You’re in Charge: Selecting and Managing Freight Forwarders

Effectively managing your freight forwarders helps improve supply chain compliance.

At risk of compliance failures in their physical supply chains, many U.S. exporters and importers complain about their inability to manage freight forwarders and customs brokers effectively. But they have more ability— and responsibility— than they think.

Regulatory changes have made accurately recording and maintaining trade-related data a compliance requirement. While data input has been more or less automated, thereby minimizing paperwork and easing access to information, this “upgrade” also brings a higher visibility of errors to the regulators, increased fees and penalties, and a heavier responsibility load for the trade community. Compliance problems arise from a lack of awareness and insufficient training on requirements.

In the current economy, in which many companies are struggling to grasp regulations and keep up with requirements, there is a tendency to place the onus on freight forwarders, making them responsible for classification, reporting, accuracy, and recordkeeping. This is not a recommended approach, especially for U.S.-based businesses.


Forwarders rely on information provided by the exporter. Though they have written authorization to represent a business, forwarders typically expect the exporter to provide accurate information. Furthermore, regulators will hold the exporter responsible, not the forwarder, if the information is incorrect. A forwarder’s primary role is to arrange and manage the transportation of goods; they should not be expected to serve as a company’s compliance personnel.

Choosing a Freight Forwarder

You must first choose a freight forwarder before you can manage one. Even in this economy, do not let cheap rates and low logistics costs wrongly influence that choice. The old adage rings true: you get what you pay for. Selecting the best forwarder for your business is critical to smooth supply chain operations.

At the beginning of the freight forwarder selection process, it is wise to create a requirements list. The freight forwarder must have knowledge of and experience in your product, desired shipment method, and destination country. The freight forwarder’s staff must be trained in U.S. Department of State and Department of Commerce (including Census Bureau) documentation, recordkeeping, reporting, and licensing requirements.

The freight forwarder must also demonstrate willingness and the capability to communicate regular status updates and problems, and maintain records on export transactions, including the depletion of licenses in order to provide comparative internal audits.

Even in this economy, do not let cheap rates and low logistics costs wrongly influence your choice of freight forwarder. You get what you pay for.

Other important requirements are Customs-Trade Partnership Against Terrorism (C-TPAT) certification, authorization to file electronic export information and shipper export declaration (SED) and submit the shipper’s reports via the U.S. Automated Export System (AES) for filing SEDs electronically, and full internal quality controls.

Depending on the business requirements, companies should keep their forwarder relationships to a manageable number. In general, you should choose no more than two or three freight forwarders, as managing multiple forwarders requires more manpower and can ultimately create more problems than it solves.

Put in place a power of attorney (POA) with each authorized forwarder, clearly defining its role and responsibilities in your supply chain. And while there are certainly times when a company must grant limited authority to other agents, this should be a rare exception— never the rule.

Your evaluation process should also include meeting with each potential forwarder’s operational staff so you can gauge their capabilities. Don’t let the forwarder’s account representative keep you from interfacing with operational staff during the evaluation process.

A Mission to Manage

After you have selected a forwarder, your challenge and responsibility becomes managing the service effectively. The following forwarder management activities are all critical to maintaining best-practice standards. Give them high priority.

Establish and maintain clear communication guidelines. Creating and maintaining an open dialog with your freight forwarder is vital. You should discuss and document needs and expectations up front. Provide detailed documentation to support any potential staff turnover that may occur. Hold regular conference calls or face-to-face meetings to discuss problems and identify solutions that will improve compliance and shorten timelines. Keep metrics of your shipping activity to monitor progress and problems— both yours and the forwarder’s.

It is essential to have a reporting structure for any potential non-compliance issues or government inquiries relative to the transaction. This may seem like a lot of work, but your compliance department will function more smoothly, and you will have better control of your shipping activity.

Be sure the communication process includes prior notification of shipments. For exports, use a Shipper’s Letter of Instruction or its equivalent to ensure that shipment details are communicated clearly and accurately. Many mistakes occur because a forwarder has insufficient or inaccurate shipment information.

In addition to the required logistic information, such as weights and dimensions, export-related documents should include compliance information such as Classification, License Authorization, and AES Internal Transaction Number. For imports, require that forwarders notify you of all incoming shipments. This allows time for verifying shipment details, such as consignee and correct harmonized tariff schedule classification, and ensuring supporting documents are provided.

Get a complete copy of the transaction. A common complaint from exporters and importers is that they are unable to get a copy of their shipping records. Establishing communication guidelines makes this much easier. A checklist of required documents will help ensure that the entire transaction has been received. Giving a copy of the checklist to the forwarder can help limit the number of requests.

Audit documents after receiving them. The audit doesn’t have to be complete, but your compliance department should establish a threshold to maintain a good compliance rating. In general, you should conduct a weekly audit for a smaller threshold and a quarterly audit for a larger threshold. If you find errors, you can correct them as soon as possible to limit potential penalties and fines. As you find and correct errors, research each occurrence so that the problem is solved for future shipments.

Maintain strict controls on AES filings. To avoid mistakes, it’s best for the exporter to directly file AES. Mistakes are less likely to occur when you have more control over your shipment documentation; you’ll also spend less time managing your forwarder.

If you opt to have the forwarder file AES, put strict controls in place. Your best defense is to outline clear Service Level Agreements. If possible, get a copy of the transaction before it is submitted. Changes to the AES record will result in a compliance alert message to the filer, meaning your shipment violates export reporting requirements. If a filer consistently receives compliance alerts, the business practices that led to them must be identified and corrected. The filer will otherwise be subject to delays, fines, and/or penalties.

Know your responsibility in the transaction. Too often, companies are identified as exporter of record without their knowledge. Regardless of terms of sale, under the various U.S. export regulations, all parties remain liable for compliance.

It is essential to know your responsibility and participation in the transaction. Just because the export is Ex-Works, do not assume that you are not the U.S. Principal Party in Interest (USPPI) or the exporter of record. Often, if the goods are leaving your dock, you are involved with the AES record.

Under the Foreign Trade Statistics Regulations, the USPPI or its agent is responsible for ensuring the AES records are properly filed. The U.S. Bureau of the Census identifies what information the USPPI and forwarder must provide.

The USPPI is responsible for coordinating with the forwarder and ensuring that all records are filed and all information is accurate. Exceptions are “routed transactions,” where the forwarder acts on behalf of a party other than the USPPI. In these cases, the U.S. Bureau of the Census has defined which party is responsible for certain information.

Make compliance your business. You know your transactions better than anyone. A freight forwarder will never be able to effectively run your compliance program, and you cannot outsource liability. The onus is always on the exporter and importer. When a government agency comes knocking, very little blame for violations can be laid on the forwarder.

The more control you give up, the more likely you are to increase regulatory noncompliance risk. With the exception of AES, companies should control their own jurisdiction determinations, classifications (both Schedule B and HTS), license determination, license authorization, and screening.

Qualify your own transactions. Don’t let forwarders qualify your transactions for preferential trade agreements. Often, improperly trained shipping personnel are responsible for filling out the certificates of origin. Only the trained personnel in your company’s compliance department should perform the cumbersome, detailed qualification process.

Limit POAs, written authorization, or signed authorization granted to agents. The more POAs and authorizations you give forwarders, the harder they are to manage. Many companies— both importers and exporters— aren’t even sure how many authorizations they have granted, and therefore are unable to manage their forwarders.

Importers who have granted POAs to several customs brokers discover that shipments attain customs clearance without their knowledge; the freight just arrives. No import documentation is provided, making it nearly impossible to audit the transaction. Are qualified experts performing the classification? Do you audit for accuracy? Are you overpaying duty or, worse, underpaying? Do you have all the documents required for a complete transaction file?

These are just a few common problems experienced when you lose visibility into your supply chain and control over your brokers. Limiting authorizations limits errors— and, just as important, your workload.

Keep talking. It’s important to keep your forwarder aware of new regulation enforcement and new technology development. When an open dialog is maintained, you can more readily share, plan, and act upon information. A proactive approach will limit your errors— which will limit the time you spend correcting them and reduce the likelihood of penalties and fines.

A proactive approach will limit your errors—which will cut the time you spend correcting them and reduce the likelihood of penalties and fines.

The Compliance Driver’s Seat

None of this is to say that forwarders are free from liability; just the opposite is true. In August 2009, after a five-year government investigation, a global freight forwarder reached a $9-million settlement agreement with the U.S. Bureau of Industry and Security (BIS) and U.S. Department of Treasury’s Office of Foreign Assets Control in a case involving hundreds of shipments to Iran, Sudan, and Syria, and a failure to adhere to government recordkeeping requirements.

BIS has published a helpful guideline on the forwarder’s responsibility within any given transaction. Forwarders are still subject to criminal prosecution and penalties for violations of U.S. trade regulations, such as Export Administration Regulations and International Traffic in Arms Regulations. And, they are still responsible for knowing their customer and being aware of red flags that may appear in a transaction.

But ultimately, the importer or exporter is responsible. It’s much harder to avoid an accident if you are a passenger instead of the driver. To effectively manage your freight forwarders and brokers, be the driver in your compliance department. Be an active participant in your account. Know the regulatory requirements. When you take control, the ever-changing and evolving compliance world— including freight forwarders— becomes much more manageable.

Mark Parker is a consultant for the Trade Management Consulting team at J.P. Morgan, 512-743-7937.

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