The Basics of Freight, Transportation and Logistics

Learn the basics about freight and transportation
We live in a highly complicated world with circuitous global supply chains and rising shipping rates.  Raw materials, components and finished goods often traverse the globe until they reach their final destination- the customer.  To do this, freight shipments are moved from point-to-point by transportation and logistics providers and facilitated by transportation intermediaries.  Getting domestic or international freight to the proper destination on time and damage free requires tremendous interaction, coordination, networking and experience.  Let’s see how it all comes together.

First, we will start at the beginning. 

  • Size of the goods
  • Nature of the goods: liquid, hazardous materials, high value cargo that needs intense security
  • Quantity of the goods
  • How the goods can be properly packaged for transport
  • Destination, whether domestic, intra-state or international
Small packages and parcels such as are common with e-commerce order fulfillment can be transported and delivered using parcel carriers.  Parcel carriers can also often handle the delivery of larger goods quite economically.

What Does Freight Shipping Mean?

The process by which commodities, goods and cargo are transported by land, sea or air is known as freight shipping.  The means by which the freight is transported includes trucks, rail cars, container ships, passenger and cargo planes.

What Does Freight Only Mean?

This term refers to a railway line which is used exclusively by freight trains.

Is Freight the Same as Shipping?

Terms that describe the bulk transportation of goods include both freight and shipping, although the two are a bit different.  “Freight” always involves a larger quantity of goods and denotes a commercial purpose, whereas the term “shipping” refers to a small amount of goods.

Introduction to Transportation

What Are the 5 Types of Transportation?

The five most common modes of transport are:  roadways, railways, airway, waterways and pipelines.

The process of transporting goods, commodities and cargo is known as freight shipping.  The three primary modes of transportation involving most freight are land, sea and air.  Within those categories are different kinds of transportation modes:

Road

Trucks are the most common way of transporting freight across the supply chain.  Other modes of transportation cannot necessarily be used to reach all needed destinations.  Because of the cost and access, trucks are the usually the default choice for transporting large quantities of goods.

  • Full Truckload (FTL) sometimes known as Truckload (TL): The entire 53 feet of trailer space is needed to transport freight
  • Less Than Truckload (LTL): This indicates that there is an inadequate amount of freight to fill an entire truck; only part of a trailer is needed to transport freight.  LTL shipments are transported on trucks with goods from other shippers, making multiple stops or transfers.
  • Intermodal (ITML): This involves the shipping of freight using more than one mode of transportation but without opening the container.  An example of this is when freight arrives in one location by ship and is then transported to a warehouse by truck.
  • Chassis: This term is used to refer to a means of transporting ocean containers over the road.  A chassis is a specialized trailer required to move container shipments by truck.  This will require payment of a chassis fee.  This is directly related to intermodal modes of transportation.
  • Multimodal (ML): This term refers to the use of more than one mode of transportation after the container is opened and the goods have been transferred to another mode of transportation.
Because full truckload shipments are under the supervision of one driver throughout an entire specified route, full truckload shipments tend to be less prone to theft or damage.  FTL is usually a bit faster than LTL shipping as the FTL route is direct from the point of origin to the destination.  LTL shipping often takes a bit longer than FTL as the route involves working through a hub and spoke network.

Intermodal transportation is frequently used for longer hauls.  For example, this may occur in the transportation of goods from a port.

Rail

Most LTL or FTL transport can be handled more economically via rail freight.  Vital to the American supply chain, it is often significantly less expensive to transport freight via rail, especially given the length of the distance the freight tends to be transported.  Much of the freight that travels by rail is transported in intermodal shipping containers.

The seven U.S. Class I railroads account for approximately 94% of rail freight revenue according to the Association of American Railroads.
Railroads are critical to the facilitation of global trade and the U.S. economy.  The lower cost of rail transport in moving goods across the country helps keep the cost of goods down. By continually investing in newer technologies, railroads have been able to reduce human errors and enhance rail safety and operational efficiency.  According to the Association of American Railroads, one freight train alone can replace several hundred trucks.  This not only saves on fuel, greenhouse gas emissions, and space on highways for other motorists but also the wear and tear on the U.S. highway system.
Freight rail handles the transport of a huge volume of raw materials and finished goods including:

Intermodal:

Shipping containers and truck trailers of goods shipped to retailers

Energy:

Commodities including crude oil, ethanol and coal

Chemicals:

Freight including fertilizers, plastic resin, caustic soda required by pulp and paper manufacturers and a wide variety of other chemical products needed by intermediaries and end users

Sea

In today’s global economy, sea freight makes up the bulk of global trade transportation.  This is largely due to China’s continued dominance in manufacturing.

Shipping Containers

Use of standardized shipping containers, metal box structures that can readily be moved between various modes of transportation has made it easier to load and unload, transport and manage across various types of transport.  Standardized containerization enhances efficiency, helps to protect goods and is useful in helping to ensure faster movement across the supply chain.

The freight forwarder arranges container or space with the shipping agent and the shipment moves to the port where it passes through customs at the point of origin.  The freight is loaded into either shared containers or full containers, depending upon the volume.  Once loaded, the container is put onto the cargo ship and readied for transport.

Upon reaching the destination, the goods again pass through customs.  Once duties and taxes have been paid, the freight is released for delivery and will be delivered to the receiver either on pallets or in the same container.

Shipping Container Basics:
  • Full Container Load (FCL)
  • Less than Container Load (LCL)
  • Standard Container/Dry Van/High Cube (STD/DV/HC)
    • 20 feet and 40 feet are the most common sizes (20 DC/STD-40 DC/STD)
Need to calculate freight shipment cost? The calculation of the shipping cost for ocean freight can be complicated as it involves four major factors:
Fuel:
Because oil prices tend to fluctuate and are associated with the cost of bunker fuel, this has a direct effect on the cost of ocean freight rates.
Currency:
The U.S. dollar is most frequently the currency used in international transactions however, the daily fluctuations of other markets can have an impact on freight rates.
Season:
Ocean freight rates can fluctuate with the changing seasonal demand of goods, making the shipping cost higher for some commodities at certain times during the year.
Capacity:
Because ocean freight is considered a commodity, its value can escalate when demand is higher than supply.

Air

When it comes to global trade, sea freight is dominant.  For freight traversing borders, land transportation is typically used as well as for last mile logistics.  Air freight is most beneficial for high value and time-sensitive cargo such as for goods in the automotive, aerospace, electronics, pharmaceutical/healthcare industries.  Preferred due to its speed, reliability and improved inventory carrying costs for issues such as perishability, shrinkage and insurance, air freight provides a variety of shipping options:

Next Flight Out:
Cargo is booked on the next available flight
Consolidated:
Cargo is shipped in combination with that of other shippers.  Because this results in larger shipments, the shipping cost tends to be lower.  This option favors larger freight forwarders as they tend to book larger shipments of freight.  Inadequate quantities of commodities ready to ship results in a delayed consolidation.
Deferred:
This is typically the lowest cost freight option.  The trade-off is that the shipping time may be longer.  This tends to be used for less valuable, non-perishable cargo.
Air Charter:
This tends to be used primarily for large and/or very valuable freight.  This is due to the high cost of fuel and lack of aircraft availability.
Air freight tends to be used for specific categories of cargo including but not limited to:
  • Perishable goods
  • Live animals
  • Top priority cargo for immediate delivery
  • Extremely high value cargo, especially that which requires additional security
  • Small quantities of goods or cargo with small volume metric weight

The Key Players Involved in Shipping Freight

Freight Forwarders

Freight forwarders consolidate freight services.  This means that the freight forwarder gathers up and merges smaller shipments or may also break down larger shipments into smaller shipments that are more transportable.  In addition to freight consolidation services, freight forwarders often arrange for warehouse storage and the shipment of freight on behalf of their clients.  Responsible for the consolidation, transportation and cargo insurance of the freight, freight forwarders take charge of the cargo and ship using their own Bill of Lading (BOL).

Freight forwarders coordinate shipments of goods from destination-to-destination using a variety of carriers which may include travel via air, ocean, road and rail.

Acting rather as “travel agents” for freight, freight forwarders are specialists in the arrangement of the entire process for shippers from storage to the shipment of the freight and do not physically move cargo.  By acting as the agent of the freight shipper, they are an effective intermediary between the providers of transportation services and the shipper, negotiating the terms of service and price.  Using their supply chain logistics expertise, freight forwarders are instrumental in alleviating stress from shippers, providing advice and transportation and logistics arrangements from packing, warehousing, customs and beyond.  With their skill in brokering services, experience and relationships with shipping carriers, freight forwarders are typically able to offer exclusive pricing that shippers are not able to obtain on their own.

Freight forwarders can provide a variety of services including but not limited to:
  • Ocean transportation
  • Air transportation
  • Inland transportation via road or rail from the point of origin and/or to the destination point
  • Documentation of international export and import
  • Customs clearance
  • Freight rate negotiation
  • Container tracking
  • Cargo insurance
  • Assist with packaging products for shipping, transportation and delivery
  • Ensure cargo is properly labeled to meet established requirements and standards
  • Warehouse storage
  • Customs compliance
Although freight forwarders make transportation and logistics arrangements, they are not responsible for shipping delays.  As with any travel, delays can occur for many reasons including weather, unexpected route changes, port delays, mechanical breakdowns.  Depending upon the company, some freight forwarders can provide additional services including warehouse storage, cargo insurance, tracking of cargo, handling of dangerous goods and more.

Leveraging their experience, freight forwarders with strong relationships and networks of experienced shipping carriers, transportation and logistics providers and other related professionals tend to be more successful in moving freight in a timely manner.  Whether specializing in moving a specific type of cargo or in arranging transport for a variety of goods, these are important issues to consider when selecting a freight forwarder.

Freight forwarders commonly ship through their own bills of lading or waybill.  Freight forwarders overseas are often referred to as “destination agents”. They provide the delivery of documents, freight deconsolidation as well as collection or delivery services.

Freight Brokers

Not to be confused with freight forwarders, freight brokers serve a completely different purpose in the logistics industry.  Working as a transportation intermediary, freight brokers connect the shippers with the carriers but do not take either the possession or the responsibility for the freight, meaning that they are not liable for claims arising related to cargo damages.

Because they typically provide a higher volume of business to carriers than would be possible by working with individual customers, freight brokers receive lower rates and are able to pass along these savings to shippers.  This works for both shippers and carriers.  Shippers benefit from the increased negotiating power that freight brokers have.  For carriers, working with freight brokers saves the time and resources required to find high volume clients.  Freight brokers receive a percentage of the total cost of each transaction as a commission payment for the work that they do.

Freight brokers typically:
  • Handle the negotiation of freight rates
  • Optimize transportation routes
  • Arrange transportation through outsourcing
  • Optimize shipping logistics
  • Handle insurance claims on behalf of shippers
One of the advantages of using a freight broker is their ability to act as a liaison between shippers and transportation carriers.  They are familiar with shipper needs, wants and expectations and able to communicate this to transportation providers to help ensure that your cargo successfully reaches its destination.  Freight brokers may work with shippers as consultants to help optimize the best method of shipping goods.
Here are some of the benefits of using a freight broker:
  • Reduction in transportation costs
  • Optimization of transportation routes and modes may save time
  • Ability to provide increased capacity or resources

NVOCC

Although shipping carriers own the modes of transportation, they do not usually arrange the movement of freight, other than from port-to-port or from one airport to another.  As owners, carriers often use third parties to sell and arrange bookings on their vessels.  Very large companies and enterprises may be offered services directly by the carrier.

Some companies that are not carriers also are able to sell bookings by using a special legal arrangement called a non-vessel owning common carrier, commonly known as an NVOCC.  Once an agreement has been reached with a shipping line, an NVOCC can provide a guarantee of the shipment of a specified number of units annually and is provided with favorable rates by the shipping line.  An NVOCC operation tends to be the largest trade maker for the container shipment and handles bill of lading issues as well as overseas distribution.

Shipping Carriers

Carriers own the modes of transportation, from planes to ships and book transport usually through third-party companies.  Very large companies often work directly with shipping carriers.

Customs Brokers

Customs brokers are specialists in customs filing and clearance, customs brokers can work with freight forwarders as an agent or provide customs brokering in-house.

Third Party Logistics Providers (3PLs)

Shippers frequently outsource specific services rather than take on this work themselves.  3PLs are frequently engaged to handle the warehousing, distribution and fulfillment as well as other services.

Shippers

Shippers are the owners of the freight, the party with the need to ship the goods.

Conclusion:

Are you new to issues involving freight, transportation and logistics?  Dealing with shipping companies on issues involving global freight can be time consuming and confusing.  From container shipping to expedited freight, freight class and container shipping, there are experts in the freight logistics field ready to help you.

First learn the terminology used in dealing with freight shipping issues.  Next, understand the basics, issues like determining freight class and transportation mode(s), obtaining freight quotes, etc. Once you have a rudimentary understanding of what will be needed for your business, then take action by reaching out to industry experts for their help, guidance and service.  By doing this, you will have a better understanding of how to answer questions and obtain the services needed for your cargo.

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