the dominance of the freight logistics services industry by large multinationals which offer global freight forwarding services, it can be seen so far that entrepreneurial opportunities abound in this sub-sector for those who are knowledgeable and experienced in transport and shipping business. In a nutshell, knowledgeable and experienced individuals can partner by pooling their different competencies together to achieve rewarding synergies in rendering various services to both shippers and bigger companies alike. In this regard, fresh graduates of shipping, logistics or transport studies from academic institutions have ample capacity to collaborate with others who have acquired some reasonable level of experience in the industry.
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REFERENCES
Airlines Box. (2016, February 04). Top 10 Cargo Airlines 2016. Retrieved from AirlinesBox.com: http://www.airlinesbox.com/cargo-airlines-in-the-world/
DHL. (2015). Definition of distribution logistics. DHL Logbook - in cooperation withTechnical University Darmstadt.
Freight Logistics. (2016, May 22). Freight Management. Retrieved from FreightLogistics.com: http://www.freightlogistics.com/freight-management/
Hornblass, J. J. (2015, June 02). Power 25: Forwarders 1 to 10. Retrieved from Air Cargo World Website: http://aircargoworld.com/power-25-forwarders-1-to-10/
Merriam-Webster Dictionary. (2016, May 20). Freight. Retrieved from Merriam-Webster.com: http://www.merriam-webster.com/dictionary/freight
Organization for Economic Cooperation and Development. (2016, May 20). Trade Costs. Retrieved from OECD Website: http://www.oecd.org/tad/benefitlib/trade-costs.htm
Rushton, A., Croucher, P., & Baker, P. (2010). The Handbook of Logistics & Distribution Management, Fourth Edition. London: Kogan Page Limited.
Ship-Technology.com. (2015, February 24). Mega shippers - the world’s 10 biggest shipping companies. Retrieved from Ship-Technology.com: http://www.ship-technology.com/features/featuremega-shippers---the-worlds-10-biggest-shipping-companies-4518689/
