Understanding the freight forwarding industry is highly dependent on understanding the terminology and the processes that occur in order for freight to move from A to B. Just like other industries, freight forwarding has its own language. Familiarising yourself with the terms will aid effective communication, avoid costly mistakes and delays and ensure you are prepared for each stage in the process.
Why You Need to Know the Language
Knowledge of incoterms is critical for you to communicate effectively with forwarders, brokers and suppliers and identify each person/entity’s role in the process. According to the International Chamber of Commerce, “Incoterms®” is an acronym standing for international commercial terms. It is recommended that anyone in product procurement or logistic roles or undertaking product contract negotiations purchase a copy of Incoterms 2020.
You can purchase via ICC or your local chamber of commerce. Additionally, it helps you understand your financial and documentary obligations under each ensuring you avoid monetary mistakes, incorrect costing of your products and frustrations with your forwarders/clearing agent.
So, what are some of the most common freight forwarding terms you need to learn? The following guide will give you a glimpse at some of the essentials that everyone dealing with freight forwarding should know. Before diving into the terms it’s important to understand what freight forwarding services do.
What Do Freight Forwarding Services Do?
A freight forwarder is a service provider that coordinates the movement of your cargo from A to B.
Under Free on Board (FOB) or Ex Works (EXW) terms, you would normally engage a local freight forwarder to arrange the shipping of your goods . You would negotiate a freight rate and destination charges with them and often have them price and co-ordinate the customs clearance and delivery.
Under FOB/EXW terms your appointed freight forwarder shall normally:
- Liaise with origin agent/your supplier to coordinate booking of your cargoes
- Keep you updated with shipment booking progress and arrival information
- Under EXW terms they will normally obtain the commercial documents for customs clearance
**They may also obtain documents for goods shipped under FOB terms, however, please remember under FOB terms the suppliers arrange the export clearance with their own export forwarders/brokers. Your forwarder is not automatically provided with these documents and some suppliers won’t provide them to the export forwarder or your local forwarder and will email/courier to the importer only. It is the importers responsibility to obtain commercial documents for customs clearance from suppliers and forward them in a timely manner to their customs broker.
- Freight forwarders are also responsible for troubleshooting complications and addressing problems, should such arise
- The provision of information about the progress of the shipment, especially if some delays are anticipated.
If you allow your cargo to move Cost, Insurance and Freight (CIF) or Cost and Freight (CFR) (freight is arranged by the supplier, your supplier’s forwarder is responsible for keeping you updated with shipment arrival /delays).
Are Freight Forwarders Different From Customs Brokers?
There is a common misconception, that your locally appointed customs agent should keep you updated with any delays/updates, however that is not technically the case.
Customs Brokers are a value added service and are different to freight forwarders. Customs brokers are customs agents engaged to handle the clearance of your goods through customs and quarantine.
Their role is to ensure that you comply with your customs /quarantine obligations. They also attend to your commercial interests by taking advantage of any available free trade agreements (with the provision of correct documentation) and/or assessing any available tariff concessions that your goods may comply with.
They are licensed, and must undertake ongoing training throughout the year to maintain their license/accreditation. Licensed customs brokers are not freight forwarders.
Most retail forwarders will have an in-house customs broker/s to handle the customs clearance of your cargoes. A good retail forwarder can offer you a total logistical solution.
Freight Forwarding Terminology You Need to Know
As you’ve probably gathered from the above section, you will need to conduct a lot of specialised communication with a freight forwarder. Whether you’re dealing with air freight, sea freight or another type of service, the common terminology is going to be the same.
Here’s a quick list of the most important basic terms you need to understand in order to gather reliable information from your freight forwarder:
- Consignee: the consignee is the importer
- Third Party Move/Triangle shipment– You buy from a supplier and have goods shipped directly to your customer in another country. – Very important that you understand the terms that you have purchased under and sold under. They often won’t be the same, so you should be aware of your financial obligations under both correct means of issuing Bill of Lading
- Express Release/Telex Release: Refers to bill of lading. Under telex/express release, you do not require an original bill of lading from the supplier. You can gain release of your goods with a copy. Suppliers will normally only arrange a telex release, once you have paid them for the goods or you are in compliance with agreed payment terms.
- Customs clearance: Customs Entry/Customs Brokerage: The process of clearing your goods through customs/quarantine.
- Bonded: shipments are considered bonded while they’re under the control of the customs. Shipments are typically considered bonded until import duties are paid.
- Incoterms: Terms of trade for the sale of goods. It is highly recommended you familiarise yourselves with these. Download the Incoterms wall chart here.
- EXW: Ex Works
- FOB: Free on Board
- CFR: Costs and freight
- CIF: Costs, Insurance & Freight
- DAP: Delivered Duty Unpaid
- Volume /Chargeable rate : Air 1 cbm=167 KG Sea 1 cbm= 1000 KG
- eg: if you have airfreight that has a dead weight of 50 KG, however it is bulky and 1.5cbm, the chargeable weight would be 251 KG. it should be noted that couriers often have a different ratio application
- Bill of lading: or BOL. A document is the most important document that provides information about what’s being shipped, who the consignee is and who the dispatcher is. This is a legal document.
- Certificate of origin: In order for your customs agent to apply many Free Trade Agreements, they will require a certificate of origin. Suppliers would apply for this with the relevant governing body
- Arrival notice: Document issued by freight forwarders to consignees advising them of their shipments arrival. If your shipments arrival details change many forwarders will send out an email with another arrival notice. Don’t ignore these! Forward the email on to your broker if your cargo moved CIF/CFR.
This is just a basic glimpse into the world of freight forwarding. There are numerous additional terms referring to the procedures, documents and the services being offered by such companies. The terms mentioned above rank amongst the most commonly used ones. If you know what they mean, you will streamline and enhance your communication with freight forwarding companies significantly.
Ask the Right Questions: Tips to Avoid Additional Freight Charges
The right freight forwarding partnership will give you access to personalised, convenient and cost-efficient solutions. New importers don’t have the experience to know the right questions to ask. Asking the right questions will establish a good dialogue between you and the freight forwarder which will save you time and money.
Knowledge is key. So Research! Research! Research! You would not buy a TV without searching the internet first and comparing prices. Before you proceed and agree to purchase goods from a supplier, call a local forwarder!
I am going to be honest here and say, local freight forwarders are often not going to offer you freight, as cheap as some of your suppliers. Suppliers will often offer to handle the freight to port, some may offer you free shipping, however, nothing in life is free. Someone pays somewhere down line.
Tip: if you are offered very low or no freight, always ask “what will I be billed by your local freight forwarder upon arrival?” Low or No freight often equates to high destination charges.
If you allow your cargo, (particularly Less than Container Load (LCL) cargo to move CIF/CFR, or EXW/FOB with freight arranged by the supplier. It is important to ask the supplier if there are additional costs before you allow them to book the cargo. Once you receive, or before, contact a local forwarder and obtain comparative pricing.
Tip: The local forwarder will require packed pieces/ weight and dimensions or best indication to provide pricing.
My advice to new importers is “if you want to control your costs – control your freight!” No one likes monetary surprises unless it’s a lotto win, so don’t leave destination charges to chance, particularly if your cargo is low value. A blow out in destination charges can greatly affect the viability of importing the goods.
How to Choose the Best Freight Forwarder
All in all, freight forwarders want to create long term mutually beneficial relationships with their customers. Don’t rush the selection of the right freight forwarder. Do your research, check out customer reviews . Request a meeting.
If you require a local contact, ask them are their operational staff local, Are their customs brokers in-house , can they provide you with a point of contact to look after your account.
Request a meeting in their office, if you’d like to obtain a feel for the company and meet the staff you’d be working with. Your forwarders/brokers are an extension of your business. It is important you are comfortable and confident with them and that they are the best fit for your business. The more information you obtain, the easier it will be for you to make sure that your selection is the right one.
Powerhouse International pride itself on our personalised approach. All operational staff are located in our Eagle Farm offices including our two in-house customers brokers.
We offer an array of solutions – from air freight to customs clearance, warehousing and comprehensive freight document management. A leading Brisbane freight forwarding company, we’ve been in business for more than three decades and we know what it takes to give our clients a seamless and streamlined solution.
Don’t hesitate to contact us today, whether you’re looking for a freight forwarding partner or you have a question to ask. Our customer support team will be more than happy to provide you with the specific information you need to find a reliable and reputable partner.