If you’re an experienced practitioner, this article isn’t for you. In fact, you probably could have written it yourself. But if you’re new to the Supply Chain this first in a series of occasional columns on Supply Chain Basics – the nuts and bolts most of us learn in the foxholes of the Logistics world – might be of interest to you. We’ll start with detailed descriptions of the key players who move your shipments:
CARRIERS are what their name implies. They physically carry goods from one point to another, for hire. They can own or lease their vehicles whether they are motor carriers like UPS Ground or YRC, air carriers like FedEx Express, or water carriers like Maersk or Matson; and they use public- provided highways, airways, and waterways. In addition rail carriers, both the large Class Ones like CSX and BNSF, and the many smaller regional lines that serve just one or a few shippers, must own and maintain their private rights of way – a unique, capital-intensive burden they bear since all other carriers only pay user fees to various government agencies in the form of tolls, landing fees, fuel taxes, port fees, etc. for their use of publicly funded pathways. A special category of ocean carrier also exists: the NVOCC, or Non-Vessel Operating Common Carrier. To the shipper the NVOCC operates as a carrier, with tariffs, rules, contracts, and possibly delivery and volume commitments. But NVOCCs do not operate ships – they buy their space from vessel-operating carriers and the shipper only deals with the NVOCC, who is actually a carrier with all of a carrier’s legal obligations – in essence a subcontractor who marks up the “wholesale” price for his retail shipper customers. As an aside, don’t forget the often-neglected fifth mode of transport - pipelines - which move liquid cargo (mostly oil and petroleum products) through thousands of miles of pipe.
FORWARDERS are another type of middlemen between shippers and carriers, similar in function to the NVOCCs describe above, but without the legal obligations of a carrier. They might own or lease trucks for pickup and delivery, but they do not own or manage the primary means of transport which moves their cargo. Instead, they enter into agreements with rail, air, water, and motor carriers to carry your shipments, usually at set prices and sometimes with volume and delivery commitments. The forwarder then must resell this space at a higher, retail rate which recovers the wholesale price paid to the underlying carrier, the costs of pickup & delivery, and (hopefully) a profit. Forwarders may offer full door-to-door services, or only port-to-port transport.
FREIGHT BROKERS (not to be confused with Customs Brokers) are another type of middleman between carriers and shippers. They normally have no freight handling facilities at all, and can be run from a bank of telephones located almost anywhere. Like forwarders they match shipper needs with carrier capacity. They manage shipments for shippers as if they were a carrier, and usually the shipper has no direct dealing with the underlying carrier except at the loading dock. The broker collects money from the shipper and in turn pays the carrier, keeping a percentage. The larger brokerage operations like C.H. Robinson can have relationships with tens of thousands of truckload and LTL carriers, while smaller operations work with fewer carriers. All brokers pursue customers who need freight moved. As an aside, it is not unusual for an asset-owning carrier to have its own brokerage operation, often but not exclusively established to move loads on another company’s vehicles where the carrier has no backhaul. What makes this work is that it is also common for asset-owning carriers who do not have their own brokerage operation to use brokers to find return loads in lanes where they need backhauls.
In our next Supply Chain Basics column we will define the roles of other key service providers who may be part of your Supply Chain, such as Third Party Logistics companies (3PLs), Custom Brokers, Freight Audit & Payment Companies, and others. If there are any specific Supply Chain players, or other Basic topics you would like to see addressed in this series, please drop the author a line.
This article is part of the monthly series authored by ISM’s Logistics & Transportation Group Board Members, who are current practitioners, consultants, and educators. In future columns, they will continue sharing their views on a number of Supply Chain topics.
George Yarusavage, CTL, C.P.M., CICSM, is a principal in Fortress Consulting, LLC, specializing in Transportation, Logistics, and Sourcing issues. He is also the Treasurer of ISM’s Logistics & Transportation Group and can be reached at gyarusavage@yahoo.com, or (203) 984-4957. Membership in the L&T Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.
CARRIERS are what their name implies. They physically carry goods from one point to another, for hire. They can own or lease their vehicles whether they are motor carriers like UPS Ground or YRC, air carriers like FedEx Express, or water carriers like Maersk or Matson; and they use public- provided highways, airways, and waterways. In addition rail carriers, both the large Class Ones like CSX and BNSF, and the many smaller regional lines that serve just one or a few shippers, must own and maintain their private rights of way – a unique, capital-intensive burden they bear since all other carriers only pay user fees to various government agencies in the form of tolls, landing fees, fuel taxes, port fees, etc. for their use of publicly funded pathways. A special category of ocean carrier also exists: the NVOCC, or Non-Vessel Operating Common Carrier. To the shipper the NVOCC operates as a carrier, with tariffs, rules, contracts, and possibly delivery and volume commitments. But NVOCCs do not operate ships – they buy their space from vessel-operating carriers and the shipper only deals with the NVOCC, who is actually a carrier with all of a carrier’s legal obligations – in essence a subcontractor who marks up the “wholesale” price for his retail shipper customers. As an aside, don’t forget the often-neglected fifth mode of transport - pipelines - which move liquid cargo (mostly oil and petroleum products) through thousands of miles of pipe.
FORWARDERS are another type of middlemen between shippers and carriers, similar in function to the NVOCCs describe above, but without the legal obligations of a carrier. They might own or lease trucks for pickup and delivery, but they do not own or manage the primary means of transport which moves their cargo. Instead, they enter into agreements with rail, air, water, and motor carriers to carry your shipments, usually at set prices and sometimes with volume and delivery commitments. The forwarder then must resell this space at a higher, retail rate which recovers the wholesale price paid to the underlying carrier, the costs of pickup & delivery, and (hopefully) a profit. Forwarders may offer full door-to-door services, or only port-to-port transport.
FREIGHT BROKERS (not to be confused with Customs Brokers) are another type of middleman between carriers and shippers. They normally have no freight handling facilities at all, and can be run from a bank of telephones located almost anywhere. Like forwarders they match shipper needs with carrier capacity. They manage shipments for shippers as if they were a carrier, and usually the shipper has no direct dealing with the underlying carrier except at the loading dock. The broker collects money from the shipper and in turn pays the carrier, keeping a percentage. The larger brokerage operations like C.H. Robinson can have relationships with tens of thousands of truckload and LTL carriers, while smaller operations work with fewer carriers. All brokers pursue customers who need freight moved. As an aside, it is not unusual for an asset-owning carrier to have its own brokerage operation, often but not exclusively established to move loads on another company’s vehicles where the carrier has no backhaul. What makes this work is that it is also common for asset-owning carriers who do not have their own brokerage operation to use brokers to find return loads in lanes where they need backhauls.
In our next Supply Chain Basics column we will define the roles of other key service providers who may be part of your Supply Chain, such as Third Party Logistics companies (3PLs), Custom Brokers, Freight Audit & Payment Companies, and others. If there are any specific Supply Chain players, or other Basic topics you would like to see addressed in this series, please drop the author a line.
This article is part of the monthly series authored by ISM’s Logistics & Transportation Group Board Members, who are current practitioners, consultants, and educators. In future columns, they will continue sharing their views on a number of Supply Chain topics.
George Yarusavage, CTL, C.P.M., CICSM, is a principal in Fortress Consulting, LLC, specializing in Transportation, Logistics, and Sourcing issues. He is also the Treasurer of ISM’s Logistics & Transportation Group and can be reached at gyarusavage@yahoo.com, or (203) 984-4957. Membership in the L&T Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.
