So, you aren’t a logistics person and you don’t know the red flags to be aware of when undertaking an international trade. Here are the things that you should focus on to make sure that your logistics service provider is acting in your interest.
1. Cheapest is not always best
Many agents will quote the lowest possible figure, and leave any additional costs or charge extra for every small change. So, cheapest is not always best. Today, the margins are so small that most agents should have very similar numbers. If agent quotes an unusually low cost for the job, the chances are that it’s not because they have a special deal from somewhere but rather that they are cutting corners or leaving out surcharges/incidental costs that will come back to haunt you later.
2. Check the number of agents involved
Today, many shipping agents and freight forwarders are actually just brokers. They don’t really do anything themselves, apart from buy and sell services on a margin. Each party in the chain needs to add value in an increasingly competitive market: so, check what value an agent is adding; if they have assets, such as trucks, warehouses or ships, which you will be using; if they have a specific knowledge or licenses, such as hazardous cargo licenses; and, most importantly, if they have an international or local freight forwarding license (believe it or not, many do not). If you are uncertain, ask for the booking and see if it’s made with a shipping carrier or another agent. I have seen shipments, with up to five agents, all just marking up on selling. Apart from adding to the costs, it also slows the communication which is often even worse!
3. Lumpsum, the devil is in the details
While it is easy to say, “give me a price delivered” to an unscrupulous agent, this can cost you. A lumpsum all in rates can hide a multitude of sins, and even more profit, as well as allowing the agent to route the cargo as they want. I know that I preach this a lot but its important to always work on a “cost plus” basis and insist on seeing all invoices which the agent pays on your behalf before making payment. Yes, it’s a lot of work and there are ways around it but, short of employing your own logistics consultant, it’s the safest way to ensure that you are paying the real costs and see what you are paying for and what your agent is making.
4. Exchange rates – where the real money is
International trades are tricky, but it’s part of the game. Money is crossing borders and this allows for all kinds of evils and corruption but one of the easiest ways for an agent to make up to 30% profit is to manipulate the exchange rates to suit themselves. So, check the agent’s exchange rate policy when you appoint them and, if you are unsure, double check this with your foreign exchange banker. An agent will never accept a deal if they will lose money on foreign exchange changes but, equally, careful planning will make sure that they don’t make a huge amount off this.
5. Demurrage – an avoidable hidden cost
Last but definitely not least, that infamous word, demurrage: and, with it, detention or storage costs. Many shipping lines make some of their largest profits from this, but it can easily be mitigated or avoided completely through planning ahead. Ask your agent what the free time for packing and delivery is. If you think that you need more time, get them to apply for more from the shipping line before the container is packed. In some cases, you may even want to consider hiring or buying your own container. As a rule of thumb, this would be if you need the container for longer than 30 days on either side of the transport.
These simple actions that will reduce risk and keep your shipping costs inside the expected budget.
Many agents will quote the lowest possible figure, and leave any additional costs or charge extra for every small change. So, cheapest is not always best. Today, the margins are so small that most agents should have very similar numbers. If agent quotes an unusually low cost for the job, the chances are that it’s not because they have a special deal from somewhere but rather that they are cutting corners or leaving out surcharges/incidental costs that will come back to haunt you later.
2. Check the number of agents involved
Today, many shipping agents and freight forwarders are actually just brokers. They don’t really do anything themselves, apart from buy and sell services on a margin. Each party in the chain needs to add value in an increasingly competitive market: so, check what value an agent is adding; if they have assets, such as trucks, warehouses or ships, which you will be using; if they have a specific knowledge or licenses, such as hazardous cargo licenses; and, most importantly, if they have an international or local freight forwarding license (believe it or not, many do not). If you are uncertain, ask for the booking and see if it’s made with a shipping carrier or another agent. I have seen shipments, with up to five agents, all just marking up on selling. Apart from adding to the costs, it also slows the communication which is often even worse!
3. Lumpsum, the devil is in the details
While it is easy to say, “give me a price delivered” to an unscrupulous agent, this can cost you. A lumpsum all in rates can hide a multitude of sins, and even more profit, as well as allowing the agent to route the cargo as they want. I know that I preach this a lot but its important to always work on a “cost plus” basis and insist on seeing all invoices which the agent pays on your behalf before making payment. Yes, it’s a lot of work and there are ways around it but, short of employing your own logistics consultant, it’s the safest way to ensure that you are paying the real costs and see what you are paying for and what your agent is making.
4. Exchange rates – where the real money is
International trades are tricky, but it’s part of the game. Money is crossing borders and this allows for all kinds of evils and corruption but one of the easiest ways for an agent to make up to 30% profit is to manipulate the exchange rates to suit themselves. So, check the agent’s exchange rate policy when you appoint them and, if you are unsure, double check this with your foreign exchange banker. An agent will never accept a deal if they will lose money on foreign exchange changes but, equally, careful planning will make sure that they don’t make a huge amount off this.
5. Demurrage – an avoidable hidden cost
Last but definitely not least, that infamous word, demurrage: and, with it, detention or storage costs. Many shipping lines make some of their largest profits from this, but it can easily be mitigated or avoided completely through planning ahead. Ask your agent what the free time for packing and delivery is. If you think that you need more time, get them to apply for more from the shipping line before the container is packed. In some cases, you may even want to consider hiring or buying your own container. As a rule of thumb, this would be if you need the container for longer than 30 days on either side of the transport.
These simple actions that will reduce risk and keep your shipping costs inside the expected budget.
