Customs Brokers and Freight Forwarders play an integral part in logistics. Although the difference between a customs broker and a freight forwarder is not significant as they both have similar roles to perform in logistics operations, there are core differences to distinguish between a customs broker and a freight forwarder. As you know, logistics involves complex supply chain processes hence there are multiple entities that carry out specific logistics operations with their expertise.
Many importers or exporters or parties involved in the logistics industry might say that customs brokers and freight forwards are the same for some obvious reasons, But that’s not completely true.
We have clearly distinguished between freight forwarders and customs brokers with examples in this article.
Who is a freight forwarder?
A freight forwarder is a person or entity or company that assists importers and exporters in the entire process of import and export by arranging for vehicles like trucks, boats, ships, or planes and physically move the cargo from exporting country plant/warehouse till importing country’s warehouse/said destination.
He performs various functions like transport, documentation work, tracking your shipment, giving the best freight rates, consolidate your cargo, warehousing, insurance, clearing the cargo at customs, and many such functions that are essential in the import-export process.
Freight forwarders are intermediaries between shippers and transport services and therefore they don’t actually ship your goods, they just ensure that goods are delivered smoothly by fulfilling various requirements during the import-export process. They are basically like ‘travel agents for cargo.’
To start a freight forwarding business – you need to have contacts with the importers and exporters who will give you work, you will have to be registered with various shipping lines as a freight forwarder and also with certain associations. Other all activities are outsourced. The key to freight forwarding is “right contacts at right time”
Who is a customs broker?
A Customs broker is an individual/company/entity who is licensed by the country’s Customs authorities to carry out Customs clearance work at customs stations or customs areas. Customs broker does work of assisting importers, exporters, and in some cases also freight forwarders in the customs clearance process of import and export.
He performs specific functions like doing the customs documentation, entry procedures, classification of goods, rates of duty, valuation of goods imported or to be exported, informs about the taxes applicable, clears the goods from the customs area and delivers it to the importer, and ships the goods in case of exports.
Customs Brokers are basically intermediaries between the Customs house of the country and the importers/exporters.
To start a customs broker business – you need to obtain a Customs Broker license. You need to appear for an exam which is one of the difficult exams conducted by customs. You only get the license if you clear the exam. In India, the customs broker exam is called the CBLR exam which is conducted by NACIN.
Click here >> To know everything about the CBLR exam in detail.
Key difference between customs broker and freight forwarder –
|Freight Forwarder||Customs Broker|
|• Functions – arranging for transport for entire import or export process, consolidation, warehousing, insurance, customs clearance, etc.||• Functions – Calculating rates of duty, clearing goods from customs area, guiding importers/exporters on valuation, taxes, customs formalities, documentation work.|
|• Freight forwarder does a wide range of activities and does end-to-end import-export process.||• Customs Broker does very specific activities which involve the customs clearance process only.|
|• Freight forwarders can do customs clearance activities by working with a customs broker||• Not all customs brokers do freight forwarding.|
|• There is no special exam but freight forwarders need to register with the International Air Transport Association (IATA) & Air cargo agent association of India (ACCAI).||• To be a customs broker a customs broker’s exam needs to be passed to obtain a license.|
|• Freight forwarders need to have many associations in order to smoothly carry the import-export operations||• Custom brokers need not have many associations.|
|• Freight forwarders are intermediaries between shippers and transport services.||• Customs Brokers are intermediaries between customs and importers/exporters on the country from where the import/export is being done.|
|• No qualification needed.||• Qualification of minimum graduation degree + postgraduate degree/ specialized degree needed.|
Understanding Customs Brokers v/s Freight Forwarders through examples –
Example 1: You are an exporter and you need to send your shipment of equipment from India to Japan. Your freight forwarder will give you a quote for this shipment and will ask if your customer in japan has a customs broker. If you say yes, then your freight forwarder will just do shipping and transportation work until the shipment reaches japan port and from there on the customs broker of your customer in Japan will do the import clearance and deliver the goods to your customer.
Now, in this case, the freight forwarder and the customs broker are two separate entities as your japan customer has his own customs broker.
Let’s take the same example where your Japan customer does not have a customs broker –
Example 2: Now here you say to your freight forwarder that your customer in japan doesn’t have a customs broker. So your freight forwarder will ask you if you want him to clear the goods in japan for your customer?
You say yes to him. Now your freight forwarder transactions changes, he will not only do the shipping and transportation but will also do the customs clearance at the japan port and deliver the goods to your customer.
How? – Your freight forwarder will have a tie-up with a customs broker in japan and he will assign him the job of clearance but your japan customer won’t be involved with a customs broker in his country.
Here, you are only contacting your freight forwarder and he will do the end-to-end export process. There is no other entity involved.
- In India, it does not matter if you hire a customs broker or a freight forwarder for your work because your customs broker have tie ups with freight forwarders and freight forwarders have tie-up with customs brokers because it is practically difficult for one single entity to handle the entire import/export process.
- For smoother process it is always better to hire a specialised customs broker for the product that you are importing/exporting. Means a customs broker who has cleared that product several times in the past.
- If you hire a freight forwarder, he might not be able to satisfy point no.2 and then the chances of mistakes and delays in shipments increase.
Calculate your costs and then decide if you want to hire a freight forwarder or customs broker or both. Cost includes your time cost, delays, and mistakes also along with other shipment costs.
Thank you for the amazing article
Thank you Allen!