The modern market is globalized, and people can trade goods across national borders with ease. Previously, this transnational trade was the preserve of the commodity market and bulk trading of manufactured equipment.
However, with ease of shipping, the introduction of air freight, and liberalization of trade treaties, small-scale traders can engage in transnational trade, and even transcontinental trade.
Even so, how does the product from a seller in one country reach the customer in another country if the seller does not directly transport and deliver it?
The answer to this is a unique service called freight forwarding, and the entity that offers this service is called a forwarder. This forwarder can also ensure that a package reaches an individual consumer.
- Related Content: Best package forwarding service in 2021
Table of Contents
The forwarder organizes for the shipment (or transport) of goods between two parties engaged in trade, usually a seller and a buyer. Normally, the forwarder contracts a carrier to transport the goods from its point of origin (usually the warehouse of the forwarder) to its destination (which can be the address of the buyer).
Under common law, the carrier transports the goods and is responsible for their damage during transport (or freight). This carrier is designated legally as a common carrier or a public carrier because it can be contracted by any forwarder.
It is therefore evident that the forwarder does not transport the goods, but subcontracts that task to a common carrier.
Even so, should goods be damaged during transport, the contracting party, either the seller or buyer, can hold the forwarder liable for damages.
It is therefore evident that the forwarder serves as the gateway to the logistics network that allows a seller to send products to buyers located in another location, be it a different city, state, or country.
The carrier can use one of 3 modes of transport to deliver the cargo to its destination: road transport, air transport, and water transport.
Moreover, two modes of transport can be used sequentially to deliver the goods, for example, ships (or airplanes) can offload the goods at the port where trucks or freight cargo trains can transport the goods overland to their destination.
On another matter, the goods can be transported at either of two rates; freight rates or the more expensive express rates.
It is evident that the carrier principally focuses on transporting goods from one port to another. So, who handles the documentation, preparation, labeling, and packaging of the goods so that the carrier can just come and collect them?
The answer is the forwarder handles these operations and offers these services, and it is for this reason that the forwarder is also designated as a forwarding agent.
This means that the forwarder prepares the goods received from the seller for shipping, and ensures that all the relevant documentation are available and valid.
Despite calls for self-sufficiency in the national manifestos of many nations, no nation can produce all that it needs. This means that not everything that one wants is manufactured in his/her country, and there is a need to import it from a trader located in a nation that produces the good.
So, how can one buy a personal item from another country, and have it affordably shipped to his/her home address?
The answer to this is that one must seek the services of a forwarder who can ship small retail items, which can be packaged into a box or crate, and this type of forwarder is called the package forwarder.
This forwarder offers package forwarding services. Package forwarding is a form of international (or transnational) shipping service offered to shoppers who buy products from retail stores located in another country, with the purchases usually made through e-commerce portals.
Basically, it is forwarding services that facilitate cross-border online shopping for consumer goods. If the product is a mail, magazine, or bundled paper, then the service is described as mail forwarding.
As expected, package forwarding is an outgrowth of e-commerce and is designed to offer a convenient and easy way to ship products to the buyer.
Basically, package forwarding operates as freight forwarding for small retail goods. As expected, almost all the processes involved in freight forwarding are also involved in package forwarding.
Package forwarding emerged as a unique form of service because of 4 main reasons, which also influence its operations, and they are explained hereafter:
1. Rapid development and adoption of E-commerce
Electronic commerce (abbreviated as e-commerce) is trading done over the internet, and it forms the substructure of the online market.
At its most basic, e-commerce is an online platform that allows the seller and buyer to communicate with each other, as well as facilitate delivery and receipt of payment, and provide for electronic data interchange (EDI) so that paper documentation such as invoices and purchase orders can be sent via the internet (as scanned documents or soft copy documents).
Modern e-commerce has improved and become more efficient in terms of service delivery by integrating concepts and technologies from mobile commerce, internet marketing, online transaction processing (OTP), inventory management, electronic funds transfer (EFT), EDI, and automated data collection, as well as supply chain management (under which package forwarding falls under).
E-commerce companies have a website as their front-end portal that allows for the marketing of products, as well as enables their customers to interact with them.
It is from this website that the customer initiates the transaction life cycle during online shopping. This also applies to package forwarder companies as they use their website as the main portal to interact with their customers.
2. Adoption and Integration of Electronic Payment System in E-Commerce Platforms
A key subcomponent of EDI is the e-commerce (or electronic) payment system (EPS) which allows for online transactions to be initiated, verified, validated, and completed; while maintaining user confidentiality (to avert identity theft) and ensuring that the transaction is legal and conforms to extant regulations.
All online payments must be authenticated by financial institutions because there is a transfer of cash from one account to another via EFT.
As expected, EPS allows for convenient checkout and purchase of products, and this makes online shopping easy and hassle-free. The most popular EPS integrated with most e-commerce websites is PayPal. Likewise, services offered by package forwarder companies are also paid for through an EPS.
3. The desire of Shoppers to Purchase Products from Another Country
The needs and tastes of shoppers are influenced by marketing and unique situations that they are in.
Moreover, with the standardization of product quality and access to information from across the world via the internet, shoppers are most likely to desire better quality products from outside their countries, and this is what drives online transnational commerce.
Relatedly, a shopper can prefer to purchase products from an online retailer in another country if those products are cheaper than current prices in domestic retailers.
4. Limited Shipping Options Provided by Online Retailers
Online retailers (also called e-retailers) provide for the delivery of goods within their nations. Also, most have limited options of nations that they can deliver to in their international shipping menu, while some e-retailers do not even support international shipping.
If one wants to purchase a good from one such e-retailer, there is a need to use the services of a package forwarder company that will receive the goods from the retailer, and then bring it to the desired (home) address.
Sometimes, the online retailer could offer international shipping, but this service can come with a hefty price tag, that when summed with the retail price makes the product more expensive than purchasing the product from a domestic retailer.
Package forwarder companies offer an affordable alternative to pricey retailer-costed shipping fees. Moreover, some package forwarder companies insure the goods to be transported, which when considered with assurances of transit safety, makes international shipping safe, reliable, and cost-efficient.
As mentioned earlier, package forwarding involves logistics and it is part of the supply chain. As expected, it must adhere to the best practices that guide supply chain management (SCM).
Moreover, package forwarding incorporates the basic process flows of SCM which ensures that the right product is transported from the seller to the right buyer on time, without the product incurring any transit damages. Sometimes, the package forwarder can source and deliver the product.
The operations of any package forwarder company (PFC) are pillared on 3 basic process flows which are explained hereafter:
1. Information Flow
This describes the engineered and regulated flow of information from the customer to the PFC and vice versa. It allows for orders to be made, product specifications to be stated, invoices and receipts to be issued, and rules and regulations governing the transactions to be communicated to the involved parties.
2. Product Flow
This describes the packaging and delivery of the product from the PFC to the customer. This is also called the primary product flow.
Nonetheless, if necessary, the PFC can provide for the return of the goods to the seller (usually for replacement of a faulty product or wrong product) and this is called reverse product flow.
3. Cash Flow
This describes the payment, or receipt of cash, for PFC services to be rendered. In also covers refunds, and payments made by PFC to the customer in forms of rebates and damages.
Most PFCs use the efficient reactive strategy of supply chain management in their business models because it allows for prioritization of cost management and service efficiency.
Also, customer demands change depending on the popularity of different product brands in the market. Therefore, this demand can be described as dynamic demand.
For example, if computer nerds in Far East Asia are notified that Intel Corporation has manufactured a new dedicated graphics card, and its Enthusiast Edition has debuted in the US market, then PFCs serving the USA and these Far East Asia nations – like Japan and South Korea – can expect a surge in demand to ship this new card.
However, because the card is delicate and requires a cool, dry, and dust-free environment, then a contracted PFC can remove all other products from its air-conditioned shipping container, and then consolidate all the graphic cards from different users, and pack them in this container.
Because this demand for graphics cards is seasonal, when the demand is low, then the container can be used to transport other goods. Therefore, efficient reactive strategy as it applies to PFC operations allow the PFC to be responsive to market needs and adapt to logistic changes and emerging challenges
Unlike conventional SCM, PFC procedures omit the production and design stages of standard SCM, which also means that there is no supplier in the PFC chain of operations (unlike in SCM).
This is because only 3 entities are involved in package forwarding transactions: the seller, PFC, and buyer. Also, most PFCs lack vertical or lateral integration as they are specialist ventures that focus on providing product forwarding services.
This review focuses on PFCs that allow online shoppers to purchase products from the United States of America (USA) and have these products shipped to destinations outside the USA.
An interesting question would be, how do these PFCs manage to offer package forwarding services?
How a PFC works
A PFC offers a procedurized package forwarding service. This means that there are sequential procedures involved in getting a PFC to ship goods to the desired address. For most PFCs that allow for online shopping in US e-retailers, these procedures can be distilled down to 6 basic steps which are explained hereafter:
Like all e-commerce businesses that feature OTP, EPS, and EFT; the user of any PFC services must register his/her details including physical address, as well as provide credit card (or bank account) details. This physical address is usually the destination address where the products are delivered to.
2. Acquisition of native shipping address
Most US e-retailers cannot ship their products to addresses outside the USA, but allow their shoppers to direct their shipments to addresses located within the US. A US address is described as a native address.
After registration, the PFC must provide a unique native address to the user (or its customer), and the user must use this address as the shipping address to where the e-retailer will deliver the goods to.
Basically, the PFC provides a native address that is accepted by US e-retailers, and this native address is associated with the physical address provided during registration.
3. Order Placement and Delivery
The user/customer can then order a product from an e-retailer and instruct the seller to deliver the product to the native address. Relatedly, some PFCs provide an option where the customer tells them what (s)he needs, and the PFCs source this product from an e-retailer.
The product delivered to the native address must be packaged by the PFC for transportation, as well as inspection by customs officials and other relevant personnel.
If multiple products are delivered, then they need to be packaged into a single box or crate; and this is called package consolidation, which also requires the PFC to itemize the package content in the package label.
The packaging must account for the following:
- condition of goods (for example, if they are brittle or contain liquids)
- mode of transportation (for instance, air transport requires light-weight packaging),
- transport conditions (for instance, goods transported in trucks are jostled around in a moving truck),
- need for multiple handling (for instance unloading, unpacking, repacking and reloading due to multiple inspections done by government officers),
- and the need for a special environment during transportation (for example, antivenom and antibodies [drugs] must be transported in refrigerated containers).
After packaging, the package is weighed, and if necessary, stored in the PFC warehouse awaiting transportation by the common carrier.
The customer must pay the PFC fees for packaging the products, package handling, and shipping the package. Also, if the PFC bought the product, then the customer must also pay for the product.
An important thing to note is that the cost of shipping the product from the e-retailer to the native address is paid by the customer, not the PFC.
The PFC then ships the products to the physical address of the customer and informs him/her of the date of the shipping, and the expected date of delivery.
The aforementioned six steps describe the transaction cycle of package forwarding by a PFC.
As mentioned above, the package must be labeled, and this labeling must be correct and accurately reflect the state of goods in the package.
The main information that must be included in the label is itemized list of products and each product weight, disclosure of any hazardous items, and destination of the package.
Apart from labeling, the PFC must handle documentation because the package is destined for locations outside the USA. This documentation can be complex depending on the nature of goods. Some of the key documentation needed are:
- Commercial invoice, which shows the value of goods, and this allows for custom duty to be calculated.
- Certificate of Origin (COO) to identify where the product originated from (which state or company or retailer).
- Inspection certificate to show that the products have been duly inspected.
- Export license to show that the product is authorized to be exported, and for products subjected to export-control, then the quantity of the product in the package is authorized for export to the customer.
The PFC must also have the following documentation for their products to be shipped outside the USA:
- Bill of Lading (BOL), usually a straight BOL that shows a contract between the PFC and the common carrier.
Shipper’s export declaration (SED).
- Export packing list, which is an itemized list of all the products in the container, types of packaging used, individual package dimensions, and individual package weight.
As expected, a competent package forwarder company must provide for package consolidation before the package enters its forwarding system, as this reduces the bulk of the package (even though it does not affect the overall package weight).
Initially, package weight – which is the cumulative weight of all the products in the package – was used to calculate the shipping fees.
However, it was noted that bulky light-weight objects took up space in shipping containers, which reduces the amount of goods that could be packed and transported by the container, and this ate into the profit margins of the common carrier.
To address this issue, there was a need to consider both the package weight and package size when calculating the shipping fees that the customer must pay to the PFC. This led to the invention of dimensional weight as a pricing technique.
Dimensional weight considers the size and weight of the package when calculating the shipping price, and it serves to economize package space while increasing package density, that is, to have more goods packed into a single package. Usually, the dimensional weight is calculated as:
- Dimensional weight = Volume of package (in cubic inches) / weight (in pounds).
Now that one knows what a PFC is, aspects of its internal business mechanics, its procedurized operations, and the concept of dimensional weight; there is a need to know how to choose the right PFC.