A couple of months back I posted an entry regarding the importance of marine insurance. An additional and very important reason I failed to mention is that the proper Marine Insurance policy covers the freight against theft or damages during the intermodal portions of the shipment as well. In other words, the word “Marine” in Marine Insurance may lead some to believe it is only for the ocean portion of the shipment.
A case in point would be if you are importing an LCL (Less than Container Load) shipment to Atlanta from Shenzhen, China. Let’s say that the routing will be Shenzhen to Atlanta via Los Angeles. In this scenario, the freight will be stuffed into a container in Shenzhen along with other customers’ freight. Once it arrives in Los Angeles, the container will be drayed to a CFS , where it will be unloaded. Then it will be stuffed either into another container, or trucking van that can be loaded onto a rail flat car. The freight is then moved via rail to Atlanta. Once in Atlanta, it will be delivered to another CFS, again unloaded and finally (once Customs Cleared) made available for pick up by the delivering trucker or the consignee.
As you can see, the freight makes several stops along the way and is handled several times. This increases the chance for damage or theft to occur. We tend to not think about theft as a possibility, but there is evidence that freight robberies are on the increase. Freight Watch International has published their report titled 2013 Global Cargo Theft Threat Assessment. One of the first things that jumps out in the report is that the U.S. Russia, Mexico, Brazil and South Africa are most at risk for cargo theft.
An incredibly unfortunate and ironic thing is that your freight may not be what the thief is attempting to steal! You have to keep in mind that if your freight is in a container with someone else’s high value electronics, the entire container could be taken and your freight just dumped somewhere. So unless it is just very easy for the freight to be written off as a loss and/or get a replacement shipment I would strongly recommend purchasing the insurance.
Please feel free to post comments!
My last entry I was discussing the differences between BCO’s, VOCC’s, NVOCC’s and Freight Forwarders. Establishing that your company will begin Importing, you have decided to use an NVOCC to assist. You expect your volume the first year to be 10 to 20 TEU and now the question is, which NVOCC to choose? The first thought would be going with one that already has a very large amount of volume and clout. The more volume the NVOCC handles, the better discounts and pricing it should have with the VOCC’s, correct? While this is in fact often the case, going with one of the larger NVOCC’s may or may not be the best idea.
Though using one of the biggest NVOCC’s will most likely help to secure an excellent price, there are many other things to consider. If you are truly new to importing, having access to staff at the NVOCC that is willing and able to take the time educating you on the processes involved is critical. Importing can be quite complex. Your company will not be a top priority for a lot of the larger NVOCC’s. They will be quite busy managing their customers with greater freight volumes.
The NVOCC’s relationship to domestic trucking companies is also important. Many NVOCC’s move tremendous amounts of ocean shipments. But once the freight gets to the U.S. and is Customs Cleared, it will then be imperative that they are able to access a trucking company quickly to make the final delivery to you. Many NVOCC’s have very close relationships with trucking companies, or are a division of a trucking company themselves. This gives this type of NVOCC the added flexibility of handling the final, critical delivery portion of the shipment smoothly and effectively.
Think of it this way. Let’s say not all of your imports will be FCL. You will have some shipments that are just a pallet or two. Furthermore, let’s say that your company is located in a fairly rural part of Indiana. For this example you have a 2 pallet shipment that arrives at the CFS in Chicago. If the NVOCC does not have trucks themselves, then they will have to contract this out, or worse, broker it out! If they are brokering it, your freight can sit for several days while they locate someone willing to go your location.
Oftentimes, Importers get too fixated on price of the freight costs alone. Having multiple options is also important. The NVOCC that you work with will need to have relationships with many VOCC’s. An important key to moving the freight smoothly will be access to space with the carriers. For example, if your shipment is to depart the port of Shanghai and is ready on March 15, but your NVOCC cannot find space for you until a March 30 sailing, the time lost in the freight not departing in a timely fashion negates any savings you may have had by having a low price. In fact, not only does it negate the savings, it ends up costing your company significantly in either down time or your customers’ being upset due to the delay.
Ideally, your NVOCC would present you with multiple options. They may either have a low contract price option with a carrier, or are able to obtain “bullet” or “spot” rates to save money. Similar to when you go to a website like www.priceline.com NVOCC’s have options to get last minute savings from carriers looking to fill out a vessel. The thing to remember here, however, is those low cost options fill up quickly. It’s kind of like going to the supermarket and noticing they have a special on toothpaste, but once they sell all that is on display, the deal is over.
Communication is also very vital. In this day and age, it is so very important to have access to the answers you need, when you need them. Your NVOCC must be in very close contact with the Carriers, its partner Agents, Customs Brokers, CFS locations and other parties to be able to provide you information regarding your freight’s status.
Lastly, flexibility is also an incredibly important characteristic your NVOCC must have. International shipping is amazingly complex. So many things can happen that can cause delays. With freight moving thousands of miles, inclement weather can be a major factor. Also there could be congestion at the ports. There can be issues with the freight clearing Customs. With these types of issues and many more, your NVOCC must have access to different options to help mitigate delays. So much of the just mentioned issues are beyond the NVOCC’s control. But there must be access to fast trucking options, and direct assistance from Customs Brokers to communicate with governments regarding Customs Clearance issues. If you are working with an NVOCC that does not have the time or resources to pay close attention to these details, you will be setting yourself up for disappointment.
Please feel free to post comments!
There is much confusion regarding the understanding of the Acronym titles above. It would be best to break each one down and discuss the advantages or disadvantages of using each. For simplicity, we will focus only on Importing.
BCO stands for Beneficial Cargo Owner. Zepol, a top U.S. trade data provider, defines BCO as “an importer that takes control of their cargo at the point of entry and does not utilize a third party source.” This means that a BCO is a company with enough importing clout, bringing in enough freight to negotiate contracts directly with a VOCC. Typically, most BCO’s expect to import at least 100 TEU’s. The easiest examples of BCO’s are your large retailers like Walmart, Target, Best Buy.
VOCC, therefore, stands for Vessel Operating Common Carrier. These are the owners of those massive container carrying boats that traverse the oceans. Examples include Hapag Lloyd, CMA-CGM or Maersk. The FMC (Federal Maritime Commission) further defines VOCC as having the following characteristics:
- Holds itself out to the general public to provide transportation by water of passengers or cargo between the United States and a foreign country for compensation
- Assumes responsibility for the transportation from the port or point of receipt to the port or point of destination
- Uses, for all or part of that transportation, a vessel operating between a port in the United States and a port in a foreign country
For a very thorough list of VOCC’s, click here: https://www2.fmc.gov/FMC1Users/scripts/ExtReports.asp?tariffClass=vocc
Let’s say that you have decided to become an importer. You may of course contact a VOCC directly. However, if you do not expect to import a significant volume of freight, the VOCC will charge you full tariff price. Tariff being defined in this case as a table of charges. Most freight charges for shipments into the U.S. are priced at significantly less than full tariff rate. There are some simple, if harsh reasons for this. First, more volume means bigger discounts. But also, VOCC’s want to limit the number of people/companies/entities contacting them. They simply do not have the capacity to handle phone calls or answer emails from all importers. It’s the same if you were to buy direct from a manufacturer. It can be done, but typically they do not have the time to speak to everyone.
So, if you intend to import and do not expect the amount of volume described above, what is your next best choice? You will need to form a relationship with a Freight Forwarder that either accesses an NVOCC, or is an NVOCC. In other words, a Freight Forwarder can be an NVOCC, or Non-Vessel Operating Common Carrier, but many are not. Both are essentially third party logistics providers.
In a very recent blog entry, http://www.howtoexportimport.com explained the differences thusly:
“The definition and act of a Freight Forwarder and NVOCC is described by government of various countries differently. The legal obligations to government, clients and public vary from country to country for an NVOCC and a Freight forwarder.
A Non Vessel Operating Common Carrier is a cargo consolidator who does not own any vessel, but acts as a carrier legally by accepting required responsibilities of a carrier who issues his own bill of lading (or airway bill), which is called House bill of lading under sea shipment and House airway bill under air shipment. Activities between a NVOCC and a Freight Forwarder are similar to each other except some differences. An NVOCC need not be an agent or partner of a Freight Forwarding company, whereas a Freight Forwarding company can act as a partner or agent for an NVOCC.
Basically speaking, NVOCC acts a ‘carrier to shipper’ and ‘shipper to carrier’.
NVOCC can own and operate their own or leased containers. NVOCC acts as a virtual carrier and accepts all liabilities of a carrier legally, in certain areas of operation.”
An NVOCC is able to take the clout of its many customers and negotiate with the VOCC’s for better pricing. It can work with these steamship lines by bringing estimates to the table of expected freight volume for certain lanes and gain tariff relief (discounts). As Thomas Cook states in his book, Mastering Import & Export Management, 5 “the NVOCC becomes like a buying cooperative or purchasing group that works on the concept of clout in negotiation. The clients of the NVOCC benefit as the membership grows and the management becomes stronger.”
Statistics show that as a percentage of imports, NVOCC’s are playing a greater role. This could be the result of Internet commerce in which there are more and more importers that are bringing in significant volume, but still not enough to negotiate directly with the VOCC’s. This interesting chart from Zepol puts it in perspective: Zepol Chart
So what does this mean essentially for a new importer? In a nutshell, if you work with a Freight Forwarder that is not NVOCC, they will need to access one that is. And that means you are probably not getting the best pricing and/or service. A Freight Forwarder that is not NVOCC becomes an additional middle person in your supply chain, taking the rate that the NVOCC gives them and marking it up. Interestingly, per FMC regulations, they are not allowed to increase the ocean freight rate supplied to them by an NVOCC, but must add an additional line item, accessorial fee or handling charge to the rate they give to their customer.
But perhaps even more important than pricing, is the service that you will receive. If your Forwarder is not an NVOCC, you, as the importer, do not really know who is handling and/or controlling your freight. You will likely have less visibility when attempting to track a shipment. An excellent website, Differencebetween.net, defines it further:
“The essential difference is how they act in relation to the cargo. An NVOCC acts as the carrier of the cargo being sent. In comparison, a Freight Forwarder doesn’t act as a carrier. A Freight Forwarder only acts in the behalf of the owner of the cargo to facilitate the passage of the cargo from the point of origin to the destination. They contract with carriers to pick the cargo up, board it on a ship or a plane, then another carrier to pick it up at the port; along with the entailing paperwork and documentation.
Freight Forwarders do not issue bills of lading but NVOCC’s do. A bill of lading is also known as a contract of carriage and is a legal document that binds both parties to the terms agreed upon. A bill of lading is important as it holds the NVOCC liable if and when the cargo becomes lost or damaged while in transit where compensation is often necessary. A Freight Forwarder does not issue a bill of lading, so it is not liable for any damage or loss suffered while the cargo is in transit. It is the Freight Forwarder’s job, however, to get the bill of lading from the carriers that it is contracting. The liabilities of the Freight Forwarder only extend over possible errors on their part like incorrect or incomplete paperwork.
- An NVOCC acts as the carrier while a Freight Forwarder does not
- An NVOCC issues a bill of lading while a Freight Forwarder does not
- An NVOCC is responsible for loss or damage while a Freight Forwarder is not”
The thing I often see in my line of work are customers that mostly are concerned about domestic shipping but only occasionally have an International Import. In order to save money and help to manage their domestic shipments, they employ a third party logistics company that is also a Freight Forwarder. What they don’t realize is if their 3PL is a Freight Forwarder and not NVOCC, the 3PL will be reaching out to one or more NVOCC’s in order to handle the shipment, thus making a complex shipment even more so. Next week I will discuss some important things to consider when choosing an NVOCC.
Please feel free to post comments!