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Organization Study

Industry Profile
Business Globalization stimulated the need of paying
closer attention to the management of the chain providing logistics services innoded to reduce
the cost price of goods and services. The companies realized that full attention should be paid
for the competence of the company which include manufacturing, services etc rather than
concentratating in additional functions such as transportation ,distributon of goods,storage
etc.Here comes the need of using 3rd parties ,when specialized services are required to ensure
the presentation of product of any services for the final customer.One such parties which
provide outsourcing is Freight forwarding.A freight forwarding is an agent providing with
services related to consignment on his own or clients name. The freight forwarder can be
defined as a commission agent performing tasks such as transportation of goods,storage etc
on behalf of the exporter or importer.But ,with the expansion of trade and emergence of new
means of transport changed the role of freight forwarders.The services that freight forwarder
renders may vary from customs clearance to services up to total transportation and
distribution services.

There may be wrong assumptions that freight forwarders are

agents who earn money from the imperfection in the transport companies.This is nothing but
due to the lack of knowledge of the role of freight forwarders in process of organizing
transport services.The freight forwarders are nothing but transport architects who takes
responsibility for the timely and quantitative delivery of the consignment.The freight
forwarders solves not only the problems of loading but also coordinates the questions
concerning overload consignments from one type of transport to another as well.Without the
help of freight forwarders ,the owner of the company has to deal with a number of carriers
which is quite a confusing process.The owner will find it difficult tomatch up the demands
such as speed,economy,and safety.in such cases ,the stimulation of goods flow is disrupted
and results in financial as well as other losses.Any disorder in the transport flow directly
affects the common market.Thus,by opting for freight forwarders the costs are reduced
drastically by chhosing the optimal transport route and by getting commercial discounts for
transport and insurance rates.

As a percentage of world gross domestic product, the value

of intercontinental trade has almost tripled from 5.2 percent in 1962 to slightly more than 15

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percent in 2009, and is expectedto rise. This trend directly benefits freight forwarders as most
manufacterers and suppliers rely on them for transportation of goods. This unique positioning
has allowed forwarders to not only participate in the expansion of global freight flows but
also to control the most complex and valuable activities of these flows.As the forwarders’
influence in the market has increased, customers, competitors,strategic buyers and financial
investors seek to better understand how and why forwarders have been able to consistently
generate superior profit and create value over a long period of time.

With trade liberalization,the face of global supply

chain has changed considerably.Sourcing and manufacturing shifted from countries having
high labour costs to low labour costs.As the result of this outsourcing ,the manufacturing and
retailers have relied entirely on freight forwarders to be their network manager of their
intercontinental supply chain.The customer base of a freight forwarder varies from small to
big manufacturing and retailers.The services (ForwarderMomentum, march 2008) provided
by the freight forwarders include the following:

 Transportation (intercontinental and destination delivery).

 Customs brokerage.
 Origin consolidation.
 Destination deconsolidation.
 Warehouse contract logistics services

The freight forwarders are both competitors and

customers of asset based air and container sea freight carriers.They compete with asset based
carriers for customer freight shipments and purchase capacity from the same carriers to
manufacture origin/destination itineraries for their customers.

Freight Forwarding:Modes of transport

The mode of transport is very essential in freight
forwarding or logistics business.The mode of transport is selected as per the context
demands. The various modes of transport used are:

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AIR CARGO

SEA FREIGHT

 ROAD TRANSPORT

AIR CARGO:

Air freght or Air cargo constitutes the goods carried through Air transport. Air
transport plays a major role in international trade. More and more goods ,particularly goods
of high value, time-sensitive commodities and perishables are being found suitable for
movement by air. It has been estimated that goods moving by air account for about more
than 20 per cent of the world trade in terms of value. About 90 per cent of the world's air
cargo traffic is handled by air cargo agents who act not only on behalf of air shippers but also
on behalf of the airlines of whom they are approved sales agents.Air Transport is one of the
most effective tool to explore and serve world market.The most common items carried
through air are mainly of high value.they include:

 Aircraft and auto parts

 Computers
 Electronic and optical equipment
 Pharmaceuticals
 Machine tools
 Precision instruments
 Perishable foodstuffs
Most of the existing airlines have scheduled and chartered carriers for
transporting goods.Ground handling also plays an important role in air cargo.Most of the
airports have facilities like coolers, chilled rooms, livestock rooms and security vaults to
assist the handling of cargo.
Scope of air cargo in India:

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Inspite of recurring losses of about $1.5billion during the time of

economic crisis ,Indian airline industry is showing great potential, thanks to the steps taken
by the Indian aviation industry.Eventhough, Lack of infrastructure continues to be a
roadblock for the industry, which is expected to touch Rs 13,300 crore by 2011-12, a growth
of 20 per cent, by industry estimates (Business Line, 2010). Till recently,cargo business was
nit looked upon seriously as they comprises only 5-10 % of the airlines revenue. But now,
airlines are targeting cargo and have realized that it has good scope. Airliners like Jet
Airways have started floatinga dedicated cargo service by collaborating with a logistics
company.The domestic and international traffic of Indian cargo industry are as follows:

Source: (Business Line, 2010)

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Source: (Business Line, 2010)

Source: (Business Line, 2010)

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(Smiths)

SEA FREIGHT:

Shipping constitutes the principal mode of international transport and is

estimated to carry about 90 per cent of international trade in terms of volume. Sea freight is
the most cost effective way to transport cargo raging from bulk exports to mails.Eventhough
yhe goods take long time to reach their destinations,it is still the safest and reliable means of
transportation.It is convineint for mostly for regular high bulk shipment.Freight forwarders
arrange the cheapest and quickest means as they deal with many shipping companies and
customers.The main items transportedthrough sea are:

 Coal

 Oil

 Furniture

 Heavy Machinery

 Project Equipments

The goods transported through sea are put into regular shipping
containers, which can be handled anywhere and can be transferred directly from ships to
trains for land transport. The regularization of the industry resulted in reliability and better
Sea-freight. Today the shipping industry is well-organized and regulated, making it easy for
companies to safely transport their goods overseas.

Historical Background of freight for freight

forwarders
The freight forwarding services began in the 17 th century when
active trade development started and markets started growing up.the expansion of operation

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didn’t allow businessmen to carry out all operations and meet the requirements of necessary
for process like loading ,discharging,and storage of goods on their own.These problems were
overcomed by agents who did not had any agreement in buying and selling nor in the
transport.They were called by different names in continental European countries varying
from Authorized persons ,brokers ,agents etc.It was during this time the need of a
representative was considered at the intersection of transport and trade.Such representative
came to exist by the name ‘forwarding arent’ in England.

It was in the beginning of 19 th century that USAoverload

carriers in international cotton trade innovated and brought up the name ‘Freight
forwarders’.The freight forwarders appeared as an inseperable party in the contract of goods
transport and used to take goods from sender,issued direct consignment ans participated in
the practical realization of the contract for goods transport.In the ideal model,the freight
forwarders should have the complete control of the delivery of the goods up to the
destinstion.The carriers should be part of transport services for market freight forwarders.In
many countries,carriers go beyond their limits of transport activities and provide services like
goods storage,financial remittances,freight forwarding etc.

3pl and Freight Forwarders

The 3pl or 3rd party logistics and freight forwarders are
more or less the same.Some suggest 3pl is just a fancy name for freight forwarding
(Dechter).But there are difference between the two.Freight forwarders are more transport
specific.They move the cargo from one place to another.Wheras logistics providers
move,store and process inventory.The functions of a 3pl go beyond freight forwarding.

Since freight forwarders are specialists in transportation,they

focus on the cost and logistics of the transportation and thus providing more cost-effective
transportation.Wheras,since 3pl are generilst as they provide services beyond forwarding,
they need not necessarily be cost effective as freight forwarders.The 3pl even depend on
freight forwarders for their forwarding needs.Head to head ,forwarders are going strong as

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they dominate the international trade by controlling 90% of the international trade
(Dechter).Most of the direct carriers heavily depend on forwarders to sell their
transportation,rather than directly marketing to the customers.

The figure above gives a clear idea of activities of freight

forwarders and 3pl.Inspite of these differences ,the services of freight forwarders and 3pl are

Blending.

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