Amazon Gets Set to Disrupt the Freight Forwarding Market

Amazon Gets Set to Disrupt the Freight Forwarding Market

amazonAfter building an enviable fulfillment process and network, acquiring trailers to transport goods between fulfillment and sortation centers, dabbling in its own delivery services and dipping its toes in air cargo, Amazon is now eyeing the ocean freight forwarding market. 

Should other freight forwarders be concerned?

Freight forwarders are already facing a difficult market thanks to overcapacity, declining rates and a global economy that has remained in the doldrums for several years. However, as Amazon enters the NVOCC realm, there are bells going off in many freight forwarding offices.

Amazon is a monster e-commerce provider, an IT firm and a logistics provider. It is also a major customer of such delivery companies as FedEx, UPS and the USPS. In fact, according to some publications, Amazon is a $1 billion customer for UPS alone. $1 billion in transportation spend with UPS alone – that’s perhaps the main reason for building out its logistics and transportation network – costs are soaring – and so Amazon apparently has decided to bring it all in-house.

increase your airfreight revenuesDespite the precarious industry headwinds facing freight forwarders, Amazon’s NVOCC registry from the FMC depicts its Asian ambitions.  Amazon’s official name on the FMC’s NVOCC registry is Beijing Century JOYO Courier Service Co. Ltd. JOYO was a Chinese e-retailer acquired by Amazon in 2004 and also marked Amazon’s entry into China.

According to industry speculation, Amazon could provide freight forwarding services to Chinese companies looking to export products directly into its Fulfillment by Amazon (FBA) warehouses, or perhaps even “cross-dock” the goods to inject into Amazon’s US delivery network. In addition, Amazon could provide a service most other freight forwarders are unable to – limiting the number of cargo ‘handoffs’ within the supply chain as well as fully taking advantage of its strong IT capabilities to further automate the process.

Amazon will come up against stiff competition. Alibaba, China’s own monster e-commerce provider, IT firm and coordinator of logistics services, signed an agreement with China Shipping Group, its subsidiary, China Shipping Network Technology and sister company China Shipping Container Lines in 2014 to set up an integrated and cross-border logistics platform. The platform will allow for both China Shipping’s and Alibaba’s clients to use it for price inquiry, ordering, tracking and settlement.

The race is on between the world’s two largest e-commerce providers and logistics is where the competition will ultimately determine the winner and perhaps redefine a freight forwarding market in need of change.

The World Needed Another Article on Amazon’s Dominance?

We actually put this article together for a very different reason than to just comment on Amazon.  At Crescent Air Freight we are not only a freight forwarder and NVOCC, but we’re also a consolidator which means we do business with other freight companies.  Many of our industry customers are ocean freight forwarders, NVOCC’s and customs brokers who don’t have in house air freight capabilities.  In other cases we’ll work with freight forwarders who may be licensed for air freight shipping but simply don’t have access to the pricing that we do.  So in that respect, we see some significant value in what Amazon could bring to the logistics marketplace.

Here’s an example of how we cooperate with industry competitors and how Amazon could do the same:

unlock the airfreight business in your customer baseWe have an NVOCC client who has no air freight capability, but they have tremendous ocean freight volume from various U.S. exporters.  A small percentage of the business that their customers have requires air freight service, and our client was simply letting that traffic walk out the door as they were unable to service it themselves.  Crescent was able to put together a simple set of rate and booking procedures that effectively made us the outsourced air freight vendor for this client.  As a result they are now able to capture over $50,000 in annual net revenue from this activity alone.

Now imagine Amazon’s volume of container traffic from China to the United States alone.  By choosing to become an NVOCC instead of a BCO (Beneficial Cargo Owner), Amazon is clearly signaling that they intend to make money off the sale of ocean freight services.  So imagine, just as a consumer goes to the Amazon Marketplace and chooses from 10 different vendors of the Apple iPhone, your freight business can now get centralized access to 1 set of prices for containers from Shanghai to Long Beach (for example).  No more price fluctuations, no more bloated destination charges from multiple handling agents and warehouses, etc.  Just one simple price.  That’s the power of what Amazon’s entry can mean to the market for U.S. import logistics.

Freight forwarders will be mistaken to see this as competition.  Amazon has repeatedly shown that “coopetition” with small businesses and other vendors – including those who sell competing products – is integral to their business model.  We believe they’re going to harness their considerable buying power in the freight markets to do the same for container shipping from Asia to the United States.  And this is no small undertaking – Far East Asia supplies over 50% of U.S. imports!  Clearly Amazon sees vast potential to deliver savings and take a cut for itself.  So how is this not competition for forwarders?  Well, in simple buying & selling terms it has to be considered competition.  However, in terms of value added services, it’s actually going to be a benefit to freight forwarders and NVOCC’s.  Considering most forwarders, especially small to mid-sized ones, deliver unsurpassed service benefits to their clients that large forwarders and integrators don’t, the actual cost of freight is nowhere nearly as significant as one might think.  If you’re a small or mid-sized forwarder who continues to add value to your customer’s business, then Amazon is about to drive down costs and stabilize them for your benefit as well as for the benefit of your customers.  If you’re a freight forwarder who currently does not service China origin business, Amazon may just give you a chance to capture business you’ve been neglecting due to lack of access or in house capabilities in the way that we did for our NVOCC customer.

So we say, “Welcome Amazon”.  It’s going to be fun competing with you and growing with you.

grow your air freight business today

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Growing Your Business Through International Sales

Growing Your Business Through International Sales

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In her June 11th article on Forbes.com entitled “Why Do So few U.S. Businesses Sell Internationally?” (http://www.forbes.com/sites/juliapimsleur/2014/06/11/why-do-so-few-u-s-businesses-sell-internationally/) Julia Pimsleur touches on a business development concept that we at Crescent Air Freight believe in strongly and have written about in the past on the Exporting Excellence™ blog (http://www.crescent1.com/blog/) . Namely, that tapping the potential of overseas markets can create an enormous flow of new leads and business for a company that is looking to grow. The numbers in terms of potential customers, as Ms. Pimsleur mentions in her article, are compelling. A company that confines its target market solely to the United States is confined to a marketplace of 300 million potential customers, whereas a company with an export program in place is facing a global market of 7 billion potential buyers.

As Ms. Pimsleur mentions in her article, there are several components to be addressed in developing an export strategy and her article seems to be more about direct sales to customers, however, one of the key components of this process is to “Master international shipping:…”. Further on in this paragraph Ms. Pimsleur refers to “freight forward (better for bigger shipments)…” Crescent Air Freight is an international freight forwarder and mastery of the international shipping process is precisely what we have done for our clients for nearly 4 decades. For our B2B corporate customers we have offered a wide range of services and solutions for international shipping, and have serviced the needs of customers ranging from Fortune 1000 sized businesses as well as companies that are just getting started with the export process.

Here’s a look at some of the ways in which we’ve helped our customers that may be relevant to your small business:

  • One of our clients, the largest foods business in the country, had an R&D project for us to work on. They had developed a new variety of sausage for the prepared foods product line in Taiwan and needed to have the product shipped there for sampling and testing purposes. The challenge was that as R&D product for testing purposes there was no prior format to work from. The product had never been cleared by Taiwanese health bodies, it had no SKU #’s since it was just in testing phase, and because it wasn’t even sold goods there was no formal commercial documentation such as invoicing or packing lists. This is a scenario that many a small business may find themselves in when developing a new marketing or test marketing a new product in a market. Crescent, in close collaboration with the client’s shipping, manufacturing and R&D personnel (scientists involved in the logistics business) was able to develop a documentary process that allowed the product to be flown to Taiwan, cleared through local customs and delivered to the local testing facility all while maintaining compliance with local regulations.
  • Recently, the life sciences department of a major university was looking to ship temperature sensitive samples of cells and other biological materials to their counterpart in Abu Dhabi, UAE. Most of the product being shipped has to be moved in special cryogenic containers to maintain frozen state while also withstanding the heat of the destination market and non-frozen transport conditions. On top of this constraint, the goods had to be received from the flight at destination and immediately transferred to the destination laboratory for immediate placement in their freezer. Lastly, the goods could not ship until all UAE Ministry of Health approvals and permits were in place, many of which were issued on a special one time basis due to the sensitivity of the project and the goods. In this case, again, Crescent was able to develop a customized process that allowed the product to reach destination. In many ways this too resembles a case where a small business may find themselves looking to test a new market or product overseas and Crescent is able to assist with the shipping & logistics of such situations.

Aside from unusual or highly sensitive cases like the ones mentioned here, each country has its own set of customs and governmental regulations which can have a tremendous impact on the viability of your overseas sales. Factors such as landed cost, customs duties, import restrictions and regulations, etc. are key components of the international shipping process, and to keep with Ms. Pimsleur’s advice to “Master international shipping…” a company seeking to develop export sales really must start by talking to a freight forwarder who can guide them through the challenges and complexities that come with overseas shipping.

In addition to trade procedures, a freight forwarder can also make recommendations on modes of transport that could assist with your budgeting and demand planning and forecasting. Why pay the high cost of air freight when ocean transport could be a better option, for example. Or if you don’t have enough product to fill up an entire ocean freight container a freight forwarder can offer you consolidated freight options that meet your needs. Air freight itself is expensive, but a freight forwarder can also give you an analysis of the true cost benefits associated with this mode of transport and how it could actually improve your business performance in the long run despite a higher short term cost.

Ms. Pimsleur’s article makes an excellent case for considering exports and a logistics partner like Crescent Air Freight is capable of advising you on the complexities of such a process.

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Understand Total Landed Cost

Understand Total Landed Cost

Screen Shot 2014-05-22 at 12.51.06 PMAs we mentioned in an earlier post, the benefits of exporting for your business can be substantial in terms of growth and profit. However, simply meeting overseas demand with supply is not sufficient to ensure that your export process works. Profitability is the obvious measure of success, and this is directly impacted by the concept of landed cost.
In simple terms, landed cost is the cost of your product delivered to or from a foreign country. Cost of product and delivery are the most common and obvious measures that an exporter must consider. However, there are significant additional costs that can drive up the landed price of your goods overseas. Knowing these costs is crucial in order for exporters to ensure order profitability. Some of the more common but frequently overlooked costs, that can impact landed cost directly, include the following:

• Freight – there are many components to freight cost in itself. Cargo has to be picked up domestically, sailed or flown overseas, cleared through various freight terminals at the destination, and trucked to final destination. Each of these steps carries a cost, and even after determining the cost of transport expenses such as airport terminal handling charges (charged by the airline and almost never quoted to the exporter), destination terminal handling (charged to the consignee at destination by steamship lines and very rarely quoted to the exporter) can apply and directly impact landed cost. Also, as shipment documents pass from the hands of various customs and documentation agents, service fees can apply that don’t get quoted to anyone in particular at time of shipment. For example; an importer buying product from China can receive a CIF price from their overseas supplier and presume they have an understanding of landed cost. However, destination charges imposed by the steamship line can run into several hundreds of dollars per container and are to be paid by the importer in most cases. Additionally, logistics providers will charge for services such as document turnover fees, messenger fees, import filing and, customs entry filing fees. This can add as much as $1000 to landed cost and that’s before paying duties that may be charged by the government. In order to obtain a thorough understanding of landed costs exporters should carefully consult with a freight forwarder or logistics services provider prior to starting international business.

• Duties & fees – Customs duties apply all over the world. In some countries they are applied to exports as well as imports. Knowing duty rates is crucial as these charges are non-negotiable and must be paid to local authorities prior to release of goods or within a very short period of time thereafter. Proper classification of goods, correct invoice values and even, invoice formats are required in order for proper duty rates to be applied. For example; the U.S. import duty rates on the general category of “textiles” or “garments” can vary based on country of origin, type of fabric, material used. This can have a significant impact on an importers choice of product and sourcing location. Importers & exporters alike must consult with a customs broker and/or logistics services provider well in the earliest stages of their international business planning in order to get a thorough understanding of duty structures and import formalities that may apply to their business.

•Insurance – Insurance cost is significant. Coverage is necessary in order to prevent a buyer or seller from partial or total loss of goods due to unforeseen damages or theft. Insurance rates can vary based on commodity, mode of transport and country of destination, as well as value of merchandise insured. Parties purchasing insurance should keep in mind that it should not only cover the value of the merchandise, but also the cost of shipping the goods so that these charges do not have to be re-incurred. A general rule of thumb is to insure merchandise for 110% of invoice value so that shipping costs for replacement goods can also be recovered along with the value of the product. Working with an insurance broker is a great way to learn about your options for insuring goods, especially if your company is looking to engage in ongoing international business. Many freight forwarders also sell insurance on a per shipment basis and can provide competitive pricing options for coverage.

These are some of the more significant cost drivers of landed cost. Proper consultation with a logistics services provider can offer a more in depth view of such costs as each country can have significant variations and additional charges that an uninitiated exporter is likely to be unaware of.

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Know Your Incoterms

Know Your Incoterms

Screen Shot 2014-04-22 at 10.16.16 AMThere are few aspects of international trade more important and simultaneously confounding as the use and definition of Incoterms. These rules were compiled by the International Chamber of Commerce in order to define international commercial transactions. The rules were originally complied and published in 1936, and have been updated periodically since then in order to further define the responsibility of charges associated with international trade. While it is important for all companies to have at least a basic understanding of Incoterms, it is especially important for any companies involved in import and export to know exactly how these terms define the responsibility of different parties.

Without the proper knowledge, it is easy for disputes between overseas importers and exporters to arise, which can jeopardize business sales. Differences in the understanding of how freight costs are to be apportioned can lead to tremendous cost overruns, if the intricacies of these international practices are not understood. Below are some of the more common misunderstandings that can arise from an incomplete knowledge of Incoterms.

Free on Board versus Ex-Works

The term, “Free on Board,” or, “FOB,” means that the shipper of goods is required to bear the charges for their product up to the time of loading of cargo onto the international transport vessel. Any goods transported under these terms are usually accepted as having been shipped or laden as soon as they are delivered to the ocean liner that is transporting the cargo. However, shippers will often declare their terms of sale as, “Free on Board from factory,” which is technically incorrect: FOB from factory implies that the importer, not the supplier would cover domestic shipping costs up to the point of international transport, which is not what FOB means.

The term exporters should use to establish responsibility of international and domestic shipping from the exporter’s factory is, “Ex-Works,” or, “EXW.” FOB implies that the shipper is to bear the cost of domestic transport up to the ocean port of departure, whereas EXW requires customers to bear the entire cost of transport from the shipper’s warehouse or shipping facility.  For shipments by air, FCA terms are appropriate as FOB is only relevant to ocean and rail transport.

Free Carrier

Another Incoterm that frequently causes disputes is, “Free Carrier,” or, “FCA.” This term states that the shipper of goods must deliver freight to the location required by the transporter or logistics service provider. This facility, specifically in air freight, is rarely the actual point of departure for the cargo. Freight must then be forwarded from the warehouse to the airline terminal where the goods will fly from, which requires additional trucking charges, airport transfer fees, etc. Customers frequently dispute these charges because they do not understand that FCA does not include coverage of the fees from the shipping warehouse to the airline, and therefore do not account for all of the extra shipping fees.

Other Terms

Other terms can be highly important, depending on the nature of the businesses involved. “Free Alongside Ship,” or, “FAS”, for example, is highly important to companies shipping vehicles or oversized freight that needs to be towed or hoisted onto ships pier-side.  Similarly, “Delivered Duty Paid,” or “DDP,” is extremely important to any exporters shipping on a door-to-door basis.

Besides the problems with complying with export protocol, a failure to understand how these terms relate to a business or shipment can have major consequences for order costs and profitability. The difference between paying dollars on the pound for freight as it transfers to an airport or ocean port can be extraordinary. Understanding and fully complying with all procedures dictated by the Incoterms used in business agreements is highly important for keeping business running smoothly.

Preparing Your Defense-Related Exports

Preparing Your Defense Related Exports…Understanding ITAR and EAR and what it means to you!

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Although the occupation of Iraq and the war in Afghanistan are winding down and drastic cuts in military expenditures and exports loom on the horizon, the global demand for U.S. built security vehicles remains high. Highly popular products such as the HUMVEE, MRAP, armor-plated SUV’s and their accessories including light bars, heavy-duty push bumpers and the parts to keep them running will continue to be exported at high levels for the foreseeable future.

Despite the high volume of defense-related exports over the last decade, many dealers and exporters, especially those new to the industry, remain unaware of the regulations governing the export of defense-related products and are at risk of harsh penalties and sanctions.

Exporters are most likely to run afoul of the two main sets of U.S. regulations covering defense trade, the International Traffic in Arms Regulations (ITAR) administered by the Directorate of Defense Trade Controls (DDTC) under the auspices of the U.S. Department of State, and the Export Administration Regulations (EAR) under the jurisdiction of the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce. ITAR governs the export of items specifically intended for military use while EAR covers so called dual-use items that can be used for either civilian or military purposes.

Logistics providers have no control over the issuance of licenses to exporters under ITAR or EAR. However logistics specialists must have a thorough knowledge of and operate in strict adherence to the regulations to ensure their clients remain in compliance. For example, ITAR contains regulations intended to prevent the unloading of military goods in countries other than their intended destination, or from being diverted in other ways to unintended parties. Logistics providers are responsible for advising their clients on ITAR compliant shipping routes and transit procedures. Another example would be freight forwarders who are responsible for filing Shipper’s Export Declarations to the U.S. Department of Commerce. These filings must be in complete compliance with their regulations to protect their clients from costly penalties. Exporters depend heavily on these logistics specialists for their expertise and knowledge of this sometimes cumbersome and complicated regulatory process.

5 new Iranian defense equipments to be unveiledExporters and dealers who are licensed to operate under the provisions of either ITAR or EAR should be aware that they are required to add any freight forwarding agent they intend to use to their license before they can carry out any transactions. This is intended to ensure that all responsible parties involved in handling a shipment are on record with the relevant authorities.  However, compliance with this regulation also ensures that the exporter takes more care in their choice of forwarder and chooses one with experience and a track record of compliance with the regulations. This requirement doesn’t put an undue burden on the exporter because it is neither a complicated process nor a lengthy one, but it is the law and it protects both the shipper and the forwarder.

Exporters often find it tempting to hire the services of a logistics provider based on the lowest cost, but they should be aware that this can place them at risk of regulation violations that can result in expensive fines and penalties and even the permanent loss of their license to export defense-related products.

 

Are You Ready to Capitalize on Air Freight Growth?

Are You Ready to Capitalize on Air Freight Growth?

growth_arrowAfter years of trouble following the financial crisis, the air freight market is growing. Last week, aircraft manufacturer Airbus forecast strong future growth in the global air freight market, with the industry’s health tied to growth in the global economy. Shippers have a huge opportunity before them and should consider the following four strategies to take advantage.

  1. Be prepared for growth. Airbus forecasts worldwide air freight traffic to grow just under five percent a year for the next 20 years. If your supply chain uses air freight, take the time to plan with your existing forwarders or look for new ones who are capable of supporting your processes most effectively. Notify your forwarder if you expect increases in demand to specific regions or countries, to ensure the forwarder has the knowledge and capabilities to facilitate growth in new markets.
  2. Partner up. While you may control the product and consulting, it’s logistics companies that control the freight. It is essential that you develop relationships with air freight companies who can support increased demand by clients. Having the resources of an air freight partner lined up in advance will allow you to be prepared to service clients effectively, and will keep you from seeing business or opportunities simply walk out the door due to your own lack of familiarity with the mode of transport.
  3. Focus on demand. If you have demand planning capabilities, invest time in briefing your air forwarders on upcoming changes in business. A market can get hot very quickly, and capacity that is available today may quickly disappear. Ask your forwarder to set up contracts with carriers and establish a list of preferred carriers for a destination. Consider engaging in capacity commitments in advance to prevent you from being locked out of the market.
  4. Preposition goods. One way to take advantage of today’s weakness in air freight pricing is to move larger volumes at the current market rates. This can be an effective strategy for shippers who do not have perishable goods or other freight with shelf life restrictions. Shipping merchandise today at low prices and positioning it with overseas distributors or warehousing facilities may result in substantial savings in the future.

Properly using air freight can deliver major benefits to companies who understand changes in upcoming economic conditions. The key to taking advantage is being prepared and leveraging the resources of a capable freight forwarder who can complement your international business efforts.

Your Freight Forwarder is Your Competitive Advantage

Your Freight Forwarder is Your Competitive Advantage

supply-chain-advantageWhen considering a partner in shipping, you need to view the company you choose to work with as an extension of your own business. Smaller operations can regard such entities to be reinforcements to their mailrooms or warehouses. This makes sense when a supply chain is simple, and primarily deals with the distribution of small packages and domestic freight. After all, small packages can easily fit onto a UPS truck, and often travel within the country, so issues of trade terms or documentation do not often come up.

But when a supply chain is more advanced, a bit more expertise may be required. As soon as items need to be shipped overseas, or when the items you are shipping are more complicated (i.e. hazardous materials) it’s best to consider bringing on a freight forwarder. Not “just a shipping company”, a freight forwarder can serve as a valuable advisor to your business, with market knowledge that can be leveraged to make specific recommendations for your unique logistical needs. True experts in supply chain management, they can assess each individual situation, look at the different factors (size, weight, destination, urgency, etc.) and recommend a plan that will best meet your supply chain needs. They also serve essentially as your shipping “agent,” handling all of the details—cost management, negotiations, contracts, etc. — on your behalf.  As experts in overseas trade regulations, freight forwarders often add value by ensuring that your commercial and shipping documents are prepared in accordance with the rules and regulations of foreign countries.  This is significant, as the physical act of shipping is only one part of the export process.  Cargo that is routed overseas with incorrect or incomplete documentation will often cause overseas customers to face difficulties in clearing customs at destination which can in turn result in penalties or delays in final delivery of goods.

With insight into regulatory matters, freight forwarders can also be an invaluable resource for shippers who are lacking compliance resources, or who may simply be unaware of how transportation regulations can impact their ability to export.  For example, freight forwarders can advise hazardous materials shippers on how best to pack their cargo to ensure proper transport or can even make recommendations on how to effectively move perishable goods without paying for special equipment that carriers would otherwise prefer to use and charge premiums for.

Freight forwarders can add tremendous value to any supply chain they are involved in, by cutting costs and simplifying the overall process. Consulting a freight forwarder is a great way to gain a competitive advantage when you are looking to ship your products across the globe, as well as a great way to avoid the major headaches that can come with shipping materials overseas.