There is much confusion regarding the understanding of the Acronym titles above. It would be best to break each one down and discuss the advantages or disadvantages of using each. For simplicity, we will focus only on Importing.
BCO stands for Beneficial Cargo Owner. Zepol, a top U.S. trade data provider, defines BCO as “an importer that takes control of their cargo at the point of entry and does not utilize a third party source.” This means that a BCO is a company with enough importing clout, bringing in enough freight to negotiate contracts directly with a VOCC. Typically, most BCO’s expect to import at least 100 TEU’s. The easiest examples of BCO’s are your large retailers like Walmart, Target, Best Buy.
VOCC, therefore, stands for Vessel Operating Common Carrier. These are the owners of those massive container carrying boats that traverse the oceans. Examples include Hapag Lloyd, CMA-CGM or Maersk. The FMC (Federal Maritime Commission) further defines VOCC as having the following characteristics:
- Holds itself out to the general public to provide transportation by water of passengers or cargo between the United States and a foreign country for compensation
- Assumes responsibility for the transportation from the port or point of receipt to the port or point of destination
- Uses, for all or part of that transportation, a vessel operating between a port in the United States and a port in a foreign country
Let’s say that you have decided to become an importer. You may of course contact a VOCC directly. However, if you do not expect to import a significant volume of freight, the VOCC will charge you full tariff price. Tariff being defined in this case as a table of charges. Most freight charges for shipments into the U.S. are priced at significantly less than full tariff rate. There are some simple, if harsh reasons for this. First, more volume means bigger discounts. But also, VOCC’s want to limit the number of people/companies/entities contacting them. They simply do not have the capacity to handle phone calls or answer emails from all importers. It’s the same if you were to buy direct from a manufacturer. It can be done, but typically they do not have the time to speak to everyone.
So, if you intend to import and do not expect the amount of volume described above, what is your next best choice? You will need to form a relationship with a Freight Forwarder that either accesses an NVOCC, or is an NVOCC. In other words, a Freight Forwarder can be an NVOCC, or Non-Vessel Operating Common Carrier, but many are not. Both are essentially third party logistics providers.
In a very recent blog entry, http://www.howtoexportimport.com explained the differences thusly:
“The definition and act of a Freight Forwarder and NVOCC is described by government of various countries differently. The legal obligations to government, clients and public vary from country to country for an NVOCC and a Freight forwarder.
A Non Vessel Operating Common Carrier is a cargo consolidator who does not own any vessel, but acts as a carrier legally by accepting required responsibilities of a carrier who issues his own bill of lading (or airway bill), which is called House bill of lading under sea shipment and House airway bill under air shipment. Activities between a NVOCC and a Freight Forwarder are similar to each other except some differences. An NVOCC need not be an agent or partner of a Freight Forwarding company, whereas a Freight Forwarding company can act as a partner or agent for an NVOCC.
Basically speaking, NVOCC acts a ‘carrier to shipper’ and ‘shipper to carrier’.
NVOCC can own and operate their own or leased containers. NVOCC acts as a virtual carrier and accepts all liabilities of a carrier legally, in certain areas of operation.”
An NVOCC is able to take the clout of its many customers and negotiate with the VOCC’s for better pricing. It can work with these steamship lines by bringing estimates to the table of expected freight volume for certain lanes and gain tariff relief (discounts). As Thomas Cook states in his book, Mastering Import & Export Management, 5 “the NVOCC becomes like a buying cooperative or purchasing group that works on the concept of clout in negotiation. The clients of the NVOCC benefit as the membership grows and the management becomes stronger.”
Statistics show that as a percentage of imports, NVOCC’s are playing a greater role. This could be the result of Internet commerce in which there are more and more importers that are bringing in significant volume, but still not enough to negotiate directly with the VOCC’s. This interesting chart from Zepol puts it in perspective: Zepol Chart
So what does this mean essentially for a new importer? In a nutshell, if you work with a Freight Forwarder that is not NVOCC, they will need to access one that is. And that means you are probably not getting the best pricing and/or service. A Freight Forwarder that is not NVOCC becomes an additional middle person in your supply chain, taking the rate that the NVOCC gives them and marking it up. Interestingly, per FMC regulations, they are not allowed to increase the ocean freight rate supplied to them by an NVOCC, but must add an additional line item, accessorial fee or handling charge to the rate they give to their customer.
But perhaps even more important than pricing, is the service that you will receive. If your Forwarder is not an NVOCC, you, as the importer, do not really know who is handling and/or controlling your freight. You will likely have less visibility when attempting to track a shipment. An excellent website, Differencebetween.net, defines it further:
“The essential difference is how they act in relation to the cargo. An NVOCC acts as the carrier of the cargo being sent. In comparison, a Freight Forwarder doesn’t act as a carrier. A Freight Forwarder only acts in the behalf of the owner of the cargo to facilitate the passage of the cargo from the point of origin to the destination. They contract with carriers to pick the cargo up, board it on a ship or a plane, then another carrier to pick it up at the port; along with the entailing paperwork and documentation.
Freight Forwarders do not issue bills of lading but NVOCC’s do. A bill of lading is also known as a contract of carriage and is a legal document that binds both parties to the terms agreed upon. A bill of lading is important as it holds the NVOCC liable if and when the cargo becomes lost or damaged while in transit where compensation is often necessary. A Freight Forwarder does not issue a bill of lading, so it is not liable for any damage or loss suffered while the cargo is in transit. It is the Freight Forwarder’s job, however, to get the bill of lading from the carriers that it is contracting. The liabilities of the Freight Forwarder only extend over possible errors on their part like incorrect or incomplete paperwork.
- An NVOCC acts as the carrier while a Freight Forwarder does not
- An NVOCC issues a bill of lading while a Freight Forwarder does not
- An NVOCC is responsible for loss or damage while a Freight Forwarder is not ”
The thing I often see in my line of work are customers that mostly are concerned about domestic shipping but only occasionally have an International Import. In order to save money and help to manage their domestic shipments, they employ a third party logistics company that is also a Freight Forwarder. What they don’t realize is if their 3PL is a Freight Forwarder and not NVOCC, the 3PL will be reaching out to one or more NVOCC’s in order to handle the shipment, thus making a complex shipment even more so. Next week I will discuss some important things to consider when choosing an NVOCC.