Clearing and Forwarding: What Are They and What's the Difference?

by Vector | Sep 4, 2020 12:00:00 AM

Clearing and Forwarding: What Are They and What's the Difference?

September 4, 2020
Clearing and Forwarding: What Are They and What's the Difference?

No company can operate as an island when transporting items. Long-distance shipping requires using many different entities—and trusting them to act on your behalf. This is the only way to run a successful and profitable operation. Failure to coordinate these parties can cause massive headaches. It can also frustrate customers and hurt your bottom line.

That's where clearing agents and forwarding agents come in.

These two entities play critical roles in the shipping industry. In fact, these parties act on behalf of shippers during the transportation process. While these agents don’t necessarily work together, they're still responsible for many tasks during a delivery.

With that in mind, let’s take a closer look at these critical roles, explore their differences, and examine why they’re necessary.

What's a Clearing Agent?

Countries have strict regulatory requirements governing customs. These requirements can be highly complex. In many cases, they can require local accredited agents to act on their behalf when consulting with border agencies and customs authorities.

A clearing agent can be a company or a trusted independent contractor. Most often, a customer or a freight forwarder appoints these individuals.

What are some of the main responsibilities of a clearing agent? Let's look at them one by one.

1. Arranging Document Transfers at Customs

Customs processing can be hectic and time consuming. In these scenarios, local agents typically have little patience for careless errors. They need to move quickly to avoid traffic jams and other disputes.

This is why the clearing agent needs to be ready with all the necessary documents once a shipment comes in for unloading. A clearing agent is responsible for procuring the bill of lading, buying order, bill of entry, certificate of origin, and sales invoice, among other items.

However, certain countries may have unique documents that must be present before a shipment leaves port for its destination.

With so much on the line, it’s vital to work with a clearing agent who is highly organized, detail oriented, and up to date with their country’s latest customs requirements. Otherwise, you may run into significant complications.

2. Calculating and Paying Duty and Value-Added Tax (VAT)

Two fees that shippers need to pay at the time of entry into another country include a customs duty and VAT.

A customs duty is a fee that a government adds onto imported goods. It’s usually variable and subject to the type and quantity of the goods being imported.

A VAT is a separate charge. Very simply, it’s a consumption tax that some governments place on a product when value is added along different parts of the supply chain.

The clearing agent is responsible for paying both of these fees at the time of entry. After the agent pays, he or she then charges the shipper accordingly.

3. Avoiding Demurrage Charges

Clearing agents also play an important role in avoiding demurrage charges, which happen when items sit too long in a terminal. In most cases, items will have a free period of two or three days before charges start accruing. There are some workarounds here. But, generally speaking, shipping companies need to make sure their items don’t overstay their welcome. Otherwise, they may be hit with significant demurrage charges—much to the chagrin of stakeholders.

Therefore, it's important to work with a reputable and efficient clearing agent who can push shipments through customs. That way, you can avoid unnecessary complications and surcharges.

Now that you have a better understanding of what a clearing agent does and what they’re responsible for, let’s take a look at the other side of the coin: the forwarding agent.

What's a Forwarding Agent?

Before a clearing agent can go to work, items first need to reach their destination safely and in a timely manner. This is a task that requires significant backend coordination and oversight.

Most shippers lack the time and ability to oversee all aspects of delivery. And this is precisely where the forwarding agent, also called a freight forwarder, comes into play.

In shipping transactions, the forwarding agent acts on behalf of a shipper (usually an importer or exporter) or the shipper's partners. The forwarding agent is responsible for organizing transport and ensuring that items get delivered according to plan.

Like a clearing agent, a forwarding agent can be either a company or an independent contractor.

At this point, you have a solid understanding of what a forwarding agent is. Next, let’s take a brief look at some of this agent's main responsibilities.

1. Insurance Selection

There are many different types of insurance to consider during shipping, and it’s important to have a thorough understanding of each one.

Shippers can rely on forwarding agents to make cost-effective and secure insurance decisions throughout all aspects of a multifaceted delivery that may include land, sea, and air transport. Shippers are in the business of sending goods; they’re not insurance experts. Forwarding agents can take care of these important responsibilities for them.

2. Packaging

Packaging is also a complicated process. In large part, this is because shippers typically lack the time and attention to monitor packages.

Forwarding agents help here by assessing the cargo that’s being transported. They then decide which options are available to deliver items safely.

3. Carrier Selection

Another important responsibility for the forwarding agent is selecting transportation providers. This can be a complex process—especially when chartering boats and arranging land transportation.

4. Route Selection

A forwarding agent will also have a say in selecting the proper route when transporting items. This requires advanced knowledge of international shipping routes, weather patterns, customs, suppliers, and more.

Pitfalls To Avoid When Working With Agents

As you can see, clearing and forwarding agents play a significant role in shipping. In fact, they have more responsibility than the shipper itself when you consider all that they oversee throughout the process.

Unfortunately, companies often run into problems when working with agents due to the following reasons.

1. Lack of Communication

Agents often have many customers to oversee. Because of this, they can be difficult to get a hold of.

It’s critical to work with an agent that is accessible and devoted to support and assistance. The last thing you want to do is work with a clearing or forwarding agent who will disappear until the final bill comes through. Timely communication is critical along every step of the process if you want a seamless operation.

2. Poor Visibility

Along with a lack of communication, shippers also tend to struggle with poor visibility into item handling during the transportation process.

This is a nightmare for detail-oriented shippers who prefer to know where their items are during transport and what types of costs are accruing.

3. High Costs

Another downside to working with shipping agents is having to pay high fees for their services.

Forwarding and clearing agents can be pricey. And taking the cheap way out is not advisable, especially when transporting high-value cargo or doing business in foreign ports.

How To Protect Yourself When Working With Agents

Despite the above-mentioned challenges, agents are critical to the success of most shipping operations. And with the right mobile technologies, you can avoid—or even eliminate—many risks.

Vector offers a full suite of customizable mobile shipping apps that can streamline communication along every step of the way.

Check out Vector’s offerings designed to improve your shipping processes.

This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science, and creativity can help workers be more productive. In his spare time, he likes seeing or playing live music, hiking, and traveling.

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