16 Mar 2011

Forwarding out

The outgoing or export forwarding process further explained 

The goods are delivered at the forwarder’s warehouse. 

The forwarder, sometimes also called expeditor is the ‘architect’ of the air cargo supply chain.  A forwarder or expeditor can be IATA certified ; in that case he is referred to as agent.  An agent is an IATA certified expeditor or forwarder that … 
... has been thoroughly checked for financial status
... has enough air cargo potential
... has the right facilities for handling air cargo
... has trained personnel for handling air cargo and dangerous goods
... receives commission from the IATA associated airlines
... may use the airline’s Air Waybills 

Depending on the agreement with the forwarder’s customer, the forwarder organises:
  • Outgoing handling or export handling & customs clearance of the customer’s shipment,
  • Air transport from a nearby airport to an airport near destination
  • (optional) Further incoming handling or import handling & customs clearance near destination
  • (optional) Delivery at final destination (consignee)

The forwarder will buy space at the airline's sales or customer service department, or in case of a foreign airline sometimes through the airline's General Sales Agent, a GSA(A short note about the GSA: An airline can decide to appoint a GSA when it proves beneficial to have the lower and more flexible costs of a hired local sales team instead of setting up an own sales-team, which is often more expensive and has fixed costs.  Some sources claim the performance of a good airline sales-team will in the end always be better than the performance of a GSA ; I guess this can probably be managed upfront in a good tender, contract and performance review process though.  Probably a good tip in selecting a GSA is for the airline to check with their potential local customers, the forwarders, in advance, because they know the market best.)

(Airline) Pricing

Air cargo is generally sold for a fixed price or a fixed rate per kilogram, often with a minimum charge to cover basic expenses of shipment handling.  Customers (forwarders) with a continuous demand of space on one or more specific routes, or with a continuous turnover with the airline overall, will negotiate and contract their own space and pricing details with the airline.  Sometimes also so-called 'spot rates' can be requested for ad-hoc shipments.  And it is also possible the airline offers special rates to assure the aircraft's capacity will be filled.  Take a look here on ezinearticles if you want to know a bit more about by whom and how air freight rates are calculated.  Basic air cargo rules and rates are laid down in IATA's TACT (The Air Cargo Tariff) ; rates are negotiable based on your shipped volumes and on capacity vs demand on the requested routes.

An important factor in air cargo pricing (with the airlines, but also with the large integrators DHL, FedEx, UPS and TNT) is the dimensional weight conversionAs stated here on Wikipedia: by charging only by weight, lightweight, low density packages become unprofitable for freight carriers due to the amount of space they take up in the (often very expensive) truck/aircraft/ship capacity in proportion to their actual weight. The concept of Dimensional Weight has therefore been adopted by the transportation industry worldwide as a uniform means of establishing a minimum charge for the cubic space a package occupies.  Therefore the volume is converted into a (higher) weight / price class.  Take a look here on Export911 to see the weight or measure factors for different transport modes.

Another factor in air cargo pricing are the surcharges that can be added by the airline (and therefore also the forwarder).  A fuel surcharge can be added to cover the additional costs of increasing fuel-prices ; these will generally follow a certain index.  A security surcharge can be added to cover the additional costs of the increasing number of security checks and related administration that are legally required by the authorities. 
There is a lot of discussion these days whether or not these costs should actually be a part of the overall air cargo rate, as these surcharges tend to be even higher than the actual air cargo rate sometimes.

Of course the airline will try to optimize their expensive cargo capacity on board of the aircraft, and try to sell this capacity at the highest revenues.  This is called airline cargo revenue management ; look at some of the principles and challenges for this here in Sabre Airline Solutions' Whitepaper.


First step after the pricing is obtained, is to make an airline booking for the shipment and get the airline’s confirmation in order to assure space on board of an aircraft:
  • Airline (Master) Air Waybill number assigned 
  • Origin and (final) destination
  • Type of goods / commodity (especially important for dangerous goods, perishables and valuables)
  • Flight date
  • Flight number
  • Weight, volume and dimensions of shipment
  • Number of colli
  • Issuing agent / contact details
  • Eventual assignment to customer (agent's) allotment

The reservation will be validated against the airline's capacity, commodity and revenue management criteria, and will be officially confirmed as soon as the booking is accepted.  Now the booking process is complete.

In case of a so-called blocked-space agreement in which the forwarding agent has a continuous reservation (allotment) for space at one or more flight / date combinations with an airline the booking process may sometimes go slightly different, but the basics are the same.

There are a few recommendations in order to assure a smooth process for the airline and the customer:
  • Make the booking at the earliest possible stage, and ask for (and meet) the latest possible delivery time of your goods (esp. in case of dangerous goods, live animals, perishables, valuables, etc.) at the airline's handling agent
  • Check for specific commodity restrictions with the airline or the country of destination.
  • Do not make bookings for the same shipment at several agents or airlines ; if you have to cancel do this timely, also in case you are not going to use (part of) your allocation.  Aircraft space is very expensive!
  • Do not exceed allotments and/or shipment weights without consulting the airline first.  If noticed your shipment will certainly be stopped, and if unexpectedly unnoticed this is a potential air safety threat!
  • Make sure the information on your shipment documents are exactly in line with the actual shipment details, dimensions and weight. 
  • Make sure you have made all the necessary security arrangements.  Cargo from 'unknown shippers' or with otherwise suspicious characteristics will certainly be stopped.

Preparing the shipment

In order to keep track of the different customer’s shipments from one exact address to another, the forwarder makes a House Air Waybill (HWB) for each such shipment. The House Airwaybill is the shipment contract between the end-customer and the forwarder, so basically the forwarder acts a a carrier towards the shipper. (This is also called a Non-Vessel Operating Common Carrier or NVOCC, which is a shipment consolidator or freight forwarder who does not own any vessel, but functions as a carrier by issuing its own bills of lading or air waybills and assuming responsibility for the shipments.)

Next step is to make the goods ready for carriage (RFC)
  • Correctly packed, labelled and
  • Customs cleared for Export (if applicable), and
  • With the right documents and security checks for air transport as the next step, as well as for incoming or import handling and clearance (if applicable) at destination

Often the forwarder combines shipments of different shippers travelling the same airport-to-airport stretch into a consolidation, because … 

... consolidations are easier and faster to handle for the forwarders as well as the airline
... bigger volumes get better airline pricing (and also give more commercial freedom for the forwarder to play with cost- and selling prices)
... continuous bigger volumes facilitate blocked space agreements between the airlines and the forwarders to create guaranteed capacity and thus better reliability for the end-customer / shipper.

The AirWaybill

Consolidations or individual shipments get a Master Air Waybill (MAWB) for the airline. To start with, t        he Master Air Waybill is the shipment contract between the forwarder and the airline (which also means that towards the forwarder the airline is the carrier, and the airline considers the forwarder to be the shipper now...).  Other functions of the MAWB are:
  • Communication of the applicable contract terms, conditions and liability to all parties involved  (general on the back, or specific)
  • Proof of delivery (POD) of the goods to the carrier
  • Act as key for other related documents as required for customs or other authorities
  • Provide handling instructions to all parties involved
  • Provide a basis for invoicing for the airline and/or the forwarder
  • Act as an insurance certificate (if applicable and indicated on the AirWaybill)

The main contractual obligations of the carrier are to deliver a shipment:
  • In the same state in which they were accepted, undamaged
  • Complete: in number of colli, and in contents (contents only as far as checked and agreed)
  • On time

The Airwaybills contains a.o. the following information :
  • The exact shipper’s and consignee’s address
  • The forwarder taking care of (c/o) the shipment at destination
  • Carrier / agent
  • Airports of departure and destination
  • Flight date and -number
  • The overall kinds and values of the goods
  • Number of colli, weights, volumes 
  • Customs status
  • The agreed costs of transport and eventual other charges (also for customs purposes in order for them to see added value)
  • Insurance information
  • Signature (to validate contract)

The airline's Air Waybill or MAWB is a so-called non-negotiable transport document, so it is not a proof of ownership of (or document of title to) the goods ; the document + goods cannot be traded.

When the goods are ready for carriage, the forwarder orders transport of the goods.  If needed the goods will be temporarily stored at the forwarder’s warehouse.

K+N warehouse ; photos source: Kuehne + Nagel

In case of large volumes and blocked space agreements with the airline, the forwarder may already prepare ready for carriage aircraft pallets.  This minimises the handling time for the airline, and so the overall throughput time of the shipments.

Kerry Logistics aircraft palletisation

The goods are picked up by road transport for delivery at the warehouse of the airline’s handling agent who takes care of  further cargo handling for the airline.  
  • Again, depending on the internal organisation of the forwarder’s processes, this road transport can be executed either with in-house operated trucks, vans or personnel or by a third party

K+N road transport ; photo source: Kuehne + Nagel

Normally the shipping forwarder will now inform or pre-alert the receiving forwarder about the shipment and flight details.  This enables the receiving forwarder to prepare receipt of the shipment, e.g. by making connecting road-transport arrangements and/or perform pre-clearance of the shipment to ensure a smooth and fast flow of the goods through all the next steps.

The receiving forwarder will often be a branch of the same forwarding company, but it can just as well be a partner forwarder from another company, in which case an ad-hoc or longer term commercial agreement will be made 
  • A network forwarder is a large company with worldwide branches
  • A forwarder network though is a network existing of different smaller to medium sized companies all over the world working together

Process overview:

Besides this basic process, other important functions or side-processes of the forwarder are:
  • To plan & control transport orders, airline slot-times, and the flows of goods, documents as well as information in all steps of the created supply chain in order to assure a smooth process and service as agreed with the end-customer
  • To repair or improvise immediately when something might go wrong in the often complex chain executed by many different parties, or in case of a sudden urgent or non-routine shipment     
    • Change transport or airline bookings     
    • (Part) charters of trucks or aircraft 
    • On-board couriers    
  • To continuously maintain a structured and standardized network of commercial and operational agreements where possible, in order to rely on these agreements and an operational routine for all parties involved
  • To handle claims on behalf of the (end-)customer in case goods are damaged or lost in the D2D or A2A process
(For further information about the subjects in this chapter, also take a look at forwarder KG SID's view on the role of the forwarder as a designer, and the planning of an airfreight shipment ; and what the forwarder has to do in case of time critical shipments.  Also some views on the small size freight forwarders and cooperation between small forwarders.)

I invite all of you in the industry to contact me for corrections or additions, 
and who are new in the business to question me 
in order to improve the information on this site! 

go back to: Shipping           >>>
move on to the next process step: Air Transport    >>>


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Maryann Farrugia said...

Thanks for the detailed information about how forwarding out works.

Unknown said...

The supply chain is not as simple as I thought, thanks for detailing the complex thing in total.

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Hi Manan thx for your interest but this depends on local laws and regulations, I cannot answer that sorry... Perhaps someone else here? Brgds R

Giovanni Russo said...

A Stupid question: export Custom Clearance activities are always to be performed (e.g. from EU to Asia?)..what are concretely the documents to be created? Do I need a freight forwarder for doing it or a company can produce such documents by itself?

Thank in advance for responding

Roland Spijker said...

Hi Giovanni, no a valid question I think, and yes fro EU out you will always have to perform customs clearance activities, but as I am not an expert on this, and it also depends on the kind of goods and the purpose of export, I cannot tell you which documents to use. Basically you need a customs broker and/or forwarder for that. Sorry & succes brgds R.

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