Many exporters, especially beginners, assume that freight forwarders and customs brokers are two names for the same thing. This couldn't be further from the truth.
With that in mind, I asked Jay Devers, managing partner of Bestway International in Kansas City, Missouri, to share his knowledge on the topic. Devers, who has been involved in the logistics business since 2009, provides an explanation of the differences between freight forwarders and customs brokers as well as use cases for hiring both.
Freight Forwarder: A Definition
Freight forwarders are defined as experts connected within the supply chain who concentrate on the logistics and physical transportation of cargo. They are in touch with any entity in the exporting process who handles or is aware of a shipment moving via truck, boat, plane or a combination thereof. Freight forwarders are in charge of assembling and completing a variety of documentation and compliance filings.
Devers gives the illustration of a freight forwarder as a “travel agent for cargo,” a third-party entity who sets a trip up, and then, for a sum of money, will facilitate that entire trip, including paperwork and documentation.
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Customs Broker: A Definition
According to the Department of Homeland Security, a customs broker is defined as a private individual, partnership, association or corporation licensed, regulated and empowered by U.S. Customs and Border Protection (CBP) to assist importers and exporters in meeting U.S. government requirements governing imports and exports.
Brokers submit necessary information and appropriate payments to CBP on behalf of their clients and charge them a fee for this service. They must have expertise in the entry procedures, admissibility requirements, classification, valuation, and the rates of duty and applicable taxes and fees for imported merchandise.
A customs broker is a specific term used to identify the intermediary between the importer and the government’s customs department in the country of import.
Understanding the Difference between Freight Forwarders and Customs Brokers
- Freight forwarder is a wide-ranging term, whereas a customs broker is very specific—among other requirements, U.S. customs brokers must be licensed.
- Many freight forwarders can be customs brokers as well (or have access to brokerage services), but not every customs broker is a freight forwarder.
- Customs brokers focus on the import side of an export transaction. For exporters, the customs broker is a foreign country conversation. Exporters don’t need a U.S. customs broker because they are shipping out of the country.
- An exporter’s freight forwarder can work together with a customs broker in order to help facilitate issues with an export transaction.
Consider the following real-life examples of the difference between a freight forwarder and a customs broker.
An exporter in Minnesota wants to send a pallet of equipment to Toronto. His freight forwarder gives him a quote for the shipment and asks if the customer in Canada has a customs broker. He replies yes, so the freight forwarder handles only the shipping.
The exporter, working with the importer, will need to contractually agree on terms of sale (the Incoterms) and the transaction details, including the hiring of a customs broker, among other things.
In this example, the freight forwarder and customs broker are two, separate entities; the exporter must manage both his partnership with the forwarder as well as the transaction with the importer.
In this example, the exporter instead replies that the customer in Canada doesn’t have a customs broker, so the freight forwarder asks if the exporter would like the freight forwarder's help clearing customs in Canada.
The exporter says yes, which changes the transaction for the forwarder; now, instead of just handling the shipping to Canada, the forwarder is managing the shipping plus arranging for customs clearance. This includes the payment of duties, taxes and anything else associated with bringing goods into Canada from the U.S.
By partnering with a Canadian customs broker, the freight forwarder is offering their customer a full-service experience (because the customer doesn’t have to arrange for the customs broker). In this example, the equipment will be delivered without the exporter having to do any extra additional work on the import side.
The Value of Good Partnerships
No matter which route you choose in your export transaction, a good freight forwarding partner is invaluable. Shipping logistics can be difficult, detail-oriented, and rigorous, and these transactions are almost always best handled by an expert.
A good partner will also remind you that you are ultimately liable for your exports and include you in the exporting process, especially when it comes to completing your export documentation. (The criteria for importers considering customs broker is very similar!)
You can read more about choosing the best partners for your company topic in the following articles:
- So You Want to Be a Customs Broker?
- 4 Things the Best Freight Forwarders Have in Common
- If You’re Relying on Your Freight Forwarder for Export Compliance, You’ve Probably Already Violated the Law
- 4 Steps for Ensuring a Good Relationship with Your Freight Forwarder