A Freight Forwarder is someone who undertakes to handle the movement of goods from point to point on behalf of the cargo owner. The essence of freight forwarding is to ensure that the cargo is picked up from the seller and delivered to the buyer at the required place, at the right price, and in the same condition that it is picked up from the origin.
Freight industry started quite late in Nepal. In the year 1955, when the first highway linking Kathmandu with the Indian border city of Raxoul opened, it led the private transporters to operate the freight vehicles to and from the capital city of Nepal. Two short stretches of meter gauge railway extending to Amlekhgunj (35km) and Jayanagar – Janakpur (42 km) were in operation by the time to carry on traded goods and passenger traffic.
The establishment of National Trading Ltd in 1961 and Nepal Transit Warehousing Company (NTWCL) in 1971, both as the government undertaking has been a milestone towards institutionalizing the trade logistics services through government interventions. In addition, Jute Development Board was also created in 1971 to take care of production and export promotion of jute and jute products which constituted 50% of Nepal’s third country exports during the early 70s.
Freight Forwarders as the Service Providers
Nepalese transporters organized themselves for the first time in 1978 with the creation of Nepal Goods Carrier Association (NGCA). Similarly, freight forwarders were organized under the banner of Freight Forwarders Association Nepal (FAN) in 1990. Another parallel organization was created in 1994 in the name of Cargo Agent Association Nepal (CAAN), which was the splinter group of FAN. Both of these organizations were again reunited in 1998 and formed the united association called Nepal Freight Forwarders Associations (NEFFA) at the behest of Nepal Multimodal Transit and Trade Facilitation Project. Now the Customs Agent’s Association and Nepal Courier Association are also the players in the logistics business in Nepal.
The Nepalese freight forwarders are taking up the responsibilities of international cargo movement as the principal agent for the door to door transport and delivery of goods. They take up the charge of goods in trade from the exporters and importers and issue the Bill of Lading on behalf of the shipping lines, prepare all the necessary documents and carry out the onward transportation of the goods.
The objective of Nepal Freight Forwarders Association is to facilitate the international trade by delivering goods at the destination in an efficient and fast manner. It is carrying out various promotional and capacity building measures to the freight forwarders in collaboration with the government entities. Orientation to multimodal transport, use of INCOTERMS in the transportation of goods, the liability of the freight forwarders and transporters, handling of dangerous goods were some the focus area of training taken up in the past, particularly with the help of Nepal Multimodal Transit and Trade Facilitation Project. NEFFA also issued Standard Trading Conditions (STC) and Code of Conduct as the guidelines for carrying out business by its members.
Inland Clearance Depots (ICD)
Inland Clearance Depots have been developed in major border towns namely, Birgunj, Biratnagar, and Bhairahawa with the assistance of the World Bank/IDA. Apart from them Nepalgunj, Kerung, Tatopani, Kakarvitta are also major ICD of Nepal. Birgunj is the only rail connected ICD in Nepal where Government of India has supported the development by providing financial and technical assistance for installation of railway lines. The ICD Birgunj is a rail connected terminal, around 5.4 km away from the Railhead of Indian Railways Raxoul station, with the facilities of handling all types of traffic including containers, bulk, and break bulk cargo.
System of transit
There are major 3 ways of the transit system of import in Nepal which is as follows:
Kolkata to Kathmandu: From Kolkata, there will be clearing made and send cargo to Birgunj. The government of Nepal will do the clearing and customs duty is paid. After the clearing process forwarder will bring the cargo to Kathmandu. While bringing the goods from Kolkata there are two ways. It’s either brought via roadway or railway. The railway is much cheaper than the roadway.
From the country’s factory itself: In this process client need not do much. The process is managed by the forwarder. From documentation to finding the container everything will be managed by the office of forwarder located in the respective country of import where clearing will be done and send to Kolkata Port. From Kolkata port, it would be sent to Birgunj and finally Kathmandu.
From the importing country’s port: Forwarder will give the document to Factory’s employee and container would be collected from the port and send to the factory where goods would be loaded and send back to the port. Then from the port, the cargo would be handed over to the forwarder .Like this, the cargo would be received from the port itself and will be brought to the Kolkata port.
Ways of payment
There are major two ways of payment of the cargoes which are as follows:
Telegraph of Transfer (TT)
Letter of Credit (LC)
After the work of TT or LC, forwarder job is to receive the goods. According to Incoterms 2010, the goods would be received in its ways. The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in international commercial transactions procurement processes and their use is encouraged by trade councils, courts, and international lawyers.
FOB (Free on Board)
CIF (Cost Insurance and Freight)
CIF and FOB mainly differ in who assumes responsibility for the goods during transit. In CIF agreements, insurance and other costs are assumed by the seller, with liability and costs associated with successful transit paid by the seller up until the goods are received by the buyer. The responsibilities of the seller include transporting the goods to the nearest port, loading them on a vessel and paying for the insurance and freight. In some agreements, goods are not considered to be delivered until they are actually in the buyer’s possession; in others, the goods are considered delivered (and the buyer’s responsibility) once they reach the port of destination
FOB contracts relieve the seller of responsibility once the goods are shipped. After the goods have been loaded – technically, “passed the ship’s rail,” – they are considered to be delivered into the control of the buyer. When the voyage begins, the buyer then assumes all liability. The buyer can, therefore, negotiate a cheaper price for the freight and insurance with a forwarder of his or her choice. In fact, some international traders seek to maximize their profits by buying FOB and selling CIF.
CIF is considered a more expensive option when buying goods. This is because the seller uses a forwarder of his or her choice who may charge the buyer more in order to increase the profit on the transaction. Communication can also be an issue because the buyer relies solely on people who are acting on behalf of the seller. And the buyer may still have to pay additional fees at the port, such as docking fees and customs clearance before the goods can be cleared.
Porters five forces model
Competition in the Industry
The importance of this force is the number of competitors and their ability to threaten a company. The larger the number of competitors, along with the number of equivalent products and services they offer, the lesser the power of a company. In the context of the Freight industry, there is much competition in the industry. The number of freight company is increasing. Competition is high in the market.
Potential of New Entrants into an Industry
A company’s power is also affected by the force of new entrants into its market. The less time and money it costs for a competitor to enter a company’s market and be an effective competitor, the more a company’s position may be significantly weakened. In the case of the freight industry, the threat of new entrants is quite high.
Power of Suppliers
This force addresses how easily suppliers can drive up the price of goods and services. In case of freight industry bargaining power of suppliers depends upon the quality of services it provides to the company. If it could give better quality, then it’s supplying power would increase.
Power of Customers
This specifically deals with the ability customers have to drive prices down. In the context of Freight industry in Nepal, the buying power of customers is high as there are a numerous number of choices of freight forwarders from whom they can get service.
Threat of Substitutes
Competitor substitutes that can be used in place of a company’s products or services pose a threat. For example, if customers rely on a company to provide a tool or service that can be substituted with another tool or service or by performing the task manually, and if this substitution is fairly easy and of low cost, a company’s power can be weakened. Till now there were only narrow-body aircraft in Nepal but wider body aircraft are also slowly entering the market. Recently Nepal airlines brought the wide-body aircraft. So the bigger cargo now can be entered in the market in huge amount. So this could be a threat for those freight forwarders who does shipment process via roadway or railway. Also, Construction of Nijgadh, Bhairahawa and Pokhara airport could also result in the introduction of big cargo planes in Nepal
Strengths and Weakness are frequently internally-related, while Opportunities and Threats commonly focus on environmental placement.
It’s characteristics of the business or project that give it an advantage over others. There could be the following strength of this industry.
-It could bridge the gap between import and export.
-Import based country.
It’s characteristics of the business that place the business or project at a disadvantage relative to others. There could be following weaknesses in the freight industry in Nepal.
-Has to deal with lots of hassle in the documentation.
-Slow banking procedure
-There can be a human error like error during packaging, error during paper work, etc.
-There is no professionalism in this sector.
-There can be theft, robbery of cargoes.
-There is no proper system which is resulting in container detention.
-Lack of specialized truck so compelled to use other country’s truck also the problem of truck demur rage.
It’s the elements in the environment that the business or project could exploit to its advantage. Some of the opportunities for this industry could be as follows:
-Our country Nepal is a landlocked country, so we need to import most of the goods through different ports.
-Our country is an import based country so most of the goods are imported into the nation. From heavy equipment to small products everything must be imported so it could be great opportunities for the freight industry.
-Management of cost by technological innovation.
-The World Bank has said that Nepal’s economic growth has rebounded strongly and has reached 7.5 percent in the fiscal year 2017.This is the highest economic growth rate in the country since 1994. As the growth rate is increasing construction is also booming. So the import of heavy equipment’s and goods will certainly increase. Shipment of such goods is increasing which could play as big opportunities for the freight.
-Our country also exports goods like carpets, tea, herbs, woven fibers, spices, man made filaments, textile floor coverings, animal fodder etc. This could also play as opportunities for forwarders.
It’s the elements in the environment that could cause trouble for the business or project. Some of the threats for freight industry could be as follows:
-There is only Kolkata port and recently Visakhapatnam port given by Indian government. Since we have only two ports it remains congested.
-There is a monopoly of Himalayan terminals in handling Nepal inbound container in Kolkata.
-Lack of infrastructure in the country.
-Fear of political instability like a blockade.
Currently, there is preparation for a long-planned review of the Nepal-India Trade and Transit Treaty between Nepali and Indian government .Trade between the two countries is governed by the Trade and Transit Treaty 2009.
According to officials, the discussion is based on four key issues:
-Implementing transshipment modality through Vishakhapatnam port
-Allowing Nepal to use alternative Indian sea ports
-Addressing hurdles with regard to trade passing over Indian territory
-Inviting Indian investment in different sectors.
The government has asked India to implement a transshipment modality at Vishakhapatnam port that will allow importers and exporters to clear customs paperwork quickly. For example, a Nepali trader importing goods from a third country has to present several documents at Vishakhapatnam port to get customs clearance. After the transshipment modality is enforced, the trader will have to submit fewer documents for customs clearance up to the Nepal border. If the transshipment modality is implemented at the new port, it will also reduce the number of documents required to transport Nepal-bound consignments at the Indian port. Four months ago, Nepal piloted the ECTS for Nepal-bound cargo leaving Kolkata port with the consent of Indian authorities. Because of difficulties in officially enforcing a fully-fledged ECTS for cargo leaving Kolkata port, the government has planned to implement the system at Vishakhapatnam port which handles fewer Nepal-bound shipments. If succeed at Vishakhapatnam port, it will implement the modality on cargo passing through Kolkata port too. Nepal also urging India to allow it to use other Indian sea ports during the review of the bilateral treaty. The government has considered Dharma port in Odisha and Mundra port in Gujarat among the options. Ministry officials have even made inspection visits to these Indian ports last February. Revising the provision related to reciprocity in bilateral trade and addressing the rules of origin imposed by the Indian government are among the subjects that Nepal wants to discuss with India during the review of the Trade and Transit Treaty that is expected to take place within three months.
1.Post report, K. (2018, 8 8) ekantipur.com.
2.Troy Segal. (2018, January 05)investopedia.