If you’re new to international shipping, you might be confused by the various terms used for service providers that handle cargo. For example: NVOCC vs. freight forwarder. What’s the difference between these two kinds of companies? What does each do, and how do you know which one to approach when you have a shipment to arrange?
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 that a steamship line owns vessels and shipping containers, while an NVOCC does not. Instead, an NVOCC pays steamship lines for the use of their vessels and containers and then makes those assets available to customers with cargo to ship.
NVOCCs (also referred to as NVOs) are bulk buyers of ocean freight capacity. Their clout comes from buying bulk space aboard liners and then selling this real estate at favorable rates to smaller-volume shippers who might otherwise be lost at sea when it comes to negotiating with giant shipping lines directly (Check out our International Shipping Survival Guide for Small Shippers).
A freight forwarder is not a carrier. It’s an agent – a company that performs transactions on behalf of a customer, similar to a real estate agent or an insurance agent. When you have cargo to ship, it works with various service providers, such as ocean carriers, trucking companies, warehouses and customs brokers, to make the arrangements on your behalf. Those other companies perform the actual services. The freight forwarder gives them the necessary information and documentation, orchestrates their work, and keeps track of their progress.
In fact, orchestra conductor is not a bad metaphor for freight forwarders since they coordinate the activities of various providers, ensuring each operates harmoniously with others to create a synchronized supply chain symphony.
Areas of overlap
One reason people often confuse the roles of 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, too. 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. It might also help you 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 for it 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 shipping lines, it can negotiate good rates and pass those savings on to you.
When a freight forwarder that is not also an NVOCC handles your cargo, it can’t sign a contract with the steamship line. That’s your job. Either 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 – not the forwarder – 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 to the shipper. A freight forwarder doesn’t do that. When you work with a freight forwarder, the steamship line issues your Bill of Lading.
Why does that matter? Before we explain, we need to define Bill of Lading. 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 Bill of Lading, 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 Bill of Lading, 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 arranges for drayage and any other services you need outside the port. That means you deal with two different companies for different segments of the transportation, creating opportunities for error and finger pointing.
If the Bill of Lading 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.
Pricing Structures Explained
When it comes to pricing of the ocean transit, think of an NVOCC as 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 versus 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 cargo's chances of timely 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 legal responsibilities. NVOCCs take full responsibility for your cargo, including direct legal responsibility for transporting your goods from port A to B.
In contrast, think about freight forwarders as travel agents for cargo – they 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.
NVOCCs and freight forwarders both need an OTI license to legally ship your goods. NVOCCs take on more legal responsibility by issuing bills of lading, while freight forwarders are like detail-oriented travel agents for cargo.
FAQs in Relation to “What is the Difference 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. In contrast, freight forwarders cannot do a couple of important things that are central to an NVO’s value proposition, such as entering into a direct contract with shipping lines and issuing their own bills of lading.
Do they own containers?
Forwarders use shipping lines’ containers and do not own or operate containers. Some of the very large NVOCCs own and operate their own fleet of containers, but the vast majority do not.
Do they own warehouses?
Some big freight forwarders own and operate their warehouses as a value-added service to their other shipping services. NVOCCs do not generally own and operate warehouses, but those who double as freight forwarders (particularly larger NVOs) may have their own warehouses.
Do pricing models differ?
NVOCCs are permitted to add a profit percentage to their rates. Freight forwarders are only allowed to add operational fees.
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. 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 need a partner to handle all the details on your behalf, choose a freight forwarder.
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.