UNIVERSITY OF PLYMOUTH

Dr. Richard Gray

MBM5229 INTERNATIONAL LOGISTICS AND SUPPLY CHAINS

INTERMEDIARIES IN INTERNATIONAL LOGISTICS

INTRODUCTION Various types of intermediary have a role to play in international logistics. They have existed for centuries and have remained prominent into the 21st century. Despite predictions of their demise throughout the second half of the 20th century, intermediaries in international logistics such as freight forwarders have proved to be resilient and adaptable. They have not only survived but also developed new functions with the advent of containerisation, simplified documentation systems, and advances in information technology. OBJECTIVES t the end of this unit you should be able to fulfil the following ob!ectives"

#nderstand the interaction between the trading and logistics channels

ppreciate the complex relationship between ownership of goods and transport decisions in international trade.
"

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!)

 $dentify the functions of intermediaries in trading channels. $dentify the functions of intermediaries in logistics channels. #nderstand the nature of vertical mar%eting systems.
ppreciate the different relationships between shippers and freight forwarders.

$dentify the different types of complexity li%ely to influence the use of intermediaries.
ppreciate the relationship between the carrier and the logistics intermediary.

$dentify the changing role of the freight forwarder. $dentify changes in industry barriers related to international logistics.
ssess the potential for global logistics providers.

TERMINOLOGY t the end of this unit, you should also be familiar with the following terminology" &'( dministered V)*

sset holding sset ownership sset+based ssortment and volume convenience ,orderless world ,rea% bul% ,ritish $nternational -reight ssociation .,$- / 0ommoditisation 0ommon carrier 0ontactual efficiency 0ontractual V)* 0onventional channel 0orporate V)* 0ustomer service 0ustomer support

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!)

Diversification -acilitator -low management mega+sector -orward integration -reight forwarder 1lobal logistics provider 1lobalisation 1roupage or consolidation service 2ard integration 2ybrid service $304T56)* 2000 $nformation complexity $ntegrator (ogistics channel (ogistics intermediary (ogistics provider )anagement+based company )ar%et coverage )ar%et information )ega+carrier 3etwor% complexity 3on asset+based provider 3V400 4cean carriers 4cean transportation intermediary .4T$/ 4ne+stop shopping 4utsourcing 'rinciple of postponement 'rocess complexity 'roduct availability 'roduct complexity 'roduct transformation 6everse integration *ervice differentiation *ingle 5uropean )ar%et .*5)/ *oft integration Trading channel Transport architect

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!)

 Transportation supermar%et Value+added logistics .V (/ Vertical mar%eting system .V)*/

1. INTERACTION OF TRADING AND LOGISTICS CHANNELS

(ogistics intermediaries are typically facilitating the smooth operation of a channel for goods. Facilitators such as freight forwarders are important, because although they do not buy, sell or own the goods moving through a channel, they assist in the efficient performance of the channel. )ar%eting channels exist for services as well as for goods. The logistics channel is itself a mar%eting channel of a service such as shipping or forwarding. 2owever, because the logistics channel provides a support service for a mar%eting channel for goods, we need to consider the interaction of the two channels + the goods .or trading/ channel and the logistics channel. s a starting point, let us assume that the simplest system consists of two parallel channels . Figure 1/.

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Figure 1: Goods (trading) and transport channels in parallel The carrier is the supplier of shipping services to the shipper, and the shipper is the supplier of goods to a customer. $n a mar%eting channel for goods, otherwise %nown as a trading channel, a simple system is between two organisations, the supplier and the customer. typical example is the flow of goods between manufacturer and retailer. 2owever, there is often a wholesaler or other intermediary between those two organisations. *imilarly, intermediaries such as freight forwarders exist in logistics channels, situated between a shipper and a carrier. (ogistics intermediaries have traditionally performed a range of functions, particularly associated with international transport. *uch functions include groupage or consolidation services, and preparation of shipping documentation. Figure 2 develops the example given in Figure 1 to CHANNEL show the TRADING two channels with intermediaries.
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(R,-S&)R( I-('R*'DI,R.

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International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!) C,RRI'R

LOGISTICS CHANNEL

Figure 2: Parallel goods and transport channels with intermediaries

7hat is a shipper8 $n a logistics channel, the shipper can be either supplier or customer in the trading channel, or indeed both. The term 9shipper: is sometimes applied rather loosely, and is fre;uently e;uated with the exporter. 4ften there is an assumption that there is only one shipper in an international movement of goods. 2owever, a shipper is, more precisely, the trader in whose name, or on whose behalf, a contract of carriage of goods is concluded with a carrier or other type of logistics organisation. $n other words, the shipper is legally responsible for paying the freight charges. 2owever, international transport is often a complex process involving the use of more than one mode of transport between departure from the exporter:s premises and arrival at the warehouse of the importer or consignee. $t is not unusual for more than one party to be paying for different stages of the total transport flow. -or example, the exporter may pay as far as the departure port in the country of export, and the importer pays for the international transport and the delivery in the importing country. 1.1 Relations i! "et#een o#ne$s i! o% &oo's an' lo&isti(s $es!onsi"ilit)

The trading channel is concerned primarily with the transfer and negotiation of ownership of the goods moving along the channel. $n international logistics, the transfer of ownership of the goods is closely associated with the transfer of responsibility for organising logistics activities, particularly transport. s we saw in an earlier unit, this transfer of responsibility has become more or less standardised over the years through the establishment of widely recognised terms of sale or terms of payment %nown as $304T56)*, of which the most recent version is $304T56)* 2000. The terms of sale define the contract clauses in international trade and ma%e clear the rights and obligations of the parties to the sales contract up to or from a particular location. This is often a port so that the terms may be for example, -4, .free on board/ 2amburg. The terms denote where the ris%s and costs of the transit are transferred from the supplier to the customer for the goods. -rom the logistics standpoint, a seamless, integrated movement throughout the supply chain is desirable. 2owever, the terms of sale may influence logistics decisions since they need to be followed precisely by the parties in the trading channel. *hippers may be re;uired to conform exactly to the re;uirements of a letter of credit< otherwise, they will not be paid. This can lead to fragmented decisions about transport that are not conducive to integrated logistics. similar problem may occur when an exporter wishes to consolidate shipments to a number of buyers in a destination country, or one of those buyers wishes to do the same for a number of suppliers in the exporter:s country. 7hose re;uirements should predominate8 4f course, in many cases, even with 9split: liability and responsibility, the exporter and importer will collaborate to obtain the most mutually acceptable arrangement. $n such cases, there is a role for a logistics intermediary to co+ordinate multiple deliveries or multiple suppliers, although

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!)

the ;uestion will then arise as to which member of the trading channel selects the intermediary in the logistics channel. *. *.1 THE FUNCTIONS OF INTERMEDIARIES Inte$+e'ia$ies in a t$a'in& ( annel

$n a trading channel, a wholesaler intermediary is li%ely to perform six groups of tas%s each for his supplier and for his customer 1. The six tas%s performed for the manufacturer or supplier are to"

Provide market coverage .because there are many dispersed customers/< Establish sales contact .able to provide a substantial sales effort/< Hold inventory .thus reducing the manufacturer:s burden and ris% through holding too
much inventory/< Process orders .enables the manufacturer to overcome the problem of dealing with a large number of orders/< Provide market information .the wholesaler %eeps good intelligence contact with customers/< and Give customer support .goods are exchanged, returned or repaired/. The six tas%s performed for the customer are to"

Ensure product availability .ma%ing it easy to get goods/< Provide customer service .underta%ing repairs etc./< Give credit and financial assistance<

Provide assortment convenience .bringing together combinations of products from different manufacturers/< Break bulk .buying large volumes from manufacturers and brea%ing them into smaller orders/< Give advice and technical support .on inventory planning, store layout etc./. *.* Inte$+e'ia$ies in a lo&isti(s ( annel

7hen we turn to the tas%s of intermediaries in a logistics channel, there are similarities, but also important differences. Therefore, a different categorisation is re;uired. The four classes of tas% primarily performed for the shipper are"

"

Transport services (ogistics centre services $nformation processing services 'rofessional advice and support.

6osenbloom, , .1==>/ Marketing hannels! a Management "iew >th ed.The Dryden 'ress, -ort 7orth T?. 0

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!)

The three classes of tas% performed for the carrier are"

)ar%eting services sset holding ssortment and volume convenience.

(ogistics channel intermediaries also underta%e roles more usually performed by trading channel intermediaries such as wholesalers. $n such cases, they are effectively acting as an intermediary between the shipper and the trading partner. There is nothing new about this< for example, freight forwarders have underta%en customs clearance for many years. 2owever, in recent years there has been a substantial increase in these types of activity, often called value+ added logistics. Tas%s performed by logistics companies acting as intermediaries between the shipper and trading partner fall into the broad classes"

$nventory management of goods $nformation processing services 'roduct transformation Delivery.

Table 1 provides a list of specific tas%s performed by logistics channel intermediaries. $t would be wrong to consider the list as exhaustive, because logistics intermediaries are constantly see%ing new avenues of profitable activity. 'rovided there is no legislative restriction, many activities have potential for inclusion. Trading channel intermediaries may also perform logistics functions + a typical example of this is where a wholesaler operates a road freight fleet. Figure 3 shows the relationship between members of the trading and logistics channels including the broad classes of functions.

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!)

Table 1: Functions of logistics intermediaries INTERMEDIARY BET,EEN SHI--ER AND CARRIER S i!!e$.o$iente' se$/i(es Transport services 4perate transport -T( .full truc% load/ or -0( .full container load/ transport (T( .less than truc% load/ or (0( .less than container load/ transport 'osition e;uipment (ocal collection and delivery Transport co+ordination Door+to+door delivery service 'ool shipments with other companies 5stablish international networ% .$nter/ modal co+ordination ,oo% vessel space 4btain best transport service 0onsolidate shipments Vehicle scheduling 6oute planning Transport e;uipment control $nventory control of transport e;uipment 4rder transport e;uipment 6epair transport e;uipment ogistics centre services 0onsolidation Transhipment 5xport pac%ing for transport re;uirements 4btain warehouse space !nformation processing services Trac%ing and tracing Trace and expedite shipments 'ayment and collection of money 'ay freight charges 'ay port charges 0ollect payment from consignees for shipments 'ay customs duties )anage value added .or sales/ tax advances 'resent documents to the ban% 'ay goods through draft or letter of credit 'repare, issue or obtain documents 'repare certificates of origin 'repare commercial invoices $ssue bills of lading $ssue air waybills $ssue export declarations 4btain and prepare consular invoices 4btain proof of delivery 4btain export licenses 0ontact relevant agencies or authorities .e.g. for food or drug imports/ Professional advice and support *election *election of warehouse location *election of transport e;uipment *election of logistics operators 4btain insurance cover 6ecommendation 5valuate logistics services dvise on exports and@or imports dvise on terms of sale 1ive legal advice 6ecommend routes and services dvise on special features of goods .haAardous goods, special licences, special pac%aging restrictions/ dvise on special re;uirements of countries .e.g. duties, taxes, import restrictions/ dvise on pac%aging 3egotiation 3egotiate contract with logistics operators *ettle insurance claims 3egotiate best carrier rates Table 1 continued"

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!)

0ustomisation 4ffer tailored service beyond the standard offer dvise on or arrange alternative service if problem .e.g. port stri%e/ INTERMEDIARY BET,EEN SHI--ER AND CARRIER Ca$$ie$.o$iente' se$/i(es #ar$eting services 0ollect and pay freight charges 'rovide local %nowledge 'rovide international networ% %sset holding 4wn and operate transport e;uipment .e.g. roll+on@roll+off trailers, containers/ 4wn and operate logistics centres 4wn and operate $T systems %ssortment and volume convenience 0onsolidation of shipments .e.g. (0(/ ,rea% bul% 1eographical specialisation 1lobal or regional networ% .contribute to carrier:s networ%/ $ndustry specialisation .e.g. food, clothes/ *ubcontract within the logistics sector INTERMEDIARY BET,EEN SHI--ER AND TRADING -ARTNER S i!!e$.o$iente' se$/i(es Goods inventor& holding $nventory management of goods )anagement of inventory location 4rder pic%ing 6eshipment

Vendor management Disposal of old or obsolescent products !nformation processing services Document preparation $nvoicing 0ustoms clearance 4rder processing 'roduct advice to consignees ,ar code scanning Product transformation )ain ob!ectives 'ostponement )a%e goods country+specific )a%e goods customer+specific -unctions ssorting )ixing and blending )ar%ing ,ar coding 'ac%aging or repac%aging (abelling or relabelling 6eplace or repair damaged goods $nstall components dd parts and manuals 'eliver& 4rganise delivery according to shipper:s customer service standards *hipment consolidation 0ross+doc%ing $nstall product at consignee:s premises.

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!)

TRADING CHANNEL
FOR GOODS *ar!et co4erage Sales contact In4entory holding )rder processing *ar!et in5or ation Custo er support FOR GOODS Ser4ice a4aila6ility Custo er ser4ice Credit and 5inancial assistance ,ssort ent con4enience 7rea!ing 6ul! ,d4ice and technical support

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LOGISTICS CHANNEL

FOR GOODS Goods in4entory holding In5or ation processing ser4ices &roduct trans5or ation Deli4ery

FOR LOGISTICS SERVICE (ransport ser4ices Logistics centre ser4ices In5or ation processing ser4ices &ro5essional ad4ice and support

L)GIS(ICS I-('R*'DI,R.

FOR LOGISTICS SERVICE *ar!eting ser4ices ,sset holding ,ssort ent and 4olu e con4enience

C,RRI'R

Figure 3: (elationship between trading and logistics channels including classes of functions

International Logistics and Supply Chains (V2002) Dr. Richard Gray (rgray@ply outh.ac.u!) "0

0.

,HO DOES ,HAT IN A LOGISTICS CHANNEL1

ll mar%eting channels tend to change their structure over the years. -or example, in the trading channel for foodstuffs, wholesalers have declined in importance as large new retailers have appeared on the scene. $n the international logistics channel, freight forwarders have adapted their role to cope with containerisation and other developments. 2owever, whatever changes ta%e place, certain underlying principles remain. lthough it is possible to remove or replace institutions in a mar%eting channel, the functions performed by them usually still have to be carried out by someone. -or example, who ma%es the final delivery to an importer after the goods have arrived at the port of the importer:s country8 The importer could collect the shipment from the port, it could be delivered by a freight forwarder, or by a local transport company, or the international carrier may provide a door+to+door through transport service. 3evertheless, whoever does it, the function must ta%e place. 'rovided there are no legal constraints, clearance of goods through customs could be by an import clearance agent or bro%er or by the exporter:s freight forwarder, or even by the importing company itself. $f two countries establish a free mar%et, the function of customs clearance may no longer be necessary. -unctions do disappear, but generally they persist, and given no legal restriction, they can be performed by various types of institution. *imply because a company calls itself a forwarder or logistics provider or carrier, it does not mean that it necessarily performs a particular set of functions or activities. The following extract shows the problems in the 5# for freight forwarders and customs bro%ers associated with the transition into a single mar%et from Banuary 1==C. Llo)'slist.(o+ )arch D 1==2 F$ei& t %o$#a$'in& 2o"s %all /i(ti+ to t e sin&le +a$3et B. ,rewer They are the victims of the introduction of the single mar%et in the 5uropean 0ommunity + 100,000 of them. That is the total of people who will lose their !obs in 1==2 in freight forwarding and associated business, in readiness for the great transition, as Banuary 1, 1==C, is rung in. The !obs are not merely 9in danger:. There is no ;uestion they will be lost. ny nation dragging its feet in introducing the barrier free age will be open to court action by ,russels or by sections of industry, resulting possibly in enormous fines. The latest figure for vanishing !obs is worse than estimates drawn up only a short time ago, which spo%e of E>,000. The 5uropean 0ommission is conducting a survey which will try to gauge the exact numbers, and the social conse;uences. -ew governments, and few in ,russels, too% immediate heed of the plight of the displaced thousands. The victims are nearly all highly+trained experts in all aspects of customs procedures. They have spent their careers interpreting tariffs, ;uota systems, the provisions of the common agricultural policy, health controls. ny mista%e has opened them to fines or reprimands from 0ustoms. *ome have already gone, most will be lost to the industry for good. 2owever, even in this desperate situation, the following article shows how adaptable forwarders can be and how they are able to develop new functions.

Llo)'slist.(o+ 1* Fe"$4a$) 1550 S!e(ial Re!o$t on Do/e$6 Ma$3et its (4sto+s 2o"s D. 4sler T25 customs clearance industry, until recently a ma!or employer in the Dover area, has inevitably been hit badly by the introduction of the 5uropean single mar%et. $t could mean the loss of another 10,000 !obs in east Fent, already an economically depressed area after widespread redundancies in coal+mining and the maritime industries. *ources believe there are now !ust &0 customs bro%ers in the town compared with more than G0 at the end of last year and well over 100 during the 1=E0s. )any of those remaining are hanging on rather than face the facts, and will inevitably go under. 9There is not enough business for the number of agencies who have remained in Dover,: said ,rian )adderson, managing director of 1eorge 2ammond. 2is own company had two clearance offices + one for imports, one for exports + employing CE people at the beginning of last year. 7hile it has %ept on 10 staff to loo% after non+50 goods, there have been 2E redundancies. lot of ;ueries originate from former customers, unsure of what the new procedures mean, and are handled on a non+remunerative goodwill basis. 4ne company which has adopted a successful strategy for survival is 2olmes -reight and (ogistics, which began life as a customs clearance agency 1> years ago. lthough its wor%force has been halved from 2> three years ago because of the downturn in clearance wor%, 2olmes has recently seen its forwarding efforts rewarded with second place in an east Fent small business of the year competition and a special commendation in the ,ritish $nternational -reight ssociation awards. 97e are getting awards to say we are doing something right,: said managing director 1ary 2olmes. 9 bout four years ago, when the implications of the single mar%et became clear, we diversified bac% into freight. Hou had to loo% beyond what you were used to. $t was obvious that nothing was going to be left, and we wanted to survive.: 2olmes -reight and (ogistics has concentrated on specialist services for such prestige clients as 'hilips 5lectronics and merican 5xpress, moving sensitive computer e;uipment for the credit card outfit:s )oscow cashpoint. $t has forged good business lin%s with Tur%ey and the former 5astern ,loc. 97hat we are very good at is problematic cargoes the big boys cannot ma%e any money out of,: said )r 2olmes.

7.

VERTICAL MAR8ETING SYSTEMS*

onventional channels consist of unrelated companies that buy and sell from each other< a manufacturer trades with a wholesaler, a wholesaler with a retailer, but without any longer+ term relationship or affiliation. $n the past few decades vertical marketing systems #"M$s% have become more prominent. These systems include strategic alliances, !oint ventures, partnerships, and integrated supply chains. There are three basic types of vertical mar%eting system"

dministered V)*

6efer also to #nit C &nstitutions in &nternational 'istribution(

 0ontractual V)* 0orporate V)*.

n administered "M$ is similar to a conventional channel, except that there are closer lin%s between the management of different organisations. -or example, large retailers such as )ar%s and *pencer in the #F or 7almart in the #* are able to exert substantial control over their suppliers and, in effect, lead the channel. This applies particularly where a retailer is the sole customer of a manufacturer. contractual "M$ is a development of the administered V)* but the arrangements between the organisations are formalised by contracts. There are various types of contract, a popular version during the past few decades being the franchise. -ranchises are also popular in service channels including logistics, particularly the small parcels sector. -or example, $nterlin% 5xpress 'lc in the #F is a franchised organisation offering collection and delivery services mainly for parcels. $t has over 100 franchisees and claims to provide the level of detailed attention to service normally only expected from a small businessC. corporate "M$ exists where a single firm owns companies at different levels in the mar%eting channel, for example, where a manufacturer owns its retail outlets. prominent example is the oil production and distribution industry where large oil companies .the oil ma!ors/ such as *hell have been to the fore in establishing a corporate V)* structure. This starts with the extraction of oil from the ground through refining and transport to retail delivery at the filling station and other mar%eting of petro+products. -ully integrated V)*s in the oil industry have become less prominent as oil+producing countries have ta%en greater control of their own exploration and production, and franchises have been made at the retail stage. Vertical integration can be summarised as 9hard: or 9soft: integration &. )Hard* integration is where a company ta%es ownership of another channel level, or in other words becomes a corporate V)*. )$oft* integration refers to other administered or contractual forms of V)* such as franchising. 0ompanies concerned with organising channels therefore have a 9hard: or 9soft: decision to ma%e. This is directly comparable with the 9ma%e or buy: decision, where a company decides either to ma%e its own products or components, or to buy them from other suppliers through outsourcing. 7.1 Ve$ti(al inte&$ation in inte$national lo&isti(s

Vertical mar%eting systems experience both forward and bac%ward integration. $n the relationship of carrier I intermediary I shipper, integration of functions can ta%e place between the shipper and intermediary, or between the carrier and intermediary. The ultimate level of integration is where the shipper performs all the functions in the logistics channel. 2owever, in some areas of logistics there has been a move away from shippers providing their own logistics resources particularly transport. -or example, in international shipping, in 1=G1 the oil ma!ors owned 21J of the world tan%er fleet, but by 1==& they owned only =J of the fleet>. nother example is, in 1reat ,ritain, the relative decline of total road freight tonnage carried by shippers themselves .called own account transport/ since 1=E0 D. This was mainly
# $

$nterlin% 5xpress web site http"@@www.interlin%express.co.u% *tern et al .1==D/ Marketing hannels 'rentice 2all+$nternational, #pper *addle 6iver, 3B / Drewry *hipping 0onsultants .1==>/ +he ,il +anker Fleets Drewry *hipping 0onsultants, (ondon. 0 *ee #nit & Third 'arties in $nternational (ogistics.

because of an improvement in the ;uality and range of services offered by professional hauliers. 9. THE RELATIONSHI- BET,EEN SHI--ER AND INTERMEDIARY

The success of intermediaries often depends not only on the ;uality of transport or other logistics services offered, but also on the relationship with shippers. This is an intangible ;uality, difficult to measure. 3evertheless, forging a stable relationship between the shipper and the intermediary can play an important part in establishing competitive advantage. $t also means the establishment of efficient communication between the shipper and the intermediary. There are different types of intermediary in international shipping. -or example, a ship manager may operate a ship on behalf of a shipowner and conduct business with shippers or charterersG. The most prominent type of intermediary in international logistics is the freight forwarder, and much of this unit is devoted to consideration of the role of the forwarder. Three broad classes of relationship exist between forwarders and shippers"

The traditional approach *hippers underta%ing their own forwarding .forward integration/ -orwarders underta%ing shippers: export distribution functions .reverse integration/ E. T e t$a'itional a!!$oa(

9.1

$n the traditional approach the shipper has a close relationship with !ust a few, or even only one forwarder. The forwarder carries out most of the traditional forwarding functions .preparation of documentation, boo%ing transport, paying charges, providing information etc./. $n other words, shippers use forwarders to deal with the complexity of international shipping. close relationship as the basis for being a successful intermediary is nothing new. $n the past, forwarding was often a family business with a long tradition of accumulated %nowledge based on contacts established in many countries. $n earlier times, methods of communications and transport were much slower and exporters or importers needed someone available at ports, overseas and in close contact with customs authorities. -ew exporters could have the expertise or resources to deal with problems in so many places, or with the complex documentation associated with international shipping and trade. )any exporters or importers would also see the local freight forwarder as an expert consultant .often unpaidK/. These traditional functions are still re;uired today by some, particularly smaller shippers. modern development of this role is monitoring the supply chain, not only providing feedbac% to the shipper but even ta%ing action where necessary, if for example there are changes in the mar%et for the goods being shipped =. $n #nit & +hird Parties in &nternational -ogistics a &'( company was defined as a firm that Lassembles and manages the resources, capabilities, and technology of its own organisation with those of
1

-or a discussion on the nature of relationships in ship management see 'anayides, 'h.). and 1ray, 6. .1===/ n empirical assessment of relational competitive advantage in professional ship management. Maritime Policy and Management, 2D, 2, 111+12> 2 Davies, 1.B. and 1ray, 6. .1=E>/ Purchasing &nternational Freight $ervices, 1ower 'ublishing, ldershot 3 6ao, F. and Houng, 6. .1==&/ 1lobal supply chains" factors influencing outsourcing of logistics functions &nternational .ournal of Physical 'istribution and -ogistics Management 2&, D, 11+1=

complementary service providers to deliver a comprehensive supply chain solutionM10 To what extent is this different from the traditional approach to freight forwarding8 9.* Fo$#a$' inte&$ation

nother state of affairs exists where e/porters undertake their own forwarding. $n this case, the exporter has adopted all or some of the traditional forwarder:s functions, particularly in the areas of preparing documentation, dealing directly with carriers and export pac%ing. 4ne reason for this development has been the increasing simplification of trade and transport documentation during the past thirty years or more. nother reason is the changing pattern of trade for many countries. -or example, since ,ritain !oined the 5uropean 0ommunity .now 5uropean #nion/, many exporters have focused predominantly on the 5uropean mar%et. $n the 1==0s, ,ritish trade with 5urope tended to be approximately D0J by value of all #F trade.11 'reviously the number of export destinations was li%ely to be much higher, and it was difficult to deal efficiently with, say, over a hundred separate mar%ets without using a freight forwarder. further reason for exporters not using forwarders is the simplification, or greater visibility of the international freighting market. -or example, groupage or consolidation services tend to be better advertised than formerly. *implified intermodal services are common on some routes. 9.0 Re/e$se inte&$ation

The third type of relationship, called reversed integration, is where freight forwarders undertake e/port distribution functions normally performed by the shipping department of the e/porting company. $n this approach the forwarder, although a separate institution, becomes functionally part of the exporting company. The forwarder is responsible for such functions as selecting international transport mode and operator, selecting domestic transport< warehousing, pac%ing, order processing, export invoicing, and customer en;uiries. Direct responsibility for inventory management is less li%ely to fall into this category, although this is changing with improved electronic means of control and communications and the expanding scope of value+added logistics services. gain, some would see this as a role for companies called 9&'(s: rather than 9forwarders:. 7hat:s in a name8 :. OUTSOURCING TO INTERMEDIARIES

*ince the 1=E0s, many companies, particularly manufacturers, have returned to focusing only on their core business. There have been various reasons for this, often associated with the increasing need for manufacturers to give all their main attention to production and mar%eting in a world of changing consumer preferences and shorter product life cycles. )any companies have also pursued a policy of reducing the number of staff to achieve greater cost efficiency and to eliminate or minimise problems associated with employment legislation. The outcome has been an increase in outsourcing, or the transfer of certain business functions to independent companies or third parties. This applies to many areas such as advertising,
"0

8uoted in 0oyle, B.B., ,ardi, 5.B. and (angley, 0.B. .200C/+he Management of Business -ogistics, Ge,*outh+ 7estern 'ublishing .p.&&2/ "" 5urostat .1==D/ $tatistical Portrait ,f +he European 0nion( Facts +hrough Figures, 4ffice -or 4fficial 'ublications 4f The 5uropean 0ommunities, (uxembourg

recruitment, and even aspects of manufacturing itself. 4ne of the main areas suitable for outsourcing has been logistics. -or example, as mentioned earlier, in the #F there has been a substantial growth in the use of third parties for road freight transport. 4f course, this unit is concerned with a further stage of outsourcing< the use of an intermediary between the first and third parties, most notably, between a shipper and an international transport company such as a shipping line. 7hether or not a shipper uses an intermediary may of course be down to the individual preferences of a specific manager. 2owever, it is li%ely that the management of a shipper company will need to consider whether it wishes to get tangled in the complexity associated with international logistics, discussed earlier in this course. There are three basic types of complexity li%ely to influence the use of intermediaries"

3etwor% complexity 'rocess complexity 'roduct complexity12.

1etwork comple/ity increases with the number of trading partners, countries and regions, and the number of stoc%+%eeping units .*F#s/ and origin+destination combinations. Process comple/ity is associated with how critical is timing in a supply chain. Product comple/ity is related to the special re;uirements of products, for example dangerous goods. :.1 Inte$+e'ia$ies el! to o/e$(o+e (o+!le;it)

$ntermediaries can play a crucial role in overcoming some of the problems of each type of complexity. -or example, network comple/ity may result from the use of a large number of shipping lines, each of which the shipper has to contact. 2owever, the shipper may employ an intermediary such as a freight forwarder to underta%e such contact. Thus, using a freight forwarder leads to greater contactual efficiency, a concept introduced earlier in this module. Process comple/ity can be reduced by outsourcing various tas%s such as special labelling, or the addition of country+specific features to products. $n contrast, product comple/ity may prevent the use of intermediaries. -or example, if the product is dangerous, such as certain chemicals, the shipper may prefer to maintain close control throughout the transit. nother form of networ% complexity is associated with information systems, and is better termed information comple/ity. The ;uality of information systems is as important as the ;uality of the actual transport, and intermediaries have always provided a service in dealing with information complexity. -or example, they have been expert at overcoming the complexities of paper documentation for international transport and trade. $n the modern context, they are able to offer a specific service providing a lin% between electronic information systems that are not entirely compatible. (arger logistics providers are li%ely to be more successful in this area since they are able to invest substantially in such systems. -or example, large investments in technology improvements have been made by intermediaries
"2

6ao, F. and Houng, 6. .1==&/ 1lobal supply chains" factors influencing outsourcing of logistics functions &nternational .ournal of Physical 'istribution and -ogistics Management 2&, D, 11+1=. 6ao and Houng ma%e this point about Crd parties in general, but it is e;ually valid for intermediaries in particular.

such as 5$ .N1D to N20 million a year/ and -ritA who invested about NC> million in information technology systems integration in 1==D1C. -ritA was subse;uently ta%en over in 2001by #'* who are famous for even larger investment in $T O some N1 billion a year.1& <. THE RELATIONSHI- BET,EEN THE CARRIER AND THE INTERMEDIARY

P3.," *ome students will have already come across parts of sections G, = and 10 in #nit 2 -ogistics and Maritime Business in the module &ntroduction to -ogistics.Q $ntermediaries in many fields of business activity are renowned for their ability to adapt to changing circumstances. $n international logistics, the death of the freight forwarder has been wrongly predicted a number of times, for example with the advent of containerisation in the 1=D0s. t that time, forwarders in 5urope were able to adapt in a number of ways, such as by purchasing or leasing their own containers or road trailers, or by starting new groupage or consolidated services. 2owever, if there is no legal re;uirement for an intermediary, their very existence is always under the spotlight, particularly where traditional industry barriers are disappearing. s a reaction to threatened extinction, intermediaries need to be aware of a number of strategies. These include ensuring that their service can be differentiated from that of their competitors, diversifying their activities into new areas, or specialising in particular niche activities. They also create new organisational structures in a number of different ways such as through mergers or !oint ventures, or through growth within the organisation. t the same time, of course, other participants in the logistics supply channel do not stand by as passive observers. 0arriers, container shipping lines in particular, may see the income from value+added services as a lucrative way of increasing their portfolio of services. Therefore, it is necessary to examine the scope for action of both intermediaries and carriers. <.1 -$o"le+s o% se$/i(e 'i%%e$entiation

-rom the carriers: standpoint, successful areas of freight transport run the danger of 9commoditisation: .the term 9commodification: is also used/. This is where an efficient service is comparable to a commodity mar%et where there is little difference between the products of different suppliers. $t has happened in freight services as different as the ocean container mar%et and the express parcels mar%et in 5urope. 2owever efficiently underta%en, where a service is seen as simply 9shifting boxes:, it is difficult to differentiate between particular services, leading to a lac% of loyalty to particular service providers on the part of shippers. 7here there is little or no potential for even greater efficiency, it is necessary to establish a service that can be differentiated from that of competitors. 4ne way of overcoming this problem is to establish a strong brand image, as attempted by the so+called integrators. $n principle, an integrator is a company underta%ing all operations without delegation to another operator, and usually such companies have a strong brand name .e.g. -ederal 5xpress, T3T, #'*, D2(/. $n practice, integrators often ma%e use of subcontractors or franchises, particularly for collection and delivery, but under the umbrella of a single brand name. The use of franchises allows the brand to be more widely visible than
"#

)cFnight, ,., )eynial, '. and *now, 7. .1==G/ *hippers can capitaliAe on freight forwarder consolidation +ransportation and 'istribution, -ebruary, D1+D2. "$ (loydslist.com 1> Ban 2001 0P$ sets performance targets after Frit2 takeover by 6oger 2ailey

would otherwise be possible. $ntegrators made their name originally in express parcel services, both domestic and international, and in airfreight, but are expanding into other mar%ets. 0onvenient labels such as 9integrator: or 9freight forwarder: are probably becoming inappropriate in the general turmoil of changing mar%ets in international freighting. -or example, different forms of cross+sectoral alliances have appeared in the express services sector1>. irlines have purchased e;uity of integrators, forwarders have formed alliances with integrators. 4ther integrators and forwarders have not made such lin%s. profit famine in one business area encourages companies from that area to enter a related business that they perceive as more profitable. This development is evident in the two areas susceptible to commoditisation described earlier. Thus, ocean carriers specialising in container movements see% to become more general logistics providers, and express parcels operators expand into services carrying larger consignments. 4ne example of the modern period of cross+sectoral development is shown in the following article. Llo)'slist.(o+ & 3ovember 2002 Re"$an'in& Dan=as +a) it 19> ea' o%%i(e 2o"s -orwarder will disappear into D2( by 6oger 2ailey #p to 1>0 !obs are set to go at the DanAas head office in ,asle as 5urope:s oldest freight forwarder is rebranded under the D2( logo. 'arent company Deutsche 'ost, whose NDbn spending spree has seen it ac;uire D2(, DanAas, ir 5xpress $nternational and *1, announced the move last wee%. The 1erman post and logistics giant also predicted that group net operating profit will rise &0J by 200> to 5uros C.1bn .NC.0>bn/. )ost of this will be achieved by integrating all the group companies in the express and logistics businesses R DanAas, 5uro5xpress and D2( R under the single D2( umbrella at a one+off cost of 5uros E00m.

-rom pril next year the 5uropean land transport division, DanAas 5urocargo, and the supply chain arm, DanAas *olutions, will be integrated into D2(. DanAas 5$ $ntercontinental, responsible for air and ocean freight, will continue to operate from ,asle under the name D2( DanAas ir S 4cean. DanAas will remain a legally separate company. DanAas 5urocargo will be integrated into D2( 5xpress and D2( -reight while DanAas *olutions will disappear into D2( *olutions. The three enlarged units will be managed centrally from the D2( head;uarters in ,russels.

5xpress industry consultant 'aul Bac%son said the Deutsche 'ost rebranding of its subsidiaries to D2( was La smart moveM. 2e continued" LD2( is one of the top 10 brands in the world, up there with $,) and 0oca 0ola. They paid a lot of money for the D2( brand and it ma%es sense to use it. LThey say that a successful brand has three things" recognition, trust and love. $ thin% that, of all the ac;uisitions made by Deutsche 'ost, only D2( is really recognised, trusted and loved.M 2owever, other pundits suggested that Deutsche 'ost still had a long way
"/

5uropean 0onference of )inisters of Transport .1==D/ E/press 'elivery $ervices! 3eport of the 454st 3ound +able on +ransport Economics 50)T, 'aris.

to go in the #*, where the D2( brand is less well %nown for domestic traffic than either #'* or -ed5x. *ome eyebrows were raised when Deutsche 'ost, through its DanAas arm, bought #* freight forwarder ir 5xpress $nternational for N1bn three years ago. The 5$ name, well %nown for its international business in the #* and sia, was ;uic%ly subsumed under DanAas. 3ow, in turn, DanAas becomes the small print under D2(.

<.*

Di/e$si%i(ation o% a(ti/ities

1eneralisations are not always easy, particularly when attempting to explain how the international shipping and logistics industry is restructuring itself at the beginning of the 21st century. 2owever, certain patterns are identifiable. There are three influences on how the industry is restructuring, and they are li%ely to have an impact for some time. These are"

The changing e/pectations and re6uirements of shippers The search for new markets by the shipping and logistics industry 4pportunities for change appearing through developments in information technology and
through the actions of government. )"2"1 The changing re*uirements and e+pectations of shippers

The changing re;uirements and expectations of shippers emerge from four areas"

cceptance of logistics concepts 0omplexity of international logistics 1rowth of globalisation dvances in information technology.
-irstly, there has been a growth in the acceptance of logistics concepts and the conse;uent establishment of supply chains in which low inventory levels and short delivery times are paramount. *econdly, the complexity of international logistics, compared with logistics practised in a single country, creates difficulties in operating an effective supply chain. ,oth of these developments are li%ely to lead to shippers wanting an effective long+term relationship with at most a few, but often !ust one logistics company able to understand and participate in the supply chain. The third development has been the growth of globalisation discussed in a later unit. 9borderless: world means that some goods go to mar%ets world+wide from a single or !ust a few production plants. 2owever, at the same time, the final product entering a national mar%et will often need to have specific language labelling or be adapted to comply with particular national re;uirements or laws. $n other words, products need to be country+specific. pplying the principle of postponement, such changes, or secondary production, need to ta%e place close to the mar%et. This has created a need for so+called value7added logistics #"8-%, a service increasingly offered by logistics providers who formerly restricted their activities to transport and warehousing. The fourth development is the change in expectations of shippers brought about by the substantial advances in information technology during the past two

decades. *hippers now expect to be able to monitor the delivery of their goods with much greater precision than previously, thus enabling much tighter inventory control, such as through the application of !ust+in+time principles. )"2"2 The search for new mar$ets b& the shipping and logistics industr&

ll of the developments described in the previous section are still current, and further changes will inevitably ta%e place. *uccessful logistics providers will be those who can satisfy the needs created by these developments. 2owever, the shipping and logistics sector is not merely reacting to mar%et opportunities, but also has problems of its own that demand a search for new mar%ets. 0ontainer shipping lines in particular have through their very efficiency turned their services into a 9commodity: where it is difficult to differentiate one company from another. This leads to depressed prices and ultimately lower profits. Therefore, they need to see% out new mar%ets. nother example is the changing role of the freight forwarder in a climate of professional uncertainty and threatened mar%ets. This issue is discussed in more detail later in this unit. )"2"3 'evelopments in information technolog& and the actions of government"

ll logistics activities are ta%ing place in a changing environment. dvances in information technology provide opportunities for information services, which may become as important a part of the service offered by a logistics provider as transport operations themselves. $t has even been suggested that we should no longer spea% of a freight transport sector, but instead of a )flow management* mega7sector1D. The other ma!or external change in recent times has been the deregulation and privatisation of industry, including freight sectors. )any governments throughout the world have accepted the need for deregulation and privatisation. This has created problems for some areas in the international freighting world, such as the plight of customs bro%ers in some 5uropean #nion countries following the establishment of the *ingle 5uropean )ar%et in 1==C when their business suddenly disappeared. 4n the other hand, it may also present opportunities for restructuring the sector, such as the introduction of new intermodal operations. 7hat is li%ely to be the outcome of all these developments8 *ome commentators suggest that shippers are see%ing a single logistics point of contact, sometimes referred to as )one7stop shopping*. 4thers propose that there should be wide+ranging services offered by )global logistics providers: or )mega7carriers*. There seems to be a widely+held view that medium+ siAed logistics providers will be s;ueeAed out of the mar%et, but that there is a place for niche operators offering specialised services. The specialisation may be in a particular geographical mar%et or in a limited product range with special features. $t may be to provide highly specialised functions such as pro!ect forwarding, where the main s%ill lies in co+ordinating deliveries from a large number of suppliers to a pro!ect such as the overseas construction of a factory or hospital. <.0 Asset o#ne$s i!

n intermediary needs to ma%e a decision about the extent to which he commits himself to asset ownership such as transport vehicles and other e;uipment. 4f the choices available to
"0

5uropean 0onference of )inisters of Transport .1==>/ +ransforming the $tructure of the Freight +ransport $ector! 3eport of the 99th 3ound +able on +ransport Economics 50)T, 'aris.

shippers, an important decision is between using asset+based and non asset+based providers 1G. The former operate their own e;uipment, purchased or leased, whereas the latter offer primarily human resources or management s%ills. similar contrast is made in the 5uropean freight transport scene between third party logistics providers and the 9(ogisti%+1eneralist:, a term used by *wiss+1ermans. 7hereas the former use their own e;uipment and operate services, the latter adopt a co+ordinating role using the services of different operators 1E. This sharp distinction allows shippers to select the type of service to suit their own needs. -or example, smaller shippers may not wish to be involved in detailed negotiations with a number of asset+based operators and therefore prefer to use a single non asset+based .or management+based/ company to find the best set of services for them. 'roblems arise when the shipper encounters what fric% and 0al%ins call 9hybrid services:, where subsidiaries of asset+based companies offer management services. lthough they may operate as independent companies, they are li%ely to give preference to the transport or other physical services of their own parent company. This may not be detrimental to the shipper, but it may also limit the flexibility of the service provider in building a customised pac%age of services, given the temptation to choose the possibly second+best service of their affiliated company. 4cean carriers are of course heavily asset+based and therefore have an advantage over forwarders when dealing with shippers who are see%ing asset+based providers. 7here individual carriers are unable to offer a sufficiently wide range of assets, there is always the possibility of alliance membership. nother solution to offering a wider service is slot chartering which enables a rapid response to changing customer demand without enormous investment in assets1=. <.7 One.sto! s o!!in&

,ne7stop shopping is a term derived originally from shoppers ma%ing all their purchases at a single large store. $t became popular as a concept in international logistics during the 1=E0s, although it has not developed as widely in practice as some commentators anticipated. There are various definitions of one+stop shopping for logistics services which all assume a single company acting as a 9transportation supermar%et:. $t will provide a range of services for all transport modes, as well as other logistical services such as inventory management or warehousing20. The minimum re;uirement of one+stop shopping is, with the available support services, to ma%e intermodal transport effective .e.g. trac%ing systems, 5D$/. 4ther activities associated with one+stop shopping are li%ely to be warehousing and the various value+added logistics activities such as repac%aging or relabelling, or tailored logistics services which replace functions otherwise underta%en by the shipper. The claimed benefits to the shipper of one+stop shopping are a better service combined with simplified transactions, greater control and fewer in+house staff. The reason for the lac% of success in widespread acceptance of the concept are claimed to be associated with problems of integration and communication systems, as well as shippers placing too much emphasis on short+term costs.
"1

fric%, B.) and 0al%ins, 0.*. .1==&/ Does asset ownership mean better service8 +ransport and 'istribution, )ay, &=+D1. "2 5uropean 0onference of )inisters of Transport .1==>/ +ransforming the $tructure of the Freight +ransport $ector! 3eport of the 99th 3ound +able on +ransport Economics 50)T, 'aris. "3 0ontainerisation $nternational .1==E/ $cale versus scope, Banuary, >2+>C 20 *emei!n, B. and Vellenga, D. .1==>/ $nternational logistics and one+stop shopping &nternational .ournal of Physical distribution and -ogistics Management 2>,10,2D+&&.

The lac% of success with one+stop shopping in shipping or logistics may result from a misunderstanding of the usual benefits of retailing. $t should not mean that a single carrier provides a wide range of services or offer services over a wide range of routes. This would be the e;uivalent of a single manufacturer producing all the goods sold in a department store or shopping mall. $n general, a manufacturer produces large numbers of a limited range of products, whereas a retailer carries a limited number each of a wide selection of products, offering the consumer a substantial choice. The retailer has the function of providing assortment and volume convenience in the mar%eting channel. 6etailers should provide one+ stop shopping, and the 9retailers: of international logistics are intermediaries such as freight forwarders.

?. ?.1

THE ROLE OF FREIGHT FOR,ARDERS -$o"le+s o% 'e%inition

-reight forwarders are the great survivors of international logistics, and over the years the role of the forwarder has been adapted to cope with changing circumstances. $t is, in fact, difficult to provide a precise definition of a freight forwarder, even for a publication of the $nstitute of -reight -orwarders21 in the #F which stated freight forwarder is a company involved in the international movement of goods on behalf of another company or person. $t must be said immediately that the term freight forwarder is extremely difficult to define, meaning different or more specific things in various countries. nother publication by the ,ritish $nternational -reight ssociation .,$- / 22, which replaced the institutional wing of the $nstitute of -reight -orwarders, describes the role of the freight forwarder as follows" The traditional role of the freight forwarder was as an agent who merely arranged transport as an intermediary and prepared shipping documentation. 4riginally referred to as a shipping and forwarding agent the terminology is, much li%e the industry, changing constantly. $n the #F there are no legal definitions to identify the different roles of the freight intermediary as there are in many other countries. These days the activities of the freight services operator are performed by companies who call themselves under different names< e.g. air cargo agent, road transport operator, 3V40 .non+vessel owning carrier/2CT $n more recent years, the forwarder developed from his role as an agent acting as an intermediary and now the forwarder more often than not ta%es on the role of the contracting carrier, whether or not the actual carrier of the goods. -ew shippers have been aware of this shift and fewer still understand the implications.

2" 22

1ates, .0., .undated/ 8 Brief &ntroduction to Freight Forwarding The $nstitute of -reight -orwarders, (ondon ,ritish $nternational -reight ssociation .1==G/ +he &nternational Freight Guide ,$- , (ondon. 'age 1. 2# The term 3V400 .non+vessel operating common carrier/ is widely used.

?.*

T e ( an&in& $ole o% t e %$ei& t %o$#a$'e$

The predominant role of the forwarder over the years has changed. #ntil the 1=D0s the principal activity of a forwarder was the preparation of documents, and to a lesser extent the provision and organisation of transport. $n 1=G0 the ,ritish 3ational 5conomic Development 4ffice .35D4/2& investigated the state of freight forwarding in the #F. $t found that the traditional forwarding function could be divided into documentation< planning and costing routes< boo%ing and co+ordinating freight< arranging ancillary services such as warehousing and pac%ing< consolidation< paying charges due to carriers, ports, customs etc.< advice to shippers< and providing information to help prepare ;uotations. ll these activities remain valid functions of freight forwarders and portray the forwarder in the role of agent to the shipper. 2owever, a forwarder may also offer services as a carrier and act as a principal. t the end of the 1=D0s, it was considered that forwarders did not have much of a future in preparing documentation, because of the move towards world+wide simplification of international trade and transport procedures which have continued to this day. 2owever, forwarders have always shown themselves adaptable, and, following the container revolution of the 1=D0s became prominent as groupage operators, otherwise %nown as consolidators. The freight forwarder issues a house bill of lading or similar document to his principal, and, in turn, the carrier issues a bill of lading to cover the entire consolidated consignment .e.g. full container load/ to the forwarder. $n the #nited *tates a distinction is made between forwarding and consolidation, performed by an 3V400 .non+vessel operating common carrier/. This aspect is discussed in more detail later in this unit. )any of the roles described above apply to the role of the forwarder in both the exporting and importing company. )any forwarders are international companies, or have close arrangements or !oint ventures with overseas forwarders. role which is particular to the importing activity of a forwarder is the clearance of goods through customs. $n ,ritain, the same companies underta%e both export and import functions. $n some other countries, the government re;uires separate official licensed customs bro%ers to clear imports. They are responsible for accurate import clearance documentation showing correct values, ;uantities and classifications of goods so that the government does not lose revenue from the duty pay+ able on imports. ?.0 , at@s in a na+e1 T e %o$#a$'in& !$o%ession in t e U8.

$t seems as if forwarders have had a longer+term problem with their identity, at least in the #F. 0onsider the history of the professional association associated with freight forwarding2>. (ondon *hipping and -orwarding gents conference was formed in 1E=G, rapidly followed by the establishment of the ,ritish ssociation of *hipping and -orwarding gents in 1=01. The $nstitute of *hipping and -orwarding gents was established in 1=&& towards the end of 7orld 7ar $$. $t changed its name to the $nstitute of -reight -orwarders in the 1=D0s following the introduction of containerisation and roll+on@roll+off services, when some larger forwarders became significant owners of transport assets such as containers and road trailers. $n 1=E=, the $nstitute of -reight -orwarders changed its name to the ,ritish $nternational -reight ssociation .,$- / for its trading or company members, although the name $nstitute of -reight -orwarders .$--/ was %ept for individual professional members. $n 1==G, there
2$ 2/

35D4 was subse;uently disbanded in 1=E0s by the Thatcher government Details ta%en mainly from the ,$- Hearboo% 1==C.

were some 1100 corporate members of ,$- , out of more than an estimated C000 freight forwarders in the #F. 2owever, the ,$- members accounted for about E0J of business handled by forwarders2D. The ,ritish freight forwarding mar%et in 1==D was estimated at around UGbn.2G. -inally, the $nstitute of -reight -orwarders changed the name of its professional wing for individuals to the $nstitute of -reight 'rofessionals .$-'/ on 1 Banuary 1==E. Thus, the word 9forwarder: has now disappeared from the names of both the trade association and the professional body in the #F, although it continues to be widely used The final name changes have ta%en place during an era of uncertainty about the roles of different types of organisation. $t has been an era of growth of logistics and supply chain management, and challenges to traditional forwarders from integrators, distribution companies and shipping lines. There have also been substantial developments in information technology. -reight forwarders have tended to focus on transport and, in some cases, specific transport modes .e.g. air freight forwarders/. ,$- is aware that it needs to represent its members: interests in other areas of logistics and supply chain management2E. 5. DISA--EARANCE OF INDUSTRY BARRIERS

$ndustry barriers determine who does what in the broad area of international logistics and shipping. They may be imposed by law or regulation, so that in some countries there are separate official licensed customs clearance agents, re;uired by the government to clear imports. s industry and trade evolve further it is li%ely that the structures become outmoded and not entirely suitable for the new situation. -or example, the *ingle 5uropean )ar%et .*5)/ was introduced from 1 Banuary 1==C and, according to rticle 1C of the *ingle 5uropean ct, the *5) is Van area without internal frontiers in which the free movement of goods, persons, services and capital is ensuredV. The effects of this development on intermediaries such as freight forwarders were discussed earlier in this unit. 5.1 Non./essel o!e$atin& (o++on (a$$ie$s ANVOCCsB

The #* provides an interesting case of industry delimitation in international shipping. #nder #* legislation there is a clear distinction between foreign .or ocean/ freight forwarders and 3V400s .non+vessel operating common carriers/, unli%e in some other countries such as the #F. #nder earlier #* legislation .the *hipping ct 1=E&/ 3V400s .sometimes also called 3V4s/ were designated as being in the business of freight consolidation, offering an international (0( .less+than+container+load/ service to smaller shippers and acting as customers of the ocean carriers. lthough they do not operate ships, as common carriers 3V400s provide publicly filed tariffs of freight rates. -reight forwarders, on the other hand, perform the traditional forwarder functions such as arranging transport and trade documentation, dealing with letters of credit etc. $n this respect, they are sometimes called 9transport architects: see%ing customised solutions to suit their clients. They do not have common carrier liability. 4cean carriers in #nited *tates international trade have been regulated since the *hipping ct of 1=1D. t that time it was recognised that the nature of international shipping re;uired a
20 21

,ritish $nternational -reight ssociation .1==G/ +he &nternational Freight Guide ,$- , (ondon Fey 3ote )ar%et 6eport .1==G/Freight Forwarding .10th ed./ Fey 3ote 'ublications, (ondon 22 ,$- lin% .2002/ 8 forum for logistics, $ssue 1&G, December, p12.

degree of non+competitive collaboration to prevent excessive lowering of freight rates in times of overcapacity, such as through seasonal fluctuations or imbalance of trade flows. The designation of common carrier was adopted as a counterbalance to ensure a fair service to shippers. 0ommon carriers have certain responsibilities such as the publication or filing of tariffs, and acceptance of any shipper:s cargo under normal circumstances. #nder the 4cean *hipping 6eform ct of 1==E both freight forwarders and 3V400s came under a general classification of 9ocean transportation intermediaries: .4T$s/ licensed by the -ederal )aritime 0ommission .-)0/. The -)0 regulates ocean common carrier services. ,ecause both liner companies and 3V400s are operating as common carriers they have certain exemptions from antitrust .anti+monopoly/ laws. The 1==E ct is a move towards greater deregulation although the two categories of intermediary still perform different functions. The 1==E ct see%s to establish a more dynamic mar%etplace, but at the same time to allow the -)0 to monitor and act on any developments that reduce competition or distort the mar%et. There has been some criticism that the ct favours larger shippers and carriers because of continuing restrictions on 3V400s, who still cannot negotiate with shippers, although they can do so with ocean carriers. 3V400s get around this restriction by !oining shippers: associations, which are non+profit ma%ing associations formed to obtain ;uantity rate discounts from carriers, as well as enabling greater opportunity for balanced flows of containers and cargo. 4ne such shippers: association, the 3ational 0ustoms ,ro%ers and -orwarders ssociation of merica .30,- / has D00 members controlling >0,000 to 100,000 export containers and 200,000 to C00,000 import containers a year 2=. n important development is that individual ocean carriers, rather than groups of carriers or conferences, can negotiate a confidential contract with shippers. This follows established practice for land+ based transport where longer+term relationships have become much more prominent, and where the carrier offers a range of services apart from transport. )any road freight carriers now call themselves logistics providers instead of transport companies. The future is uncertain as far as the role of intermediaries in ocean shipping is concerned. *maller shippers are li%ely to re;uire intermediaries who do more than !ust offer a consolidation service. single intermediary may need to offer both 3V400 and forwarding services for a range of both ocean and overland routes, which could be viewed as something approaching one+stop shopping. The following article shows how ships: agents have redirected themselves in the above context of uncertainty. Llo)'slist.(o+ & pril 2001 S i! a&ents 2oin %o$(es to %o$+ &lo"al %$ei& t t$ans!o$tation (o+!an) Banet 'orter *hip agents from around the world have banded together to form their own freight transportation company. -lash (ine, a non vessel+owning common carrier, has been set up by D> agents from about five doAen countries who want to diversify into new areas of business as traditional ship agency activities continue to be s;ueeAed. The founding shareholders are all members of )ultiport, the global networ% of ship agents, although -lash (ine stresses that the !oint venture is not a )ultiport initiative. 3ot every )ultiport member has an interest in -lash (ine, while non+)ultiport agents would also be welcome to participate. The fledgling 3V400, which has the same status as an ocean carrier
23

. merican *hipper .1===/ pril, p.G2.

but ta%es space from other shipping lines rather than operating its own tonnage, believes its strength lies in its global reach through its shareholders. V4ur target is to create volume for global contracts,V -lash (ine chairman lbert 2oe% told (loyd:s (ist. -lash (ine holds a -ederal )aritime 0ommission security bond and is insured through the TT 0lub. 5ach share cost N1,>00 with membership limited to one shareholder per country.

1>.

GLOBAL LOGISTICS -ROVIDERS

The term logistics provider is increasingly more widely used, being sufficiently broad to cover all possible activities in a rapidly changing mar%et. $t reflects the brea%down of barriers between the different categories of transport carrier and intermediary in a deregulated environment. $ndeed, the disappearance of barriers goes much wider than transport, so that a single company, or a group of affiliated companies, may offer a broad range of logistics services including transport, warehousing, inventory management and other value+added services. -avourable use of terms li%e 9global: and 9mega: suggests that large+siAed companies are desirable. 0ertainly, many commentators ta%e this for granted. The term 9mega+carrier: is sometimes used to refer to the very large companies that have come to dominate certain freight sectors because of concentration of ownership, sometimes following deregulation of the sector. $n this sense, it is associated with the oligopolistic nature .i.e. a limited number of main players found in any mar%et/ of many sectors of business or industry. $n the shipping industry the liner trade is an example of oligopoly with shipping lines forming conferences or, in recent times, alliances. #sed in this way, the term 9mega+carrier: can refer to a large company offering a narrow range of services, such as !ust an ocean container service. 5lsewhere, in the 5uropean context, it has been used to refer to very large companies with a combination of a geographical presence and a well+developed portfolio of transport and logistics services. *ea liner companies have a number of advantages to enable them to become this type of mega+carrier, notably the wide reach of their services, their long+standing s%ill at raising substantial finance, their wide customer base, and their wide range of mar%etsC0. The last+mentioned use of the term 9mega+carrier: has more in common with the concept of one+stop shopping. $f any type of institution is going to offer a global logistics service, ocean carriers have an existing advantage in breadth and depth of service. They have grown both internally and through strategic alliances or mergers with other carriers. 2owever, they also have a problem as far as shippers: perceptions of them are concerned. 4cean carriers may not appreciate the full range of shippers: needs, or would necessarily ma%e choices of logistics providers that are in the shippers: interests. lso, they may not be able to offer sufficiently sophisticated information trac%ing systems at the level of the purchase order, or to be able to manage pipeline inventory. *ome container lines .e.g. )aers%/ have global product groups in various industry sectors such as automobiles or chemicals intended to gain and provide product+ specific logistics expertise. 4ther players in the mar%et are also following this lead. The
#0

0ooper, B., ,rowne, ). and 'eters, ). .1==1/ European -ogistics! Markets, Management and $trategy ,lac%well, 4xford.

following excerpt shows recent decisions by 'S4 3edlloyd. 3ote that they intend to focus on 9maritime intensive: supply chainsC1. (loydslist.com *9 J4ne *>>* 'S4 3edlloyd launches new logistics brand ,y Banet 'orter 'S4 3edlloyd has split its shipping and logistics activities into two separate business units. new division, with its own dedicated staff, will be mar%eted under a different name, 'S4 3edlloyd (ogistics, that will be formally launched on Buly 1. The nglo+Dutch carrier has been providing logistics services for a number of years, with its 1lobal (ogistics Division first established in 1==D and an internally branded Value dded *ervices unit in place since 1===. 2owever, 'S4 3edlloyd is now ta%ing this process further with the launch of a new brand in order to ma%e a clear distinction between shipping and logistics. 'S4 3edlloyd (ogistics will be headed by Bohan 3anninga, who said yesterday that the new division would be a separate profit centre expected to ma%e a LsignificantM contribution to group turnover. Three sectors will be targeted by 'S4 3edlloyd (ogistics" industrial and chemicals< retail< and fast moving consumer goods. The range of services on offer will range from simple customs clearance to complex supply chain solutions including warehousing and distribution. The new business unit will differ from logistics activities provided by sister company 'S4 Trans 5uropean because of the emphasis on supply chains that are maritime intensive, said David 0harlesworth, sales and mar%eting director of 'S4 3edlloyd (ogistics.

7hile services will be targeted principally at 'S4 3edlloyd:s customer base, the logistics division will not be confined to the liner shipping services of its parent company.

'S4 3edlloyd (ogistics sees itself as an independent fourth+party logistics provider, with relatively few assets but expertise in distribution and freight management.

survey of senior transport and logistics executives has claimed that there is no obvious serious provider of global logistics services, and rhetoric far exceeds realityC2. -or such executives a global logistics provider must fulfil a number of criteria" to be 9best in class: in all aspects of the logistics supply chain< to offer virtually global coverage at a consistent ;uality< to provide 9seamless + no bumps in the road: service between different parts of the service< to provide easily available and detailed information about shipments and inventory. *uch re;uirements are very demanding and it would be difficult for a single company to supply them if it only made use of its own services.

#" #2

*ee also the 'S4 3edlloyd (ogistics web site http"@@www.ponlogistics.com@ )cFnight, ,., )eynial, '. and *now, 7. .1==G/ *hippers can capitaliAe on freight forwarder consolidation +ransportation and 'istribution, -ebruary, D1+D2.

11.

CONCLUSIONS

$t is difficult to ma%e firm conclusions about the future role of intermediaries in international logistics at the beginning of the 21st century. This unit has described a number of functions that are typically, although not necessarily performed by intermediaries such as freight forwarders. 7e live in a world of change in shippers: expectations, in government attitude, in information technology, and within the international shipping and logistics industry itself. Figure , attempts to show how this environment of change influences the typical functions of intermediaries. This chapter has discussed various possible outcomes such as one+stop shopping and the emergence of global logistics providers. Different types of organisation, both intermediaries and shipping lines are competing for the 9retailing: of international freighting and other associated logistics services.

SHIPPER CHANGE Increased in5or ation e:pectations 6y shippers Logistics and supply chain concepts Co ple:ity o5 international logistics

Glo6alisation 4ersus di55erentiated ar!ets

Shippers 9ant partnership 9ith u 6rella logistics co pany

Di4ision 6et9een pri ary and secondary production

De and 5or V,L

&o9er5ul ne9 in5or ation technologies

GOVERNMENT AND TECHNOLOGY CHANGE

Deregulation and pri4atisation

I*&,C( )I-('R*'DI,R. ;%-C(I)-S<

-e9 structures possi6le

BETWEEN SHIPPER AND CARRIER Shipper perspe !i"e In5or ation processing ser4ices (ransport ser4ices &ro5essional ad4ice and support Logistics centre ser4ices C#rrier perspe !i"e *ar!eting ser4ices ,sset holding ,ssort ent and 4olu e con4enience BETWEEN SHIPPER AND TRADING PARTNER Shipper perspe !i"e Goods in4entory holding In5or ation processing ser4ices &roduct trans5or ation Deli4ery

SHIPPING AND LOGISTICS INDUSTRY CHANGE

Search 5or ne9 ar!ets

POTENTIAL OUTCOMES )ne=stop shopping< Glo6al logistics pro4iders<

Lo9er pro5its

*ega=carriers< -iche operators<

Co '55iciency o5 container operators

oditisation &ro5essional uncertainty o5 5or9arders

'55iciency o5 integrators

Figure ,: !nfluences on the functions of intermediaries