Industry terms relating to Freight Forwarding:
FMC – Federal Maritime Commission (FMC) is in charge of governing vessel operators and non-vessel operators such as NVOCC’s and Freight Forwarders.
Freight Forwarder – freight forwarder, forwarder, or forwarding agent is a person or company that organizes shipments for individuals or corporations to get goods from the manufacturer or producer to a market, customer or final point of distribution.
OTI – Ocean Transportation Intermediary (OTI) is licensed by the FMC to be an ocean freight forwarder, a non-vessel operating common carrier (NVOCC), or an ocean freight forwarder and NVOCC.
NVOCC – Non Vessel Operating Common Carrier (NVOCC) is a consolidator or freight forwarder who does not own any vessel, but functions as a ‘carrier’ by issuing its own bills of lading or air waybills and assuming responsibility for the shipments. Similar to a Freight Forwarder but typically they have better ocean freight rates and can issue bills of lading.
*Note the difference between a freight forwarder and NVOCC is that a freight forwarder acts as the agent of a principal (typically a shipper or consignee) and the NVOCC is a transportation company (carrier) that is physically responsible for the carriage of goods and acts as its own principal.
IAC – Indirect Air Carrier (IAC) refers to any person or entity within the United States not in possession of an FAA air carrier operating certificate, that ships cargo belonging to any other person or entity. An IAC undertakes to engage indirectly in air transportation of property and uses for all or any part of such transportation the services of a passenger air carrier. Each Indirect Air Carrier must adopt and carry out a security program that meets TSA requirements. An IAC is essentially a freight forwarder that also handles air cargo.
IATA / CNS – International Air Transport Association (IATA) / Cargo Network Services (CNS), IATA is the airline industry’s trade association that also sets guidelines for air cargo. CNS is the U.S. arm of IATA that regulates U.S. IAC’s
Independent Freight Forwarder – an independent freight forwarder is one that is not part of the Global 25 Freight Forwarders. They do not have an office in every major country and use different agents around the world for various services depending on what their customer’s requirements are.
The term freight forwarder is also overused and a very general term that applies to a long list of service providers. You may need a company that has these licenses and/or services: an FMC licensed NVOCC for Ocean Freight, IATA or CNS licensed IAC (indirect air carrier) or Air Freight, Customs House Broker for U.S. Customs Clearance, Intermodal Drayage/Trucker for U.S. Domestic Container Trucking, Rail Consolidator for U.S. Domestic rail moves, Domestic LTL/FTL Trucker for Domestic Trucking within the U.S., Warehousing (pick and pack, order fulfillment, reverse logistics, cross docking, container loading/unloading deconsolidation, storage, etc), CFS (container freight station), Documentary Services (document legalization services) or Notary Public for notarizing documents. All of these services are grouped under “Freight Forwarder” and not all freight forwarders offer all of these services. You may not even need all of these services, but may need them in the future, so knowing what these services are and what they can do for you is important.
Create a checklist of requirements you have in order for the freight forwarder to understand your needs. Keep a proactive approach to your shipments; don’t rely on your freight forwarder for everything, because ultimately you are responsible if something happens with your shipment such as a mis-declared shipment or incorrect HTS classification.
DO NOT let cheap freight rates or low logistics costs for services such as warehousing, ocean freight, air freight or other service be the sole determinate for which forwarder you choose. Freight forwarding is a service just like choosing a software vendor, and must be treated as such when inquiring and seeking out a freight forwarder as your partner. Many freight forwarders offer teaser rates to customers in the hopes of roping them in and then charging higher prices for other services or destination fees, which is incredibly unethical and time consuming for companies to resolve. Your freight forwarder will be your “outsourced” logistics company and must therefore have a full understanding of your company’s operations, requirements, and processes. The only way they can do that properly is if you provide them with all the information they need in order to properly scope out your logistics needs.
Picking the right freight forwarder will help your company focus on its core competency since freight rates are somewhat commoditized and service is paramount to price in logistics. The right freight forwarder should be experienced enough to balance your company’s operational, speed and cost requirements, various shipment choices including ocean, truck, rail, barge, or plane.
Keep in mind that when it comes to compliance, your freight forwarder is there to guide you and offer its know-how and experience, but they are not your compliance department. You are ultimately responsible for declaring your cargo and whether or not it requires any sort of export license. Not complying with import or export controls can put you in violation and result in heavy penalties.
Additional Tips for Export Compliance:
Regulators will hold the exporter responsible (not the forwarder) if information submitted to U.S. Customs for imports or exports are mis-declared or inaccurate. Forwarders rely and declare based on information they are provided by the exporter or shipper of record. Become familiar with U.S. export regulations and where your company falls under those regulations and what your responsibilities and duties are to the transaction. Many exporters believe that once a shipment leaves their dock that they are not responsible for any part of the transaction. This is false, many times the exporter, even though the incoterms is Ex-Works, is considered the U.S. Principal Party of Interest (USPPI) and is therefore responsible that the Electronic Exporter Information (EEI) submitted through the Automated Export System (AES) is filed correctly for each of its shipments. The best way to ensure proper declaration of your shipment is to give an accurate Shipper’s Letter of Instruction (SLI) to your forwarder or your customer’s forwarder.
Freight forwarding is one of the most important elements in an import/export business. Ensuring prompt and secure delivery of goods from one place to another is critical to manage the multitude of logistical challenges. Though established entrepreneurs are familiar with the ins and outs of shipping, start-up companies may find it intimidating to handle the intricacies involved in the process.
Here are some common questions that can guide you through the process of freight forwarding:
How much does it cost to transport goods from one country to another?
The transit time required for the shipment depends upon the mode of transportation you choose. Air Freight could be more costly than sea or land freight. The type and weight of cargo you want to transport may also affect the overall cost of freight forwarding.
How long will it take for my shipment to get to its destination?
Air freight usually takes around 4 to 6 days whereas sea freight may take up to a month to reach its destination. However, the transit times are not constant and may vary according to the destination of the cargo.
How can I choose the most efficient mode of transportation?
There are a lot of factors that determine the most feasible and cost-effective mode of transportation for your goods. These may include the nature of goods, size, volume, consumer demand, customs regulations etc.
What is a bill of lading?
Bill of lading is a legal document issued by the freight forwarder enlisting details about the type, quantity and destination of the cargo. It should be duly signed by the carrier, shipper and receiver. The bill of lading may need to be presented by the receiver to get the shipment released from customs.
Does my shipment need any special packaging for freight forwarding?
Yes, depending upon the type of your goods, the freight forwarder is responsible to provide the adequate packaging to prevent any damage during the transit. For instance, medical equipment and food grade items may need to be stored in specific temperature conditions. Hence, the shipper must properly package your goods to endure the different weather conditions during transportation.
Does your Freight Forwarder:
Call you regularly? This isn’t a chatty sort of phone call that eats up your time. Instead, it is a candid and constructive dialogue that can only occur when both of you are working on the same goals. Great forwarders contact you to understand your business—upcoming shipments, projects, and problems—so they can make your job easier. They collaborate with you on how to help your company grow, comply with regulations, and develop innovative solutions.
Listen? Talking is where it all begins, but if the talking doesn’t end so you can say something, you’re in the presence of an average forwarder. Listening is the telltale sign of an exceptional forwarder. They listen to what is troubling you, where there are gaps in service, what you need, and what you want. Often, your words and their follow-up questions will suggest the very idea or combination of services that can put you on course to resolve any difficulties.
Follow-up? When you call an average forwarder with a question or problem, expect: (a) the runaround, (b) a response on the order of “that is your problem,” (c) a headache or (d) all of the above. A great forwarder believes in finding the answer. If they don’t have the information themselves, they will track it down through their vast trove of industry resources. And they will follow-up, exactly as promised.
Have any Guarantees? Total Performance Guarantee. For each service provided by your freight forwarder do you have the opportunity to rate the performance on a five point scale? Where ‘5’ is a perfect score, any score less than ‘5’ would mean that a credit would be issued and that a discounted rate for the services would apply. Delivering the best possible service experience should be an accountable source with your freight forwarder. 10 Minute Service Guarantee 24/7. There are circumstances when timing is everything. Having access to a qualified team member in cases where urgent information is required or when special instructions need to be issued should be a constant. If an urgent request is not responded to within 10 minutes does your freight forwarder offer you a $500 credit? Demurrage Protection Guarantee. Does your freight forwarder accept responsibility as a “Notify Party” for ocean container detention or storage charges within its control?
Act as your eyes and ears in the supply chain? Average forwarders think their job is done if they can deliver your shipment on time. For great forwarders, that performance level is the bare minimum of service. What sets them apart is the additional value they bring, such as technology, data, and analysis of your shipping patterns. They anticipate your high volume season and offer a helping hand—a suggestion or a phone call—so you will know they are always there for whatever you need. They anticipate your ever-changing needs and provide solutions that align with your organization’s strategic goals.
What do these questions reveal about the essence of a great forwarder? These are people you want to know, who are as passionate as you are about the safe transit of your products and your personal success. They get to know you, respect you, and willingly invest their time with you, building a strong business relationship. If they weren’t around, you would be missing something important. In fact, sometimes, you may even forget for a moment that they are your freight forwarder and not your internal team members because they are so earnest about keeping your best interests front and center.
Is your freight forwarder hard-wired to approach challenges and develop solutions from a client perspective? Do they share the urgency of clients who expect more than the status quo, and who see Customs and global logistics not as necessary evils but as opportunities to gain advantage and realize global ambitions?