In the current era, with the increasing openness and integration of the global economy, the trade of goods is not only limited within countries but also spreads to the point of crossing borders and continents. This poses an urgent requirement for the import and export process to ensure convenience, speed and cost savings, while minimizing risks for all parties involved. In this context, the role of forwarders and logistics services becomes extremely important. Freight forwarders and logistics service providers act as intermediaries between import and export partners. They are not only responsible for organizing transportation, customs clearance, and storage of goods but are also responsible for risk management activities. There are many potential risks that can disrupt and damage the supply chain, including shipping delays, documentation errors, customs bottlenecks, and cost-related issues fees and payments. To ensure that the movement of goods takes place smoothly and safely, forwarding companies must apply appropriate measures and strategies to handle and minimize risks. This may include implementing strict control processes, using modern information technology to optimize processes, and building trusted partnerships with relevant partners. Only through such efforts can the international import-export system operate effectively and meet the growing demands of the global market. With over 20 years of experience, Asiatrans Vietnam has established itself as a reputable destination in the field of organizing freight forwarding services for import-export businesses in Vietnam. The company's goal is to develop into a reputable international freight forwarding unit. However, to continue developing in a fiercely competitive environment, the company needs to be flexible, and perceptive, and implement solutions to mitigate risks in its freight forwarding activities. During my nearly 3-month internship at Asiatrans, as a student majoring in International Business at the University of Economics, Da Nang. In conducting my research on the freight forwarding services of importing at Asiatrans Vietnam, I've identified the distinctive nature of Vietnam's rapidly growing market as a key factor. The country's vast import needs present unique risks and challenges, especially in terms of customs regulations and international logistics. Furthermore, the complexity and diversity of risks in the import process underscore the significance of understanding and managing these risks effectively. This not only aids businesses like Asiatrans Vietnam in reducing unforeseen costs and delays but also in enhancing their competitiveness in the market. Moreover, a notable gap in research on risk assessment in Vietnam's import sector, particularly in sea freight forwarding, motivated this study to contribute to filling this void and enriching the existing body of knowledge. Therefore, I decided to choose the topic "Risk Assessment in Freight Forwarding Service of Importing by Sea at Asiatrans Vietnam" for my internship report. This study employs the Failure Mode Effect Analysis (FMEA) model to methodically pinpoint and evaluate potential risks linked to sea freight forwarding services. Through a thorough examination of the probability, impact, and detectability of these failures, the research endeavors to create efficient risk management tactics that can notably enhance the effectiveness and trustworthiness of the company's sea freight forwarding operations. 2. Research Objectives This report is aimed to • Understand the theory of freight forwarding services and their practical role. • Provide an overview of fundamental theories related to risks and their assessment within the context of sea freight forwarding services for imports. • Conduct an analysis of the current sea freight forwarding services for imports at Asiatrans Vietnam Company; focusing on the identification, analysis, and assessment of potential risks involved in these operations. Propose appropriate solutions to mitigate risks for freight forwarders.
THEORETICAL BASIS
Freight forwarding service
1.1.1 Definition of freight forwarding service
International trade is distinguished by the exchange of goods and services occurring across multiple nations, hence involving geographical disparities between customers and sellers The conveyance of commodities from the exporting country to the importing country holds significant importance, alongside the signing of foreign trade contracts To ensure the delivery of goods to the buyer, a sequence of tasks must be completed, such as packaging, coordinating the loading and unloading processes, warehousing, and completing customs clearance Due to the intricate nature of these procedures, not all import-export enterprises possess the professional expertise to engage in them Consequently, the pioneering forwarding business emerged
As per the definition provided by FIATA in 2004, Freight Forwarding and Logistic Services refer to any services related to the transportation of goods, whether through single mode or multimodal means This includes services such as consolidation, storage, handling, packing, and distribution of the goods Additionally, it includes ancillary and advisory services related to these services These services may include customs and fiscal matters, declaring the goods for official purposes, obtaining insurance for the goods, and collecting or obtaining payment or documents related to the goods Freight forwarding services encompass logistical services that utilize contemporary information and communication technologies to facilitate the transportation, handling, and storage of goods, as well as the comprehensive administration of the supply chain The aforementioned services can be customized to accommodate the adaptable implementation of the services rendered
As per the Vietnam Commercial Law of 2005, Freight Forwarding and Logistics services refer to commercial activities in which traders coordinate the execution of various tasks such as receiving, transporting, storing, and managing cargoes This includes completing customs procedures, paperwork, and providing consultancy services to customers Additionally, these services may include packaging, marking, and delivery of goods, as agreed upon with customers, in exchange for service charges
In essence, freight forwarding encompasses the comprehensive administration of the acquisition, transportation, and storage of resources to their designated destinations
A freight forwarder, also known as a forwarding agent, is an individual or organization that, for a fee, facilitates the coordination of shipments on behalf of the shipper (Drip Capital) This is achieved by effective communication and coordination with carriers, who are responsible for the transportation of products According to FIATA, the freight forwarder is responsible for facilitating the transportation of internationally traded commodities from their point of origin to their intended destination, ensuring its timely arrival, proper location, and optimal condition, while also minimizing costs
1.1.3 The role of freight forwarding companies in practice
Forwarding refers to the process undertaken by the owner of commodities to execute all essential procedures and steps involved in the delivery of these items to their intended destination This operational division is referred to as a freight forwarding enterprise Essentially, a freight forwarding company acts as a mediator between shippers, carriers, and other entities such as agencies and organizations (Hai, 2022) The importance of a freight forwarding company is indispensable due to the following factors:
Shipping enterprises, including carriers such as shipping lines, airlines, and railway companies, often engage in the transportation of commodities between ports or stations The transportation of products from the port or station to the consignee's warehouse or facility, as well as the management of associated procedures, is typically undertaken by a third-party entity
The freight forwarding company is a proficient entity that establishes numerous connections and gathers information from shipping lines, transport enterprises, insurance organizations, and inspection firms As a result, they are able to efficiently locate cost-effective freight rates
A freight forwarding company, being well-versed in administrative and customs procedures and pertinent documentation, with the capability to efficiently and precisely facilitate customs clearance
The freight forwarding company serves a diverse customer base consisting of many shippers This enables the consolidation of goods from multiple shippers into a single container or shipment, resulting in cost reduction for each shipper
In certain situations, the freight forwarding company may assume additional responsibilities on behalf of the goods owner, including inventory management, collaboration with agents or suppliers of raw materials, serving as a consultant, or even providing credit to shippers through deferred payments
Engaging the services of a freight forwarding company will allow shippers to optimize their human resources by reducing the need for forwarding tasks, allowing them to concentrate on their primary business activities, such as manufacturing or client acquisition
1.1.4 Freight forwarder obligations and rights
According to (General Freight Forwarder's conditions of Association of Logistics and Freight Forwarding, 2005) forwarder obligations and rights are:
The freight forwarder assumes the responsibility of facilitating the transportation of products on behalf of customers, ensuring that the commodities are transported from the original location to the designated destination If an individual is entrusted with tasks outlined in a freight forwarding contract, they may be responsible for transporting consignments to the destination port or delivering stored consignments to the keeper's warehouse
To effectively carry out his responsibilities outlined in the freight forwarding agreement in a professional way, while ensuring the satisfaction of clients' interests In order to ensure the proper handling of shipments and promptly notify clients of any apparent inaccuracies in their instructions
To evaluate and conduct inspections on the quantity and quality of products supplied during the agreed-upon transportation period to the carrier, and to notify customers if the consignment or cargoes are at risk of damage
The freight forwarders have their own rights to demand a reasonable advance and benefits from the clients to cover costs related to the performance of the contract in freight forwarding service
- To demand the necessary compensation and reasonable incurred costs in connection with the performance of freight forwarding contract; additionally, to request compensation for expenses which were spent effectively while performing his tasks
- To ask clients to correct missing or incorrect information, or supplement incomplete instructions; and to request correct data in relation with the contents of the consignment
Overview of risk
Risk is a very familiar concept, and almost everyone has heard of it or is aware of it But there's no consensus on risk Different schools, different authors, each have different definitions of risk, but the common definition of risk also means one unfortunate thing, and “risk” is divided into two main points of view: negative and neutral (Van, Do, & Shan, 2005)
From a negative viewpoint, risk involves elements associated with danger, uncertainty, or difficulty, potentially leading to deviations from expected outcomes Definitions vary among sources:
According to the 1995 Vietnamese dictionary by the Hanoi Dictionary: "Risk is the unhealthy, bad, unexpected occurrence."
The Oxford Dictionary defines risk as "the possibility of danger, suffering, or damage"
Similarly, risk is often characterized as an "uncertainty causing loss or damage," or
"factors associated with danger, difficulty, or uncertainties."
In essence, the traditional understanding frames risk as synonymous with damage, loss, and danger—elements tied to adverse outcomes
Conversely, the neutral perspective views risk through a lens of measurable uncertainty, recognizing both potential losses and gains:
Frank Knight (1921) introduced a foundational concept: "Risk is measurable uncertainty."
H Willett (1951) described it as "the uncertainty that may be associated with the occurrence of unexpected events."
According to Apgar (2006), "Risk is anything uncertain that can affect our outcomes beyond what we expect."
Williams, Smith, and Young (1998) define risk as "the potential fluctuation in results, occurring in nearly every human activity It brings an unpredictable possibility of gain or loss."
This scholarship suggests that risk encompasses both positive and negative aspects
By actively identifying, measuring, evaluating, and managing risks, individuals can not only mitigate potential dangers but also seize opportunities to transform challenges into advantages, ultimately achieving favorable outcomes in the future
Pure risk Is a risk that is likely to occur damage or no damage, not likely to be beneficial when an event occurs or does not occur
For example, a traffic accident, a house fire, theft of property, an accident at work If the risk occurs, people will suffer damage to their health, physical, life and property, but if it does not, they will neither harm nor benefit
It's about getting or losing a chance
For example, invest in stocks This investment can be a loss or a
11 settlement, but its purpose is to make money Stock trading, agri- food speculation, and other commodity stocks are also at risk
Basic Risk These are risks outside a project, and if they come true, they will be on a large scale and unavoidable
These risks are associated with major natural, economic, political or social changes and generate large-scale losses
For example: floods, earthquakes, wars, fluctuations in exchange rates, etc These risks may or may not be covered
Special Risk These are project-specific risks and are identified in the project parameters and can be controlled during project execution
For example, quality risk, security risk, legal risk
Sources: Project Risk Management (Well-Stam, Lindenaar, Kinderen, & Bunt, 2003)
Overview of freight forwarding service of importing by sea
1.3.1 Modes of freight forwarding service of importing by sea
FCL refers to shipping goods in a container that is exclusively used for a single shipment, regardless of whether the container is filled to capacity This mode is particularly advantageous for large shipments where the volume or weight makes it more economical to hire an entire container FCL shipments are less likely to be inspected than LCL, making them faster in terms of customs clearance They are suitable for high-value goods or when the shipper wishes to minimize the handling of their cargo
Less than Container Load (LCL)
LCL allows shippers to transport smaller amounts of cargo that do not require the full space of a container This option is cost-effective for small to medium-sized
12 shipments because costs are shared with other shippers However, it might involve more handling of the cargo, which could increase the risk of damage LCL is ideal for businesses with flexible shipping schedules and those looking to minimize upfront shipping costs
Bulk cargo services are used for commodities that are shipped in large quantities without packaging, typically using specialized vessels This includes both dry bulk (such as grains, coal, and iron ore) and liquid bulk (such as crude oil and chemicals) Bulk shipping is the most economical way to transport large quantities of these materials, but it requires specialized handling equipment and storage facilities
Roll-on/Roll-off (RoRo)
RoRo services are designed for wheeled cargo, such as cars, trucks, semi-trailer trucks, trailers, and railroad cars, that can be driven on and off the ship This mode is highly efficient for transporting vehicles as it reduces the need for cranes and other loading equipment It's ideal for manufacturers and dealerships looking to move large fleets of vehicles across oceans
1.3.2 The process of freight forwarding service of importing by sea
The parties involved in the process of transporting imported goods by sea include customers, freight forwarding offices, freight forwarders as well as other relevant parties such as customs, shipping lines, and foreign agents These parties interact with each other to complete a process from initial contact, sourcing goods, shipping, to payment and record storage Among the involved parties, customers are the most important factor as they participate in most steps of the process, from choosing a reputable freight forwarding company, fast and convenient services for their imported goods, selecting
Contact the shipping line to book space
Receive and check the documents
Customs Clearance for Imported Goods
Delivery to Customer Pay and save records
Figure 1- 1 The process of freight forwarding service of importing by sea
14 shipping methods, delivery terms, contract signing, and to the final steps of the process including receiving goods and payment The freight forwarder is responsible for and carries out most of the delivery process, working with related parties including receiving necessary documents from customers, completing customs procedures, payment, and delivering goods to customers Meanwhile, the sales department plays a leading role as the information bridge between customers and consignees, handling initial contact with customers for advice and selecting delivery services, as well as drafting contracts between customers and freight forwarding companies
The process is described in detail by author Pham Manh Hien in the book
"Logistics, Transportation, and Insurance in Foreign Trade."
Sales Logistics in the business department will search for customers, collect information from customers Then proceed to review and quote to the customer after the customer submitted the quotation request, the parties agreed, if agreed to proceed with the signing of the contract of delivery
Step 2: Contact the shipping line to book space
After the consignee and the freight forwarding company agree and sign the delivery contract, the freight forwarding company contacts the originating agent to obtain the ship's schedule
Step 3: Receive and check the documents
The importer will provide the freight forwarding department of the freight forwarding company with a set of documents including: Sales contract, Commercial invoice, Packing list, Bill of lading, Certificate of Origin (if any) The document staff checks if the documents match, if all necessary information is complete, and requests completion of the documents if necessary
After receiving the Arrival note from the shipping line, the consignee hands this document to the freight forwarder After knowing that the ship has arrived and unloaded, the delivery staff holding the original bill of lading (B/L) or surrendered bill of lading,
15 introduction letter along with identification card (if any), goes to the office of the importing freight forwarder or shipping line, at the address shown on the notice to obtain the Delivery Order (D/O)
The delivery staff checks and cross-references the content of the D/O with the bill of lading, detects any discrepancies in the D/O (if any), and adjusts them immediately to avoid situations where the D/O is not valid Therefore, when receiving the order, the delivery staff needs to cross-check the order with the bill of lading (copy) immediately while still at the shipping line's agent office, focusing on the following key information:
In particular, the delivery staff must pay attention to the validity period of the D/O regarding storage, warehouse, and container storage (some shipping lines provide free storage, while others charge fees after the D/O expires) to avoid incurring additional costs due to expired D/O
Step 5 : Customs Clearance for Imported Goods
Prepare the necessary documents to open the customs declaration:
Customs declaration for imported goods: 1 customs retention copy, 1 declarant retention copy
Value declaration for import tax calculation: declaration of value stated on the invoice for each imported item
Certificate of Origin CO (original)
Certificate of inspection registration from relevant authorities
The freight forwarder staff will declare customs electronically through the "ECUS" system to transmit the declaration electronically The customs network system will receive the documents, declaration numbers, and categorize the goods into three streams:
Green stream: Exempt from detailed document inspection, exempt from physical cargo inspection Customs officers forward the documents to the department head for approval, stamping the clearance "customs procedures completed" on the import declaration
Yellow stream: Exempt from physical cargo inspection, documents are forwarded to the tax calculation department for detailed document inspection If the documents are valid, they will be forwarded to the department head for approval, stamping the clearance "customs procedures completed" on the import declaration
Overview of risk assessment
Understanding the risks involved in sea freight forwarding requires a systematic approach that includes risk identification, analysis, and evaluation First, identifying potential risks is crucial to understand what might hinder or help organizational objectives Next, risk analysis delves into the nature of these identified risks, considering both negative and positive consequences and assessing the likelihood and impact of events Lastly, risk evaluation compares the analyzed risks against the organization's criteria to decide if further treatment is necessary This process ensures that risks are not only understood but also measured and prioritized for action For a comprehensive guide
(1) Passive attitude in contract implementation
(3) Lack of communication or information sharing
(1) Uncertainty in overall transportation process
(2) Inadequate cargo loading/unloading capabilities
(3) Insufficient capacity in warehouse operations
External Information and Financial Risks
(1) Unfamiliarity with customs regulations and procedures abroad
(2) Currency losses due to exchange rate fluctuations
23 on this process, refer to the article by Vector Solutions (2019) on the three phases of risk assessment
Risk identification is a continuous and systematic process to determine the risks faced by a business, aiming to gather comprehensive information about the sources of risk, hazardous factors, and potential risks The more comprehensive and systematic the list of risks, the more effective the risk assessment process will be
This process is described as follows: Firstly, companies should identify the causes of risks affecting the operations of the logistics service provider These causes can originate from external or internal contexts Secondly, areas that will be affected by the identified factors need to be determined Next, risk managers should carefully consider all potential events and incidents if risks occur Finally, causes and consequences need to be identified The purpose of this step is to compile a comprehensive list of risks based on the predicted events Therefore, companies develop continuous plans to address issues It plays a crucial role in subsequent steps because risks not identified at this stage will not be further analyzed This could limit the ability to achieve the desired outcomes of the companies
To perform risk identification, organizations need to ensure accurate and flexible information, experts, and appropriate risk identification tools and techniques tailored to their objectives, capabilities, and the risks they face In summary, at this stage, we only need to qualitatively describe the common risks associated with specific projects, in a specific environment with prevailing economic, political, and legal conditions
Identifying risks and creating a list of all possible risks that an organization may face is an essential task, but it is just the beginning The next step is to conduct risk analysis, which involves identifying the causes of the risks so that preventive measures can be identified
Risk analysis is the process of analyzing the probability of adverse events that could negatively impact objectives Data collected from this stage is crucial information for assessing risks and making decisions on how risks should be handled In this step, we need to determine the outcomes and likelihood of occurrence of risks, as well as other attributes of the risks for analysis based on risk identification information such as causes, positive and negative consequences, and sources of risk
Risk analysis can be conducted at different levels of detail depending on the risk, the purpose of the analysis, and the available information, data, and resources It can be qualitative, semi-quantitative, or quantitative, or a combination of these, depending on the context Some methods for risk analysis include modeling the outcomes of an event or set of events, or extrapolating from experimental studies or available data
From the results of risk analysis, in this process, risk managers need to evaluate or rank risks by determining the level of risk based on a set of quantitative measurement criteria associated with specific values of the likelihood of occurrence of risks and the level of impact of risks (financial, non-financial); thereby determining the level of risk acceptance of the enterprise for each type of risk
All risks must be managed tightly, therefore risk measurement serves three main objectives:
To understand and accurately assess risks
To calculate the costs of risk mitigation and compensation for losses
To control types of risks and losses
Accurate risk measurement will help managers make decisions such as: which risks are acceptable or not acceptable? How will risk issues and loss controls be implemented? Which types of losses will be sponsored and at what level?
In summary, risk assessment is a stage in the risk management process that plays a crucial role in helping businesses identify, analyze, measure risks so that they can take measures to manage and prevent risks
1.4.2 Applying the FMEA analysis model in risk assessment
According to the article of Andrejić & Kilibarda (2018), FMEA stands for
"Failure Mode, Effects, and Criticality Analysis" FMEA is a series of risk assessments using a step-by-step approach to detect potential errors in product or service design and processes This identification allows analysis to prevent or reduce errors in the future FMEA can be a preventive action, meaning it must be conducted before a process or product is designed or modified
The FMEA approach to risk management in the shipping process is described in more detail The advantages of applying this method are also clearly outlined FMEA was developed to analyze errors in various systems and processes The process of this method is based on the characteristics of failures and the structure of observed systems and processes The main goal of FMEA is to analyze the observed system's defects, potential errors, and mitigation measures that can reduce risks The benefits of detecting errors can include: increasing the safety of functions and service reliability, reducing warranty and service costs, shortening the development process, better compliance with planned terms, increasing process efficiency, increasing customer satisfaction, etc FMEA detects and prioritizes errors by calculating the Risk Priority Number (RPN), which is the product of several risk factors: Severity (S), Probability of Occurrence (O), and Detection (D)
Severity describes the severity (impact) of the failure, with each effect rated from
1 (not hazardous) to 10 (severe) Occurrence describes the likelihood of failure occurrence Detection describes the ability to detect errors before they reach the customer The number of detections assigned measures the risk that the error will escape
26 detection A high detection number means a low likelihood of detection (Andrejić
Table 1- 3 Probability Ranking-Severity and Detection of Risks
The RPN is calculated after determining the three components mentioned The RPN can be easily calculated by multiplying the three mentioned components:
The failure modes with the highest RPN should have the highest priority for follow-up actions and corrective actions The main issue with standard FMEA approaches is the quantitative method in calculating the Logistics of RPN As mentioned earlier, in the traditional approach, the RPN is calculated as the product of severity, detection, and occurrence
Rank Probability of occurrence – O Severity – S Detection - D
Very high: Failure is virtually unavoidable > 1 in 2 Danger without warning Absolute uncertainty
9 1 in 3 Danger with warning Very difficult
8 High: Failure occurs repeatedly 1 in 8 Very high Difficult
6 Medium: Not frequent 1 in 80 Moderate Low
4 1 in 2000 Very low Quite high
3 Low: Relatively few failures 1 in 15.000 Minor High
2 1 in 150.000 Very minor Very high
1 Remote: Failure cannot occur