Back-office Outsourcing – Key to the Flexible Cost Structure For Freight Forwarders

Back Office Outsourcing for Freight Forwarders

In today’s globalized world, freight forwarding is the backbone of the global trade. However, this key sector has its own challenges. Factors affecting the industry margins are many – rising interest rates, geopolitical tensions, economic volatility, dwindling consumer confidence, unstable oil prices, unpredictable revenues, earning fluctuations and cash flow pressures, deteriorating pricing power and increased competitions, etc. These factors together are significantly impacting the industry’s profit margin.

With thin operating margins, optimization of expenses related to operations is key to surviving the challenging economic conditions. According to Accenture, rising inflation alone requires a significant investment in new technologies and reskilling of people1. An article published by Fortune in April 2022 stated that 71% of CEOs anticipate the skills and labour shortage will be one of the biggest business disrupters. As per the global survey conducted by ECU Worldwide Ltd, 90% of freight forwarders believe that the future of the freight forwarding business is digital. To keep up with such advancements, these asset-light intermediaries need to incur huge capital expenditure which will have a negative impact on its flexible cost structures. A BPO provider with deep domain knowledge can be the right solution for these problems.

A big chunk of operating costs in all business segments like Sea Freight, Air Freight, Transportation, Non-Vessel Operating Common Carrier (NVOCC), Courier products and 3rd party warehousing is attributable to back-office works related to order processing, mailbox management, document management, track & trace, finance & accounting, sales and reporting, for instance. As per ECU Worldwide Ltd. survey, more than 40% of freight forwarders are very interested in real-time tracking, digital quotes, and booking services. Outsourcing the back-office work can save huge upfront capital expenditure, operating costs and employer costs such as cost due to employee absence as well as transitional and redundancy payments. BPO providers can help the freight forwarders streamlining accounting processes involving invoicing, debtors and creditor monitoring, agent AR/AP reconciliation, bank reconciliation, etc. Similar services can be availed for pre and post shipment documentation process, SI submission, MBL draft checking, shipment tracking and updates, etc. for seamless transportation of shipments. Periodic financial analysis and reporting services provided by the BPO provider can help improve internal efficiencies. A BPO provider with deep domain and customer support expertise can provide an annual savings of 40-50 percent. Additional advantages include business processes standardization, optimized delivery models and commercialized approach to operations. Back-office outsourcing can be the right strategic step for improving the business processes and ensuring business continuity in these tumultuous times. It will free up the bandwidth of the organization from the non-core works and shall help them focus on mission-critical goals in a more focussed manner.