A freight forwarder, forwarder, or forwarding agent is a person or company that organizes shipments for individuals or other companies. They may also act as a carrier. Often, a forwarder is not active as a carrier and acts only as an agent. In other words, they act as a third-party (non-asset-based) logistics provider. The agent dispatches shipments through asset-based carriers and books or otherwise arranges space for these shipments. Carrier types include ships, airplanes, trucks, and trains. Freight forwarders frequently arrange cargo movements to an international destination. Also referred to as international freight forwarders, they have the expertise that allows them to prepare and process the documentation. They also perform related activities pertaining to international shipments. A freight forwarder typically reviews such as commercial invoice, shipper’s export declaration, bill of lading, and other documents required by the carrier or country of export, import, or transshipment. Freight forwarders now process much of this information in a paperless environment.
The third-party logistics provider (3PL or TPL) is a firm that provides a one-stop shop service to its customers. It offers outsourced (or "third-party") logistics services for part, or all, of their supply chain management functions. Third-party logistics providers typically specialize in integrated operation, warehousing, and transportation services. These services can be scaled and adapted to the customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.
A typical end-to-end process for a logistics service provider (LSP) involves four process steps, which unfold in a clear and structured way:
- Requirements and Order Management
In the requirements and order management step, the LSP receives requests to quote conditions and prices for a transportation requirement, issue freight quotations and eventually receives forwarding orders.
- Transportation Planning
In the transportation planning phase, the LSP analyzes the transportation requirements and plans their transportation either with own equipment or subcontracting the execution to a third party. In this phase, they look for consolidation options and optimal routing to minimize transportation costs. Transportation planning will be done based on available capacities defined in the transportation network.
- Transportation Execution
The transportation execution step deals with the execution of the transport. The LSP can perform the execution with their own or subcontracted equipment. During the execution phase, the process makes tracking and tracing information available and facilitates communication among the involved parties.
- Freight Costing and Settlement
Freight Costing and Settlement has two flavors. On one hand, the process calculates and settles forwarding charges. These are the revenues of the LSP, which will be billed to its customers for the transportation services provided. On the other side, the process calculates and settles freight charges. These are the costs of the LSP either through usage of its own equipment or as direct costs owed to subcontractors for their services.
- Requirements and Order Management
The requirements and order management phase (also referred to as forwarding order management) kicks off a typical LSP process. You can use the forwarding order management component in Transportation Management (TM) to create, edit, and confirm forwarding orders from your customers or ordering parties.
In addition to creating the forwarding order directly, you can also enter the data as a forwarding quotation first and send it to the ordering party. In this variant, the forwarding order is later created based on the forwarding quotation.
You use the forwarding order business document to enter data for the transportation of goods that you have agreed upon with an ordering party. You can enter the data manually (for example, after a telephone call) or transfer it automatically (via PI interfaces, EDI). From the forwarding order, you can determine and define the transportation route, create freight units, and create a transportation plan. You can also have the system calculate the transportation charges and start the invoicing.
- Transportation Planning
Based on the forwarding order, the system creates freight units according to freight unit building rules. Creating freight units out of forwarding orders serves two purposes. First, forwarding order items that cannot be transported together for any reason need to be separated from each other. This can be two hazardous goods that are not allowed to be transported together because of Dangerous Goods (DG) regulations. It could also be two materials, for example, ice cream and fruits, that require different temperature conditions during transport. Second, freight units need to represent transportable quantities. For example, think about a forwarding order that asks for the transport of five containers, where each container needs to be moved separately.
Freight units are the basis for the core planning process. In the core planning process, the system assigns freight units to available capacities. Capacities can be trucks, railcars, ships, containers and more. They are defined in a transportation network. The transportation network tells the system how a freight unit can be moved from its source to its destination. There can be simple moves like a direct truck transport. However, the routing can also become more complex, involving several stages using different transportation modes. For example, a truck may transport a container from the pick-up location to a rail terminal. Then, a train transports it from the rail terminal to the port of loading. It may continue its journey on a container ship to the port of discharge to be picked up again by a truck to be delivered to its final destination.
The planning result is reflected in freight order and freight booking business documents. These can serve either as a basis for transportation execution, if the LSP is asset-based and operates its own fleet, or as a basis for subcontracting the complete journey or individual stages to third parties or carriers. In this case, the subcontracting or carrier selection process concludes the planning step.
- Transportation Execution
In the execution phase, involved parties track freight orders and freight bookings, facilitate communication, and create, print and distribute freight documents. A sophisticated status management helps involved users to monitor execution processes. The execution completes the physical transportation process. In addition to the logistical or physical transportation process, TM also supports the financial part of the process.
- Freight Costing and Settlement
To support financial settlement, both in the direction of the customer/ordering-party and in the direction of the subcontractor, you define agreements in TM. Three flavors of agreements exist. You define forwarding agreements between your sales organization and the ordering party to define the rates that you will charge for your transportation services. On the other hand, you define freight agreements between your purchasing organization and business partners representing subcontractors to define the costs that you have to pay for services that you will not deliver yourself. Finally, you can define internal agreements among your organizational units to define how to settle costs within your organization.
Any type of agreement consists of calculation sheets, which define the calculation logic, for example that the total amount consists of a basic freight charge, a handling surcharge and a fuel surcharge. For each charge you can define a rate table across several dimensions. For example, the basic freight charge depends on the distance and the gross weight. For each dimension, you define a scale to be able to maintain charges for example according to different weight breaks.
The system defines the forwarding and freight charges in the corresponding order business documents, which are forwarding orders and freight orders or freight bookings. To initiate the settlement process, you create forwarding and freight settlement documents respectively. The forwarding settlement document is the basis of a billing document that will be created in Sales and Distribution (SD) to trigger the financial postings from there. Likewise, the freight settlement document is the basis for a purchase order and service entry sheet that will be created in Materials Management (MM) to trigger the financial postings from there.
Ultimately, you can estimate the profitability of a forwarding order based on the settled forwarding and freight charges.
- Analytics and Collaboration
You can use analytics capabilities to check freight order quantities across different modes and carriers as well as analyze the progress of freight order execution.