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FORWARDING AGENT SELECTION THROUGHOUT GLOBAL FREIGHT

FORWARDER NETWORKS: A FUZZY TOPSIS ANALYSIS

Ceren Altuntaş

1

, Yücel Öztürkoğlu

2

Abstract The freight forwarders are important intermediaries for the facilitation of transportation services in an effective and efficient manner. They may become 3PLs by extending their services to other logistics activities as well but generally their main service is the successful organization of transportation orders both for full and consolidated cargoes. Being the service provider for global supply chains, freight forwarders also require a strong partner network all around the world in order to sustain their successful services. Several forwarder networks like IFLN or WCA have been established with the aim to institutionalize this requirement. However, the forwarders still seek other partners in the countries that they provide services to or from. In this study, the partner selection of these freight forwarders is evaluated through fuzzy TOPSIS analysis. The forwarders’ partner selection criteria and the requirements that they seek are collected through unstructured interviews. The various stages of the fuzzy TOPSIS method are represented and the methodology is introduced for real case problems.

Keywords – Freight forwarder, Forwarder networks, Fuzzy TOPSIS,

1.INTRODUCTION

Logistics outsourcing is a widely studied topic in the related literature due to its large share in the global logistics industry and strong impact on overall logistics efficiency. Freight forwarding can be considered as a dimension or a function of logistics outsourcing which deals specifically with the transportation of freight. Although it is a traditional logistics service, consolidated transportation preserves its importance among other logistics services because of its final impact on the overall logistics cost and service quality. Consequently, freight forwarders maintain their positions as important intermediaries within the global logistics channels.

Throughout the development of globalization process and the transformation of the logistics outsourcing trends, some of the freight forwarding companies grew in size and market share and became large international third party logistics service providers (3PLs). This resulted in a collaboration requirement for the remaining small and medium sized freight forwarding companies in order to achieve a large scale resource portfolio and sustain their market position [1]. The collaboration requirement already lies in the definition of 3PLs as logistics alliances between business partners who collaboratively design and tailor logistics services for the benefit of long term business relationships in the networks that they act (Bagchi and Virum, 1996). This network perspective is fundamental in global logistics systems where many actors exchange resources or execute different acts in order to seize common benefits.

This study, makes an attempt to focus on the horizontal relationships and cooperation within logistics networks. In order to achieve this aim, freight forwarders and freight forwarder networks are selected in a more narrow sense. The important criteria in network partner selection for freight forwarders are explored and an

1Ceren Altuntaş, Yaşar University, Vocational School, İzmir, Turkey ceren.altuntas@yasar.edu.tr

2Yücel Öztürkoğlu, Yaşar University, Faculty of Economics and Administrative Sciences, Department of International

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exemplary multi-criteria decision-making (MCDM) methodology is exhibited. The study tries to fill a void by presenting an exemplary partner selection process in freight forwarder networks as an example of horizontal cooperation in logistics which is a less explored area of research in the literature [3].

Under the direction of this objective, the following section exhibits a review of the literature on freight forwarders, freight forwarder networks and horizontal cooperation in such organizations. The methodology section provides the systemic steps followed throughout the exploration of freight forwarder criteria for network partner selection. In order to evaluate and select the best partner alternative technique for order of preference by similarity to ideal solution (TOPSIS) methodology is implemented. The methodology is combined with fuzzy logic in order to eliminate the vagueness of human judgments in evaluating the criteria. The paper is finalized with conclusions, limitations and suggestions for future research.

2.LITERATURE REVIEW

Freight forwarders (FF) are defined by [4] as companies that serve both to shippers and carriers by organizing and coordinating the transportation of goods. Besides transportation services they can also offer warehousing, insurance, fumigation, lashing and other related operations. According to an early definition, their main function lays under less-than-a-truck-load (LTL) or less-than-a-container-load (LCL) shipments. They receive such, so-called partial shipments and issue a bill of lading (B/L) to the real shipper. They consolidate all the partial shipments they receive at specific terminals and send the full loads through main carriers. At the arrival station, the full loads are deconsolidated into part loads and they are delivered to their receivers. For the completion of this service the shipper or the receiver, depending on the transportation terms, pays a through rate that covers all expenses from the point of origin to the point of destination [5]. In order to fulfill the consolidation act, freight forwarders require public or private terminals or warehouses which is the main factor that facilitated the evolution of these intermediaries [6]. In addition to this main consolidation service, freight forwarders also provide full container or truck shipments at better rates when compared with direct shipments; they pay freight charges and provide extensions in due dates; they trace and expedite shipments or they recommend alternative routes for existing shipments [7]. They are the landward customers of seaports that offer freight movement services and advise to their customers [8].

To be able to provide all these services globally, freight forwarders require an extensive network of partners at the locations that they serve. This is a natural organizational structure for large freight forwarders that possess a wide international existence. These companies have their own branches all over the world and they work with subsidiaries located under the same corporate umbrella. Despite segregated performance measures, the overall profit is common and belongs to the central organization at the end of the day.

However, for small-sized local freight forwarders the situation is quite different. They need to build up partnerships with other companies operating at the locations that they send shipments to, in order to find a receiving agency. This is because the final receiver of the cargo requires certain bundle of services at the point of destination. A horizontal collaboration is required between the shipping freight forwarder and the receiving freight forwarder either for a single transaction or for a certain time period. This creates the problem of partner selection among the alternatives that the decision maker has never met most of the time. Trust, service quality, payment guarantee are all questions that rise throughout this selection problem.

In order to eliminate this problem, a different organizational structure has developed in the freight forwarding industry. Freight forwarders unite under sectorial networks which are managed by a single company and they utilize these networks in order to find service partners. The managing company does not need to be a freight forwarder company but it should have expertise in the nature of the business. The member companies connect to the network through a contract and an annual fee and by connecting they agree to obey certain trade rules within the network. Some examples to these freight forwarder networks operating in the industry are IFLN, WCA, Pacific Shipping, Combined Logistics Network, Asian Groupage Service, Planet Logistics Network and Mac-Nels.

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dyadic linkages, organization sets, actions sets and networks. A network may appear in the form of a virtual organization where multiple enterprises aim to combine their resources to achieve a larger scale of organizational goals [10]. The network organization has less number of layers when compared with traditional organizations and it is managed according to market mechanisms rather than bureaucratic and formal administrative procedures [11]. [12] explains the rise of this organizational structure to (1) advanced communication and information technology and (2) institutional restructuring in the form of deregulation, privatization and weakened social contract between the employee and the employer. The groupage (LCL or LTL) system employed by the freight forwarding companies is similarly, an inter-organizational network that enables an interchange of resources between companies in order to reach equilibrium between demand and available services and satisfy the final customer [13].

In freight forwarder networks, members located in different countries aim to combine the resources and competencies in order to achieve mutual benefits. The members of these international freight forwarder networks earn their profit from the difference between the price of the transportation service that they quote to the shipper and the cost of the total service [1]. That’s why the price of the services they buy for resale is very important for their financial performance like [14] suggest. It is also important to share the generated profit in a beneficial way for all partners in the network in order to sustain a long-term collaboration [13], but this is dependent on finding the right partner to work with. This study makes an attempt to explore these criteria and exhibit an exemplary methodology to evaluate possible partners for horizontal collaboration in freight forwarder networks.

3.METHODOLOGY

3.1. Interview

In order to explore the partner selection criteria of freight forwarders within network organizations, unstructured interviews were carried on with selected freight forwarders in Turkey. The sampling methodology

employed in this process is purposive sampling that depends on the researcher’s expertise in terms of sample

choice. Within this expertise framework, the samples that have specific expertise or experience related with the subject are chosen purposively in order to reflect the population as exactly as possible [15]. Following this methodology, five small-sized local freight forwarding companies operating in Turkey were selected for interviewing and they were contacted by the researchers via e-mail correspondence for telephone interview appointments. The interview dates were fixed and the researchers contacted the samples according to the previously set schedules.

During the interview sessions, they were requested to refer shortly to the operational processes of the freight forwarder network that they are a member of and then they were expected to itemize the criteria that they use in order to select partners from these networks. The interviews were recorded by the researchers and transcript for analysis. The operations of these networks were summarized firstly. Afterwards, the criteria listed by the respondents were decoded; multiple referrals were eliminated in order to develop a filtered list.

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Regarding the criteria to select the best partners in different countries of the world various items were mentioned by the respondents. Trust, payment performance, coverage area and response time were among the most frequently cited ones. The responses were in accordance with [3] findings regarding items that foster horizontal collaboration in logistics industry such as reliability of the partner or the fair allocation mechanisms for benefits. The list of the criteria and their short explanations are exhibited on Table 13.

TABLE 1.

The Criteria for Partner Selection in Freight Forwarder Networks

Criteria Explanation

1. Wide network The opportunity to work with the same partner in close or similar countries as well.

2.Trust Trust for rate quotations at the point of destination and trust for on time payments.

3.Interest in Turkish market Some forwarders are interested only in Chinese or US market. It is important for the partner to have interest in shipments in to and out of Turkey. Otherwise the partner does not pay enough attention to the service quality of these transactions.

4.No other partners in Turkey Multiple network partners in the same country causes quotation conflicts or shifting of traffic from partner to partner which is not wanted.

5.The title of representation in meetings

The participation of top management or other decision makers to the annual network meetings is important for the duration and stability of the business relationships between partners.

6.Fast response Fast response to rate or service requests to querries regarding shipments is highly necessary under strong competition.

7.Market knowledge It is important for the employees of the partner to have a good knowledge of the market in order to quote competitive rates and inform the partners about developments in the general environment.

8.Good level of English These networks have members from all over the world but the common language in logistics industry is English. So a good level of both oral and written English is strongly required for effective communications. 9.Accessibility Ability to reach contacts out of working hours is a plus. This is highly

required due to time differences between regions.

10.Payment performance Partners generally apply certain credit terms to each other and they are expected to pay on their due dates.

11.Stability in membership Staying in the network for a long time and renewal of membership every year is a plus.

12.Reciprocity principle This is both a plus and a minus. Demanding business just because giving business to a member should not be forced too much. All partners have businesses distributed to many other partners and sometimes the nature of a certain relationships should not be changed just for paying back to a partner.

13.Ethics Ethical behavior in terms of quotations, respect to existing business, obeying the intermediary relations, avoiding direct contact with final

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customers for eliminating partners are essential.

3.2. Fuzzy TOPSIS Example for Partner Selection in Freight Forwarder Networks

MCDM technique was initially introduced by [16] and then it was extended to present a unique technique, called the technique for order of preference by similarity to ideal solution (TOPSIS). Reference [17] realized that decision makers usually are more confident making linguistic judgments than crisp value judgments. He extended TOPSIS to fuzzy environments; this extended version used fuzzy linguistic value (represented by fuzzy number) as a substitute for the directly given crisp value in grade assessment.

The algorithm for Fuzzy TOPSIS is as follows [18];

Step1. Confirm the evaluation criteria and alternatives of the decision-making problem.

Step2. Use pair-wise comparison to get the degree of importance of all criteria and evaluate all of the

alternatives under each criterion, then ask decision makers to assign the alternatives an appropriate fuzzy number. The linguistic variables developed by [19] given in Table 2 and Table 3.

TABLE 2.

Linguistic Variables for the Importance Weight of Each Criterion

Very low (VL) (0, 0.1,0.3)

Low (L) (0.1,0.3,0.5)

Medium (M) (0.3,0.5,0.7)

High (H) (0.5,0.7,0.9)

Very high (VH) (0.7,0.9,1.0)

TABLE 3.

Linguistic Variables for the Ratings

Very poor (VP) (0, 0,3)

Poor (P) (0,3,5)

Fair (F) (2,5,8)

Good (G) (5,7,10)

Very good (VG) (7,10,10)

Step3.Construct the fuzzy decision matrix

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C1 C2

Cn

Step4. Construct Normalized Decision Matrix

Normalize the decision matrix in order to make each criterion value is limited between 0 and 1, so that each criterion is comparable. The initial data with respect to each criterion will be normalized by dividing the sum of criterion values. For fuzzy data denoted by triangular fuzzy number as (aij,bij, cij);

Normalized fuzzy decision matrix denoted with R and formulated as;

mxn

B is expressed as set of benefit criteria and measured with;



Step5. Construct the weighted normalized decision matrix

If V

[vij]mxn i=1,2,…,m, j= 1,2,…,n then the weighted decision matrix is; vij

rij(.)wj

Step6. Determine the fuzzy ideal and the negative solutions

If the positive ideal fuzzy solution (A*) and the negative ideal fuzzy solution (A) then;

)

Step7.Calculate the separation measures for each alternative

The distances between each alternative A* and A are respectively:

Step8. Calculate the relative closeness to the ideal solution

Step9. Rank the alternatives and give the last decision based on the Ci values.

3.3. Numerical Example/ Case Study

In this section, we present a numerical example to show how Fuzzy TOPSIS method can be applied in the multi-criteria decision problems. We assume that there are three decision makers (D1, D2, D3) who decide to select

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the best forwarders’ partner for their logistics company and there are five different forwarder partner alternatives (A1, A2, A3, A4). To decide the forwarder partner selection criteria, unstructured interviews were made with five

different logistics companies. Based on the interviews, the selection criteria are trust (C1), wide network (C2), fast

response (C3), accessibility (C4) and ethics (C5). These are randomly selected for representation of the method.

Proposed fuzzy TOPSIS method is applied to solve the multi criteria problem.

The decision makers use the linguistic variables developed by [19] as shown on Table 2 and Table 3 for each criterion. The triangular fuzzy numbers to express importance of each criterion are used. The linguistic terms

range from ‘‘very low” to ‘‘very high”. Each decision maker rates each criterion’s weight with respect to

linguistic term. The result is shown on Table 4. TABLE 4.

Assesment Weights for Each Criteria in Linguistic Term

DM1 DM2 DM3 C1 H H VH C2 H VH VH C3 VH H M C4 M VH M C5 VH H VH

Same as previous step, each decision maker rates alternatives with respect to linguistic terms as shown on Table 5.

TABLE 5.

Assesment Grades Given by Decision Makers for Each Alternative

DM1 DM2 DM3

C1

A1 G G VG A2 VG G G A3 G G F A4 F G G

C2

A1 P F F A2 F G G A3 VG G VG A4 F G P

C3

A1 VG G VG A2 F F G A3 G F VG A4 P G G

C4

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C5

A1 G G G A2 G F G A3 VG VG VG A4 F G F

Then we construct the fuzzy decision matrix and weighted vector busing on Step3. In order to determine objective weights by the fuzzy measure, the decision matrix needs to be normalized for each criterion to obtain the best forwarders’ partner value of each criterion. Normalized fuzzy decision matrix and the weighted normalized decision matrix are given in Table 6 and Table 7.

TABLE 6.

Normalized Fuzzy Decision Matrix

C1 C2 C3 C4 C5

A1 (0.57,0.80, 1) (0.13,0.43, 0,70) (0.63,0.90, 1) (0.57,0.80, 1) (0.50,0.70, 1) A2 (0.57,0.80, 1) (0.40,0.63, 0,93) (0.30,0.57, 0,87) (0.30,0.57, 0,87) (0.40,0.63, 0,93) A3 (0.40,0.63, 0,93) (0.63,0.90, 1) (0.47,0.73, 0,93) (0.57,0.80, 0,1) (0.70,1, 1) A4 (0.40,0.63, 0,93) (0.23,0.50, 0,77) (0.40,0.63, 0,93) (0.40,0.63, 0,93) (0.30,0.57, 0,87)

TABLE 7.

Weighted Normalized Decision Matrix

C1 C2 C3 C4 C5

Weights (0.57,0.77, 0,93) (0.63,0.83, 0,97) (0.50,0.70, 0,87) (0.43,0.63, 0,80) (0.63,0.83, 0,97)

And then, we calculate the positive ideal solution and the negative ideal solution for each alternative. Following this step, closeness coefficient (CI) is calculates and the best alternative is determined. According to the measures, we rank the alternatives. The ranking orders of the four candidates with different weights are given on Table 8. According to these results, the order of rating among those alternatives is; A3> A2 > A1 > A4, The best

alternative would be A3.

TABLE 8.

Closeness Coefficient Table

S+ S- CI* RANK

A1 1,086 0,665 0,380 3

A2 0,818 0,748 0,478 2

A3 0,524 1,100 0,677 1

A4 1,216 0,238 0,163 4

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This study deals with the problem of horizontal cooperation within freight forwarder networks and specifically partner selection in such environments. The methodology represented in the paper explores the freight

forwarders’ criteria for partner selection and exhibits the steps to be followed in order to evaluate these criteria.

The problem has been described as a multi-criteria decision making method under uncertainty, prompting the need for the method to handle imprecise judgments from decision makers. Fuzzy logic is considered ideal to deal

with this type of problems. Thus, fuzzy TOPSIS is applied to select the best forwarder partners at a specific port

or country. The method is easy to compute and the results are easily interpreted, because it directly gives the definite value to the decision makers and helps them to evaluate the final results.

The study has its limitations though. The qualitative research held in order to explore selection criteria was held in Turkey and the network evaluations of Turkish freight forwarders are bound with Turkish transportation and logistics industry. However, freight forwarding can be considered as an international business where global norms are highly accepted so a suggestion may be to conduct a real-life application of this study to an existing freight forwarder network that is composed of companies from different countries. The results may yield the network-specific evaluation criteria and their evaluations.

In terms of further suggestions, future studies can apply the proposed method to other areas of decision-making or the computation of weights of other objects. The methodology can be combined with other horizontal cooperation areas that are valid between freight forwarders or the scope may be extended to other logistics service providers (LSPs) in order to contribute the literature for horizontal cooperation in logistics.

REFERENCES

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, “

Collaborating freight forwarding enterprises

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[2]

Bagchi, P.K. and Virum, H. (1996), “European logistics alliances: a management model”,

International Journal of Logistics Management, Vol. 7 No. 1, pp. 93-108.

[3] Cruijssen, F., Cools, M., Dullaert, W., 2007

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Horizontal cooperation in logistics: Opportunities

and impediments”,

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[4]

Lambert, D.M., Stock, J.R., Ellram, L.M., 1998, “

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Ahearn, D. J. 1946, “

Freight Forwarders and Common Carriage

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15, No.2, pp. 248-267.

[6]

Pope, D.J., Thomchick, E.A., 1985

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U.S. Foreig

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Vol. 24, No. 3 pp. 26-36.

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[9] Whetten, D.A., 1981, “

Interorganizational Relations: A Review of the Field

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[10] Ritter,

T.,Gemünden, H.G., 2003, “

Interorganizational Relationships and Networks: An

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Miles, R.E. and Snow, C.C., 1995, “

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[12] Fulk, J., 2001, “

Global network organizations: Emergence and future prospects

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[13] Krajewska, M.A., Kopfer, H., Laporte, G., Ropke, S. and Zaccour, G., 2008,

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cooperation among freight carriers: request allocation and profit sharing

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[14] Murphy, P.R., Daley, J.M., Dalenberg, D.R., 1991,

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[15]

Cooper, D.R., Schindler, P.S. 1998,

“Business Research Methods” NewYork: Irwin

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[16] Hwang, C. L., Yoon, K. S., 1981,

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”,

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[17] Chen, C.T.

, 2000, “Extensions

of the TOPSIS for group decision-making under fuzzy

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[18] Wang, Y. J., Lee, H. S., & Lin, K., 2003

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Fuzzy TOPSIS for multi-criteria decisio

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International Mathematical Journal, Vol.3, pp.367

379.

Gambar

TABLE 1.   The Criteria for Partner Selection in Freight Forwarder Networks
TABLE 4.  Assesment Weights for Each Criteria in Linguistic Term
TABLE 6.

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