A freight forwarder, forwarder, or forwarding agent is a person or company that organizes shipments for individuals or other companies and may also act as a carrier. A shipper is a company whose primary business focus is not the transportation of goods, but the production or assembly or sale of goods. While some shippers operate their own fleet to transport their goods, the majority relies on forwarders or carriers for their transportation needs.
This fundamental difference in the business purpose causes some significant differences in how TM models and executes transportation processes.
The first major difference does not relate to the transportation process itself, but to the organizational structure and configuration of involved parties. A shipper scenario typically involves two types of organizations in the process: A purchasing organization, that is responsible for managing freight agreements with carriers and for purchasing transportation services through a contract or ad-hoc. The planning and execution organization is responsible for planning and execution transports and can represent an own fleet. Planning and execution organizations are optional. You can use them separately or together with a purchasing organization, or not at all, depending on how the shipper controls or outsources the transportation process.
An LSP scenario brings two additional organizational elements into play. Since the LSP is planning and executing transportation services for other companies, a sales organization is needed. The sales organization is responsible for managing customer interactions and selling transportation services. The sales organization manages forwarding agreements, that are contracts between the sales organization and the ordering party. It also manages forwarding orders, which can be ad-hoc orders or orders based on a forwarding agreement.
The second organizational element unique to an LSP process is the forwarding house. Forwarding houses represent (small) organizational units, which because of their size are not split into sales organizations, purchasing organizations, or planning and execution organizations. A forwarding house therefore can take over all these functions in a transportation process.
The transportation process of a shipper and an LSP has many similarities, but also some key differences, starting with how they manage transportation requirements.
In a shipper scenario, the transportation process is embedded into a base process. This can be a sales process, a purchasing process, or a stock transport process. Any of these processes will have created a document in SAP S/4HANA, that forms the basis of the transportation process. These can be sales orders, purchase orders, stock transport orders or their logistical successor documents, that are outbound or inbound deliveries.
In an LSP scenarios, similar documents do not exist, since the LSP does not sell or procure physical materials, because its business purpose is the transportation of material for others. Therefore, a new document must capture the transportation need. This document is called a forwarding order. It can be created manually in TM or it can be received electronically via an XML message (webservice).
Since logistics service providers do not always receive orders directly, but sometimes are asked to submit a quote for their services, the LSP scenario may also start with a forwarding quotation. Eventually, the forwarding quotation will be accepted by the customer and thereby converted into a forwarding order. The forwarding quotation may in some cases already be the end of the process, if the customer placed the order with a (cheaper) competitor.
The requirements management process step is followed by transportation planning and transportation execution.
Transportation planning and execution has lots of similarities in a shipper and an LSP scenario. Both scenarios start with the creation of freight units based on freight unit building rules. Freight units represent the starting point for the planning process. A freight unit can include some or all items of a forwarding order and is used to group those items together, that must be transported together. For example, if an LSP is tasked with the transport of chocolate ice cream, vanilla ice cream, apples and bananas in a forwarding order, they may opt to create two freight units, one for ice cream and one for fruits, based on the different temperature conditions required during transport. A similar case is valid for a shipper with the same items ordered in a sales order.
The core planning process will take these freight units and search for available capacities in the transportation network. Also at this stage there are no fundamental differences between shipper and LSP scenarios other than the likelihood to plan own assets is much higher for an LSP compared to a shipper. However, in both scenarios, planning can happen for an own fleet or include a subcontracting process to a third-party (carrier).
In the freight costing and settlement process steps there are again similarities, but also some key differences between shipper and LSP scenarios.
The key difference between both scenarios is the forwarding settlement process. This part of the process does not exist in a shipper scenario. Shippers have to pay for the transportation services, that they have ordered. However, logistics service providers have to bill the transportation services that they have procured, to their customers.
For this purpose, you define forwarding agreements. Forwarding agreements are contracts between the sales organization of the LSP and the business partner(s) representing the customer/ordering-party. In a forwarding agreement, one or more calculation sheets define the logic of how the transportation charges are calculated. They can include only a few items, like a base charge and a surcharge, but they can also be defined rather complex, if many options need to be captured, for example in an ocean transport. The individual charge items typically relate to a rate table, which can be defined based on one or more scales, for example to represent different prices based on gross weight or gross volume.
The system will use the forwarding agreement already in the forwarding order to determine and calculate the relevant forwarding charges. The forwarding settlement document can be created individually per forwarding order or it can be created collectively to settle several forwarding orders together. It includes the forwarding charges of the related forwarding orders and is used to transfer these into a billing document. The billing document is used for settling the charges with the customer and to transfer the values to financial accounting.
The freight settlement process for freight orders and freight bookings to settle subcontracted transportation services with carriers is mostly the same in a shipper and LSP scenario. One difference may arise in the cost distribution though. In an LSP scenario, the freight charges are distributed to the original forwarding order, whereas in a shipper scenario the basis for cost distribution is the ERP item (order item, delivery item).