The Plane Truth About Airfreight Forwarding
Once it was enough for airfreight forwarders to move cargo on time from A to B. But with new security regulations, technology tools, and capacity reductions, forwarders today have to meet a full range of logistics needs.
Freight forwarders are one of the industry's best-kept secrets," notes David Wirsing, executive director of The Airforwarders Association (AFA), Alexandria, Va.
A number of companies have traditionally used airfreight forwarders to handle aspects of their domestic as well as international transportation. Take Bayer Health Care (BHC), Tarrytown, N.Y.
"We've been using airfreight forwarders since the beginning of time," says Andy Bordash, head of logistics management and operations for BHC's Professional Testing Systems Division. "But transportation is a lot different today than previous years because of new security and compliance programs such as C-TPAT, and container security initiatives."
In addition to changing and increasing regulations and security concerns, capacity is presenting a challenge, Wirsing notes. "Airfreight carriers until this point have had more capacity than demand. But over the last year or so, carriers have reduced capacity significantly."
The industry also has become more complex, with regional express carriers now servicing the market, according to Dave Hockersmith, formerly president and chairman of The Airforwarders Association and a 30-year veteran of the freight forwarding industry.
It's not just freight that's involved, he notes. "The airfreight forwarder's function is to move cargo, on time, from A to B. But equally important is the information associated with the movement." Hockersmith knows the importance of information firsthand: he is president of Trans-Soft Inc., a Scottsdale, Ariz.-based information technology firm that serves airfreight forwarders and logistics providers.
Airfreight forwarders are involved in all aspects of transportation "because that's what today's shipper demands," Wirsing notes. To be successful, airfreight forwarders have to be able to handle the full continuum of their shippers' logistics needs.
"The firms that are airfreight forwarders are very seldom just that," Hockersmith says. "Airfreight forwarders today handle many transportation modes."
And, because shippers ask their forwarders to deliver an increasing number of services, "the lines are blurring between third-party logistics providers and airfreight forwarders," Wirsing notes. He anticipates that, going forward, "forwarders will likely be pulled into providing a lot of activities that they haven't offered in the past," such as warehousing, financial handling, or replenishment services.
While there has been some consolidation in the industry, approximately 3,500 to 4,000 forwarders are still registered in the United States, ranging from "small mom and pops with a pickup truck and a typewriter," Wirsing says, to a handful of multinational giants.
Wirsing, whose association represents many of the largest airfreight forwarders, speculates that a great percentage of forwarders are small to medium in size, while the bulk of volume is handled by larger forwarders.
A number of forwarders are niche players. "Some are specifically involved in activities such as perishables or government traffic, and some handle technology," Wirsing explains, while others offer courier or consolidation services. Some providers are lane- or region-specific, specializing in, for example, transport in and out of India or between Chicago and Dublin.
Why do so many companies work with airfreight forwarders when they could perform the same functions in-house? For many of the same reasons they outsource other logistics functions. "When you compare what you can do internally to what a provider can do," says Andy Bordash, "nine out of 10 times a forwarder can beat the cost of doing it internally."
In addition, as Hockersmith notes, "forwarding is a full-time specialized job, both domestically as well as internationally. It's a full-time job to stay aware of all the transportation options and the changes in rules." Many firms rely on airfreight forwarders rather than developing and maintaining the capability in-house.
With all the options available, there's no one right way to work with airfreight forwarders. Here's a look at the approaches that work well for three different companies.
Bayer Looks for Total Ownership
The Professional Testing Systems Division of Bayer Health Care, part of the Bayer AG group, is a leading medical diagnostics provider. The multi-million-dollar user of airfreight forwarding works with a core group of forwarders that provide total ownership of shipments.
While cost is important, "I am about customer service from door to door," Bordash says. "I want a national player that can pick up product at the door, take care of all services including delivery and brokerage, and deliver to the end user." He looks for forwarders that can provide the full range of services, including handling the freight business, brokerage, and some warehousing capabilities.
Bayer uses airfreight forwarders largely to move its diagnostic products, which include instrumentation used in hospitals, laboratories, and doctors' offices, as well as aftermarket products such as liquid reagents and test strips.
Working with a handful of freight forwarders that provide door-to-door service has proven to be efficient and cost-effective for Bayer, which traditionally worked with a freight forwarder that handled part of a transaction, then turned it over to another forwarder to handle the rest. Today the company works with four core forwarders: Exel, EGL Eagle Global Logistics, Expeditors International, and Nippon Express, each responsible for a major manufacturing lane.
By implementing the total ownership approach, Bordash eliminated significant turnover and other fees, and negotiated better pricing. In addition, partnering with a few forwarders enabled the providers to better understand their area of business, helping them develop solutions that resulted in lower prices and better service.
"The airfreight forwarders bring solutions to the table that I never would have thought of," Bordash says. "I'm a big proponent of knowing what other industries are doing that may apply to my business."
Forwarders who work with customers in many industries can suggest best practices that may have application. "They have the ability to know the better mousetrap that I can build to make our process more efficient or to reduce costs," he says.
Rockwell Centralizes and Consolidates
Until about five years ago, Rockwell Automation Inc. used 12 airfreight forwarders to help transport its industrial automation products.
"We did business with quite a few freight forwarders globally," recalls Tom Mauerer, manager of international transportation for Rockwell Automation, Cleveland. "Our subsidiaries overseas had a lot to say about forwarder selection in their regions."
In 1994, the company consolidated its forwarding business while centralizing transportation management. "We brought that responsibility and decision-making back here," Mauerer says.
To gain support from the field, "we had to prove that the forwarders we selected were the right ones." As part of that effort, he spent time working with the country managers to establish programs that took into account each country's unique requirements.
Following an evaluation process that considered 50 potential forwarders, Rockwell selected four—BAX Global, Menlo Worldwide Forwarding, Nippon Express, and UPS Supply Chain Solutions—to each handle one region of the world. To select the forwarders, "we looked at their core competencies, and where Rockwell had a history of success with them," Mauerer says.
The consolidation and centralization have paid off. "We have improved service and reduced cost and transit time," he says. "While the amount varies by region, in many cases we've taken days out of our transit time."
While only 10 percent of Rockwell's export freight is expedited, "we've negotiated very close to expedited service levels for our standard service," Mauerer says. "We have tight transit times, and can't sit back waiting for product to be delivered in a week; our airfreight forwarders have been very creative in making this happen."
Chilcote Takes a Local Route
Mark Dehlinger, corporate manager of distribution and transportation for The Chilcote Co., Cleveland, uses two local airfreight forwarders to facilitate transportation of the company's line of photographic packaging for professional photographers.
"We use an airfreight forwarder internationally for the ease of documentation," Dehlinger says. "They're the real experts in the field—we let them do all the paperwork."
Chilcote also uses airfreight forwarders domestically to handle heavy, expedited shipments when it's not economical to ship via small-package carriers.
Dehlinger had worked primarily with one local forwarder until two years ago, when the company began importing a new product line. "The forwarder I worked with didn't have the international depth I was looking for," he recalls. So Dehlinger looked for an alternative, considering a small group of potential forwarders.
Key selection criteria included service, cost, and solid experience in Asia, where the new product line originated. "Because we were new to importing, we looked for a forwarder that could help us," Dehlinger says. "It was easier to deal with someone locally." In addition, he says, working with a smaller, local forwarder has enabled Chilcote to receive personalized service as well as good prices.
Picking the Right Partners
As these examples show, some companies want global forwarders that will provide door-to-door service. Others find that local or niche players offer the best mix of service and cost. With so many options available, companies can find the approach that best suits their needs.
Here's some advice from the experts on evaluating potential forwarders.
"I recommend outsourcing transportation handling on an RFP (Request for Proposal) basis," Dave Wirsing says.
"When preparing an RFP, be all-inclusive and as thorough as possible," Tom Mauerer advises. "Require standard operating procedures (SOPs) from all forwarders so that you're comfortable with the way they operate, and so you know how their SOPs will affect the movement of your freight."
"Interview several forwarders to determine their capabilities as they relate specifically to your product," Wirsing says. "Also make sure that the forwarder has a good security program in place, including employee validation and facilities that are security-checked."
Technological sophistication is another important element to consider when evaluating potential forwarders. "Effective communications are critical, with technology as an enabler," Wirsing says.
However, "airfreight forwarders are not equal in the technological tools they offer," Andy Bordash says.
Adoption of technology by airfreight forwarders, particularly by some small and medium-sized players, has been somewhat slow, Wirsing reports. "Yet technology levels the playing field—a good technology/communications system enables small players to do almost the same as large ones," he says.
Bordash requires track-and-trace capability and a robust web-based management reporting system. "Data about the shipment is just as important as the shipment itself," he says. Forwarders that don't have such technology, including an exceptions alert capability, are apt not to win much business from customers such as Bayer.
When evaluating a forwarder's technological capabilities, ask the company to walk you through a real-life scenario, using their system to follow a typical transaction and accompanying information through the entire supply chain, suggests Hockersmith.
"You should expect multiple EDI and XML options, basic and advanced track-and-trace capabilities, and web-enabled reports that can be accessed from multiple offices," he says. In addition, you may want exceptions alerts that can be downloaded to PDAs or cell phones.
Take a good look at the type of reports you can get, Hockersmith advises. For example, his clients have the capability of offering electronic dashboards that enable their customers each day to view the trends of the previous day, such as how many shipments were delivered on time.
While companies may change airfreight forwarders frequently to obtain lower costs, others find greater success entering into longer-term relationships in which they treat their forwarders as partners.
Successful management of these long-term relationships includes the following steps:
Measure performance. Rockwell, for example, uses monthly reports from carriers to track performance, including on-time delivery against contract, volume shipped, and costs. This data is discussed during quarterly meetings with each provider.
Bayer also meets with its forwarders quarterly. "Forwarders come in and formally present their service performance with regard to delivery time, loss or damage of product, costs, and compliance," Andy Bordash says.
Forwarders put together a matrix that details the cost component as well as delivery performance that includes milestones such as when a shipment was picked up, delivered in-country, released by Customs or other government agencies, and when it was delivered to the final customer.
Two-way communications. "We have monthly conference calls with our logistics providers," Bordash says. These calls include the forwarder's key players from different parts of the world as well as people from different parts of Bayer. The calls, which take from 60 to 90 minutes, enable the two companies to identify and address potential issues and to discuss new programs and government regulations.
Establish trust. "Trust is built over time," Bordash says. "It's a two-way street. You have to be as honest with the forwarders as you want them to be with you." This means being open about your constraints and expectations. It also means making sure your company is a good partner, he says.
"I'm trying to optimize the relationship, and make sure that we have happy campers both externally and internally," Bordash says.
Business review sessions include looking at whether providers are being paid on time by Bayer's third-party freight payment company. Bordash also asks about the forwarder's relationships in different parts of the world. "Are they experiencing some constraint on a local level?" he asks. "For example, some areas require an appointment; how does that affect their service levels?"
Optimizing relationships with freight forwarders—and treating them more as long-term partners than simply companies that execute individual transactions—is just good business, resulting in efficient and more cost-effective service.