Roles of Freight Forwarding Agencies and Logistics Service Providers

Lawyer Vo Nhat Thang - Nguyen Tuong - Lawyer Ngo Khac Le|30/11/2021 09:28

(VLR) Freight forwarding/ Logistics plays a very important role in supply chain management and is indispensable in business, production and social life, especially in the time of social distancing as it is now.

However, many manufacturing and import-export enterprises, even some managers of related sectors, think that this is just simply an "intermediate stage", which needs to be limited or eliminated to reduce logistics costs which are still high, and ask the Vietnam’s Maritime Administration to establish a transaction floor to store freight among shippers and shipping lines directly. Recently, the import-export industry has been strongly affected by the COVID-19 epidemic; the global supply chain has been interrupted and broken and relationship of supply-demand has also been changed, leading to the lack of containers and shipping lines increased sea freight rates continuously, normally due to reasons that container flows have been congested in main ports in Asia, Europe and American and that there has been shortages of workers handling cargo… Therefore, we need to have clear understanding of roles of forwarding agencies and logistics service providers, especially with sea cargo transport to and from the U.S which is required bonds.

What are freight forwarders/logistics service providers?

In FIATA’s view (International Federation of Freight Forwarders), freight forwarder is an "architect" of the shipping service. In sea transportation, freight forwarder is the person who arranges transportation of goods and related formalities on behalf of shippers. Some of a forwarder’s main works include booking space for goods on a liner service and other means of transport; preparing and completing necessary documents and forms and doing customs clearance, arranging the return of goods to consignees. The freight forwarder may act as either a contractual “Contracting Carrier” or a “Multimodal Transport Operator” (MTO). Once operating in that capacity, they are no longer agents but real owners (Principal) and must be directly liable to customers.

A freight forwarder becomes a logistics service provider (LSP - Logistics Service Provider) when providing additional related services to deliver goods to consignees under the entrustment of the shipper (Cargo owner), of the freight forwarder or other forwarding service providers - collectively referred to as customers.

Today trade globalization has been increasing and digital transformation drastically changes logistics activities. Supply chains have many pressures on security issues along with procedural restrictions in cross-border transport. Freight forwarders have to focus on value-added services that can be offered to customers, making outsourcing strongly developed. Therefore, freight forwarders have turned themselves to 3PL service providers to provide more complete services to customers in the logistics sector.

Third-party logistics (3PLs) became widely used in the second half of the 1980s to describe the process by which companies subcontract certain logistics services to other service providers. Because 3PL services can bid more efficiently such as transportation and distribution operations, warehousing, inventory, purchase order management, freight delivery. A simple example is that the forwarder does not need to have his own delivery department, but can hire companies specializing in this work such as VN Post, Viettel Post, or DHL.... In short, 3PL provides professional expertise to the supply chain, thereby helping Freight forwarders to ensure impeccable customer service. A 3PL provider is a company that provides a variety of logistics services to customers. Often these services are consolidated or combined. These companies will facilitate the movement of raw materials from suppliers to manufacturers and finished products from manufacturers to distributors and retailers. Types of services include transportation, warehousing, packing at warehouses, inventory management, packaging, inspection, shipping... According to the Vietnam Logistics Report 2019 of the Ministry of Industry and Trade, "revenue in the logistics service market." (3PL, 4PL) globally reached over 1 trillion USD in 2019”. "The world's largest 3PLs are still mainly concentrated in the US and EU... Asia's representatives are Nippon Express of Japan and Sinotrans of China." Many of the world's big 3PLs have been present in Vietnam. Currently, the world is using 4PL and 5PL forms in addition to 3PL.

Roles of freight forwarders and logistics service provicers

The Article 233 of the Vietnam’s Commercial Law stipulates that “Logistics service is a commercial activity whereby a trader organizes to perform one or more works including receiving goods, transporting, storing, customs clearance, paperwork, customer consultation, packaging, marking, delivery or other services related to goods as agreed with customers to enjoy remuneration". The Article 235, Clause 1., Section a) stipulates “To be entitled to service remuneration and other reasonable expenses”.

In Vietnam, logistics services originated from forwarding services in the 70s of the 20th century and has been developing strongly, especially since the issue of the Commercial Law 2025. It has received attention and supports from the Government and the society, especially when there was the Decision 200/QĐ-TTg dated February 14 on approving the Action Plan to Improve Competition Abilities and Developing Vietnam Logistics Service Sector to 2025.

Currently, Vietnam has more than 4,000 enterprises providing international and domestic logistics services. By the end of September 2021, the Vietnam Logistics Business Association (VLA) had 515 members, of which 428 were official members and 87 associate members (58 FDI enterprises). VLA is an active member of FIATA- the world's leading logistics organization. VLA members are allowed to issue FIATA bills of lading for global logistics service business. FIATA was established on May 31, 1926 and has continuously grown, becoming the representative of global professional logistics service providers. FIATA's members are mainly freight forwarding and logistics associations of countries. Currently, FIATA has about 40,000 forwarding and logistics companies in 150 countries.

Recognizing the importance of logistics services, our country's manufacturing, import-export enterprises have been promoting hiring of LSPs to perform stages in the process of production, import- export of goods, transport activities and logistics in general to have more focus on works of production management and product selling/buying, called ‘outsourcing’. According to the Vietnam Logistics Report 2020 by the Ministry of Industry- Trade, international transportation services, domestic transportation, customs declaration and freight forwarding have the proportion of outsourced enterprises at over 90% of demand. Because of its superiority in providing value-added services, many enterprises now have 100% outsource. The Decision 221/QD-TTg dated February 22, 2021 from the Prime Minister “Revising and supplementing Decision 200/QD-TTg dated February 14, 2017 on approving the Action Plan to improve competition abilities and developing Vietnam’s logistics services by 2025" has set the target "by 2025, the rate of outsourcing logistics services will reach 50% - 60%". This goal affirms the role and importance of providing logistics services in the production process and especially for import-export goods of Vietnam

In addition to providing general logistics services, VLA's LSPs can also advise shippers on how to choose the right mode of transport for import-export goods to reduce logistics costs and provide legal advice on the purchase and sale, delivery of goods and settlement of disputes related to logistics services with foreign customers. The VLA Association hopes to have close cooperation with industry associations and direct shippers in improving the quality of logistics service provision in order to contribute to reducing logistics costs, improving competition abilities of companies, importing and exporting goods and services, and dealing with foreign container shipping lines in increasing freight rates and extra charges in addition to freight rates because, as FIATA once mentioned, “The forwarder/logistics is an architect of all freight services”.

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Roles of Freight Forwarding Agencies and Logistics Service Providers