There are many terms in the freight industry and sometimes they mean different things to different people. A simple ‘Google’ search will return a range of different types of businesses to sift through for the one term.
It’s helpful to get these terms straight in your mind as the differences point to varying capabilities, experience, and business models. Given the muddy waters on their meanings it’s also important to ask any potential new freight suppliers what they are offering behind the term that they have categorized their business as.
Why do these differences exist?
In part, because different parts of the globe have different logistical histories, have developed their operations in slightly different ways from each other. Unless you go and work overseas you might not fully appreciate those differences and adopt the same term to a slightly different service. Perhaps also the changes that have occurred in the industry in recent decades can be hard to keep up with and so new models of freight & logistics providers may not be fully understood by the industry at large. Also, there may exist a few businesses whose services may not fit perfectly into any one category but have some overlapping capabilities.
A Freight Broker is a third-party intermediary who normally owns no assets i.e. trucks, vans, planes for the movement of products from sender to receiver.
Strictly speaking, a Freight Broker provides on the spot, one off quotes for each and every consignment as they occur rather than a set of rates & services that are used on a day-to-day basis.
These days Freight Broker businesses are often supported by online portals that shippers can enter the details of their load or consignment for carriers to bid on, or they might then negotiate off the site with their carrier network to establish the best rate available on that day.
Freight Brokers typically apply a margin to the quote provided for payment of the service rendered.
A Freight Agent is typically an individual consultant that can assist with customs clearance paperwork or work on behalf of their customers to negotiate a deal with an appropriate 2PL or 3PL carrier.
A Freight Forwarder typically has some assets i.e. trucks, to assist with their clients’ distribution requirements but will often use other carriers’ transportation methods i.e. plane or ship to assist with a leg of a multimodal shipment. Freight Forwarders usually deal with international freight, more so than national or local freight. Freight Forwarders often provide warehousing services for their clients’ inventory as well, usually their imports.
Freight Forwarders will also assist with bill of lading and customs clearance documentation on behalf of their customers.
Freight Forwarders these days usually have technological tools to assist their staff and clients with freight tracking and management. Freight Forwarders are a 3PL business with long-term contracts with their clients. The cost reduction benefits that the Freight Forwarders offer are usually not as immediate as with a Brokerage, however, the value-add, including pricing benefits are generalised across the distribution solution provided and accrue over time. Obviously, another substantial benefit is having a logistics expert with, (often a global), network to oversee the shipment across various freight suppliers on your behalf.
Some will include within the term of Freight Forwarders companies that have no assets and merely streamline operations of shipments across multiple carriers and services as per the most optimal solution for that shipment and in alignment with the freight profile of their customers. This is often the case with smaller Freight Forwarders that might focus more on national, domestic freight.
Freight Forwarders are also similarly recompensed for their services via a margin upon the services (or component of the service) that are outsourced to their carrier network.
3PL – Third Party Logistics
3PL often refers to outsourced warehousing services. This may include companies that use their own trucks and drivers, & / or other transport companies’ trucks and drivers. Along with providing the space and staff for pick packing, the 3PL will have technology smarts that will assist with order picking and inventory management and will often have an EDI connection with their customers’ ERP systems.
3PL can be a carrier as well, that provides, instead of warehousing solutions, technology solutions that assist with dispatching of their customers’ freight. These systems, often browser-based these days, are usually restricted to their own shipping services and are not multi-carrier. For a shipper with complex distribution requirements and for those with high volume these systems quickly loose their shine as they must move from one system to the other to manage their dispatching and cannot, (or perhaps should not), integrate the carriers’ systems with their ERP or WMS systems as, if they become dissatisfied with the service, they cannot readily and cost effectively reintegrate their supply chain systems with a new carrier’s systems. Such a restriction with integration causes problems for a medium to large company with higher volume & complexity of shipments to automate.
A Freight Consultancy on the other hand typically has no transport hard assets, (like the broker), but provides consultancy services and is not involved in the invoicing chain but a 4PL or advisor to value add services.
Consultants trade in their expertise across a range of industries and modes of transportation rather than their assets such as trucks, drivers, warehouses. They may provide technology ‘assets’ to their customers to enhance their services.
Consultants that specialize in the freight & logistics markets typically will provide, (along with transport or freight management technology systems), services such as freight audit and payment, Business Intelligence Reporting, and outsourced transport management services.
The transport management services are often initiated with a Freight Review project to select carriers that best suit the client’s individual freight requirements. Their expertise in the freight market; along with their carrier network strengths and experience can provide a better matched distribution solution than the shipper can obtain through their own resources.
The Freight Management System (FMS) will usually go beyond simple dispatching & freight tracking automation to include features that assist the shipper and the consultancy’s team with freight cost reduction and optimization of processes. Further, the consultancy may have in-house or back office systems that assist with the deliverance of their services such as weekly Carrier Invoice Reconciliation (CIR), and with predictive modelling for RFP.
Freight Consultancies can be carrier agnostic and provide a wider range of options to better tailor their solutions to their customers’ profiles. Therefore there is a wider range of choice, more control and visibility on costs as the shipper can maintain a direct relationship with the carriers sourced by the consultants whilst still enjoying the value add services of the consultancy and the positive impact that has on their business operations and costs.
Unlike Brokers & Forwarders, Consultancies don’t add margin to rates, rather they offer some sort of upfront commission fee, and / or ongoing fees for turnkey solutions that include ongoing advice or services such as invoice reconciliation and for software systems. They work for the shipper as a business partner and are not a mediator between the carrier and the shipper.
Hopefully you have found our attempts to define these related freight supplier terms from an Australian perspective helpful. As stated at the start, there are grey areas. Given that, hopefully the freight suppliers you use, or are in discussions with, can provide some guidance through their websites on what their offerings do and do not include. Further research through conversations or sales & marketing material should uncover the nature of their relationships with carriers, other brokers or forwarders and related industry suppliers, along with their reach, depth of service, knowledge and pricing models.
Our business is of course placed in the consultancy category and as such can offer the most flexible of solutions tailored for your business and the most transparent of pricing models, allowing the shipper the best of both worlds: control of your choices with the system smarts and expertise that you can tap into as and when needed, to the level of partnership that you desire. Contact us to learn more about the difference we offer to the freight & logistics market.