Why to apply for services of a freight forwarding company?

The freight forwarding company can not work without revenues. The income that secures its functioning is obtained either by commission or by the margin (between the amount charged from the client and the amount paid to the subcontractor) collected through its contracts.

Some voices, both clients and subcontractors, are denying the necessity to ask the forwarding companies for their services claiming that it's better to skip this link and, consequently, the margin might be held either by the client or by the effective carrier or even split between them. This idea might be correct provided that each party would have the logistic, organizational, financial and legal knowledge and capacity to satisfy their needs in better conditions of efficiency than by applying to an intermediary.

Practice proved that, especially in the cases of big and medium size clients, fulfilling the requirements for transport and other logistical needs may not be fully covered by carriers only, even if they are at a multinational level. Not even if the client has it's own fleet it will not be efficient, because every non-core activity implies more risks and costs than the main activity of the company.

Some carriers think that transport prices go down because of the freight forwarding companies, thing which does not make sense actually, as the freight forwarder applies also the margin or the commission to the transport cost, while the carrier will not add that to the price during a negotiation with a client. In practice, the price of any kind of service on a free market will be determined by the supply and demand ratio, which means freight forwarding companies cannot influence it at all.

Even the margin or the commission is set by this ratio, which represents the very essence of the market economy theory. A freight forwarding company that will ignore this practice and request a margin or a commission outside of the limits set by the current market, will risk going out of business. If it's too low it will not be able assure the necesarry amount of revenue that can sustain the business development, while if it's too high it cannot be competitive on the market.

Constantin Gangu - Managing Director of Senior Forwarding SRL