A price of the freight forwarding service – that is, a respectable remuneration for a freight forwarder…

By definition of a freight forwarder, it is clear that it is an entity which works for REMUNERATION. A forwarding agent’s remuneration can be determined on a quota or a percentage basis.

A typical freight forwarding offer in the maritime forwarding usually comprises a few basic factors such as:
– a maritime forwarding,
– a port handling,
– a documentation handling,
– a customs clearance,
– inland transportation services.

All these “components” of an offer are reflected in the services costs which we buy from our suppliers of services. Costs of all component parts of an offer ceased to be a secret information a long time ago, and in the era of the free Internet access a verification an offer is simpler than ever before. As a typical middleman, a forwarder buys and sells services. A forwarder remuneration is thus a result of a simple calculation in which one subtracts a purchase price from a sales price of the offered service. It is simple, isn’t it?
There is still a question – how much should earn a freight forwarder to be willing to bend over our order? It is indeed an open secret that not all orders are willingly accepted by the freight forwarding companies … .

In a case of “simple” freight forwarding services a so called respectable remuneration (a price of freight forwarding service) should account for about 100 USD / TEU. When dealing with more complex cases a quota should increase proportionally with a workload which should be input to realise an order properly.

If we look closer at the activity area of the freight forwarder who can account in his tasks, inter alia, such activities as:
– an arrangement of a process of goods supplying to the place of loading to the main mean of transportation,
– concluding contracts with carries and other companies involved in the movement of a load, ordering them to make necessary services,
– drawing up and completing documents (and their verification in terms of “technical” correctness – see my comments on the documentation in the international commerce process),
– an insurance of goods at a request,
– organising and supervising a custom clearance, a load control by a competent services, etc.
– monitoring issues connected with loading, offloading and transporting of goods,
– securing a supplier’s interests in a case of damage or loss of goods,
– maintaining a contact with a supplier/a foreign exporter in order to determine a readiness for shipment and organising its collection,
– making payments in terms of freight costs and, for sure, much more activities which occurrence we do not realise.

Moreover, probably we provide services which consist in:
– a broadly-taken freight forwarding counselling (e.g. a cargo of 14m3 definitely DOES NOT qualify for the sea LCL transport),
– developing a concept of transportation with reference to special goods (and not only)
– and the entire spectrum of other “consulting” service …

From all those activities creates a so called added value which cannot be directly evaluated.
Now a question arises – will you hand over your very valuable cargo (many times worth hundreds USD) to a forwarder who is remunerated below a “reasonable” rate? Do you think that such a freight forwarder will perform everything according to a freight forwarding mastery? Do you think that a cost higher by 10-20 USD than a competition which many times can decide to change a freight forwarding company is worth to risk a loss or any other damage with a load worth 100,000 USD?

Unfortunately, I often hear from my customers – My Dear, but your competition have offered me a rate lower by 5 USD… Can you manage to fix a new one? My answer is ALWAYS the same – please, go to this competitor. I do not assume that a competition will not manage to handle an order and a load will not reach a recipient or will arrive damaged, delayed or anything else, but I do claim that someone who will try to realise an order at prices which are not REAL to cover fixed costs of an enterprise will be strongly disappointed? What do they consist of? Let us enumerate:
– a cost of the office rental – 1,000 PLN,
– a cost of phone calls – 200 PLN,
– a cost of Internet access – 100 PLN,
– an electricity consumption – 50 PLN,
– accounting services – 400 PLN,
– postal and courier services – 100 PLN,
– social insurance – 1,100 PLN (with a business activity !!!!!),
– a car leasing – 1,000 PLN,
– a fuel costs – 500 PLN.

This gives us a total of 4,450 PLN! I have not even mentioned costs of software licences, hardware purchases, etc. …., and where is this reasonable remuneration … ?? I would like to stress once more – not covering costs, but REMUNERATION!!!!

It turns out that a sole proprietorship involved in the freight forwarding should earn not less than 30 TEU a month to maintain a business activity… of course, for a reasonable remuneration of 100 USD/TEU. A little or a lot? On the global market a small enterprise it is hard to survive, it cannot offer extended terms of payment because it has no credit contracts with service suppliers, cannot offer custom advantages, e.g. customs clearances with simplified procedures, it is not able … it is not able to … and one can enumerate for a long time.
What is the most cost-intensive process in the freight forwarding? Not this what is at the highest price, but acquiring and prospecting a client ….

I will write soon about a company’s pricing policy, ways of offering services and their consequences.