Working With A Freight Forwarder         

A wide range of services are essential to the smooth functioning of international trade. International freight forwarders are the intermediaries between sellers (exporters) and air, ocean, truck and rail carriers. Freight forwarders make all the necessary arrangements for these modes of transport. They coordinate the transportation, any needed warehousing, finance, and insurance. A freight forwarder can also clear goods for import into the US if the company is a licensed  Customhouse Broker. Forwarders are licensed to handle international ocean shipments by the Federal Maritime Commission, and by the International Air Transport Association for international airfreight.

In recent years, the forwarding industry has incorporated revenue management and cost control systems, electronic data interface (EDI) systems, and on-site and overseas services as clients’ needs have increased. Many forwarders have been at the forefront of the technological advances in computer telecommunications and shipping. Other major developments include the growth of information and liability issues, global competition, major market shifts, intermodalism, and professional certification.

 A seller must build a strong relationship with its forwarder by providing information quickly, allowing adequate time for shipments to be processed, paying invoices quickly, and, establishing one person with the forwarder’s organization to handle emergency situations. In order to avoid delays in shipping, consider providing your forwarder a supply of blank company stationery, commercial invoices and packing lists in case last-minute changes to your original documents are required. Discuss the legal implications with your attorney before doing this.

Services

With power of attorney, a forwarder acts as your agent. The forwarder prepares (or assists you in preparing) the documents involved in a shipment to ensure they are complete, accurate, and in compliance with both US and import destination legal requirements.

At your request, the forwarder will also distribute all documents and will submit the entire package of documents to your bank to expedite payment. They will also advise you of the foreign marking and labeling that may be required for shipping containers.

 The services a forwarder offer must include:

• Logistic options to destination

• ‘Delivered’ services to exporters

• Letter of credit services
   

• Electronic exchange of documents

• Internet tracking for shippers, consignees and service providers

• Compliance reviews
   

• Cost analysis

• Hazardous materials audits

• Marine insurance

• Logistics options based on customer goals

• A single source for knowledge about the export process

 

Compliance

Compliance is a growing management issue. Government audits, fines, and penalties are alerting exporters to the liabilities involved in international transportation. Freight forwarders are well-positioned to act as the exporter compliance officer. The expertise available from reputable international freight forwarders is invaluable to the success of an exporter’s international trade business. 

 Freight forwarders will continue to expand their services to manage the requirements of numerous governmental entities that control various aspects of the export process. For example, the US Department of Transportation controls transport of hazardous material and the US Department of Commerce controls the sale of sensitive technology to undesirable parties in foreign destinations.

       

Automated Interface

Most freight forwarders will find it necessary to encourage exporters to interface their document preparation with the forwarder’s automated programs. Internet tracking and the ability to download shipment data will be a necessity for many exporters. Duplicate keystroking is becoming an increasingly significant cost issue. Both exporters’ and forwarders’ staff will little time to devote to re-keying data.

Automated Export System (AES) is a central point through which export shipping data that is required by multiple agencies can be filed electronically with Customs, using Electronic Data Interchange (EDI). Errors can be detected and corrected at the time of filing. AES is a nationwide system and is operational at all ports, for all methods of transportation. AES assures compliance to export laws, improves  the accuracy of trade statistics and reduces duplication of reporting to numerous agencies.

• The forwarder makes the shipping arrangements and transmits the export data using AES.
• AES system validates the data against editing tables and government agency requirement files.
• A confirmation or error message is generated and sent to your forwarder.
• Corrections as needed are transmitted back to AES.

A particular benefit to exporters is the increased reliability of US export data as a research tool for information about foreign markets.

Automatic electronic document sharing between the exporter and forwarder will become increasingly important to both as they seek to streamline the export process and manage export costs.

AES is a joint venture between US Customs, the Bureau of Census Foreign Trade Division, the Bureau of Export Administration, the Office of Defense Trade Controls, other federal agencies, and the export community.

Selecting An International Freight Forwarder

             

 As your agent, a full service forwarder should be able to carry out the following functions, to help keep your costs, volume of paperwork and staff involvement to a minimum:

• Ocean freight:  Supervise ocean shipments from your facility to the foreign port of import and, if requested by you or the importer, on to the customer’s location in the export market.
   

• Airfreight:  Expedite regular (and emergency) air shipments (when your customer requests immediate delivery of critically-needed spare parts).
   

• Consolidation: Combine several sellers’ goods into a larger container to reduce your shipping costs. They should be able to consolidate without unnecessary delays.
   

• Banking: Prepare and present documents to your bank for collection and deposit to your account.

Importing:  It may be advisable to work with a forwarder who is also a licensed Customhouse Broker. You may decide to import foreign goods as new additions to your own product line, as components in your current products, or in payment for some foreign orders (Countertrade).

Credit terms:  A forwarder may ask you to pay within seven days after receipt of their invoice. They may be on seven to ten day terms with the carriers they contract with for shipment of your goods. Clarify your payment terms at the very beginning of your relationship.

Operating hours:  Ocean freight shipments: forwarder need only be open during normal business hours. International cargo flights:  usually depart in the evenings- the forwarder should have someone available overnight.

Local, National, International: You may frequently need to deliver last-minute documents, forms and merchandise in emergency situations. Using a forwarder with an office near your facility will reduce costs and time lost in travel, faxes and telephone calls.

A forwarder with other offices (branches or affiliates) in the US is important for securing the most economical freight rates and for tracing delayed or misrouted shipments.

In emergency situations, it is very useful to have a forwarder with offices or affiliations in foreign markets. When needed, shipments can be traced quicker through the original forwarders, without involving third parties.

References: Contact references to learn how routine, non-routine and emergency shipments are handled. In addition to the references provided by the forwarder, talk to other service providers such international bankers, who also have working relationships with various forwarders through their export clients.

Choose two or three forwarders to meet with personally and select one to work with. File information on the other forwarders that rated highly. If your initial forwarder does not meet expectations, you will have a ready list of screened alternates for review.

Modes Of Transportation

                                        

MODES OF TRANSPORTATION	PRO	CON
COURIER SERVICES	DHL, UPS offer efficient service for shipments generally under 400 lbs. From major trade lanes.	Extremely high cost. Some evidence of poor Customs compliance.
AIR FREIGHT DIRECT	Book directly with airline.  Priority transit. Quick transit.	Expensive particularly at “book” rates.
AIRFREIGHT CONSOLIDATION	Book with forwarder who may match your freight with others. Transit time variable.	Cost is significant but much less than courier and “book’” rates. Some risk of “bumping.”
AIRFREIGHT ‘EMERY’	‘Emery’ type service that allows you to choose service level.  More control over costs and still preserve most of the benefits of airfreight.	Significant cost savings and higher probability of “bumping.”
AIRFREIGHT/OCEAN COMBINATION	Somewhat popular with Chinese freight.  Air to Korea; Ocean into US	Considerable cost savings but longer lead-time. Be sure that you control the service provider.
OCEAN FREIGHT DIRECT	The default choice for most products.	Inventory management must account for shipping lead times. Advantageous only if you are moving a container.
OCEAN FREIGHT CONSOLIDATION	Similar to airfreight but with ocean transit,	Wide range of services available from incompetent to excessively expensive.  Interaction by freight forwarder /broker is essential.
OCEAN FREIGHT TRANSLOAD*	Cargo is laden on board one vessel, which takes the goods to another port for loading onto a vessel bound for named destination.	Longer transit time. Increased handling = higher risk of loss.  Sometimes unavoidable.
OCEAN FREIGHT LAND BRIDGE	Ocean and rail combined.	Periodic rail congestion.
OCEAN FREIGHT ‘ALL WATER’	Ocean to closest port. Less expensive where available.	Relatively slow.
TRUCK	Mexico, Canada	Wide range of competencies.

Basic Shipping Documents

Bill of Lading                                       
A document signed by the captain, authorized agents or owner of a vessel as a contract for the transportation of merchandise from a named point or points to some other point or points of destination. It is both a receipt and a contract for delivery of merchandise.

Air Waybill                      

A receipt and contract signed by an airline company or its authorized agent, signing as the carrier for the transport of merchandise to a specific place of destination. By its nature an Air Waybill is not a negotiable instrument. It is a common requirement that the Air Waybill show the flight number and date.

                                                                                   

                                                                       

Certificate of Origin
A signed statement sometimes required in connection with shipments of merchandise from one country to another for tariff purposes or simply for confirmation of the origin of the goods. Usually it is required that such a statement be made by a specific independent party like a Chamber of Commerce. For some countries the signature of the Consul of the importing nation may also be required.

The NAFTA Certificate of Origin is required for qualifying products traded in the NAFTA territories (US, Canada, Mexico) to certify the goods qualify for preferential tariff treatment accorded by the North American Free Trade Agreement. Only importers who possess a valid NAFTA Certificate of Origin may claim preferential tariff treatment for originating goods.

                   

Shipper’s Export Declaration                                        
A statement prepared for the US Government on a specific form, used for statistical purposes, which lists the merchandise being exported from the US.
 

Transfer Of Title And Risk Of Loss

Title or Ownership of Goods

The ownership of goods (title transfer) passes from the seller to the buyer at some point in every transaction. When title transfers, risk of loss or damage to the goods is also transferred. We would advise every shipper to discuss this important issue with his or her attorney.

In many contracts for the sale of goods the parties involved do not express their intention as to when, how or under what conditions title to the goods is to be transferred.  Title to the goods may not even be discussed in the negotiations. It is implicit or taken for granted. The parties are more interested in reaching agreement on matters such as price, quantity, quality, warranties, delivery schedule credit terms, discounts, and other important features.  Seldom does the abstract concept of title enter into discussions.

Transfer of title to goods which have been identified to the contract of sale passes from the seller to the buyer in any manner and on any conditions agreed upon by the parties to the contract of sale.

The rule is that title to the goods passes when the parties intend it to pass. Where parties have no explicit agreement as to the transfer of title, then title passes to the buyer:
 

• At the time and place at which the seller completed his performance with reference to delivery of the goods.
   

• At the time and place of shipment, if the contract authorizes shipment but does not require the seller to deliver the goods to the buyer at destination.
   

• Upon tender of the goods to the buyer at destination, if the contract requires delivery at destination.
   

• Upon delivery of a document of title where the contract calls for delivery of such document without moving the goods.
   

• At the time and place of contracting where the goods at the time are identified to the contract, no documents are to be delivered, and delivery is to be made without moving the goods.
   

• Title can only be transferred on existing, specific, identified goods. Title cannot pass under a contract of sale prior to their identification.

After formation of the contact of sale, the seller obtains, manufactures, prepares or selects goods with which to fulfill his obligation under the contract. Once the goods have been identified, relative to the contract, title to the goods may pass to the buyer. Title need not pass to the buyer at this point in the transaction! However, once the goods have been identified to the contract of sale, the buyer assumes a special property interest in the goods.

• This special property gives the buyer an insurable interest in them, even though, in fact, they may not conform to the contract of sale. 
   

•  Identification of the goods to the contract does not shift the risk of loss.
   

• After identification, the seller may under the contract have duties to perform with respect to the goods.

 

Risk Of Loss

According to the general rule, the risk of loss or damage to goods is borne by the person who is the owner at the time of the loss or damage.  This is true in every case. 

•  Even where the buyer may have assumed risk of loss, the holder of title to the goods still bears risk of loss. 
   

• There is nothing to prevent both the buyer and seller at the same time carrying insurance on goods in which they both have a property interest (title, security interest or special property).

Risk of loss, as the term is used in the law of sales, means placement of the ultimate loss upon the buyer or the seller. If placed upon the buyer, he is under a duty to pay the price for lost or damaged goods even though he never received them or became owner of them. If placed upon the seller, he has no right to recover the purchase price from the buyer.

There are specific rules that impose risk of loss upon the buyer or the seller irrespective of title or ownership of the goods:

Agreement of the parties. 

• An agreement may not only shift the allocation of risk but also may divide the risk or burden in any manner. 

Delivery to a carrier.

•  If the contract does not require the seller to deliver the goods at a particular destination, risk of loss passes to the buyer upon delivery of the goods to the carrier.  If the seller is required to deliver them at a particular destination, risk of loss passes to the buyer at destination upon tender even though the goods are in the possession of the carrier. 

Goods and possession of bailee (warehouseman) to be delivered without being moved.

• Where the goods at the time of the contract are held by a bailee and are to be delivered without being moved, the risk of loss passes to the buyer on his receipt of a negotiable document of title covering the goods or receipt of a non-negotiable document of title or other written direction to deliver the goods unless the buyer reasonably objects.

Goods not to be shipped by carrier.

• If they are in the possession of the seller, buyer or other bailee, if they are in the possession of the third party bailees, the contract may provide for delivery to the buyer either without moving the goods or by moving them.

Transfer of title is essential to a sale of goods. Transfer of title is not essential to the imposition of risk of loss to the goods. 

Risk of loss may follow ownership of the goods but this is not necessarily so.  Risk of loss may exist independently of ownership of the goods. 

A determination of whether title to goods has been transferred is important with respect to liability for taxes, duties, inventory management and it’s effect on the balance sheet.

 

Cost Factor Analysis

There are many costs to consider that may or may not apply to a particular shipment. To a great extent, most of these costs can be ascertained.  Some cannot be anticipated.  Others might occur and may or may not be within your ability to control. Expenses might change in response to changes in fundamental factors such as the price of oil, political changes, labor strikes, or natural disasters. Most of these cost factors can affect any shipment, domestic or international.  But, the cost factor most effecting the international shipment is that it must travel longer distances, over a greater period of time, and across international borders.  This increases the probability of an unfavorable event occurring that will adversely affect customer service levels on an export shipment or, cost of goods sold for an imported product.

Some you will see on every shipment (ocean freight for goods shipped by ocean). Others may never appear, such as detention.

*T(transactional)           S (shipment)      A (ad valorum)

 

Who Pays These Fees?

           

It is the exporter who can guide the negotiations to determine which costs are paid by the exporter and which are paid by the importer.

The fees might be divided into three subgroups:

• Transaction costs

Costs associated with the purchase of the goods. The shipment may be 1 cubic meter of imported goods or 20 containers. Transactional costs are relatively inflexible as to the size of the shipment. For instance, our service fees would remain about the same (small increases might result from multiple duty classifications or delivery orders) whether the shipment was a single container or several dozen containers. Other costs that are transactional in nature are: terminal fees, handling charges, document transfer fees, and, most importantly, the cost of the product.