Decoding The Logistics Industry- Expert Interview
Indian Logistics Industry is expected to grow at a CAGR of 8.6 percent between 2015 and 2020, which grew at a CAGR of 9.7 percent during 2010-2015. Transportation and Communication accounted for 7.0 percent of the nation’s GDP in 2015, accounting for around US $130.44 billion.
We got talking to an expert in the field and got an insider’s view on the do’s & don’t. Find the full interview below.
About Our Expert: Mr. Balasubramanian Thiagarajan is a leader in supply chain & Logistics with over 20 years of experience across import-export, Supply Chain Management, Global Sourcing, Freight Management, Chartering, FEMA & Foreign Trade Policy.
Below are his views on the industry on how it works and tips and insights for Businesses to keep in mind while dealing with one.
KredX – As per you, what is the most important aspect in the Logistics business?
BT – Freight forwarder, Broker & goods carrier are the key people responsible to receive the material on behalf of the shipper and it is their responsibility to collect the material and deliver the same to end destination (be it domestic or cross the border he has to manage the end to end).
Different Logistics Scenarios:
- Domestic Logistics – The person responsible (freight forwarder or broker) has to pick the goods from shipper’s designated place & transport the goods in good condition to the end destination and if the agreement with the shipper calls for insurance then he has to insure those goods and also pay relevant taxes for managing these services.
- In case of cross border logistics – one has to pick the goods that reach the port, get customs clearance, book a vessel (in case of sea) or book a cargo flight (in case of air) and co-ordinate with the agent in the other country and get the goods delivered and unloaded in the destination.
For all of this if insurance, customs clearance cost and other taxes and charges has to be borne by the agent then they have to bear it. It becomes the responsibility of this person to ensure the safe delivery of goods from the shipper’s place of choice to the customer’s site. For domestic transportation preferred logistics companies should be IBA (Indian Banks’ Association) approved and for cross border it should be IATA (International Airport Transport Association) or Ministry of Shipping approved freight forwarders or brokers or goods carriers Hence, there is a need to figure out a good freight forwarder, broker, goods carrier,
KredX- What does freight forwarder’s bill of lading mean in export and import business?
BT – Freight forwarder’s bill of lading (FBL) is a transport document used in shipments via sea and multimodal shipment formats. This document has information on the terms and conditions of the carriage of goods, as mentioned by the freight forwarder. It is issued on the freight forwarder’s bill of lading format with his signature.
KredX- Cross border trade has help businesses grow and multimodal shipments are on the rise, what as per you are the major challenges?
BT– Multimodal bill of lading is issued if the consignment is being shipped through multiple countries.It’s very important to realize the legal & regulatory obligations related to the countries involved in the entire transaction as published by RBI & OFAC (Office of Foreign Assets Control) sanction programs from time to time. For instance, this recent incident where the consignment was going to Uzbekistan through Bandar Abbas in Iran, the consignment Bill of lading was when shown to the Bank it refused to accept the same. The reason was the goods was passing through Iran and hence the US Sanction will never deal with transactions related to Iran. So even if the Bank would have accepted the bill, the currency of which was US Dollar it would have gone to US for approval and would eventually get rejected.
KredX- There are a lot of parties involved in the logistics chain, who do you think faces the maximum cash crunch?
BT– The major parties involved are a) Warehouse b) Transporter c) Freight forwarder d) Carrier. The Freight forwarder is the person who does a lot of billing, as he takes care of custom clearance, loading and unloading. The predominant players in the entire process are the freight forwarder and the carrier and they issue the subsequent bill of lading. These two parties face the cash crunch and have the capacity to take up loans through Invoices as well. They get the assurance to get payment in 45-50 days from the Shipper, but they would need funds in between to fund their payments to various parties like transporter, paying taxes, customer clearance so on so forth. This is where KredX can really be helpful for them.
KredX- You said that there is a broker and a Carrier, they may be same or they may be different. How much is the broker’s keep (in percent) in the transaction?
BT– It could be a minimum of 10-15 % easily. As a matter of fact, there will not be enough margin when he is putting single cargo in single trailer but he will have significant margins in Mini Consignment because then he will be arranging the trucks and the carrier and negotiating with both the parties. When a shipper is picking up a Broker, he should ensure that the broker is reliable and should verify his LR (Loading Receipt) through Banks, his reputation, GPRS tracking of goods movement etc.
KredX- Why does the LR need vetting by some bank?
BT– Suppose the Broker or Carrier is getting a payment through bank, or wants to discount the bill. The bank will not accept it , if it is not approved by IBA (Indian Bank’s Association). Hence there is a list of transporters that IBA publishes on periodic basis which Banks will go by and if any transporter is part of that list it’s a low-risk option as banks deal with documents and finance not goods.
KredX- So in a typical cycle there is Shipper who arranges for a freight forwarder and the freight forwarder in turn arranges for the carrier. So is it possible that Freight forwarder has to pay Carrier before he get payment from Shipper?
BT– Yes, this can happen when the volume in terms of money and quantity is a lot and there exists a pre-condition between Carrier and the Freight Forwarder. Hence, among the three parties involved Freight forwarder is the most cash constraint. Also, in this process the ratio of consignment going from freight forwarder directly to the carrier is 80/20, hence as most of the load is shared by the freight forwarder they are the most crucial part in the entire transaction.
KredX- KredX is an Invoice discounting platform. What are some of the things one should keep in mind while discounting the invoices of transporter, freight forwarder and Carrier?
BT– The most important thing is Bank approval. You should ensure that, the LR is approved by the Bank, because even if you have made the payment and there is a dispute there will no validity of the case.
KredX- Whose responsibility and liability will it be in case there is a damage of goods when received at the final destination?
BT- In such cases the final receiver has to take help of product warranty. They have to go to the vendor, the person who originally shipped the product. The Vendor will in most cases also take care of material defect and not the product damage.
KredX- Your final thoughts on the Logistics industry and what businesses should keep in mind while associating with one?
BT– Any logistics company, their focus should be on delivering goods on time to the satisfaction of the end customer, hence reliability is a big factor. Businesses using the logistics company must make sure that the air freighting company is an IATA (International Air Transport Association) agent is case of Air shipment, the freight forwarder is approved by Ministry of Shipping (in case of Sea shipment) and should be IBA approved in case of domestic transportation. Select a company that takes ownership, transactions will be smooth then.