10 Tips On Choosing a Freight Forwarder – Terminology and Questions To Ask Yourself and Potential Freight Forwarders
How to choose and select a freight forwarder
When it comes to international freight forwarding and transportation, selecting the right freight forwarder is like choosing the right supplier, vendor or accountant; you are choosing a partner that will help your business succeed. Your freight forwarder should be a trusted partner for your logistics needs, that is, if they are doing their job right. In this fast-changing world which is highly reliant on supply chain optimization, cost efficiency, timeliness, and consistent service, shippers, importer, exporters and others involved in the supply chain must make a determination on which freight forwarder to select for their international and domestic logistic needs. Before we get to 10 tips on how to choose a freight forwarder, there is some additional information to mention.
How do importers/exporters identify and select the right international freight forwarder?
To start with, the size of your company shouldn’t determine the size of your freight forwarder (size of of your freight forwarder is defined as a combination of volume shipped, revenues and # of employees). Many large companies use small freight forwarders and many small companies use large freight forwarders. Therefore there are many other questions that must be answered and other criteria analyzed to conclude which freight forwarder is right for you and your company.
Questions You Must Ask Yourself Before Contacting An International Freight Forwarder
1) What are my incoterms with my supplier or my buyer? At what point does my responsibility and liability of the cargo begin or end?
2) What mode of service do I need? Do I need port to port, port to door, door to port, or door to door services?
3) What is the origin address of the cargo, what is the final destination?
4) What is the size/weight/dimensions/value of my cargo? What is the value?
5) Is my shipment considered oversized or out of gauge?
6) Depending on the mode of transport: what size ocean container, what volume of air cargo, or size domestic cargo will I be shipping?
7) How is my cargo packaged? Do I need additional packing/loading services?
8) Is my cargo considered hazardous? If so, do I have the MSDS, which is required by my freight forwarder?
9) Is there any sort of import or export license required for the import or export of my cargo depending on the commodity and ultimate destination of the cargo? If so, do I know how to apply for that license?
10) Will I need any special services such as: documentary services such as document attestation or legalization services, drop and pull of a container (container left overnight at supplier), customs clearance and duties paid, CBP/FDA/USDA exam processing, in-bond entry, commodity classification (HTS codes), fish & wildlife license, prior notice, annual bond for imports, consolidation of cargo, deconsolidation or any other type of additional service?
11) If cargo will go to a fulfillment center such as Amazon.com, will I need additional repacking services, labeling, pick and pack or other service required to deliver to Amazon.com fulfillment centers? [singlepic id=131 w=133 h=100 float=right]
12) Will I ship my cargo in an ocean container, RORO vessel, breakbulk vessel, airplane, truck, barge, rail or other mode of transport? Will I need intermodal services that provide a combination of these services?
10 Tips For Choosing Right Freight Forwarder For Your Company
1) Understand your internal requirements – know what you specifically will need before you even begin looking for a forwarder. Determine what mode of transport and what specific services you will need and what volume you plan to ship before contacting a forwarder. This is the “help me help you” part that the forwarder may say to you if you don’t come prepared.
2) Research their industry – know what your forwarder can and cannot do for you. Know what you are responsible for and what they are responsible for. Read various blogs, regulations, industry terms, international treaties and anything else required for your shipments. What area of logistics do you really need? More on this below.
3) Can they handle multiple types of shipments? You may only need to import using ocean freight from China now, but what if you needed to import from Vietnam using air freight, or export to Dubai using RORO or Breakbulk service for oil drilling equipment? Do they have the experience, know-how, and partners around the world to handle your shipments?
4) Do they have the experience you need? There are many modes of transport, commodities (e.g. garments, machinery, cars, food, garments, chemicals, perishables, hazardous, etc), regulations (OFAC, BIS, ITAR) and origin/destinations. All freight forwarders cannot handle all of these combinations. For this reason, ask potential forwarders what experience they have in your type of shipment. Usually they should be able to bring up an example of a similar shipment they handled for someone else.
5) Are they a member of any trade associations or freight forwarding networks? Joining reputable freight forwarding associations such as WCA requires financial strength, operational efficiency, integrity and many other requirements. If a freight forwarder is a member of a reputable association, the chances of them handling your shipment with care and diligence is higher than if they were not a member. It also shows they have financial strength because there are only a handful of legitimate, quality freight forwarding networks that really vets their members.
6) How will they manage your operations/shipment? This relates to who will be your point of contact for submitting documents, coordinating the shipment and who to ask for when there is a problem. This may all be one person who is dedicated to handling your shipment A-Z or several people, each with defined responsibilities for your account. Will communication updates be via telephone, email or automatic web tracking?
7) Ask if they have a network of agents in your destination country – this can be vital for any DDU, DAP, DDP shipments and also if your customer overseas has any unforeseen issues such as a port strike, customs issue or other delay. Their destination agent can help smooth out many of these issues.
8) Put together a checklist of requirements – this includes everything from your time frame on when you want to begin, objectives such as speed of delivery, commodities being shipped, special packaging requirements, terms of sale (incoterms), volume, etc.
9) Do they have multiple service contracts – this is important when space availability on a vessel, airline or trucking company becomes an issue and you need an alternative. For example, do they only have a relationship with Maersk, Turkish Airlines, or SAIA? Or do they have relationships with multiple ocean, air, land carriers?
10) Does the freight forwarder have cargo insurance – This is important as they should be able to issue insurance policies for your shipments in case of theft, damage, or loss.
Before going into more details on additional insights into freight forwarding and how to select a freight forwarder, let’s go over some industry terms:
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 US arm of IATA that regulates US 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 US Customs Clearance, Intermodal Drayage/Trucker for US Domestic Container Trucking, Rail Consolidator for US Domestic rail moves, Domestic LTL/FTL Trucker for Domestic Trucking within the US, 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.
Determining whether they are a “3PL” or “4PL” is less important than really understanding what services they offer that meet your needs and which licenses or certificates they have from their respective governing body such as the FMC or IATA. 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 such as a Simplified Network Application Process Redesign (SNAP-R) application which is for submitting Export License applications, Re-export applications, Commodity Classification requests, Encryption Registrations, Agriculture License Exception notices, and associated supporting documents to the Bureau of Industry and Security (BIS). Understand Export Administration Regulations (EAR), Office of Foreign Assets Control (OFAC) regulations, as well as International Traffic in Arms Regulations (ITAR) if they apply to your shipments. 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 US 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 just because a shipment is Ex-Works, they are not responsible for any part of the transaction once it leaves their dock. This is false, many times the exporter, even though the incoterms is Ex-Works, is considered the US 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. This is a good link for those new to exporting: Common Export Documents.
Make it your company’s duty to provide Classifications (both Schedule B numbers for exports and HTS numbers for imports) and not rely on the freight forwarder. The Exporter or Importer should is also responsible for any Licenses, Certificates or Authorizations required for the cargo.
As always, research, research, and research some more! Due diligence on your partners, customers, vendors, and any export or import compliance is vital to a successful logistics operation. Bon voyage until the next post!