What’s the Difference Between a Freight Forwarder & NVOCC?

Jan28

Posted in Blog, News

If you are looking for a third-party logistics (3PL) provider in and around the U.S., you may have come across these two terms: NVOCC and freight forwarders.

You're not alone if you are struggling to differentiate between NVOCC and freight forwarding and trying to figure out just which one would be best for your business needs. Generally, there is much confusion surrounding these two types of operation – even within the shipping industry itself.

Because the Federal Maritime Commission (FMC) classifies both NVOCCs and freight forwarders as Ocean Transport Intermediaries (OTIs), it can get a little convoluted. What this means is that they are both typically involved in ensuring the safe and timely transportation and storage of items for their customers. This includes handling the necessary filings, paperwork and customs clearances, as well as tracking the goods as they are moved.

The way that they differ from standard shipping companies is that neither NVOCCs nor freight forwarders traditionally own or operate their own equipment nor vehicles. They are essentially two different types of cargo consolidators, working as middlemen between smaller companies who want reliable shipping at reasonable rates and carriers who often don't like dealing with low TEU volume shippers.

What is an NVOCC?

Learn about the differences between freight forwarders and NVOCCs

Non-Vessel-Operating Common Carrier (NVOCC) is a company that provides all the same kind of ocean transportation services as a regular carrier without operating the vessel being used.

Instead, they enter into volume-based ocean freight arrangements with various shipping lines that run on the desired trade lanes and set their own tariffs for selling space on these liner services. NVOCCs issue their own bill of lading, which serves as a contract of carriage between the shipper and the consignee. For clarity, Trailer Bridge provides ocean services throughout the Caribbean on its owned assets.  Beyond the Caribbean and North America, Trailer Bridge utilizes and coordinates with its trusted international partnerships to ensure seamless shipments for customers.

How does freight forwarding work?

Experts in logistics, freight forwarders are individuals or organizations that act as agents for importer/exporters by helping them to establish relationships with carriers such as trucking companies, ocean liners, and air freighters.

Not only do they take responsibility for the entire process of shipping and storing the goods, which includes handling and processing cargo documents, they also negotiate the cost of the transport while choosing an established trade route that best optimizes speed, price, and reliability.

NVOCC vs. freight forwarder: What's the difference?

While the labels NVOCC and freight forwarder are often used interchangeably within the shipping industry because of their equal status as OTIs, there are actually a number of key functional and legal differences between the two.

NVOCCs provide all the services of a carrier service under their own bill of lading. As they often rent large volumes of space, they can provide efficient transportation for their customers at favorable rates. Freight forwarders act more as agents to clients identifying the best shipping routes for transporting their goods and negotiating the best rates. They also provide expert advice and consultative services.

NVOCCs usually own and operate their own containers but don't have their own storage warehouses or distribution centers. Freight forwarders don't often have any of their own transportation equipment, but they do typically have or lease warehouses for goods to be stored during breaks in transit.

NVOCCs take direct legal responsibility for the goods being shipped in the event of loss or damage. In the event of a claim, you would deal with them directly as you would with any other kind of carrier. With freight forwarders, responsibility for the items is with the individual carrier or NVOCC transporting them. For this reason, you may need to deal with more than one company to get any type of claim resolved.

How do I recognize which one I'm dealing with?

The easiest way to ascertain whether you're working with an NVOCC or a freight forwarder is to check the master bill of lading. While NVOCCs, acting in the capacity as carriers, are able to issue their own, freight forwarders are acting in the capacity of agents and cannot.

Therefore, while you may have a house bill of lading from a freight forwarder, the master version will be issued directly by the carrier or carriers themselves.

Why use a freight forwarder?

Do we need a freight forwarder or NVOCC for international shipping?

As freight forwarders handle every detail of the movement of goods, from shipping to storage and even the documentation, they are a great option for individuals and companies who are not all that familiar with the rules and requirements of shipping.

Unlike many NVOCCs, they can arrange for intermodal transportation for both international and domestic movement of goods. In this way, they can make the import/export process a lot simpler.

An added bonus of working with a freight forwarder is that, contrary to most situations, in this instance, having a middle man is likely to net you the best price.

Freight forwarders establish close relationships with a multitude of carriers and even use NVOCCs themselves sometimes. This often means that they get access to exclusive prices that their clients can then benefit from. This is especially the case for individuals and small companies who would otherwise be required to pay premium rates for their few containers.

How much does freight forwarding cost?

Most freight forwarders will charge a handling fee, a flat sum, which they will likely be able to quote in advance when provided with the specific details of the required shipments. In addition to this, they often handle the various costs involved in the transportation of goods, which may include:

  • Carrier costs
  • Container costs
  • Palletization and packing
  • Fuel surcharges
  • Insurance
  • Documentation costs
  • Destination costs
  • Miscellaneous costs associated with the type of transport needed, e.g.: refrigeration for perishable goods or specialist moving equipment for larger items.

How do I find an NVOCC?

If you have opted to work with an NVOCC, there are a couple of things to look out for when selecting the best one for your business.

FMC-Licensed

NVOCCs licensed by the Federal Maritime Commission are required to follow strict regulations that guarantee a certain level of protection to their customers against unfair costs and treatment. They also provide a safety net if the company was to go out of business while having your cargo in their possession.

Rates vs. Service

Naturally, your inclination might be to opt to work with a large-scale NVOCC as these companies are likely to have access to the most optimal rates, right? Yes, but if you are a small-scale operation, chances are you are not going to be a top priority for such companies who will be busy with larger, more profitable clients.

Are there any companies that provide both services?

Freight forwarding and NVOCC often go hand in hand in one way or another, and it's not unusual to see a single company offering both services. This is another reason why there has been, in recent times, a blurring of boundaries between the two. In fact, even companies who do own and operate their own ships may offer one or both services to their customers.

The benefits of doing this are quite substantial for the company, which can then offer their customers access to shipping routes where they don't have their own vessels or equipment. This can also help with setting up more streamlined supply chains that are likely going to be appealing to potential new customers.

Working with a company like this also makes a great deal of sense for a customer who is looking to access a full range of services in a single place – a so-called 'one-stop-shop' that can be used to virtually eliminate the many hassles involved with trying to organize logistics for transporting items both internationally and domestically.

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