Yes, we get asked this question a lot, whether there is a difference between freight forwarder and customs broker. The common goal, of course, is to assist the importer/exporters transport cargos from Point A to Point B.
However, with all the industry jargon, VOCC, NVOCC, Shipping Agent, Freight Forwarding, Freight Forwarder, Customs Broker, Inland Transporter, 3PL, 4PL, etc… Who are the importers/exporters even suppose to contact?
With this article, we want to untangle all these terms and jargon and equip you with the necessary understanding in order to find for the right logistic service provider to suit your particular need.
Because as we mentioned, all of the related parties we listed have one purpose in mind; To transport your goods safely and effectively from one door to another door.
The simple short answer is, Freight Forwarder is the main contractor for the importer/exporters that is mainly focused on understanding the customer’s need and in turn engage with other logistic stakeholders for the service, acting on behalf of the importer/exporter.
Custom Brokers are licensed by their respective governing bodies to be a liaison between Local Customs to declare cargo’s detail, collect duty and tax charges, and ensure cargo are accurately reported to the Customs.
They can be called clearing agent, freight forwarding, custom broker, custom agent, whichever way you wish to call them. They essentially are one of the same.
FREIGHT FORWARDERS EXPLAINED
Freight Forwarders play an important role in easing the logistics process for the importers/exporters.
Like the music conductor, with a wave of his baton, summons a section of this orchestra and keep everyone in the right beat. A Freight Forwarder coordinates with all the logistics service providers and packages it to a full service to the importer/exporter.
Local Freight Forwarders also have their network of global logistic freight forwarders, and with a click of the mouse, they are able to get a freight forwarder from Lithuania to get their inland delivery charges for their customer situated in Los Angeles.
A freight forwarder’s tasks are to:
- Understand your cargo’s logistic requirement such as the temperature requirement, permit requirements at the port of destination, inland transport requirements, dangerous goods requirement, etc…
- Coordinate with the importer/exporter in order to arrange the transportation that suits best your timeline requirements, such as the liner space availability, vessel availability, transit time, etc…
- Arrange storage facility that suits your cargo best within the budget stipulated.
- Provide other miscellaneous transportation requirements that an importer/exporter would require
- Prepare and coordinate all shipping documents requirement and forward it to relevant parties.
The more experienced the freight forwarder is, the less proverbial “mistakes and mishaps” will occur during the transportation coordination. Because an experienced freight forwarder is able to anticipate what are the choke points that may cause unwanted damage, cost or even delay.
As an example, a freight forwarder is tasked to export furniture from Indonesia to Zimbabwe, the cargo is only loosely packed into the container without any pallets involved.
The freight forwarder anticipates that loading the container may take longer time and duly request from their inland container truck to have a longer waiting time at the manufacturer, negotiating it without additional cost to the exporter.
With the experience the freight forwarder had with the previous shipment with Zimbabwe, he/she understands that unloading and returning the container to depot may require longer time, hence he/she negotiated longer free detention and demurrage days at a higher ocean freight cost.
Once all is done and well negotiated, the freight forwarder then compiles all the rates for the customer to approve.
CUSTOMS BROKER EXPLAINED
An out-and-out custom broker focuses on one aspect of logistic service only. But this aspect requires specific expertise and technical know-how to assist an importer/exporter.
Customs brokers have to be apt in the knowledge of the harmonized tariff code system. A harmonized tariff code system, also known as HS Code or TC Code is a standardized code of name and numbers to classify traded products.
There are a total of 97 chapters of code, each code signifying a particular type of product. Everything that enters and exits the country is harmonized and categorized.
Once custom brokers determine the best suitable tariff code for the product, they refer to the relevant resources in order to determine the duty, tax and import restrictions applicable.
The key differentiating factor that sets a good customs broker apart is also the experience they have in the harmonized tariff system.
It stands to logic that not all cargos have a clear cut tariff code to refer to.
For example, an exporter wishes to trade it’s the latest product, a radio with built-in flashlight, should the custom broker declare to custom an HS Code that represents radio, or an HS Code that represents a flashlight?
An experienced customs broker would have to find out the inherent purpose of the product, if it functions primarily as a radio than it is as a flashlight, the customs broker will declare it as a radio.
Since the custom broker acts as a principal contact to the Customs Department, it is their responsibility to ensure that all shipping document, cargo details and truck details are all accurate and declared accordingly.
WHAT IS THE DIFFERENCE BETWEEN A FREIGHT FORWARDER AND A CUSTOMS BROKER?
The best way to describe the difference between a freight forwarder and customs broker is to compare it with another similar industry’s model.
If we were to compare the logistics industry to the construction industry, it becomes more comprehensible.
A Freight Forwarder is the main contractor that directly deals with the customer and plays the biggest role in understanding what the customer needs.
A Licensed Customs Broker acts as one of the many sub-contractors that plays a part in the whole logistics spectrum.
For example, a customs broker will not have the global freight forwarder’s contact, nor will they have a fleet of trucks to consign the cargo to, nor will they operate a warehouse to store cargo in, nor will they have a vessel charter.
Those are the responsibilities of the truck companies, warehouse operators, and shipping lines respectively.
Freight Forwarders, although do not have those physical assets to assists the clients, have a list of contacts and experience to pick and choose the best providers for the specific client.
Not every truck company, warehouse operator, and VOCC all operate in the same way, some are specialist in timber, a specialist in oil and gas, a specialist in chemicals. Freight Forwarders then cherry-pick the best customs broker, warehouse operators, VOCCs, etc that best suits the client.
IS THERE A PRICE DIFFERENCE BETWEEN SERVICE PROVIDERS?
This industry is dynamic in the sense that all the logistics service providers are not mutually exclusive.
A Freight Forwarder can venture into licensed custom brokerage, invest in a warehouse, or invest in a truck fleet. With this, the freight forwarders can wear multiple hats and provide better service quality for the clients.
The price difference can come down to economies of scale, if a customs broker or freight forwarder can provide more “in-house” services for their clients, they can offer better price to the clients due to the benefits of economies of scale.
Another factor for the price difference can be down to expertise too. For example, the more focused a custom broker is in its niche, the more experienced and efficient they are in cargo declarations, hence they can price themselves more competitively compared to a freight forwarder.
CHOOSING THE RIGHT LOGISTICS PARTNER
Choosing a logistics partner is really a compatibility match between your company and the logistics service provider.
If your local company is starting off and require a wide range of advice from all aspect of logistics, your best bet is to engage with a local freight forwarder that has the array of knowledge.
If you are a large exporter that already has a contract with shipping liners and also your own truck fleet, you can engage in a customs broker that is a specialist and has a lower declaring fee.
If you are a multinational company that has business tradings globally, you can engage with a renowned global 3PL freight forwarder such as C.H Robinson, D.B Schenker and Agility Logistics that may not have the assets in each local market, but has a global reach.