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The True Cost of Exporting: Freight

The True Cost of Exporting: Freight article image

freightSixth in our series on the 'True Cost of Exporting' is the cost of freight. What contributes to the cost of freight and how can you save on shipping? Estimates put freight costs at about 3-6 percent of the value of the goods. If you're exporting goods from Australia you'd be well versed in the two options-by air or by sea. The first decision you need to make is to choose by which method you will ship your goods. Airfreight is more expensive and usually used for high value items and/or items that have a time value, such as fresh seafood. Sea freight, usually used for bulk items, takes longer to arrive at its destination but is less expensive. "Airfreight is still considered a premium service in Australia so if exporters are sending things distressed because there’s a deadline, they have to consider a plan for that," says Matt Laflin, Asia-Pacific solutions manager for Maersk. "Forecasting is definitely an area that would help minimise costs. We see a lot of reactive exports; exporters should try to minimise airfreight and change a reactive supply chain into a more proactive one." You also need to decide whether you will use a professional freight handler, or whether you have the internal resources to handle shipments. The difference is that unless you regularly export large volumes of goods, and have a dedicated employee to manage this department, a freight handler can leverage connections and resources that most internal staff cannot. "In established markets where there’s good freight support, and with clients who have limited destinations, exporters can usually do it themselves," says Laflin. "But when you go to relatively new markets, like Africa or South America and you expand your sales to multiple destinations, what happens when the goods arrive? Bigger freight forwarders have offices in most countries and cities that would ensure that the goods get to where they’re going and aren’t just left on the dock."Ross Gluer, general manager of the international division at TNT, agrees. "Any business should be using someone who does it for a living," he advises. "Depending on the size and expertise of the company, they can do some of the paperwork themselves and then lodge it with a forwarder or integrator at a certain point of processing." Gluer stresses that it is important for exporters to understand the charges involved in freight costs. This can include: pick-up, documentation, export permits, transfers, cargo handling, international transfers, customs brokerage, agency fees, delivery fees, and foreign exchange fluctuations. "The exporter needs to know what the total cost is going to be. A lot of them fall down because they don’t understand all of the costs involved. There can be up to 15 different charges for any one shipment and that can be export documentation at this end, picking it up and getting it to the airport or wharf, then the actual transportation, then it’s got to go on the other side: every export becomes an import on the other side," he explains. "They have to understand the whole process to understand the full transactional cost of every conceivable thing they’re going to get charged."

In and out of the box

In addition to deciding whether to use a dedicated staff member to deal with freight, you must also consider other internal business processes that may affect the cost of freight handling. This includes ensuring the products are packaged correctly and bear the necessary documentation. Proper packaging saves on product shrinkage through damage, while having your documentation in order means avoiding delays or unnecessary duties at customs. "The biggest failure for exporters is that they inadequately declare the goods they’re shipping. They don’t understand the implications," says Gluer. "If you’re sending ladies clothing to New Zealand and you write ‘ladies clothing - $100’, you’re not going to clear customs: you have to have a full and thorough description." Gluer says your freight handler can advise you on whether your invoices and documentation are adequate, but it’s best to know how to do it yourself as this is the part that relates to your core business. "Get one or two of your staff onto an AIEx course and they can learn the basics and hand that paperwork over to the carrier in the knowledge that it’s all okay," he says. "The carrier will then obtain the export authority and as long as the customs declaration is fine and they fill the consignment note, we will take care of everything else."A good relationship with a handler or a carrier is a must to get the best value for money from a freight service. The more information you can give about your freight movements, the higher your chances of securing better service and rates. "It helps if clients are open and they share as much information as possible," says Laflin. "Where sensitive information is required, we have happily signed a number of confidentiality agreements, which has assisted us in having forward visibility of our client’s freight movements and to be able to plan accordingly."

Consistency helps with negotiations. If you have loads leaving the country on a regular basis, you are more likely to secure a better rate than an exporter who sends freight on an ad hoc basis. Also ensure that your freight handler has strong relationships with carriers both in Australia and overseas. This is where there is an advantage to using a freight forwarder or integrator over internal staff. "There’s a direct benefit to the client when forwarders have strong relationships. The bigger forwarders in particular have strategic relationships with multiple shipping lines and this means we can guarantee space and leverage those relationships to give exporters a diversity of service and competitive rates by leveraging our total volume," he explains.At the moment, the global situation has made the freight environment market-driven. "It’s a very competitive environment and all costs are negotiable," Laflin remarks. As a result, your handler should monitor the market and ensure you receive up-to-date information. "Freight forwarders should assist exporters to understand market changes. We don’t want them to hear about a cheaper rate from someone else and have them think we are blatantly profiteering from them. If you’re in a relationship, the forwarder should tell you about those savings or increases straight away," he says. However, exporters should be aware that although a lot of handlers are prepared to undercut each other on price, there is a time value to spending too much effort shopping around, so it’s imperative they take into account any time investment they have already made with existing handlers. Gluer lists a number of other global factors that come into play when putting a price on freight movement, including foreign exchange, carriers that have reduced their cargo space or frequency of routes, the fluctuating price of fuel and the increasing cost of security required for shipments. "This year is different for the Australian marketplace than previous years," adds Laflin. "It’s hard to lock in a rate for the next six months like a lot of exporters used to, they need to continually monitor the rates because they are constantly changing due to various factors. I believe it will settle down in the second half of the year and then they can decide whether they want to lock in a rate for a fixed period of time."

Competitive freight insurance

General manager of TNT’s International division Ross Gluer says that although a lot of freight handlers offer insurance with their service you might be better off looking elsewhere: "My advice is always to talk to a reputable brokerage and get annual coverage based on estimates of what you’re going to send and it will be cheaper than taking insurance from a forwarder or an integrator who has it as an added value product. We sell freight, not insurance."

In or forward?

The difference between a freight integrator and a freight forwarder is that an integrator is a transport service provider who arranges full load, door-to-door transportation, while a forwarder is a third party service provider. Integrators usually have assets such as warehouses and carriers like cargo planes or ships; forwarders do not have assets but arrange space for shipments with carriers.

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