The Hidden Costs You Might Neglect When Using Legacy Freight Forwarding Systems

Alice Zhou

July 29, 2020 • 7 minutes read

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Many are discussing the hidden costs of supply chain and logistics for shippers, and you can easily find them by Googling “logistics hidden cost.” However, not a lot of them are disclosing the hidden costs of using legacy freight forwarding systems, and these unnoticed costs may result in huge negative impacts on your business profitability.The revenue margin of freight forwarders is already limited as their profit mainly comes from providing agency services of helping shippers organize shipments to deliver cargoes to their customers. Neglecting the hidden costs of using legacy freight forwarding systems will further decrease the already limited revenue margin.  

A legacy freight forwarding system

The freight forwarding business can be traced back to the 17th century, and this ancient business is not following the new technology trends properly. Yes, most of the freight forwarding companies are using computers to log and track their shipments, but in an old-fashioned way. A lot of freight forwarders still rely on Microsoft Excel to maintain all the shipment status and its corresponding information manually (yes, they update the spreadsheet after confirming the shipment status via email or on the phone). Even if they use freight forwarding systems, there are some characteristics of legacy freight forwarding systems that make them obsolete.
  • On-premise: The system is geographically limited as it is installed on a Windows server or PC, meaning users cannot access it online (imagine how you will be working from home).
  • One-time purchase: Although you only pay once for the software, you will not be able to enjoy the latest updates unless you purchase the next edition.
  • Outdated user interface: Most of the legacy systems were developed decades ago, so you don’t expect an intuitive and friendly user interface from them.
Some of the system vendors are looking for a transformation by moving the services to the cloud, but they might encounter some obstacles when it comes to building cloud system infrastructure. This after all requires strong domain knowledge to develop and host the services onto the cloud, not to mention that you also have to make sure it’s secure and stable.

The architect of transport

Freight forwarders are also known as the architect of transport because they organize information from various sources and figure out the optimal way to deliver the goods. This requires not only the domain knowledge but also experiences in logistics to offer quality services to the customers. During this delivery process, it seems like freight forwarders are not taking the responsibility for cargo delivery, but that’s not the reality for most of the cases. In fact, freight forwarders need to closely monitor the shipment status and keep their customers posted. Besides, they also need to keep an eye on all the invoices from multiple carriers and the shippers’ payments, ensuring the company’s financial balance. This is of great importance especially due to the limited margins for the freight forwarders. One mismatch for the conciliation will cause a great loss to the company, and this is the number one hidden cost among the top five hidden costs of freight forwarding business that will be discussed below.

Top-5 hidden costs you might have from a legacy freight forwarding system

#1 Overdue & over credit clients

Your business relies on debit and credit payments from the clients to pay for invoices from the contracted carriers. For operators who are managing multiple accounts, they would also need to deal with tons of invoices and ensure the balance between the debit/credit notes and the invoices. 
From time to time, you might get the booking notice from clients with a lot of overdue and over credit on their accounts. They should clear all the payments before they conduct the next shipment. In order to do so, the team needs to regularly review the account balance manually to avoid overlooking any expected payments from your clients.  This is something that needs to be done by the modern freight forwarding system because most of the cloud-based freight forwarding systems should be able to integrate with accounting software or have accounting modules to automate the account receivable process. That is, the system should remind your team of any overdue payments with push notifications on the web or mobile phones.

#2 Accounting across multiple offices

At the end of each fiscal quarter, the headquarters need to combine all the accounting entries from multiple branch offices. Since branch offices might use different freight forwarding systems, the integration of various accounting reports will be a huge issue for the finance department. It’ll take ages to sort out one centralized report by going through excel sheets with different formats (as the excels are from different systems).
Your employees will then have to spend much time on fixing the errors and organizing their accounting reports properly. Furthermore, neglected accounting notes might eventually accumulate to a huge amount of loss in your annual financial report, potentially jeopardizing the financial stability of your company.A cloud-based freight forwarding system will be armed with accounting modules, meaning that the accounting reports from multiple branch offices will be centralized into one portal, without the hassle of manual work and human errors.

#3 Documentation archive

You can try to calculate how much paper you’ve been using over the past few years with regards to the documents you have printed, faxed, and mailed. The calculated amount might be quite staggering. We all know that it’s important to save our only Earth and try to make your businesses eco-friendly and become paperless. However, it’s not just about the ecological problems but the regulations that you need to follow. According to the CBP (Customs and Border Protection), importers are subjected to keep all related records of entry for 5 years under Title 19 PART163 regulation
You are used to keeping all your documents and records in hard copies and storing them in your archives. That’s good, but it’ll be time-consuming when you are in need of certain documents. Also, it’s risky if you only have one copy of the documents in the house, because you are not sure if the archive will be accidentally damaged or destroyed. For all the important documents and records, it’s recommended to follow the well-known backup 3-2-1 strategy: you have to make 3 copies of your documents, 2 copies need to be saved locally but in different media, and 1 copy needs to be saved offsite. All these won’t be a problem if you turn your business into a cloud-based solution because all the backup operations will be conducted and maintained by the service provider, centralizing all your documents in one place with comprehensive backup in the cloud.

#4 Internal communication and education

Quality service is the king of freight forwarders. To ensure the quality of your freight forwarding service, you need to make sure all your customers’ requirements are well followed up. Moreover, you’ll always have new staff onboarding, and they will keep asking you because they are not familiar with the special requests from the customers. To avoid human errors, your orientation and handover training will be of great importance.
In addition, the collaboration between different departments is also the key to delivering good and responsive services to your customers. For example, when the sales team needs to provide a quotation for their customers, they will need help from the operations team to get the corresponding shipping rate. It can be another time-consuming process if you don’t have an efficient way of team collaboration.There are quite a few modern freight forwarding solutions emphasizing on the importance of inter-departmental communication and collaboration. Having a way to maintain your customers’ special requirements and keep everyone in the team posted is probably the most essential feature of freight forwarding systems, and you can easily realize this with a cloud-based modern freight forwarding solution.

#5 System security and maintenance

You have one freight forwarding system. To make sure it’s always online, you need to worry about service availability and security. For most of the small to midsize freight forwarding companies, it’s not an easy task if you don’t have a dedicated IT expert in the company. That is, business owners will have to take care of this or look for other outsourced service providers.Cybersecurity is always a buzzword in the IT industry, and it requires massive domain expertise to make sure that your systems are reliable. A cloud-based freight forwarding system should leverage the reliability of the cloud infrastructure, like Amazon AWS, freeing yourself from maintaining IT security infrastructure, such as Firewall, security gateway, and mitigating the potential risks from Internet attacks.

It’s never too late to get started now

Freight forwarders are suffering from the lack of technology for decades, and they need an immediate digital transformation, starting from the system they use. To learn more about the digitalization of freight forwarders, you can check the Digital Freight Forwarders post. If you are not sure what kind of hidden costs you currently have, simply contact GoFreight experts and let us help you. Start today to transform your businesses with more profitability. 

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