Complexity, Supply Chains and International Freight Forwarding
7th December 2016 | Phil Croucher
Phil Croucher, co-author of The Handbook of Logistics and Distribution Management, discusses how the complexity of supply chain works in international freight forwarding
Complexity in the supply chain often arises when a number of relatively straightforward activities combine together in a complex way. The very use of the word ‘chain’ to describe the global system of supply implies a linear process which is only really useful when initially explaining supply chain management to novices. The reality is somewhat more difficult to describe: rather than a linear chain, a dark tunnel full of interlocking spider’s webs may be more accurate. In any given industry, if one looks at the suppliers, they are likely to trade with all the major competitors and, in turn, the final customers are decidedly promiscuous with their affections. Personally I am not wholly persuaded by the notion of supply chains competing together en bloc as this reinforces the simplistic linear view of global supply; it is only true at a superficial level as most major international competitors inevitably trade with each other at some level and, in some spheres, even coordinate their activities.
Nowhere is the complex nature of supply chains more evident than in the field of international freight forwarding. I am rather surprised that we have not given this industry more focus in previous editions of our book.
Therefore, in this entirely new chapter, most important aspects of freight forwarding are covered including some of the arcane rules of maritime freight insurance; for example, the concept of the ‘general average’ which bemuses most rational human beings in this digital age. The origins of the ‘general average’ are in the distant past when merchant adventurers were seen as having a mutual stake in the risk and enterprise of a sea voyage. Imagine a bus driver asking all the passengers for a financial contribution to the repairs of a broken-down bus in proportion to the number of passengers on board and you have the basic principle.
Bowersox and Closs (1996) indentified the four Ds of uncertainty relating to global logistics activities:
- Distance: The longer transport distances involved
- Demand: The increased uncertainty of demand
- Diversity: Of culture and administration across the world
- Documentation: The wide differences in documentation required to facilitate international freight movement
These are all true and clearly demonstrable, but for the 21st century I have added a fifth D:
- Desires of customers: The increasing desires of customers who expect both the lowest prices and the highest standards of service in the shortest time
Most professional freight forwarders understand all of the above and are experts in managing them. Done well, international freight forwarding as an integrator of global logistics services is a highly skilled occupation. Often working on thin margins and under the constant pressure of disintermediation, it is far from an easy way to make money. Large customers are often taken with the idea that they can organise the shipments themselves and cut out the middleman. One occasion I vividly remember involved a particularly difficult customer doing just this and broadcasting the huge amount of money saved to anyone who would listen only to find that he had fallen foul of the word ‘free’ in his commercial agreement with the vessel owners. Like so many before him he had failed to understand that ‘free’ in the ‘free out’ term meant that he was responsible for the cost of discharging the vessel. Needless to say the final cost of the shipment was considerably more than that offered by the freight forwarder.
The entirely new chapter in the 6th edition covers these areas in sufficient detail to arm and inform the uninitiated of some of the potential pitfalls. Other areas of interest include the central importance of documentation, project logistics, the harmonised system (HS), limits of carrier liability, cargo insurance, out-of-gauge cargo, specialised forwarding services, key terms such as NVOCC and much more.
Bowersox.D.J, and Closs.D.J (1996), Logistical Management: The Integrated Supply Chain Process, McGraw-Hill