LOGISTICS

INTERMEDIARIES
SCMN01B - The Essentials of Supply Chain Management
Learning Objectives
• Understand the importance of logistics intermediaries to
supply chain operations.
• Explain the specific roles of logistics intermediaries in the
dynamically changing global marketplace.
• Understand the impact of the country’s government
policy and regulations on the role of logistics
intermediaries.
Learning Objectives
• Comprehend the differences in service offerings among various types
of logistics intermediaries.
• Identify a host of factors influencing the intermediary selection
decision.
• Recognize the managerial benefits and shortcomings of hiring logistics
intermediaries.
• Learn to exploit the emerging third-party logistics (3PL) industry
across the globe and leverage their diversified services to enhance the
firm’s competitiveness in the global marketplace.
Learning Objectives
• Understand the evolution and future trends of 3PL
industry.
• Learn to build long-term partnerships with logistics
intermediaries including 3PLs.
• Learn to effectively handle potential role conflicts or
contract disputes with logistics intermediaries.
 The Role of Intermediaries
 Intermediary is an individual or a business entity that facilitates
business transactions between two or more trading partners as a
mediator and is put in contact with those trading partners as a conduit
for various supply chain activities.

 Examples of intermediaries are agents, brokers, wholesalers,

distributors, third-party logistics providers (3PLs), and retailers,
which help make a product or service available for the end customer’s
use or consumption.
 Types of Intermediaries
 Reflecting the increasing complexity and diversity of logistics
operations, there are many different types of logistics
intermediaries.
 For example, some are asset-based intermediaries, whereas others
are non-asset-based intermediaries. Some are domestically oriented,
whereas others are internationally oriented.
 Freight Forwarder

 The freight forwarder is one of the most frequently used forms

of logistics intermediaries. Freight forwarders organize and
arrange shipping activities encompassing the booking of cargo
space, freight consolidation, documentation, insurance
coverage, language translation, freight rate negotiation, and
freight charge payment.
 Freight Forwarder
• For example, an international air freight forwarder will perform the
following logistics services:
• Promote intermodal air-surface transportation.
• Solicit freight from shippers.
• Book air cargo space for shippers.
• Consolidate small shipments into a larger shipment to get freight-rate
discounts.
• Provide pickup/delivery by surface transport means.
• Track shipments during transit.
• Utilize containers.
 Freight Forwarder

• In addition, freight forwarders are responsible for ensuring

supply chain security by stemming the flow of illegal
exports and by helping to prevent weapons of mass
destruction (WMD) and other sensitive goods and
technologies from falling into the hands of proliferators and
terrorists under the Export Administration Regulations, or
EAR.
 Overseas Distributor
 When selling products to an unfamiliar overseas
market, the MNF can utilize an overseas distributor
who purchases products from an original equipment
manufacturer (OEM) as the middle man and then
takes full responsibility for distributing and selling
them to ultimate foreign customers.
 Overseas Distributor
Advantages
• An overseas distributor enables the OEM to access unfamiliar foreign markets
while avoiding local logistics hassles and trade-related risks in the foreign
market.
• The overseas distributor usually handles the product shipment and the
accompanying customs formalities and paperwork.
• The OEM can leverage the overseas distributor’s established reputation and
contacts to enter a newly emerging foreign market.
• The overseas distributor takes care of sales and marketing to promote
products in the foreign market.
• The overseas distributor often offers credit terms to potential customers.
• The overseas distributor can carry inventories of the products and thus
perform warehousing operations in the overseas market.
 Overseas Distributor
Disadvantages
• In return for taking supply chain risks and sales burdens in the foreign
market, an overseas distributor often expects heavy discounts and
generous credit terms from the OEM.
• The OEM may lose control of local marketing and pricing.
• An overseas distributor often demands a long period of exclusivity;
therefore, the OEM can be locked up with the overseas distributor for
a long time without many other alternative means of selling products
overseas.
 Non-Vessel-Operating Common (NVOCC)
 A non-vessel-operating common carrier (NVOCC) is a modified form of a
foreign freight forwarder that does not own or operate its own vessel;
however, the NVOCC issues its own bills of lading or airway bills to provide a
variety of (ocean) transportation services for point-to-point movement of
goods.
 An NVOCC specializes in less-than container load shipments and often
utilizes containers. It is sometimes called a shipment consolidator because it
combines small shipments (partial container loads of goods) destined for
the same location into a full container load.
 Shipping Agent

 A shipping agent is a local licensed intermediary that

arranges for the ship’s arrival, berthing, and customs
clearances, including imported goods inspection, insurance,
loading/unloading, cargo claims settlement, cargo related
document preparation/delivery, and the payment of all fees
when the ship is in the port’s dock on behalf of the ship’s
owner.
Shipping Agent
 Container Leasing Company

 A container leasing company facilitates intermodal

movement by relieving individual carriers of the financial
burden and managerial responsibility associated with
container equipment.
 Container Leasing Company
The top 10 container leasing companies in the world.
1. TRITON International
2. Textainer Group
3. Florens
4. Seaco Global
5. Beacon Intermodal
6. CAI International
7. Seacube Containers
8. Touax Container Solutions
9. Blue Sky Intermodal
10. CARU Containers
 Customs (House) Broker
 A customs (house) broker is an agent who clears shipments through the importing nation’s
customs, prepares and submits the documents necessary for customs clearance, estimates
taxes and duties, pays the smallest applicable duty, and facilitates communication between the
importer and the government.
 Services offered by the customs (house) broker include the following:
1. Electronic documentation
2. Immediate delivery
3. Door-to-door delivery service
4. Classification
 Export Packer
 An export packer provides packaging (including moisture-
resistant packaging) and protection services for all types of
goods, including hazardous products.
 The export packer often works in conjunction with
international freight forwarders for physically assembling
export shipments and packing those for ocean-going
containers.
 Export Management Company
 An export management company (EMC) assists noncompeting firms in
marketing their products overseas. EMC can be either local or foreign owned,
and operates on either a commission or a fee basis with three to five
exclusive contracts.
 An EMC can appoint sales representatives in importing countries, conduct
market research, promote the goods and services of its clients, arrange for
transportation and packing, prepare documentation and buy insurance for
its clients, provide warranties and after-sales service, and extend the
importer’s credit.
 Export Trading Company
 The role of an export trading company (ETC) is very similar
to that of an EMC in that both of them handle nearly all
facets of export operations, including sales, marketing,
promotion, documentation, transportation, warehousing,
insurance, and communication. A key difference may be
that an ETC takes the ownership of a cargo, whereas an
EMC does not.
Third-Party Logistics Service Provider (3PL)
 Generally, 3PL refers to an intermediary that supplies, coordinates,
and integrates multiple logistics functions, including transportation
and warehousing across multiple links in the supply chain and acts
as a “third-party” facilitator between seller/ manufacturer (the
“first party”) and the buyer/ customer (the “second party”.)
 Third-Party Logistics Service Provider (3PL)
The benefits that can be gained through the use of 3PLs include the following:

• Logistics cost reduction resulting from increased logistics efficiency provided by

3PL. Asset reduction and the subsequent improvement in cash flow due to the
utilization of the 3PL’s logistics assets such as warehouses, trucks, and airplanes.

• Order cycle time and cash-to-cash cycle time reduction thanks to streamlined
logistics operations by 3PL.

• Inventory reduction resulting from reduced lead time.

• Overall customer service improvements

 Fourth-Party Logistics Service Provider (4PL)
 A fourth-party logistics service provider (4PL) is often dubbed a lead
logistics service provider that coordinates, manages, and integrates
supply chain activities of multiple 3PLs hired by its client. It focuses on
synchronization of supply chain activities through the collaboration
among multiple 3PLs as its supply chain partners.
Potential Challenges for Using Logistics Intermediaries

 The use of logistics intermediaries can bring numerous

managerial benefits, caution should be exercised before
entering into a contract with an intermediary.
 A firm that does not clearly understand its core competency,
strategic mission, value propositions, and specific
performance metrics will run into totally unexpected
disasters resulting from the logistics outsourcing contract.
Key steps for developing a successful outsourcing relationsh
 3PL Market Trends
• Parallel with the increased popularity of logistics outsourcing, the
3PL industry has been growing at a steady rate during a period of
1996 through 2013 (Armstrong, 2013). Although its growth
temporarily slowed or slightly declined between 2009 and 2010 due
to the economic downturn, 3PL has emerged as the most important
and popular logistics intermediary in the past decade. As the 3PL
industry has begun to mature, its competition recently intensified
and consequently it was diversified with many different niche
markets.
 3PL Market Trends
 3PL market can be segmented into four different areas:
1.Non-asset-based domestic transportation management.
2.Non-asset-based international transportation management
3.Asset-based dedicated contract carriage.
4.Asset-based, valued-added warehousing/distribution service
provider.
1. Non-asset-based domestic transportation management.
- 3PLs that belong to the non-asset-based domestic
transportation management category offer contractual
transportation services such as valued-added shipments.

2. Non-asset-based international transportation management.

- 3PLs that are categorized as non-asset-based international
transportation managers primarily handle cross-border
(intermodal) transportation in conjunction with freight
forwarding.
3. Asset-based dedicated contract carriage.
- 3PLs that belong to asset-based dedicated contract carriers utilize
their transportation assets such as tractors and drivers to offer long-
term contract logistics services that usually last one to seven years.

4. Asset-based, valued-added warehousing/distribution service

provider.
- 3PLs that are considered to be asset-based, value-added
warehousing/distribution service providers utilize their
warehouses/distribution centers to mainly provide long-term
warehousing/distribution services.
• In addition to these market segments, a couple of new market
segments have emerged. These include financial service–based
3PLs such as Cass Information Systems, CTC (Commercial Traffic
Corporation), and FleetBoston Financial Corporation, which
focus on financial services ranging from freight payment and
auditing to cost accounting/control.
• Another new segment was introduced by information-based
3PLs such as Transplace and Nistevo, which provide Internet-
based, business-to-business, electronic logistics services without
owning any assets.
Biggest challenges of 3PL services recognized by 3PL users
Reasons for nonrenewal of 3PL contracts
The duration of the 3PL
contract