“I have a huge shipment that I need to move ASAP. Can you help me?”
These are truly exciting words for a freight forwarder to hear. Even better if they come from that Fortune 100 Client for whom the share of wallet is low, but the additional opportunities are large.
Freight Forwarding, by it’s very nature, lends itself to a high number of movements that are not governed by a standard agreement or rate card.
The reality is that these potentially profitable moves are also extremely risky, and many times result in a net loss. Let’s walk through an example.
A/O Forwarding has a profitable contract to move everyday airfreight from the US to China for F100, a Fortune 100 manufacturing company. A/O has a 3% share of F100s overall transportation spend, and sales has been working hard to get new opportunities to carry other lanes. A/O has guaranteed space booked on a cargo airline for the US-CN freight at a very good rate.
F100 calls up the A/O salesperson and tells them “we have a 500 KG shipment from US to Brazil. Can you move it for us?” Eager to please the client and move the freight, A/O assembles a price. Unfamiliar with moving F100’s product from US to Brazil, A/O is eager to build in a higher price to compensate for risk. But also eager to show competitiveness for the lane, A/O offers a more aggressive price.
F100 agrees to the price, and the freight moves to Brazil. In Brazil, A/O has to spend extra for Airport security, and the delivery address is actually 140 KM from the airport vs. 40km, as originally calculated. The delivery company used for the original bid does not deliver that far, so a different company is used, who is twice as expensive.
The freight is delivered, and the customer is happy. A/O Invoices in order to protect profit. However, due to strict invoicing rules at F100, they short pay the invoice, not allowing charges that were not agreed to.
|Service||A/O Quote||Carrier Charges||Invoice to F100||Paid by F100|
|Airfreight, 500KG, NYC-VCP||$1,000||$900||$1,000||$1,000|
Upon payment, unanticipated charges result in a significant drop in profitability:
A/O forwarding now has to answer the following questions:
- Do we spend valuable resources trying to collect on this?
- At what point does the cost of collection outweigh the potential revenue?
- Do we just write this off and accept no profit on this shipment?
This simple illustration shows a common Spot Quote scenario. But profitability can also be impacted in a very similar way, even in contracted lanes.
Consider some examples:
- Contracted lane, but customer requests non-contracted services
- Contracted for port to port, and customer uses multiple ports in one country
- Contracted for freight and fuel, but accessorials are not contracted
Trax Technologies can help. With over 20 years experience in the logistics industry, we are experts on the risks involved with the contracting and invoicing process. Let one of our experts perform a gap analysis between what you bill and what you have contracted. We will show you where profitability is leaking, and will show you our tools to prevent it.