Logistics Intermediaries

Some large firms have the resources, skills, and expertise to handle all kinds of supply chain activities, including logistics and purchasing, by themselves, whereas others do not. If the firm does not have such resources, skills, and expertise, it should no doubt outsource some of the supply chain activities by hiring intermediaries. Generally speaking, an intermediary is an individual or a business entity that facilitates business transactions between two or more trading partners as a mediator and is put in contact with those trading partners as a conduit for various supply chain activities. Examples of intermediaries are agents, brokers, wholesalers, distributors, third-party logistics providers (3PLs), and retailers, which help make a product or service available for the end customer’s use or consumption. The use of these intermediaries is more common in international trade because they can help the multinational firm (MNF) navigate through uncharted territory in the foreign market and identify any potential business opportunities there with their connections and expertise in local sales and distribution. Sometimes the use of intermediaries is mandatory for business transactions under local jurisdictions (e.g., restriction on the number of expatriates to be hired). For example, some Middle Eastern countries such as Saudi Arabia require the foreign MNF to hire a local intermediary to do business in those countries.

Types of Intermediaries

Reflecting the increasing complexity and diversity of logistics operations, there are many different types of logistics intermediaries. For example, some are asset-based intermediaries, whereas others are non-asset-based intermediaries. Some are domestically oriented, whereas others are internationally oriented. Some offer a narrow scope of services, such as freight forwarding or warehousing, whereas others offer more integrated services ranging from transportation to information technology development.

Freight Forwarder – The freight forwarder is one of the most frequently used forms of logistics intermediaries. Freight forwarders organize and arrange shipping activities encompassing the booking of cargo space, freight consolidation, documentation, insurance coverage, language translation, freight rate negotiation, and freight charge payment. Some freight forwarders may focus on the arrangement of a particular mode of transportation, such as air or ocean carriers.

Overseas Distributor – When selling products to an unfamiliar overseas market, the MNF can utilize an overseas distributor who purchases products from an original equipment manufacturer (OEM) as the middle man and then takes full responsibility for distributing and selling them to ultimate foreign customers. Thus, an overseas distributor can be considered a customer as well.

Non-Vessel-Operating Common Carrier (NVOCC) – A non-vessel-operating common carrier (NVOCC) is a modified form of a foreign freight forwarder that does not own or operate its own vessel; however, the NVOCC issues its own bills of lading or airway bills to provide a variety of (ocean) transportation services for point-to-point movement of goods. An NVOCC specializes in less-than-container load shipments and often utilizes containers rather than vehicles or vessels. It is sometimes called a shipment consolidator because it combines small shipments (partial container loads of goods) destined for the same location into a full container load.

Shipping Agent – A shipping agent is a local licensed intermediary that arranges for the ship’s arrival, berthing, and customs clearances, including imported goods inspection, insurance, loading/unloading, cargo claims settlement, cargo related document preparation/delivery, and the payment of all fees when the ship is in the port’s dock on behalf of the ship’s owner. The duties of shipping agents may vary depending on their service specialties and categories such as port agents, liner agents, and owner agencies. Because of the diversities of duties, the shipping agent, within the framework of his or her responsibilities/competencies, often performs the tasks of other intermediaries such as chartering brokers (or cargo brokers) and booking agents.

Container Leasing Company – A container leasing company facilitates intermodal movement by relieving individual carriers of the financial burden and managerial responsibility associated with container equipment. Although a container provides an efficient and secure means of transportation, it can incur additional transportation costs because the container itself has to be shipped around. The transportation of empty containers for backhaul trips can be especially costly. Furthermore, the containers can get lost at sea in stormy weather. Considering such hassles, it is worth considering a container leasing company, which has the experience and expertise to reposition empty containers and recycle damaged containers. Some container leasing companies can offer ship finance services for container shipping and provide a lease/purchase option.

Customs (House) Broker – A customs (house) broker is an agent who clears shipments through the importing nation’s customs, prepares and submits the documents necessary for customs clearance, estimates taxes and duties, pays the smallest applicable duty, and facilitates communication between the importer and the government.

Export Packer – An export packer provides packaging (including moisture-resistant packaging) and protection services for all types of goods, including hazardous products. The export packer often works in conjunction with international freight forwarders for physically assembling export shipments and packing those for ocean-going containers.

Export Management Company – An export management company (EMC) assists noncompeting firms in marketing their products overseas. EMC can be either local or foreign owned, and operates on either a commission or a fee basis with three to five exclusive contracts. An EMC can appoint sales representatives in importing countries, conduct market research, promote the goods and services of its clients, arrange for transportation and packing, prepare documentation and buy insurance for its clients, provide warranties and after-sales service, and extend the importer’s credit

Export Trading Company – The role of an export trading company (ETC) is very similar to that of an EMC in that both of them handle nearly all facets of export operations, including sales, marketing, promotion, documentation, transportation, warehousing, insurance, and communication.

3PL

A third-party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm that provides service to its customers of outsourced (or “third party”) logistics services for part, or all of their supply chain management functions.

Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customers’ needs based on market conditions and the demands and delivery service requirements for their products and materials. Often, these services go beyond logistics and included value-added services related to the production or procurement of goods, i.e., services that integrate parts of the supply chain. Then the provider is called third-party supply chain management provider (3PSCM) or supply chain management service provider (SCMSP). Third Party Logistics System is a process which targets a particular Function in the management. It may be like warehousing, transportation, raw material provider, etc. According to the Council of

3PL is defined as “a firm that provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. Third-party logistics providers include freight forwarders, courier companies, as well as other companies integrating & offering subcontracted logistics and transportation services. Hertz and Alfredsson (2003) describe four categories of 3PL providers:

• Standard 3PL Provider: this is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing, and distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity.
• Service Developer: this type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.
• The Customer Adapter: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company’s logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small.
• The Customer Developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.

The benefits that can be gained through the use of 3PLs include

• Logistics cost reduction resulting from increased logistics efficiency provided by 3PL.
• Asset reduction and the subsequent improvement in cash flow due to the utilization of the 3PL’s logistics assets such as warehouses, trucks, and airplanes.
• Order cycle time and cash-to-cash cycle time reduction thanks to streamlined logistics operations by 3PL.
• Inventory reduction resulting from reduced lead time.
• Overall customer service improvements.

4PL

A fourth-party logistics service provider (4PL) is often dubbed a lead logistics service provider that coordinates, manages, and integrates supply chain activities of multiple 3PLs hired by its client. As such, it focuses on synchronization of supply chain activities through the collaboration among multiple 3PLs as its supply chain partners.

A 4PL is typically non-asset based and relies heavily on its intellectual capital and information technology (IT) capability to perform its functions. However, its role is constantly evolving because the industry is still in its infancy. Nowadays, some 3PLs and software developers claim to play the role of 4PL.

Unlike a typical 3PL, a 4PL intends to add value (e.g., profitability enhancement, operating cost reduction, capital reduction, customer service improvement) to its client’s entire supply chain by maintaining the principle of neutrality (avoiding any conflicts of interest) for its clients.