Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Forwarder / Broker Benchmark: Challenging Times for Logistics Intermediaries

Guest Commentary | By •

Forwarders and brokers are a critical part of international supply chains. They operate in incredibly competitive markets that can be characterized by tight margins and highly influenced by regulatory change. This past spring, we conducted a benchmark study with over 100 forwarders and brokers to evaluate how macroeconomic changes were impacting them, the strategies and tactics they were using to be successful and the importance of technology to their business. Below, we’ve included some of the findings of the benchmark study. Regardless of whether you are a forwarder or broker, you are going to want to read this post for the lessons learned here that apply to all industries.

Tough market to make money
We asked forwarders and brokers about their profit margins and, as you can see in Figure #1, those margins are pretty thin. Profit margins have been under severe pressure for a number of years as importers and exporters have been very cost focused and many forwarders and brokers have struggled to differentiate themselves. Almost 20% of the survey participants are challenged to be profitable at all and slightly less than 20% have strong financial performance.

Figure 1

There’s a wide gap between the “haves” and “have nots”. So, we took a look at the data from the perspective of the bottom and top financial performers, – and this is what we found.

Global instability and regulatory change are top of mind
By a 2:1 margin for all respondents, global instability was reported as the top macroeconomic driver. Over 90% of the bottom financial performers stated it was their major concern as opposed to 50% of the top financial performers (see Figure #2). The bottom financial performers tended to be the smaller forwarders and brokers and, as we will illustrate later, they’re not necessarily focused on the key elements for stability or financial success.

Figure 2

Regulatory changes also dominated forwarder and broker agendas. With over 80% of the respondents citing that they had US operations, it was no surprise that the US Advanced Commercial Environment (ACE) change underway was the top concern. It is interesting to note that 67% of the bottom financial performers as opposed to 45% of the top financial performers thought ACE was the top regulatory issue (see Figure #3). Based upon experience with thousands of forwarder and broker customers, we believe that this is because the bottom financial performers wait until the last moment to become compliant, as opposed to the top performers who tend to have more resources and invest early to achieve compliance to changing regulations.

figure 3

IT is critical, but viewed as infrastructure to support initiatives
Technology, especially related to regulatory compliance, was also top of mind for all respondents. However, given the responses on industry change (see Figures #4 & #5), over 75% of respondents said that they were going to spend more on IT in the next 2 years than they had previously. “High service level” (71%) was cited as the top competitive weapons and it was even more important for top financial performers (82%). We believe that the bottom financial performers are more heavily investing to gain or maintain compliance and catch up with customer demands for advanced capabilities like purchase order management and shipment visibility.

Figure 4

Figure 5

Strategies and tactics differed significantly by financial performance. From a financial performance perspective, the strategies and tactics directly aligned with financial performance. Top performers are more prepared for change and growth by being customer focused (36% versus 8%). In addition, top financial performers are more focused on the services that improve margins. Bottom financial performers were more focused on financial mechanics like cost cutting and raising prices to improve margins.

Figure 6

Regardless of whether you are a forwarder and broker, this benchmark study has some valuable lessons for every organization. Financial performance is a function of your company’s strategies and tactics that drive value for your customers. It’s not driven by financial “engineering”. In addition, investing proactively allows the organization to be in better control of its destiny and not just reactive to industry change. To learn more, go to Forwarder Broker Benchmark Survey to get the study ebook.

As Executive Vice President, Marketing and Services, Chris Jones is primarily responsible for Descartes marketing activities and implementation of Descartes’ solutions. Chris has over 30 years of experience in the supply chain market, including the last 10 years as a part of the Descartes leadership team. Prior to Descartes, he has held a variety of senior management positions in other organizations including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group and Associate Director Operations & Technology for Kraft Foods.

Can You Rely on Freight Forwarders for Trade Compliance?

Global Trade | By •

Can you rely on freight forwarders for trade compliance?

To answer that question ARC interviewed trade professionals from 12 shipping companies. All of them agreed that you cannot put your fate into the hands of freight forwarders when it comes to compliance. If goods are misclassified, or if shipments go to restricted parties, the shipper is considered the Importer of Record, not the freight forwarder. And it is the Importer of Record that pays the fines and penalties imposed by a governmental authority. The exception is some Latin American countries where there is joint liability between the shipper and the forwarder. For egregious offenders, those penalties can run into the millions of dollars, as was the case for one of the companies we interviewed.

A director of trade compliance at a High Tech company provided the best explanation of why companies need to retain control. He believed that compliance is not high on the list of what forwarders care about, even though they say it is. The forwarders his company works with care about what percent of goods get delivered in a particular time window, because their pay is linked to that metric. He has seen many shipment declarations that he knew contained multiple products with different classifications, but the forwarder declared just one.

How do shippers that work with freight forwarders retain control? In a posting last month, I wrote about how Leggett & Platt’s GTM solution completely automates the information flowing between suppliers, freight forwarders, customs authorities and various internal departments. All the data elements necessary for an Importer Security Filings (ISFs) automatically propagate into the document without the need for rekeying. The solution is so automated that the company has all the information it needs to do self-filings if it wants. Leggett & Platt, however, still prefers to have freight forwarders as a layer between itself and customs. The forwarders provide a second set of eyes for compliance, and if there is a mistake, they provide local representation with foreign customs agencies. John Wainwright, the Vice President of Customs Compliance at Leggett & Platt, thinks the ability for freight forwarders to provide these services makes them worth the money.

But how do shippers without a GTM system control the process? Hu Huang, Director of International Logistics & Customs Compliance at Kichler Lighting, told me she sends their freight forwarder a CD that lists all their items and HTS codes on a quarterly basis. Therefore, any mistakes made at filing are likely due to Kichler, not its partner. Kichler also sends purchase orders to its forwarder via EDI and those POs have unit prices on them. The forwarder verifies the code, quantity, and shipping windows. Thus, Kichler’s partner serves as an important check in the process.

Another company used a process similar to Kichler’s, except it used a portal. Internal folks classify the products and brokers can access this data by entering SKU data into the compliance database on a portal. The system provides the trade classification for the broker. If a product has not been classified, the brokers can contact the company’s trade people and get a classification. Every few months, the company pulls data out of the broker system and checks trade classification and country of origin data. It puts this data in a pivot table and audits the work. The analysis shows that the partner’s work is 99.7 percent accurate. If there are any problems, the company contacts customs and submits a revision. (Customs compliance ownership belongs to the shipper —  i.e.,  the Importer of the Record. This is a responsibility issue, not an automation or system issue. In any event, Customs only looks for the Importer of Record, not the freight forwarder.)

Some of the shippers interviewed believed they could use freight forwarders to help classify goods and still retain a large degree of control. One shipper retained an internal trade staff, yet used two forwarders to augment their staff. They worked with only the largest and most reputable of brokers; they audited a sample of their broker’s classifications, depending on the product category, either every two weeks or monthly; they engaged in extensive co-training exercises when the forwarders were hired; and they continue to bring the two trade staffs together to examine processes and issues on an annual basis. They described this as a two way street where the company and the forwarders learn from each other. In certain areas, the shipper has become better at compliance by interacting with its partners.

In short, the answer to “Can you rely on freight forwarders for trade compliance?” is no, but the methods used by shippers to retain control are very different.

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