A blog by the TransportCloud team. We write about shipping, E-Commerce, international business, and customs.
The value of international trade has continued to increase in recent years. In 2021, global trade peaked at over $28 trillion . However, traders must undergo millions of import and export processes to arrive at this value. To make these processes easier, traders outsource to freight forwarders and customs brokers.
As a new importer or exporter, you might be confused about the functions of the freight forwarder or customs broker. This article discusses the difference between a freight forwarder and a customs broker. It also clarifies the situations in which you might need to hire either.
A freight forwarder is a professional that undertakes shipment logistics. Essentially, importers or exporters hire a freight forwarder to take care of the shipment of their goods. Traders must note that freight forwarders do not ship the goods by themselves. They only act as intermediaries that connect importers and exporters to transport companies. Freight forwarders also develop freight estimation costs and help traders arrange affordable transportation deals. More importantly, they actively track shipments until they arrive in the destination country.
A customs broker is a person hired to conduct clearance on behalf of an importer or exporter. The broker is responsible for filling necessary documents, liaising with customs authorities, and paying all charges required by the Customs Authority. Customs brokers can either be individuals or companies. They are trained to ease the shipment clearance process and provide shipment guidance to clients. In many countries, the Customs Authority approves and regulates custom brokers. For example, the US CBP (Customs and Border Protection) regulates and licences customs brokers in the US.
The customs broker and the freight forwarder play important roles in the import and export process. There are some similarities between them which this article will highlight.
First, they both deal with documentation related to import and export. Nonetheless, where both professionals differ is why they are involved in documentation. On the one hand, the customs broker's role in documentation is because they have a responsibility to ensure their client's exports or imports are cleared at the entry port. This is achieved by submitting documentation depicting that the goods comply with governmental regulations. On the other hand, for freight forwarders, documentation is closely tied to their sole duty, which is the movement of the goods. Hence, they engage in proper documentation and regulatory compliance to enable the timely and prompt movement of the client's goods.
They can both be tasked to facilitate customs clearance and additional related functions. For example, the customs broker's role ensures relevant information is reported to customs authorities. Similarly, freight forwarders' enable a cargo to be cleared since they tend to have a customs clearance licence.
Also, they both play the role of intermediaries between their clients and another party. Where this differs is who they connect their clients with. While custom brokers are intermediaries between their clients and the customs authorities, freight forwarders connect their clients with transport companies.
Lastly, a customs broker and a freight forwarder require registration to carry out their operations legally in certain countries. While in the UK, a customs broker does not need to be licenced, in some countries, this is compulsory.
Freight forwarders and customs brokers undertake different functions. In many cases, traders can require the services of both professionals. Some of the dissimilarities between a freight forwarder and a customs broker include:
1. Responsibilities: As stated earlier, a freight forwarder primarily undertakes logistics-related tasks. They help traders hire trustworthy transport companies and ensure that goods arrive at their destination safely. On the other hand, customs brokers are only concerned with customs clearance. Hence, the freight forwarder arranges for goods to be transported from a country to other countries, while custom brokers ensure your goods are cleared through customs while in transit to the final delivery destination. You should note that some freight forwarders also provide custom clearance services.
2. Licensing: Most freight forwarders do not require a licence to operate, although they may be required to register with appropriate authorities. However, customs brokers have a specific licensing process in many countries. In countries like the United States, customs brokers cannot provide services without a licence.
3. Ability to Multitask: In some cases, freight forwarders can act as customs brokers. In this case, they will undertake the transportation of your goods and also help clear your goods. However, customs brokers are restricted to customs clearance. Therefore, they cannot act as freight forwarders, and they are unable to provide importers with services that go beyond clearance processes.
The functions of freight forwarders and customs brokers are different. However, deciding on which to hire can be tricky. On the one hand, you must ensure that your goods are shipped safely. On the other hand, the import or export process can be highly complex. In this case, you will need to hire a more experienced person to ensure your clearance is hassle-free.
The bottom line is that it is advisable to hire both professionals if you can. However, you have two options if your budget cannot accommodate hiring both agencies. First, you can hire a freight forwarder that provides customs brokerage services. Secondly, you can also decide to hire a customs broker or a freight forwarder, depending on your priorities.
It is essential to note that the customs broking profession is strictly licenced for some countries outside the UK. This infers that you are likely to have a limited range of persons you can choose to clear your goods.
It is further important to make sure whichever professional you choose is provided with complete and truthful information. Whether you use a freight forwarder or a customs broker or agent, ensure that you provide them with full and accurate information. To achieve this, you can provide a copy of the tariff classification code and invoice of the goods.
Therefore, determining which to hire between a customs broker and a freight forwarder depends on your particular requirements for a shipment. Employing multiple professionals could incur additional costs due to the double handling fee they charge. This implies that letting a freight forwarder who performs the responsibilities of a customs broker may be cheaper. If your customer requests a specific customs broker or your freight forwarder does not have a customs broker licence, you would want to engage a separate customs broker at origin or at the destination.
There is no doubt that freight forwarders and customs brokers are vital in the export or import process. However, as a trader, you might not always have the luxury to hire both professionals. Hence, drawing up your priorities and deciding on your most pressing needs will be helpful. This clarity will help you choose which service will benefit you and your business more.