You may have the export goods and a market that wants them, but forwarding your product to the buyer’s door can be complicated at best, and at worst a financial nightmare.
Joe Parkes takes a look at freight and forwarding options, and some of the pitfalls to avoid.
It was every small exporter’s nightmare. A refrigerated container load of Australian prawns had been successfully forwarded through a labyrinth of complex paperwork and shipping connections from Adelaide to Athens, only to emerge from Greek Customs 50 kilos short.
As an infuriating and discouraging example of how even the most carefully plotted logistics can go wrong, it was hard to beat. And nothing could be done to set it right.
“The Australian Embassy in Athens asked them, at our request, what had happened,” says Theodoros Gounas, export consultant for the Adelaide-based seafood specialists Theo Parissos and Sons. “They just said they didn’t know. We had to reimburse the buyer, and so it cost us money. We know a lot of internal pilfering and grafting goes on across the export process, but we are Greek Australians. You’d think in Greece they’d give us a break! How can anyone ever trust these people?”
Theo Parissos and Sons employs just eight people and feels the impact deeply when something goes wrong in the supply chain. But the bruising experience has not deterred the company from trading with the world, including its customers in Athens, where prawns worth more than a million dollars a year are sold to restaurants, cruise ships and holiday resorts.
Like any other small or medium-sized company, they approach the multifaceted world of logistics—the complex tangle of air and sea freight, forwarders, Customs and quarantine, regulations, insurance, documentation, packaging, restrictions, ‘facilitation’ payments and, sometimes, hazardous materials—with faith that everything will go according to plan.
So, how do similar exporters ensure that their logistics don’t fall apart?
According to Barry Law, purchasing manager at the Melbourne-based electronics experts, The Neo Group, the first thing any exporter needs to do is research the subject. Neo Group, with a core team of between 60 and 100 workers, has built itself into one of the world’s biggest manufacturers of self-service and interactive computer communication terminals, and exports to almost every country on earth, frequently sending communications kiosks to trade fairs everywhere from Morocco to New York.
“First, decide what method of shipping you will use. That depends on the customer,” Law says. “If he doesn’t need it urgently, it goes by sea freight and will take up to three weeks to deliver. If it is more urgent it goes by air.”
A frequent problem with air freight, according to exporters of perishables, is that a consignment can be bumped at any time if there are too many paying passengers booked on the aircraft. This has happened to Gounas, too. He says the last thing an exporter wants is to have a load of live lobsters off-loaded on the spur of the moment because preference is given to paying passengers.
“In Adelaide, for example, we have only two direct flights a week to Hong Kong that can carry lobsters, otherwise they have to go via Melbourne or Sydney where you rely on domestic carriers to handle your product properly,” he says. “But we’ve had boxes labelled ‘live lobsters’ broken in transit, and things got so bad we gave up on the live lobster game 10 years ago. There has to be a forum created with the carriers and the exporters that can demand solutions.”
Peter Van Rens, from the Department of Transport and Regional Services’ (DOTARS) logistics section, says his team is aware of the issue, as are the Air and Sea Freight Export Councils in each state, but it is considered “a commercial issue” between the exporter and the airlines.
“Freight councils have at times sought to raise this issue with airlines and have helped SMEs find alternative solutions,” Van Rens says. “The ACCC/Trade Practice Act provides an avenue for SMEs to formally challenge [this] reported practice.”
If novice exporters find this advice less than reassuring, what can they do to help choose the best possible path for their products on their way to global markets?
Gounas suggests sitting down with established exporters and asking them to highlight the pros and cons of the procedure, based on their own experience.
Law says international freight companies like FedEx and UPS, which operate dedicated freight aircraft, are very good for shipping small parcels, usually with a three-day turnaround. But if freight size is larger, the specialist airlines may decline to carry it. For example, until recently UPS refused to take palletised cargo. “My advice is to look at what you are shipping out and then decide whether to use air or sea freight,” says Law.
Freight Forwarders
Other exporters prefer to let someone else handle the detail and route their freight through forwarders. The question is, however, what exactly is a freight forwarder and what do they do to solve some of an exporter’s problems?
Brian Lovell, CEO of the Australian Federation of International Forwarders, says a real freight forwarder can offer a complete door-to-door service, including all aspects of documentary and physical handling required along the transport chain.
The forwarder becomes the principal contractor and takes on the responsibility of obtaining services from various contractors—including the actual carrier—to complete the transaction between the exporter and his buyer.
“A lot of firms that call themselves freight forwarders are not,” he says. “We are cynical about the kinds of statistics that government bodies quote and we challenge them to support a full research program into this industry and raise it to the same level of awareness and support that tourism enjoys.”
In return, the government’s Freight Transport Logistics Industry Steering Committee’s impression of the industry is not entirely complimentary, describing it as “dirty, old and male dominated”.
Freight logistics is undoubtedly a major industry in Australia, but just how big? Some estimates suggest $30 billion a year. Former Transport Minister, John Anderson, once estimated $58 billion. Lovell says at present it is impossible to even guess how many operators are involved in the industry.
John Curnow, who, with his wife Sue, owns and operates the Curnow Family Vineyards at Rowland Flat in the Barossa Valley, is an enthusiastic supporter of Total Transport Logistics, employing the full range of services offered by a forwarder.
The Curnows export their premium ‘1847’ label wines to the United States, Canada, Denmark, the Czech Republic, Hungary and Britain. Curnow simply delivers his export products to the warehouses of a logistics specialist where they are re-packed, loaded onto palettes—in the case of Europe, onto unique ‘Euro palettes’—bound with strong plastic stretch wrapping (as some destination markets are “not all that safe”) and shipped to the doors of overseas buyers. The forwarder handles all the paper work, shipping negotiations and organisation.
But if exporters prefer not to go through a forwarder, is it feasible to organise all the elements of freight forwarding themselves? Gounas says he has taken on all aspects of logistics himself in the pa
st: directly organised a carrier, signed up for the insurance, and prepared all the paperwork such as health permit declarations and documents required by the buyer. But he warns it isn’t an easy process. “It is very labour intensive to dot all the i’s and cross all the t’s, and any discrepancy with official documents will incur a penalty up to $50 for each error.”
An aspect of export logistics that sometimes gets buried when the complications of transport, regulation and freight are discussed is the vital area of trade finance to help cover cash flow demands in between receiving an order and receiving final payment. Finance can make the difference between allowing an exporter to match the competitive terms offered by foreign businesses, and possibly losing a contract.
BankWest’s national manager, International Trade Banking, Carl Favaloro, says it’s always best to approach a bank for trade finance before signing a commercial contract than trying to make up ground after the event.
Banks can also support the exporter who faces a range of other risks, such as a buyer who won’t pay for goods or services ordered because of financial difficulties, insolvency, or simply repudiates a contract. Then there’s non-delivery and performance risk; exchange rate risk arising from erratic movements in currency rates; transport risks like having a shipment bumped from an aircraft or a ship failing to turn up in port; transfer risks, accidents or failures involving trucks, trains, ships or planes; and finally, political risk when political events in a buyer’s country result in non-payment or the national government closes down foreign exchange access.
Favaloro says exporters can nominate BankWest to act as their intermediary to advise on and deliver documentary letters of credit (LOC) to the exporter where terms of payment call for one. The bank may also be able to guarantee payment of a documentary credit for exporters who have concerns about documentary letters of credit issued by foreign banks.
Finding Freight Forwarders
There are few things to consider when selecting a freight forwarder. “Forwarders should be the architects of the total transport movement,” says Lovell. “They should design facilities to meet customer needs, and provide a global logistics service covering the entire supply chain.” He suggests looking for a company that:
• has arrangements with a sub-contractor, or has its own fleet of vehicles, to arrange for the pick-up of the goods from the shipper’s door;
• completes all necessary transport documentation right through to the final destination as well as assisting with documentation at the destination Customs;
• handles export declarations through the Integrated Cargo System (ICS);
• books the required vessel or aircraft space to final destination, either ‘consolidating’ the goods or consigning them direct;
• has a network of ‘sister’ companies in the same group or partners in major world trading centres and, if necessary, in very remote places that will provide Customs clearance formalities at the destination;
• includes distribution of goods, or Third Party Transport Logistics (3PL), in its range of services—especially for new businesses without the capital to invest in warehousing; many have purpose-built premises to house goods awaiting Customs clearance, or for storing prior to export;
• can focus on meeting the customer’s needs and, importantly, provide a freight monitoring system;
• provides a range of value-added services, including staff trained to interpret often confusing legal jargon in documentary LOCs, the latest requirements on Customs and quarantine regulations in all major trading countries, and act as an intermediary between insurance underwriters and customers; and
• can offer advice on packing and marking, terms of trade, third party logistics, and dangerous goods transportation.
