Companies that regularly import or export goods in huge quantities often contact the shipping lines directly for their transportation requirements. These shipping lines own carriers and can easily cater to such large-scale deliveries.
Since most of these deliveries occupy the entire container or even several containers, there is no need for the consolidation of items or sharing of container space with other parties.
However, this is not true in the case of all shipments, several medium-smaller sized companies, mainly export firms do not have such large requirements and rarely have the leverage to negotiate with the shipping company directly.
This is exactly where the role of an NVOCC plays out.
What does an NVOCC mean?
NVOCC or "Non-Vessel Operating Common Carrier" or "Non Vessel Owning Common Carrier" is a company that procures spaces from VOCCs in bulk quantities and downsells them to small-medium sized shippers at a small markup.
In essence, an NVOCC does pretty much everything except for operate the actual ship or vessel. An NVOCC also issues its own bill of lading, popularly referred to as a House Bill of Lading (Read More), and in most practical aspects, it operates very similar to the manner in which a freight forwarder does.
Additionally, an NVOCC also provides services like stuffing and transporting multiple containers to various ports. NVOCC agencies sign contracts with shipping lines that allow them to offer shipping services to importers and exporters.
Such an arrangement is beneficial to both the parties i.e. the shipping line and the entrepreneur. It is a win-win situation as the shipping line doesn’t have to cater to smaller orders and gets a consolidated shipment, whereas, the small/medium scale company enjoys a cost-effective transportation solution.
What is the role of an NVOCC?
An NVOCC enters into an agreement with a shipping line and ensures to provide them with a shipment of a certain number of units per annum. The shipping line gets guaranteed business and hence provides discounted rates to the NVOCC. These reduced prices allow the NVOCC to provide the importer and exporter community with a cost-effective and safe method of transporting their cargo.
Why use an NVOCC?
With NVOCC on their side, merchants no longer have to bear the exorbitant rates of the shipping lines for the space that they don’t even require. An NVOCC consolidates multiple smaller shipments into a large one, thus providing pocket-friendly transportation.
Moreover, since NVOCCs ensure a high volume of business to shipping companies every year, these shipping lines are more than happy to provide them discounted rates.
2. A variety of transport options
One of the biggest advantages of using NVOCCs is that they provide an array of transport options for your cargo as these agencies sign agreements with multiple shipping lines. Hence, you get a bouquet of transportation choices and can choose the one that best caters to your needs.
If you want to track your cargo, the NVOCC can transport your shipment via a shipping company that provides this particular facility. If you are on a tight budget, the NVOCC will offer you options within your price range.
Directly dealing with the shipping lines won’t fetch you such facilities since they can only offer their own limited services. NVOCCs ensure that you get the best option available that meets your needs.
3. Tie-ups for end-to-end transport
Although NVOCCs do not generally provide end-to-end cargo deliveries, they often tie up with other local transportation companies. In this way, they provide seamless doorstep delivery solutions to their customers. This is useful for the merchants who don’t need to hire a separate agency for their last-mile transportation requirements.
4. Transportation simplified
NVOCCs act as a single point of communication for the importers and the exporters by taking care of consolidation, packaging, transportation as well as issuing of the necessary paperwork. While shipping cargo, you often encounter a range of confusing Incoterms. NVOCC guides you through this process, thus helping a lot of businesses who don’t have to run from pillar to post to ensure smooth transportation of their cargo.
Functions of NVOCC
Each country has its own set of rules regarding how to apply for an NVOCC license that allows it to conduct various services. In general, though, an NVOCC performs the following functions:-
- Issues a House Bill of Lading along with other transportation documents for the shipment.
- Blocks a space for the shipment in the container and arranges for the shipping as per the agreements with the shipping lines.
- Consolidates and deconsolidates the containers at the ports or the dry ports.
- Collects the service charge and other duties, and provides the receipts for the same.
NVOCC - Example
Suppose you are an exporter based in India and wish to export your cargo to Malaysia via sea. You contact multiple shipping lines but aren’t able to fetch a cost-effective deal due to the low volume of your cargo. So, you reach out to an NVOCC. As NVOCCs enter into volume and weight-based agreements with all the major shipping lines, these agencies will avail a good discount from them.
The NVOCC will act as a mediator between you and the shipping line. It will collect the goods from you, and consolidate them in the container along with the goods from the other exporters. It will issue a House Bill of Lading and transport the container to the port. After this, the shipping company will onboard the cargo on the carrier and ship it to the said destination.
At the destination port, the NVOCC will take charge of the container and deconsolidate it. Your goods would be available for pickup at their facility or any third-party Customer Freight Station (CFS). All these services come at a price that you wouldn’t have otherwise been able to afford as an individual exporter.
How to apply for an NVOCC license?
For operating within the US, all NVOCC and freight forwarders are required to apply for an Ocean Transportation Intermediary (OTI) license with the Food Machinery & Chemical Corporation (FMC). There are three types of OTI licenses.
- OTI- NVOCC
- OTI- NVOCC & Forwarder
If you’re an NVOCC, you may apply for either of the last two licenses depending on the kind of activities you wish to perform.
Getting an NVOCC license The following steps have to be followed for getting an NVOCC license in the US:-
Step 1: Establishing a credible business identity
The first step is to establish yourself as a credible and trustworthy business. In order to do so, you have to submit important documents related to your business, as well as the various permits, and certifications you have received till date.
Step 2: Appointing a qualifying individual
Once you've established the credibility of your firm, you can appoint a qualifying individual (QI) to carry out all the legal formalities related to your company. The person must be an officer at your firm or a partner/sole proprietor.
Apart from this, the QI must have a proven OTI experience of at least three years along with references within the US who can verify the same.
Step 3: Submitting form FMC-18
You can submit the FMC-18 form either electronically or hand over the physical copy. The online application fee is US$ 250, and for the physical one, it is US$1962.
Step 4: Providing a surety bond
Lastly, you need to submit proof of the financial soundness of your firm by furnishing a surety bond. The amount required will vary according to the nature of your business.
If you have applied for an OTI-NVOCC license, the total charges would be Fee* + US $10,000 per branch
*Fees for US-based and non-US-based firms are as follows:-
For a non-US Based NVOCC without OTI license: US $150,000 For a US-Based NVOCC: US $75000 For a US Based NVOCC: US $75000
After completing the above-listed steps, you are qualified to receive the OTI license for performing NVOCC operations within the US.
Note: This procedure is only for applying for an NVOCC license in the US. If you are operating in other countries, be sure to check out their respective legislations.
What are NVOCC charges?
NVOCC charges tend to vary from port-to-port, and also depend on the shipping line. Some of the services that are included under NVOCC charges are terminal handling, seal charges, BL charges, delivery order charges, survey charges as well as cleaning and washing charges.
What does an NVOCC stand for in the shipping line?
Shipping lines own gigantic vessels that transport cargo containers via sea. These companies enter into a contract with NVOCCs wherein the latter guarantees the former of providing a specific amount of business per year in exchange for discounted cargo rates. NVOCCs then extend these discounted rates to their customers who are often small and medium-sized businesses.
What is NVOCC in Bill of Lading?
NVOCCs are legally certified to provide a bill of lading known as a House Bill of Lading. The shipping lines, on the other hand, provide a Master Bill of Lading for the goods transported.
Advantages of using an NVOCC
Here are some advantages of exporting your goods through an NVOCC:-
Transparency: When you ship via an established NVOCC, you get a clear idea regarding the whereabouts of your shipment throughout the transportation process. You also get notified about the estimated time of arrival at various checkpoints, so you can prepare for the subsequent stages.
Flexibility to scale: When dealing directly with a shipping carrier, it may not be possible for you to make any last-minute scaling changes. This is mostly because these companies book their container spaces in advance and charge exorbitantly for any such last-minute deliveries. However, an established NVOCC has a good network with multiple shipping carriers and hence is much more likely to help you if you need space to accommodate additional goods.
Security: Once you hand over your goods to the NVOCC, it is their responsibility to ensure that the cargo reaches its destination safely and on time, as per the nature of the contract. This way, the agency becomes your single point of contact with regard to your shipment, making the entire process simple and secure.
Disadvantages of using an NVOCC
While there are numerous advantages to using the services of an NVOCC, there are certain drawbacks to it as well. They are listed below.
Limited authority: Since NVOCCs don’t generally own vessels, they have limited powers over last-minute modifications.
Delayed information: When you have opted for the services of an NVOCC, you will receive critical information about the state and the whereabouts of your cargo via the agency itself and not directly from the shipping company. It can so happen that there might be a slight delay in the process, and information may not be provided to you on a real-time basis. This lag could cause major problems especially if there is a change in the shipping schedule or routes.
Inadequate intimation: At times, the cargo may get damaged during the loading/unloading or transportation process. This information may be kept hidden from the NVOCC and thus could result in serious consequences for the merchants.
Difference between NVOCC & Freight Forwarder
FAQs on NVOCC
1. Is NVOCC a shipping line?
NVOCCs are not shipping lines as they don’t own carriers. NVOCCs are special agencies that enter into agreements with multiple shipping lines and use their carriers to transport the cargo of their clients.
2. Why are NVOCCs so popular?
NVOCCs can secure the best and the most cost-effective means of transportation for small and medium-sized entrepreneurs, making their services popular.
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