The freight forwarding industry plays a crucial role in enabling global supply chains and ensuring that international trade functions smoothly.
Freight forwarders are facilitators of globalization in the real sense of the word, and they, along with shipping lines, are the two most important intermediaries in the logistics industry.
Unlike shipping companies, which need to invest heavily in vessels, containers, and physical infrastructure, freight forwarding has traditionally been an asset-light industry, relying primarily on the expertise, knowledge, and personal skills of the freight forwarder to add value to customers and thus build a successful business.
Given that the barriers to entry in the freight forwarding industry are low, it is not surprising to see a lot of new entrants setting up their freight forwarding business of varying scales and catering to different geographies.
‍A large proportion of freight forwarding businesses fail to sustain themselves beyond the short term for diverse reasons.
While the industry is characterized by intense competition, slim margins, and high customer turnover ratios, most of these businesses fail not due to external factors but due to internal shortcomings.
There are certain common mistakes invariably repeated by most freight forwarders which, if avoided, can ensure long-term success.
In this article, we will highlight 8 common mistakes that most freight forwarders make, delve into how and why these mistakes undermine commercial sustainability, and how to avoid these.
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8 Serious Mistakes to Avoid for a Profitable Forwarding Business in 2024 1. Not Having a Clear Business Plan The adage about failing to plan is the equivalent of planning to fail holds in the business world even today.
It is truer for freight forwarding, considering that freight forwarding is primarily about planning every step of the transportation and cargo management process.
Too often, people start a freight forwarding business without giving a lot of thought to the business model or neglecting to design a comprehensive business plan.
Many of them are not even aware about the ongoing legislative reforms in the industry.
In such cases, the absence of a business plan can prove detrimental to the future of the business, putting in doubt the long-term sustainability thereof.
Having a business plan is crucial, as it provides a clear vision for the business, mapping the target market, segmenting and prioritizing customers, identifying unique selling points, and setting realistic goals.‍
A well-defined business plan sets the direction for the business and lays the framework within which the business operates.
2. Failing to Prioritize Customer Service In a people-oriented business like freight forwarding, customer service is the key.
Failing to prioritize customer service is a basic mistake that most new freight forwarders make.
Considering that the essence of logistics is facilitating the customer’s businesses and providing seamless service, freight forwarders must focus extensively on providing best-in-class service levels and meeting the customer’s requirements.
Also, given the transactional mindset of most customers, providing excellent customer service is the best way to retain customer loyalty and ensure repeat business. 3. Neglecting to Properly Track and Manage Inventory An oft-overlooked but crucial aspect of the freight forwarding business is inventory management.
Monitoring and tracking inventory is vital for a freight forwarder to ensure that the customer receives their shipment in full and on time, without any errors.
On top of that, a freight forwarder also needs to be aware of events like the recent port slowdowns in California (2023) in order to forecast more accurate transit times to the customers.
4. Not Staying Up to Date With Industry Trends While focusing on the day-to-day aspects of the business, it is very easy to miss the larger picture and ignore macro-level commercial(eg. European Summer Break )and geo-political developments that affect the industry.
The freight forwarding industry is dynamic in nature and hence constantly evolving.
Freight forwarders should keep themselves updated on the latest trends and best practices to serve customers better and respond with alacrity to market developments.
This includes being aware of congestion and associated delays at destinations, informing customers of equipment shortages, suggesting innovative multi-modal products and routings, as well as incorporating technology to improve internal efficiency.
In recent years, freight forwarders have started relying on advanced technological solutions such as Freightify ’s flagship solutions, which offer a raft of functionalities such as immediate quoting functionality and real-time visibility of shipment status.
5. Not Properly Managing Your Finances Most freight forwarders possess operational expertise but lack the financial acumen to manage their finances and cash flows, resulting in the business facing a shortage of funds to finance daily activities, impacting the financial viability of the business.
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Other potential challenges include actual expenses exceeding budgeted levels and debtors not paying within the agreed credit period.
A freight forwarder should manage the financial aspect effectively to ensure that all amounts due are received well in time, expenses are booked accurately and are within the initial budgeted estimates, cash flows are at healthy levels, and accounts are kept accurate.
6. Not Properly Training Your Employees The real assets of a freight forwarding business are its employees. A freight forwarding business’s success or failure depends primarily on the knowledge and ability of its employees.
Inadvertent mistakes made by an untrained employee can have serious repercussions, ranging from revenue losses to lost goodwill to statutory penalties, besides the risk of claims from dissatisfied customers.
To avoid such costly errors, employees should be trained in all commercial and operational aspects of the business, as well as in soft skills such as negotiation and interpersonal relations.
7. Failing to Properly Handle and Resolve Issues With the numerous stakeholders, human interactions, handover points, documentary requirements, and procedural compliances in the freight forwarding process, the probability of mishaps and issues occurring is high.
While issues are inevitable(eg. Russia - Ukraine War ), how a freight forwarder handles the issue is crucial to the success of the business.
The ideal manner to handle issues would be to respond immediately and take appropriate remedial measures and minimize the impact on the client and the freight forwarders’ reputation.
8. Not Leveraging Technology to Your Advantage Over the past few years, the freight forwarding industry has witnessed a technological transformation, with the availability of software solutions specifically designed to meet the unique requirements of logistics and transport management activities.
These freight forwarding systems incorporate sophisticated algorithms and cutting-edge technology to ease all aspects of the freight forwarding process.
Freightify is one of the most popular freight forwarding and shipping software solutions providers, addressing the needs of freight forwarders by offering a reliable and robust tool replete with useful functionalities.
This includes rate management , quick and accurate quotes , automating pre-alerts for various milestones in the supply chain, providing real-time visibility on the shipment status, updated information on sailing schedules, and analytics .
Freight forwarders can leverage software solutions to increase their internal efficiency and provide a superior customer experience, which will serve as a competitive differentiator and enhance their product offerings.
Leveraging technology can thus greatly increase the chances of a freight forwarding business being successful.
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Conclusion While any new freight forwarder faces intense competitive pressure and has to operate on thin margins, avoiding some common mistakes can greatly increase the chances of a freight forwarding business becoming successful.
Freight forwarding is a brick-and-mortar industry, and as such, a common-sense approach, comprising a focus on avoiding common mistakes and leveraging technology, can yield significant benefits to the business.
Being cognizant of some common pitfalls enumerated above can play a pivotal role in ensuring the success of a freight forwarding business.
For more information on how Freightify can help your freight forwarding business become successful, click here .
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