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Logistics Terms NVOCC (Non-Vessel Operating Common Carrier)

Registration dateMAR 30, 2023

NVOCC (Non-Vessel Operating Common Carrier)
  1. 1)Definition1)Definition

    NVOCC is short for Non-Vessel Operating Common Carrier. It refers to the one who is in charge of other shippers’ shipments without owning vessels. This concept started in multimodal transport in the US. Since NVOCCs do not have the means of transportation such as vessels, they sign a transport contract with shippers, select and combine the optimal means of transportation, and ask shipping companies for the transportation work. Moreover, NVOCCs become the agent of transport contracts, make contracts with shippers, and issue bills of lading in their own names. They not only act as a proxy but also sign contracts with real carriers and use services afterward. In the case of the US, NVOCCs and freight forwarders are classified under the Ocean Shipping Reform Act (OSRA), but those two often refer to the same concept.

    an image of shaking hands (Source : Clipart Korea)
  2. 2)Background2)Background

    The term NVOCC was first prescribed by the Federal Maritime Commission (FMC) in 1963. It started to strengthen the competitiveness of container shipping and facilitate the collection of cargo. It was defined in 1984 by the US OSRA and was legally established. Especially after the emergence of ORSA, the operation scope of the NVOCC not only covered the ocean but also between the inland and port (multimodal transport). That way, the term NVOCC referred to the carrier who does not own vessels but provides multimodal transportation.

    Image of a ship loaded with containers (Source : Clipart Korea)

    In the past, all the work on containers within 50 miles of the port was regulated to be only done by the port unions. In the 1970s, carriers started to hand over the consolidated work (filling one container by collecting small cargo) to the NVOCC for a cheaper price. As this kind of consignment was more and more boosted, regulation violations occurred, and legal debates continued. As a result, in 1984, the mandatory clause that only the port unions can work on the container was deleted as it was considered a violation of the US maritime law, and the position of NVOCC was legally acknowledged.[1]

    In 1998, when the Ocean Shipping Act of 1984 was reformed through the US Ocean Shipping Reform Act, the mandatory clause of the report system for carriers and FMC of NVOCC was abolished. Instead, the carriers, ocean alliances, NVOCCs, etc., participating in the transportation of container cargo in the US had to open the ocean freight rate on the internet web page. In addition, the qualifications of NVOCCs first recognized by the Ocean Shipping Act of 1984 were greatly strengthened. Just like the ocean freight forwarder, the NVOCC must also acquire a license from the FMC. To acquire the license, the NVOCC should have an experience in the related industry for more than 3 years. In the case of a head office, a financial security (bond, insurance, and surety) worth $50,000, and in the case of a branch office, a financial security (bond, insurance, and surety) worth $10,000 should be joined to guarantee financial liability.[2]

  3. 3)Role3)Role

    In the relationship with ocean carriers, NVOCCs take a role of a shipper. In the capacity of shippers, they can use the preferential rates for a large amount of cargo and service contracts (S/C). NVOCCs have the flexibility of large-sized shipments and are supplementary to the collection of small-sized cargo which is especially vulnerable for carriers. They especially started to take an important role for small- and mid-sized companies and companies with driblets of personnel and IT infrastructure. In addition, NVOCCs played the role of a middleman between real shippers and transport companies. Since they enable easier shipment of real shippers’ items, the demands of NVOCCs are gradually increasing. For example, they are similar to real estate agents: people can receive accurate guidelines and information for choosing a house from the help of real estate agents and can save the trouble of directly contacting the house owners.

    [Relationship between NVOCC and Real Shipper & Real Carrier] Relationship between NVOCC and Real Shipper & Real Carrier
    [Relationship between Ocean Freight Forwarder and Shipper & Carrier]Relationship between Ocean Freight Forwarder and Shipper & Carrier
  4. 4)Major Work and Effect4)Major Work and Effect

    The main work of NVOCCs is consolidating LCL (Less Than Container Load) cargo, providing transport services from port to port, and issuing bills of lading in its name. Most of the forwarders and truckers achieve an NVOCC license and do the work of NVOCCs. NVOCCs process all documentation required for exports and even act as a proxy for customs clearance as well as proceed with overseas work.

    In some cases, NVOCCs can do multimodal transport including ocean-air, ocean-land, and ocean-land-air. In addition, even though they do not have the means of transportation, they can deliver cargo to shippers’ desired places with their relationships with ocean/air carriers. In short, door-to-door service is available from the consignor’s workplace or warehouse to the consignee’s warehouse with consolidation transport. NVOCCs are efficient since they not only cover mere transportation but also integrated management including packaging, customs clearance, and processing of overseas work. Based on these, they contribute to the development of global consolidated transportation having competition with carriers.

  5. 5)Differences from Freight Forwarder5)Differences from Freight Forwarder

    NVOCCs play the role of carriers and middlemen for shippers. On the contrary, freight forwarders play more of a substitute for shippers. Generally, freight forwarders issue their own bills of lading based on the standardized documents written by the International Federation of Freight Forwarders Associations (FIATA), own container devices, and perform operating leases. However, NVOCCs can issue their own bills of lading that are not based on global standards and mostly do not possess their own devices. In addition, there is a difference in the liability of carriers: NVOCCs cannot receive forwarding commissions (brokerage) from ocean carriers.

    [Comparison of US Freight Forwarder and NVOCC]Comparison of US Freight Forwarder and NVOCC
# References [1] Cargo News : Terminology ILA 50 Miles Rules