The Fundamental Roles of Freight Forwarder in the Execution of International Logistics Kaan Aydin Ataoglu A dissertation submitted in partial fulfilment of the requirements of the Birmingham City University for the degree of Master of Science Project Supervisor: Christine Lloyd Faculty of Computing, Engineering and the Built Environment September / 2015
Abstract Master`s thesis in Logistics and Supply Chain Management Title: Author: Tutor: The Fundamental Roles of Freight Forwarder in the Execution of International Logistics Kaan Aydin Ataoglu Christine Lloyd Date: 01.10.2015 Keywords: Freight forwarder, International Logistics, Custom Clearance, Competitive advantage, Warehousing and Consolidation. Introduction: In today`s challenging competition in the international business, the manufacturers strive for their processed products to deliver its final consignee before starting competition to the rival ones. However, developing business volume brought along logistical challenges, so this research attempts to identify the fundamental roles of freight forwarder and investigate how the fundamental roles can be integrated to execute the manufacturer firms` international logistics activities smoothly and distribution in terms of gain competitive advantage, and creating a case study to show the real business observations and implementation. Purpose: The purpose of this dissertation is to investigate how the fundamental roles of freight forwarder can be integrated to transport processed hazelnuts goods and illustrate freight forwarder`s roles as a formal real sector approach in terms of executing international logistics activities through the comparison with the centralized transport service. Frame of Reference: Based on various sources of literature concerning freight forwarder and its fundamental roles, interviews by experienced persons on distribution management and forwarding. Method: The study is considered as qualitative a case study, but the numerical data is collected from the interviews in order to calculate transport expenses and used as quantitative by the abductive research method to take the advantage of the real-business observations. Secondary is retrieved from the research, report and publications. Conclusion: Integration of the fundamental roles of freight forwarder to execute manufacturer firm`s logistics activities, and comparison of the transport expenses of freight forwarder quotation with the firm`s centralized distribution service based on time, security and cost.
Table of Contents Chapter 1 Introduction. 1 1.1 Project Aim and Objectives...5 1.2 Case Study Description...6 1.3 Disposition of the thesis..9 Chapter 2 - Literature Review..11 2.1 History of Freight forwarding...11 2.2 Freight Forwarder..13 2.3 Freight forwarder fundamental roles...14 2.3.1 Quotation, Booking. 16 2.3.2 Custom clearance...17 2.3.3 Documentation. 18 2.3.4 Freight Consolidation..20 2.3.5 Cargo Warehousing....21 2.3.6 Delivery...23 2.3.7 Insurance..23 2.4 International logistics. 24 2.4.1 Subcontractor road transport providers...24 2.5 International Freight Forwarder 26 2.5.1 Integration of Freight Forwarder in Multimodal Transports..28 2.5.1.1 Operational factors...29 2.5.1.2 Transport mode characteristics..29 2.5.1.2.1 Conventional Sea Transport...29 2.5.1.2.2 International Road Transport...30 2.5.1.2.3 Rail Transport.30 2.5.1.2.4 Air Transport...30 2.5.1.3 Consignment Factors...30 2.5.1.4 Cost and Tonnage Requirements..31 2.5.2 Freight Forwarder as Contracting Carrier....32 2.6 The related government custom clearance transactions.32 2.6.1 Import process...33 2.6.2 Export process.34 2.7 Conclusion..36
Chapter 3: Research Methodology....37 3.1 Introduction..37 3.2 Research Ethics....38 3.3 Defining challenges and Research Objectives....39 3.4 Developing and Applying Research plan...40 3.4.1 Literature Survey..41 3.4.2 Primarily Research..42 3.4.2.1 Qualitative and Quantitative.42 3.4.3 Data Analysis and Collection..42 3.5 Collaboration of research factors.44 Chapter 4: Result and Analysis...46 4.1 Introduction. 46 4.1 Case Study operational Structure...49 4.2.1 Scenario A Centralised Transport Procedures.. 50 4.2.2 Scenario B Freight Forwarder Quotation..53 4.2.3 Custom clearance transactions in Turkey...57 4.2.4 Maritime transport process between Calais and Dover...59 4.2.5 Custom clearance transactions in England...60 4.3 Explanation and Evaluation of process of freight forwarding...61 4.4 Result and Conclusion..63 Chapter 5: Conclusion. 66 5.1 Recommendations and Future research.... 68 Table of diagrams and charts....70 References..72 Bibliography 83 Appendix..84 Appendix I: Abbreviations...84 Appendix II: Interview Questions with Hazelnuts firm in Turkey..85 Appendix III: Interview Question with the Freight forwarder Firm...85 Appendix IV: Interview Questions with Logistics firm in Birmingham....85 Appendix V: Interview question with subcontractor firm`s manager...85 Appendix VI: Interview Information.. 86
Chapter 1: Introduction Globalization affects all sectors deeply and sharply, the global logistics sector has been subjected with various structural changes, many organizations faced comprehensive challenges to execute of their international transport activities in the utilization of global sourcing. Hence, these structural changes enabled global logistics firms to set up new a customized logistics service provider which is named as freight forwarder. Freight forwarder is defined as an architect of transport, and the main roles provide efficient specialized transport solutions through integrating its fundamental roles such as; quotation/booking, consolidation, cargo warehousing, custom clearance, delivering and insurance for manufacturer firms in the execution of international transport (FIATA, 2014). Moreover, it is also an intermediary institution that act on behalf of importers, exporter, or another companies in order to make transport organization safe, efficient and costeffective shipping (Ciltuk.org.uk, 2015). From this perspective, the main roles of freight forwarder is to arrange appropriate customized transport models by taking the advantage of the collaboration of the fundamental freight forwarding components in order to transport manufactured goods to its final destination under convenient circumstances. Murphy and Daley (1996) said that the most firms employ international trade specialists to assist with documentation requirements and other vagaries of cross-border commerce and booking spaces, the payment of freight charges, shipment consolidation, and the preparation of documentation for smoothly custom clearance by an expert international freight forwarder. Nowadays, the manufacturer companies still continue to export their produced goods all over the world and import some unique raw material from another countries therefore transporting goods from one country to another country underlines much
emphasis at the shipping activities and capabilities which have fairly significant for competitive advantage. However, the process of logistics are increasingly being burdensome, complex and schedule-dependent transactions which need an accurately systematic process flow, therefore, the fundamental roles of freight forwarder service provider is to make available just-in-time delivery and smoothly logistics services by using multi-modal transport models. The purpose of this research is to integrate the fundamental roles of freight forwarder on a case study in order to investigate and identify, and illustrate its impact on the transport operation, transaction and organization of the manufacturer firms in terms of transporting produced goods smoothly to the final destinations. Poor infrastructure, lack of efficient transport organization, unaccomplished documents and erroneous custom clearance transactions have huge impact on the transport expenses while increasing efficiency and productivity, delivering time and security to be competitive. Therefore, manufacturer companies prefer to transport their goods by hiring an expert freight forwarder service who provides standard quotation and professional differentiated transport solutions with the understanding of cross-border operations in order to satisfy customers and industry expectation with their multimodal transport network capabilities, both nationally and internationally. Manufacturers and retailers are relying more on freight forwarders to be the managers of their intercontinental logistics and supply chain activities (Knigge, 2015). This is to say, cooperating with an expert freight forwarder service provider is enabled manufacturer firms to (CME, 2003); reduce the complexity of logistics requirements establish relationships and liaisons with supply partners, both internally and externally
improve trade volume reduce the overall transport costs and lead-time by providing integrated transport solutions In addition, efficient multimodal transport network capabilities refer an ability for freight forwarder to manage and integrate transport processes within one-stop logistics services which provide competitive advantage for manufacturer firms at their marketplace (Harris et al., 2015:90). Today, integrated logistics is generally considered to include planning, allocating, and controlling the internal or external transport services` committed to manufacturing support and providing customized operations as well as physical distributions (Daugherty et al., 2006). In other words, the integration of multi model transport systems mean that the systematic coordination of all logistics activities enable manufacturer firms to reduce their transport expenses, utilize the network to fulfil manufacturer firms requests in a timely way and provide competitive advantage for delivering goods to their overseas destination through multimodal transport models. Transport intelligence (2015) emphasizes estimated growth of global freight forwarding; 2013 5.2% 2.5% 5.2% Asia Pacific 7.2% 7.6% 3.1% 0.5% 2017 Asia Pacific 23.5% 35.9% 27.6% Europe Nort America Soulth America Middle East Africa 36.0% 45.6% Europe Nort America Soulth America Middle East Africa Figure 1.1: Global Freight forwarding (TI, 2015)
As a service intensive industry, according to the latest report from TI (Transport Intelligence), looking generally to the global freight forwarding sector declined by 3.3% year-on-year in 2013 but the viewpoint through to 2017 is slightly bright. More importantly, the percentage of freight forwarding illustrates statistically significant increase from 27.6% to 31.0% in Europe (case study related with the Europe). This forecast is specified that there will be a growth on global forwarding so freight forwarders have to increase their operational and organizational service capabilities by providing smoothly delivering services in the overwhelming competition which will be faced in 2017. Therefore, in an era of accelerated global freight forwarding, manufacturing firms and transport services must be performed to high levels of logistics service reliability in order to meet increasing demands or under the overwhelming competition in terms of transportation costs which have directly impact on prices by organizing effective international transport processes between supplier and consignee in rapidly changing trade environment. Thereupon, this research also will be focusing on a case study as its one of objectives which based on transporting hazelnuts from Turkey to England as a formal reel sector approach through applying integrated fundamental roles of freight forwarder within required information which will obtain through interviewing with predetermined expert persons who work at the logistics sector. These data will be used mostly qualitative and some information will be used as a quantitative in the calculation transport expenses. Looking at generally, qualitative research will be used as a theoretical approach to identify the functions of the study, because it is exploration of deepening your knowledge and understandings as theoretical perspectives of the research process (Volante, 2008). The interviews were conducted by face-to-face
communication and e-mail, and operational and organizational observations of managers were expressed in the interviews. 1.1 Project Aim and Objectives The primary aim of this dissertation is to identify the how the fundamental roles of freight forwarder can be integrated, and its impact on the manufacturer in the execution of international transport as research question. Secondly, investigate to the fundamental roles of freight forwarder, and create a case study to implement all fundamental roles while transporting hazelnuts as a best practice for the fulfilment process of shipping transactions, and focusing on develop an understanding of why manufacturer companies are hiring freight forwarder service. Qualitative research will be used more than quantitative approach in order to have a tangible result, and in terms of achieving the aim, following objectives have been formed: To research on multi-modal transport functions in order to express a convenient shipping model based on requirement. To analyse and provide data concerning the operational management process of international logistics that must be fulfilled by the freight forwarder. To illustrate freight forwarder`s roles on logistics operations, respectively. To facilitate required transactions while transport operation which is according to the government regulations based on the documentation. To create a case study in order to implement the fundamental roles in the execution of international logistics, both organizationally and operationally.
To determine the advantages of hiring freight forwarder services for the manufacturer companies. Authors need to make a clear focus on the limitation in order to scope of the study and the research of the topic, through keeping the study in the field of specific research structure within aim and objectives. 1.2 Case study Expression and Interpretation Case study research excels at bringing us to an understanding of a complex issue through examining to the subject detailed and deeply (Taylor et al., 2006). From this definition, transporting processed hazelnuts will be the best practise of integrating the fundamental roles of freight forwarder in the utilization of appropriate transport model to deliver merchandise in the perspective of the real logistics industry in this dissertation. Therefore, a case study is created to show understanding and illustrate the fundamental role of freight forwarder in the execution of international logistics between Turkey and England. Figure 1.2: Hazelnuts Hazelnuts transport has chosen to be an example scenario which is familiar in the industry, and this transport process is demonstrated as a real example of the planning, organization, control and execution of freight transport at the right place and time. In
order to introduce, the hazelnuts manufacturing firm established in 1996 in Turkey, and its seminal turning point was in 2010 because the manufacturer firm established the sixth factories and employed approximately 850 people to fulfil customers` demands in Turkey. Before this time, the manufacturing factory was working domestically which means factory was purchasing unprocessed hazelnuts from the farmers in order to process and sell at their market places. Over this period, the global structure of manufacturer firm has been changed increasingly, and the firm start taking order on their processed hazelnuts products, internationally. This situation affects firm production structure in terms of being fast, efficient and quality production so manufacturer firm start improve the volume of production capacity which was the messenger of the new agreement in 2012 as a hazelnuts supplier of the biggest chocolate manufacturer firm in the world. In addition, company started to take orders from another countries which were directly affected company production strategies and decisions. These developments and the increasing demand on the volume of international trade of the company also brought a growth at the flow of liquidity so firm started to be supplier of the processed hazelnuts to the Italy, England and Dubai, these deliveries had to be arrived their final destination timely and under convention circumstances. Briefly, according to the interview A, the numerical values have been taken from the hazelnuts producer firm`s distribution manager, this is clearly shown that how the biggest company is and the increase of the hazelnuts transport from 2010 to 2015;
7,500 2,500 12,000 5,000 25,000 13,000 33,000 16,000 55,000 45,000 34,000 18,500 35,000 19,000 70,000 53,000 150,000 117,000 141,000 152,500 155,000 200,000 205,000 209,000 2010 2011 2012 2013 2014 2015 Total Transport 55,000 70,000 150,000 200,000 205,000 209,000 Italy 45,000 53,000 117,000 141,000 152,500 155,000 England 7,500 12,000 25,000 33,000 34,000 35,000 Dubai 2,500 5,000 13,000 16,000 18,500 19,000 Figure 1.3: Hazelnuts export values (Interview A, 2015) In this graph above, the numerical values are shown of the hazelnuts exports based on six manufacturing points. The centralized distribution service was transporting approximately %70 of these amounts by the road and/or maritime transport for the Italy, %22 of the processed products were transported to the England through the road transport and %8 of the annual production delivered to the Dubai via air transport. However, growth in demands and new agreement with the biggest chocolate manufacturer firm leads hazelnuts supplier firm to face some organizational operational and distributional challenges. From this perspective, these challenges are caused to the hazelnut manufacturer firm to be faced that the processed hazelnuts were not arrived to the chocolate production point at predetermined times and caused to stop or slow down to another production processes like dominoes. The reasons of these challenges, lack of knowledge, insufficient documents, incorrect custom clearance transactions and inexperienced staffs have been the reason of suffering from stuck of the goods at custom clearance,
security, and delay of delivery times caused to the payment of the huge amount of penalties which affected to increase the transport expenses, directly. Therefore, hazelnut manufacturer firm decided to contract with a global logistics firm which provides customized and expert freight forwarding service in order to eliminate the transport challenges and concentrate on just production, processing product in order to meet the demands, both internally and externally. 1.3 Disposition of the thesis The structure of the dissertation consists of five chapters and will be regulated as follows: In chapter one, which is the introduction chapter of this research and will be focused to introduce dissertation`s research question, aim and objectives in terms of theoretical perspective, and implementation of the case study as a real sector observational approach. In chapter two, this part of research will be consists of gathering data in order to analysis critically with the related literature reviews and taking the advantage of real sector observation as primary research method. In addition, some literature reviews will be evaluating and supporting with the interviews which will be done with the persons who experienced logistics and supply chain management procedures. In chapter three, the approaches of collecting data will be identified and appropriate research method will be applied in order to accomplish and complete to the entire dissertation. Moreover, the effective research plan will be developed which based on
the research of the data source, rationale and technique within the collaboration of these research methodology to define the challenges. In chapter four, this chapter of dissertation will consists of case study analysis, main finding and its results in terms of generating an understanding of the integrated fundamental roles of freight forwarder and its impact on the predetermined manufacturer company based on time, security and transport expenses. Comparison of centralized transport system and freight forwarding service provider`s intelligent transport solution The fulfilment of operational and organizational functions Result of created transport models will be evaluated that based on cost, time and security Custom clearance transaction and maritime transport procedures will be explained in the case study In chapter five, the comparison of the result of integrated fundamental roles of freight forwarder with the centralized transport service, and its impact on the hazelnuts processing firm will be interpreted in terms of gaining competitive advantage. In addition, recommendation and suggestion for future research.