If you’re new to international shipping, you might be confused by the various terms used by service providers. For example: what’s the difference between an NVOCC and a freight forwarder? What does each do, and how do you know which to use for your shipment?
Here’s a quick rundown:
Some basic definitions
NVOCC stands for “non-vessel operating common carrier.” An NVOCC is an ocean carrier, providing transportation services almost exactly like a steamship line. The main difference is the NVOCC doesn’t own vessels and shipping containers, but pays the steamship line for using them and makes them available to shippers.
NVOCCs are bulk buyers of ocean freight capacity. Their clout comes from selling this space at favorable rates to smaller-volume shippers who might be out of their depth negotiating directly with giant shipping lines (see our International Shipping Survival Guide for Small Shippers).
A freight forwarder on the other hand is simply an agent that performs transactions on behalf of a customer, similar to real estate or insurance. When you have cargo to ship, the forwarder works with ocean carriers, trucking companies, warehouses, and customs brokers, making the arrangements on your behalf. Kind of like a travel agent, but for freight. The freight forwarder gives providers the necessary information and documentation, orchestrates their work, and keeps track of their progress.
In fact, an orchestra conductor is another pretty good metaphor for freight forwarders since they coordinate the activities of various providers, ensuring each operates harmoniously with others to create a synchronized supply chain.
Areas of overlap between NVOCCs and freight forwarders
One reason people often confuse NVOCCs and ocean freight forwarders is that there’s often a lot of overlap in what they do. While NVOCCs are basically ocean carriers, they often provide freight forwarding services as well. For example, an NVOCC might arrange drayage trucking services to transport your containers to and from port. It can provide special trucking services for heavy or overweight freight or help with customs clearance agent services.
Essentially, an NVOCC can provide any service a freight forwarder can. But the similarity doesn’t run both ways. NVOCCs do a couple of important things that freight forwarders can’t:
1. Enter into a service contract with a steamship line
When you entrust your cargo to an NVOCC, that company books space on a particular sailing at a particular rate, entering into a contract with the line. Because an NVOCC ships a lot of cargo with various lines, it can negotiate good rates and pass those savings on to you.
When a freight forwarder that is not an NVOCC handles your cargo, it can’t sign a contract with the steamship line. That’s your job. You or the forwarder might negotiate with the line to establish a rate, and the forwarder can make the booking on your behalf. But, ultimately, the steamship line is your transportation provider, responsible for carrying out the terms of your service contract.
2. Issue a Bill of Lading
Just like a steamship line, an NVOCC issues a Bill of Lading (BOL) to the shipper. A freight forwarder doesn’t do that. When you work with a freight forwarder, the steamship line issues your BOL.
Why does that matter? Before we explain, we need to define BOL. This is a legal document that a carrier issues to a shipper. It describes the cargo and serves as a contract to transport those goods safely between two specified locations, such as from Port A to Port B, or from door to door.
When an NVOCC issues your BOL, it takes responsibility for your cargo from the point of origin to the point of delivery listed on the bill – often from door to door. It can arrange any necessary ground transportation. It monitors the cargo and keeps you informed about its progress. If damage occurs along the way, the NVOCC will handle the claim with the underlying carrier. If delays occur, it may be able to find workarounds. Whatever happens, you have one point of contact.
When you work with a freight forwarder, and the steamship line issues your BOL, the line is responsible for your cargo from the origin to the destination listed on the bill. If the agreement is for port-to-port transportation, then the forwarder would arrange for drayage and any other services you need outside the port. That means you deal with two different companies for different segments of the journey, creating opportunities for error and finger pointing.
If the BOL specifies international door-to-door shipping, the steamship line arranges ground transportation and other necessary services. At least that’s the theory. Unfortunately, steamship lines don’t always deliver on that part of the bargain, especially when ports are congested and capacity is tight. That’s why many shippers seek alternatives to steamship lines for door-to-door cargo shipping to avoid containers getting delayed at the port or rail terminal.
May shippers find that working with an NVOCC that is also a full-service freight forwarder gives them the best of both worlds.
Pricing Structures Explained
When it comes to pricing of ocean transit, an NVOCC is like the bulk buyer at a wholesale club, snagging large swaths of space on ocean carriers and selling them off to shippers. Freight forwarders are more like savvy shoppers, hunting for deals across various shipping lines and piecing together the best options for their clients' cargo.
Negotiating rates with carriers is key, but how each goes about it couldn't be more different. Freight forwarders negotiate transport costs directly based on individual shipment needs, securing tailored prices that can change with market conditions or client requirements. NVOCCs typically lock in favorable rates by buying capacity in bulk from those same carriers – think discounted season passes vs. single-day lift tickets at your favorite ski resort.
When you get down to brass tacks, the nitty-gritty details show us why these two players have such varied approaches to pricing strategies. Freight forwarders often charge for their services after negotiating each element of the transportation process separately, while NVOCCs might add a profit percentage onto contracted carrier rates they've already secured.
Legal Responsibilities and Licensing Requirements
Navigating the sea of regulations in international shipping is like playing a high-stakes game of Battleship: miss one detail and you could sink your chances of timely cargo delivery.
Both NVOCCs and ocean freight forwarders must obtain an Ocean Transportation Intermediary (OTI) license from the Federal Maritime Commission to operate legally. This isn't just a fancy piece of paper; it’s their ticket to operate.
The licensing process involves strict financial responsibility guidelines ensuring that these intermediaries can cover potential claims or damages that may arise during transport – a kind of “damage deposit” for handling someone else's valuable goods across vast distances.
Now let's talk about legal responsibilities. NVOCCs take full responsibility for your cargo, including direct legal responsibility for transit from port A to B.
In contrast, like a travel agent freight forwarders plan every step meticulously but don't assume responsibility for what they ship. Their focus? Ensuring everything goes smoothly by coordinating all modes of transportation needed along your supply chain journey.
Key Lesson: NVOCCs and freight forwarders both need an OTI license to legally ship your goods. NVOCCs take on more legal responsibility by issuing the BOL, while freight forwarders are like detail-oriented travel agents for cargo.
An FAQ on the differences between an NVOCC and a freight forwarder
Can an NVOCC be a freight forwarder?
An NVOCC can double as a freight forwarder, handling not only the ocean shipping but all needed services (trucking, customs clearance, warehousing, etc.) for the door-to-door journey. Freight forwarders, on the other hand, cannot do a couple of important things that are central to an NVOCC’s value proposition, such as entering into a direct contract with shipping lines and issuing their own House Bill of Lading (HBL).
Do you need a license to be an NVOCC or freight forwarder?
Yes, both require different kinds of licenses.
An NVOCC license is issued by the Federal Maritime Commission (FMC). U.S.-based businesses must post a $75,000 surety bond, and publish a public tariff of their rates and terms with the FMC. Foreign-based NVOCCs can register with the FMC but may not need a full license or a physical U.S. office, and have to post a $150,000 surety bond.
A freight forwarder’s license is also issued by the FMC to allow handling of international shipments. They must post a $50,000 surety bond. If they plan to handle customs clearance, they must also obtain a customs broker license from Customs and Border Protection (CBP).
How do NVOCCs negotiate rates with shipping lines?
NVOCCs negotiate rates with shipping lines through volume commitments, long-term contracts, and strategic partnerships to secure competitive pricing. Here’s how they do it:
- Volume Commitments and Service Contracts: NVOCCs move large volumes of cargo and use this leverage to secure preferential rates from carriers. They sign service contracts with carriers for lower rates based on minimum volume commitments. They also negotiate space allocations on vessels, ensuring priority booking even during peak seasons. NVOCCs bundle multiple shippers’ cargo, increasing bargaining power for full container load (FCL) discounts and lower LCL (less-than-container-load) consolidation costs.
- Spot Rate vs. Contract Rate Negotiation: NVOCCs monitor market conditions and negotiate competitive pricing for short-term shipments at spot rates. They can also secure long-term agreements with carriers, ensuring rate stability for shippers, even when market rates fluctuate.
- Carrier Relationships and Alliances: Established NVOCCs cultivate strong relationships with multiple carriers, allowing them to secure better rates than individual shippers. They leverage alliances with global carriers, ensuring access to competitive rates across various trade lanes.
- Market and Demand Trends: NVOCCs analyze freight rate trends, fuel costs, seasonal demand, and geopolitical factors to time negotiations effectively. During low-demand periods, they push for lower base rates and additional perks like extended free time for demurrage or detention.
- Service-Level Agreements (SLAs) and Value-Added Perks: In addition to rates, NVOCCs might also negotiate terms that benefit their customers, such as guaranteed vessel space during peak seasons, extended free time at ports to avoid detention/demurrage charges, and priority loading/unloading for urgent shipments.
- Digital Rate Negotiation and Real-Time Pricing: Some NVOCCs use freight rate management platforms and automated booking systems to compare and lock in the best rates instantly.
How does an NVOCC handle LCL shipments?
An NVOCC specializes in handling less than container load (LCL) shipments by consolidating multiple shippers' cargo into a single container, optimizing space and reducing costs. They receive cargo from various shippers at a CFS (Container Freight Station) or warehouse. They might own or lease their own CFS, or they might use a network of CFS partners to assist with consolidation and deconsolidation.
Among the advantages of LCL shipping, shippers only pay for the space they use, making it a cost-effective solution for smaller shipments. LCL also allows businesses to ship smaller, more frequent loads instead of waiting for a full container. This type of flexibility helps businesses better manage their inventory.
Cargo is carefully loaded into containers based on weight and size to prevent damage. The NVOCC ensures proper labeling and documentation for each LCL shipment. Once fully loaded, the container is transported to the port for shipping.
The NVOCC books space with an ocean carrier and arranges transport under its own HBL, which is issued to each shipper, while receiving a Master Bill of Lading (MBL) from the carrier. They ensure export documentation is in place before shipment. They also manage compliance with regulations at the port of origin and the port of destination.
Tracking updates are provided throughout the shipment’s journey. The NVOCC monitors the ETA and manages any shipping disruptions.
At the destination port, the container is unloaded at a CFS or bonded warehouse. Individual LCL shipments are separated and made available for pickup or final-mile delivery. The NVOCC may also handle import customs clearance and coordinate last-mile delivery.
Do either freight forwarders or NVOCCs own containers?
Forwarders use shipping lines’ containers and do not own or operate containers. Some very large NVOCCs own and operate their own containers, but the vast majority do not.
How do the pricing models differ for NVOCCs and freight forwarders?
NVOCCs negotiate wholesale rates with shipping lines, allowing them to offer competitive pricing to shippers. The FMC permits them to add a profit percentage to their rates. For LCL shipments, they charge per cubic meter or per 1,000 kilos. They can charge fees for documentation, security, fuel adjustments, demurrage/detention, and terminal handling. For small to medium-sized shippers without direct carrier contracts, NVOCCs can often offer better rates than shipping lines based on their higher shipping volumes with these lines.
Freight forwarders book space directly with carriers or through NVOCCs and apply service fees for things like customs clearance, warehousing, trucking, and supply chain management. They may receive volume discounts and pass some of the savings on.
Which is better, an NVOCC or a freight forwarder?
As with many things, it depends on your needs. If you’ve got experience managing door-to-door global shipments and only need to book passage on an ocean vessel, working with an NVOCC directly may save you money. NVOCCs issue their own HBL and have contracts with ocean carriers, providing more flexibility in rates and space allocation.
NVOCCs that do not offer broader freight forwarding services and primarily sell container space expect shippers to handle more of the logistics planning themselves. If you’re going to use such an NVOCC, you should be familiar with:
- How to handle customs documentation, compliance and port fees
- How to coordinate inland transportation
- How to track cargo independently
A freight forwarder, on the other hand, can serve as a consultant, working with you to identify the best route, negotiate the best rate and provide additional logistics services. If you have low to moderate experience in ocean freight logistics, and you need a partner to handle all the details on your behalf, choose a freight forwarder – or choose an NVOOC that provides complete forwarding services. Forwarders coordinate ocean shipments, customs brokerage and warehousing, carrier selection and rate negotiation, documentation, customs clearance, and inland transport, providing a full-service supply chain solution.
Forwarders can also take care of end-to-end shipment tracking and coordination, multimodal transport (rail, trucking, warehousing, etc.), and problem-solving for delays, rerouting and missing documents
Again, the best solution might be to choose an NVOCC, like I.C.E. Transport, that also provides a full slate of freight forwarding services. This gives you the best ocean shipping rates, as well as the convenience of working with one partner for all international shipping services.
What role does liability and cargo insurance play for NVOCCs vs. freight forwarders?
Both NVOCCs and freight forwarders offer cargo insurance, but their liability differs. As NVOCCs issue their own HBL, they take on carrier-like responsibility for cargo once it’s in their care. Freight forwarders act as intermediaries, typically arranging transport but not assuming the same level of liability. Shippers should clarify insurance options to ensure proper coverage in case of cargo loss or damage.
Do NVOCCs and freight forwarders offer multimodal transport options?
Freight forwarders commonly arrange multimodal transport (i.e., ocean plus rail or trucking) as part of a door-to-door service. NVOCCs that solely focus on ocean freight may not offer comprehensive door-to-door service.
So, NVOCC vs. freight forwarder: how to choose?
Once you understand the difference between an NVOCC and a freight forwarder, it’s not hard to choose which kind of intermediary fits most snugly into your supply chain puzzle. The solution is to work with an NVOCC, like I.C.E. Transport, whose portfolio includes a full range of freight forwarding services. Then you’ll get the best of both worlds. You’ll gain a partner that can:
- look across the range of available sailings from multiple steamship lines
- get you a competitive rate
- issue its own Bill of Lading
- arrange for reliable ground transportation
- provide any other logistics services you require
To forge a partnership with an NVOCC that offers all the logistics services you need for a successful door-to-door shipment, contact the experts at I.C.E. Transport.
