Planning to start your own shipping and freight business..?? Read this..

For any business to be successful, one needs to know the business, its model and requirements inside out.. Many businesses start with a great idea..

But there could be big gap between a great idea and a great startup and many people don’t have a clue on how to bridge this gap and may end up spending their life savings to start the business..

Forbes published an article on 10 Reality Checks Before Starting Your Own Business..

1. 1. Are you ready for the startup lifestyle?
   2. Are there customers with real pain and money?
   3. Is the market opportunity large and growing?
   4. Is this a crowded space already?
   5. Does your solution have hidden dependencies or costs?
   6. Do you have intellectual property to defend against competitors?
   7. Can you build a motivated and qualified team?
   8. Have you looked realistically at the costs?
   9. Do you have stamina and skills?
   10. Going “from” rather than “to”?

While the above is good for any business, if you are planning to start your own shipping and freight business, here are 7 reasons why you shouldn’t start your own shipping and freight business..

Yes you are reading it right..

You shouldn’t start your own shipping and freight business if :

7) You don’t understand the real role and work of the various entities (freight forwarder, customs broker, shipping agent etc etc) involved in the business

6) You don’t know the role of the HS Code or Tariff in the whole gamut of shipping

5) You don’t know the role of a bill of lading or the difference between a house bill of lading and master bill of lading

4) You don’t know your Incoterms® from your Algebra or when cargo can be shipped without insurance

3) Which means you also don’t know or understand the implications of liability and risk management involved in the business

2) You don’t know how to calculate CBM or the meaning of Freight Ton/Revenue Ton or the financial impact of the business

1) In short, you are unclear about the real processes and procedures involved in the import and export chain

You must be thinking that it is obvious that one has to have this knowledge before wanting to start this business, but you will be surprised to know how many questions I receive relating to shipping and freight business like below..

1. I am planning to start import and export business in a week with my friends. But I don’t know import and export procedures clearly. Please provide step-by-step guidance how to start freight forwarding business.
2. I want to open my own customs house agency but I am not clear on the duty calculation process, can you help me.

There are several pitfalls of starting a business you know nothing of or unsure of..

Let’s examine the reasons why you shouldn’t start your own shipping and freight business if you fall into the above category..

7) There are several entities involved in the shipping and freight industry like freight forwarder, clearing agent, NVOCC, haulier, surveyor, ships agency…………….. and many more..

So first and foremost, you need to be clear about which of these businesses you want to get into..

All these entities have varied and different roles to play in the whole chain and it is certainly not easy for a startup with incomplete knowledge to handle these functions..

In the case of 1st example above, someone wants to start their own freight forwarding business, but has no knowledge of the process..

Theoretically “anyone can become a freight forwarder” because in most countries there is no legislation stopping anyone from “calling” themselves a freight forwarder or doing business as a freight forwarder..

However, in order to operate as a true freight forwarder there are several process and procedures to be aware of and several responsibilities one needs to assume..

Assuming responsibility could also include costs involved which may fall on the freight forwarders head and he or she has to know the business well enough to ensure which costs he or she maybe held responsible for..

For example, a freight forwarder needs to know whether he or she can be held responsible for abandoned cargo or whether he or she maybe held liable for any damages to cargo routed via them and at what stage..

Remember the shipper or consignee is dependent on YOU to provide proper information and guide them with their shipments..

6) Why should I be aware of the HS Code and tariff and why is this information important to start my own shipping and freight business you may ask..

Say for example you are planning to start a Customs Clearing business, the HS Code is the basis on which import tariffs are calculated and any duty, vat or tax is charged..

Without knowing the proper classification of the cargo and which HS code it falls under, you will not be able to handle your clients cargo effectively.. The incorrect use of the HS code may result in cargo being confiscated, fines levied, criminal penalties/charges instituted, or result in cargo being returned to the POL..

Remember the shipper or consignee is dependent on YOU to provide proper information and guide them with their shipments..

5) The bill of lading is one of the most important documents in the shipping cycle and as a forwarder or shipping agent, you need to REALLY know and understand the role of this important document and which type of bill of lading to issue for which shipment and to where.. 

As an agent on whom the shipper or consignee depends on

• you need to be aware of how the bill of lading must be consigned and to whom
• of course it would also help if the shipper or consignee knows about the process of export or import especially if they are exporting for the first time or importing for the first time
• you also need to know the various intricacies involved in issuing a house bill of lading vs a master bill of lading
• you need to ensure issuance of the correct type of bill of lading such as Sea waybill instead of Original and vice versa
• you need to ensure that the bill of lading is issued correctly in terms of the transport mode such as Multi-Modal or Combined Transport or Port to Port

Incorrect issuance of the bill of lading can cause severe financial implications not to mention delays at the port of discharge for the client to secure their cargo..

Remember the shipper or consignee is dependent on YOU to provide proper information and guide them with their shipments..

4) Incoterms® rules are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods and is designed to help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers..

Incorrect interpretation of Incoterms® by an agent has many a times resulted in several cases of money and business loss for both the agent and their customer..

Misinterpretations and incorrect use of the Incoterms® such as the use of FOB for containers, continues in the market purely based on previous practices..

As an agent involved in the shipping and freight business, you really need to understand these terms in depth so that you may provide sane advice to your customers and others who may not be aware of the differences in the terms and where and how it should be applied..

You will require this in-depth knowledge especially when it comes to quoting a customer based on the Incoterms® he provides you.. If you are not aware of this, you may very well end up missing to quote vitals elements such as duties, taxes and some other important charges..

Remember the shipper or consignee is dependent on YOU to provide proper information and guide them with their shipments..

3) This brings us to the question of risk management associated with the shipping and freight industry.. There are several identified risks as below, all of which can apply in the shipping and freight business..

• Using proper SOPs
• Arranging proper insurance cover
• Counterparty risks
• Jurisdictional risks
• Contractual carriers

An agent must be able to advise their clients on these risks and must also be fully equipped to deal with these risks and be aware of how to mitigate them if and when it arises..

Another point that most businesses in the industry seem to forget is the usage of proper and comprehensive Trading Conditions that must be incorporated in all communications and this simple act has been known to mitigate several losses to the people involved..

Insurance and risk management cover does not apply only to the cargo, seller, buyer etc, but also applies to a forwarder or clearing agent who must have their own cover to protect themselves.. There are many entities which provide liability insurance and related risk management services to the international transport and logistics industry..

Remember the shipper or consignee is dependent on YOU to provide proper information and guide them with their shipments..

2) Any shipping and freight business (any business for that matter) will be started with the intention of making a profit.. However, if you are not aware of the basis on which your service must be charged, then you would start losing money from the beginning..

For example if you want to start a freight forwarding or a clearing agency business you DEFINITELY need to know how to calculate the dimensions of the cargo and be able to work out the CBM and charge the customer basis Revenue Ton or Freight Ton because that is the main basis of charging for many forwarding, warehousing and clearing agency businesses..

If you are not aware of how this works, then it is going to be very difficult for you to be able to charge your customer..

My post on how to calculate CBM and Freight Ton is the one of the most popular posts on this resource which shows how many people are still learning this and how popular this calculation is..

So don’t miss learning this crucial point which can affect you financially..

Remember the shipper or consignee is dependent on YOU to provide proper information and guide them with their shipments..

1) The last but most important point is if you are not aware of the processes and procedures involved in the shipping and freight business, then you would be better off not to start your own shipping and freight business..

It is absolutely vital that you have at least a good 5-7 years experience in a similar “working” position in the industry and handling shipments before you even consider starting your own shipping and freight business..

What I have mentioned above are only a few main points, but there are several other points one needs to consider before embarking on your own shipping and freight business..

Like for example, the process and procedures involved in insuring yours or your client’s cargo or what happens if cargo is shipped without insurance..

Last but not least : Remember the shipper or consignee is dependent on YOU to provide proper information and guide them with their shipments..

Conclusion

The shipping and freight industry is highly volatile as it is and as you may have seen, many shipping lines, freight forwarders, 3PL companies, and courier companies have merged and strengthened their positions through these mergers and acquisitions..

All these companies have been around, doing the shipping and freight business for yonks and know the workings of the business and yet they have had issues..

Of course that is not to say that smaller operators will be unsuccessful, and if you surely know how the business is run and confident of avoiding pitfalls like above, by all means go ahead and “Start your own shipping and freight business“.. Good Luck..

I am sure that there are some readers who run their own shipping and freight business successfully or some readers who have not been able to run their own shipping and freight business successfully..

In either case, pls share your experiences so many others can learn what to do and what not to do in order to start and maintain their own shipping and freight business..

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