CHAPTER 1 FF Introduction

What we will cover

What is common among the top 3 companies? What does a Freight Forwarder do?:

Definition of Freight Forwarder:

Historical Perspective: TOP 25 global forwarding companies

Common among TOP 3 companies

DHL (2011 Gross Revenue USD 31.160 Billion) Kuehne& Nagel (2011 Gross Revenue USD 22.181 Billion)

DB Shankar (2011 Gross Revenue USD 20.704 Billion)

They are the top 3 Global Freight Forwarding Companies with annual revenues in Billions of Dollars in the year 2011 as per the data compiled by Armstrong & Associates, Inc., a recognized leader in supply chain market research and consulting based in USA. The complete list of top 25 Freight Forwarding Companies and the salient features of the business traffic generated by these companies is presented in Appendix 1 at the end of this chapter.It would not take much time to reach the conclusion that Freight Forwarding is a big business with many multinational companies operating successfully. One of the Freight Forwarding companies, Kuehne& Nagel is the majority shareholder of Worlds No. 6 ranking Container Liner shipping co.,Hapag Lloyd.A look at the column titled Traffic Handled & Remarks will enable you to know that Freight Forwarders are performing the range of activities listed below:

DHL Express
DHL Express is a division of the German logistics company Deutsche Post DHL providing international express mail services. Deutsche Post is the world's largest logistics company operating around the world.[2] DHL is a world market leader in sea and air mail.[3][4] Originally founded in 1969 to deliver documents between San Francisco and Honolulu, the company expanded its service throughout the world by the late 1970s. The company was primarily interested in offshore and inter-continental deliveries, but the success of FedEx prompted their own intra-U.S. expansion starting in 1983. DHL aggressively expanded to countries that could not be served by any other delivery service, including the Soviet Union, Eastern Bloc, Iraq, Iran, China, Vietnam and North Korea. In 1998, Deutsche Post began to acquire shares in DHL. It finally reached majority ownership in 2001, and completed the purchase in 2002. Deutsche Post then effectively absorbed DHL into its Express division, while expanding the use of the DHL brand to other Deutsche Post divisions, business units and subsidiaries. Today, DHL Express shares its well-known DHL brand with other Deutsche Post business units, such as DHL Global Forwarding and DHL Supply Chain. The DHL Express Service has ceased domestic operations in the United States of America, as of February . 4.65 lakhs FTE

Kuehne& Nagel
Kuehne + Nagel International AG (SIX: KNIN) is a global transportation and logistics company based in Schindellegi, Switzerland.[3] It was founded in 1890, in Bremen, Germany, by August Khne and Friedrich Nagel.[3] It provides sea freight and airfreight forwarding, contract logistics, and overland businesses with a focus on providing IT-based logistics solutions. In 2010, Kuehne + Nagel was the leading global freight forwarder, accounting for nearly 10% of the world's air and sea freight business by revenue, ahead of DHL Global Forwarding, DB Schenker Logistics, and Panalpina.[4] As of 2012, it has more than 1,000 offices in over 100 countries, with over 63,000 employees.[5]

DB Shenkers
DB Schenker is a wholly owned subsidiary of Deutsche Bahn AG that focuses on logistics. The company, created by reorganisation and rebranding of Deutsche Bahn subsidiaries, comprises a logistics division encompassing air, land, and sea freight, and a rail division made up from European rail freight companies. Since December 2007 DB Schenker has been the freight logistics subsidiary of Deutsche Bahn. DB Schenker combines all transport and logistic activities of Deutsche Bahn (DB Schenker rail and DB Schenker logistics) employing over 94,600 staff spread across about 2,000 locations in about 130 countries and now is the biggest freight operator in the UK after buying out English Welsh and Scottish Railway (EWS).[2] From 1 January 2009 the logistics operations of DB-Schenker, Railion, EWS, and Transfesa were combined under the brand "DB Schenker

What does a freight forwarder do ?

. Carriage of Ocean Freight (represented by number of TEUs
Twenty Foot Equivalent Units of Containers). 29,810,841 TEUs are estimated to be the traffic controlled by the top 25 Freight Forwarders globally.

An estimate from Clarkson Research Services puts the global container trade in 2011 as 150.6 million TEUs. Hence, the share of the business placed by top 25 global freight forwarders alone is approximately, 20 %.

If you consider all the freight forwarders in the world, the business controlled by them will be around 50 %. This includes the containers booked by Freight Forwarders on behalf of their customers as well as the containers carried by Freight Forwarders as NVOCCs (Non Vessel Operating Common Carriers - This concept will be discussed in detail in Chapter 3).

Definition of FF

The term freight forwarder originated from forwarding (moving from one place to another) of freight (goods or cargo). Basically, a freight forwarder is a person or company involved in theprocessing and/or movement of goods on behalf of another company orperson which crosses international boundaries. The freight forwarder provides services in the following two main fields:

The movement of goods out of a country on behalf of exporters or shippers, in which case the forwarder would be termed an export freight agent;
The bringing of goods into the country on behalf of importers, in which situation the forwarder is called an import freight agent, customs house agent (CHA), customs clearance agent, clearing and forwarding (C&F) agent or customs broker.

Historical perspective

Transportation is vital for the development of human civilization. When transportation is within a community, it is simple. As the civilization develops, people began exploring trading opportunities, from one country to another and that has led to the birth of transportation by sea. The Industrial Revolution of the eighteenth and nineteenth centuries applied steam power to transport and later the development of marine engines ultimately facilitating even faster movement of goods. Along with the development of global trade, the trade support mechanism also developed. One of the important trade support mechanisms is the development of transport intermediaries. At the beginning of the thirteenth century, Venice had a trade route via the Alps to Germany and other European Countries. The merchants of Venice used to employ the services of a middleman, the so-called "Fracture" who was a combination of carrier and forwarding agent. His wagon transported the merchant and his goods and he was escorted by a troop of armed guards to protect life and property against highway robberies. He also arranged for the payment of local dues / tolls on the many border crossings and attended to the change of horses on the stations. The merchandise was conveyed under a consignment note and was soldpersonally by the merchant at destination.

Contd .

Three hundred years later around 1600, the "Fracture" had become an independent operator who knew his way over the lands. He was familiar with the various trade routes and merchandise centers, had organized wagon trains, had set up transportation agencies and transit storage places, had issued bills of lading and collected duties, merchandise values from the consignees. He was the international forwarding agent for the rich merchant princes.

At the close of the 18th century the forwarding agent started assisting the merchants in finding new markets and supplies, thus, he contributed in great measure to the extension of trade. In the middle and towards the end of nineteenth century, when the codification of the law of commerce developed, the forwarding agent was called upon to render counsel. Thus, the freight forwarding business developed through an evolutionary process up to the present stage. The evolution can be summarized in to 3 phases as follows:

Contd .

Phase 1: The transport intermediary is simply known as Customs Broker. Levying customs duties by government agencies has been a basic part of trade throughout history. Customs Brokers did the job of collection of customs duties from the traders and facilitate the movement of goods. They handled the preparation of inward entry (clearance) documents and filed the export declarations (shipping bills) on behalf of importers and exporters. Phase 2: The Customs Brokers who were essentially middlemen and agents of the traders were asked by shippers or consignees to identify ships for moving their cargo. The transport intermediary in this phase is known as Freight Forwarder.Customs brokers and agents who acted on behalf of shippers to arrange freight transport and buy space on ships evolved into freight forwarders. These freight forwarders also arranged warehousing either from their own warehouses or hired from other warehouse providers. The freight forwarders were also required by their customers to facilitate road haulage or rail haulage for transportation of the cargo to or from the port. Hence, freight forwarders added transport assets or entered into contracts with hauliers.

Contd

Phase 3: Today, a modern freight forwarder likes to be called as a Freight Logistics Provider (FLP). Freight Forwarders have also evolved as Third Party Logistics (3PL) Providers doing a range of services in addition to the functions performed by freight forwarders in Phases 1 and 2. Todays freight forwarders are no longer mere custom house agents. The details of the functions will be discussed in the next

chapter.