Forwarders in motion

Forwarders in motion Entrepreneurial spirit isn't broken by global economic doldrums.

By Chris Gillis

      Cargo volumes may have fallen, but that hasn't stopped people from submitting applications with the U.S. Federal Maritime Commission to become licensed ocean transportation intermediaries.
      For the past several years, there has been a steady increase in the number of OTI licenses issued by the FMC. In addition, the number of applications received, both new and amended, has increased annually.
      'We anticipate new and amended applications will continue to be filed with the commission at a constant rate. We do not foresee any sudden spikes or decreases,' said Sandra Kusumoto, director of the FMC's Bureau of Certification and Licensing.
      'At one time we would expect to see a noticeable increase around the onset of service contract negotiations, however, over the last two years, it has been steady throughout the year,' she added.
      The FMC received nearly 650 new and amended license OTI applications in fiscal year 2006, followed by 751 in 2007 and 738 for 2008. The FMC believes the slight drop in applications coincides with the launch of its automated online FMC-18 form in fiscal year 2008.
      'With the FMC-18 automation, a new system was put in place to prescreen an application before it is assigned to an analyst,' Kusumoto explained. 'If it is determined to lack sufficient information at the prescreen stage, the application is placed on hold until the information is received. If the information is not received, the applicant is notified that its application cannot move forward for processing.
      'We suggest that the minor drop in the number of applications can be attributed to applicants who have determined not to further pursue the filing process,' she said.
      Yet overall the FMC experienced an annual increase in the number of licensed OTIs on record, including 3,877 for fiscal year 2006, 4,027 in 2007, and 4,272 in 2008.
      The FMC believes that more applicants will take advantage of the electronic application filing process. To file a new OTI application on paper costs about $825, compared to $250 by filing electronically. Similarly, it costs $525 to file an amended application on paper versus $125 to file the electronic version.
      In fiscal year 2008, about 80 percent of OTI applications were filed electronically, and through March 31, about 90 percent were filed electronically, Kusumoto said.
      The FMC publishes lists of license applications under its review in the Federal Register on a near weekly basis. Again, this doesn't mean that all the applicants will follow through with the process.
      'We are seeing a greater number of approved applicants not receiving licenses because they have not been able to procure a bond within the 120 days after approval,' Kusumoto said.
      Still, the number of new OTI applications exceeds the number of licenses that have been revoked or voluntarily surrendered to the agency, and approvals that have expired, she said.
      So, what's the attraction to the freight forwarding and non-vessel-operating common carrier business?
      For some, it's a matter of finding employment after a layoff, or a freight transportation company looking to expand its logistics services portfolio. For others, it may simply be an entrepreneurial desire to start one's own business based on experience working for others in the industry.

Jorgensen

      'I realized it was something that I enjoyed doing,' said Thomas Jorgensen, who last year left an established forwarder to start his own company, Green Worldwide Shipping, based in Atlanta. 'If you're in this business long enough, you can't get out.'
      Steven Leff, a 20-year veteran of the industry, was recently brought on board by International Logistic Services (ILS) to establish an ocean freight division that specializes in the surface movement of personal effects and household goods. ILS is already one of the world's largest international household goods air freight forwarders.

Leff

      'Air freight has always been our specialty, but providing ocean freight services has and is now a major corporate focus,' said Jean-Paul Noens, president and founder of ILS, based at JFK Airport in New York. The new ILS ocean freight division is located in Louisville, Ky.
      No matter how an ocean forwarder or NVO gets its start, it must follow the FMC's license application process.
      Once an application is received, the FMC reviews the documentation and contact information, and conducts an investigation of the applicant.
      If approved, the agency notifies the applicant and requires proof of financial responsibility, most likely in the form of a $50,000 surety bond for an ocean freight forwarder license or a $75,000 surety bond for an NVO license. In addition, each unincorporated U.S. branch office of the applicant performing OTI services is required to increase its bond by $10,000 and to report the addresses of those offices to the FMC. Once a license is issued to an NVO, it must file a Form FMC-1, which notifies the FMC of the location of the NVO's electronically available tariff. The NVO must then ensure the tariff is published.
      Non-U.S.-based NVOs that do not wish to be licensed must provide the FMC with proof of financial responsibility in the amount of $150,000 (Form FMC-1), and ensure a tariff is published at the site listed on the form. The FMC said a non-U.S.-based NVO must list in its tariff an agent for service of process in the United States, and it must use a licensed OTI for any OTI services performed on its behalf in the United States.
      Non-U.S.-based NVOs that choose to be licensed must submit Form FMC-18 together with the required documentation and fee. In addition, the entity must establish a U.S. presence, such as an unincorporated branch office. The amount of financial responsibility is $75,000 plus $10,000 for each unincorporated U.S. branch office. A Form FMC-1 must be filed and a tariff published.

Albert Saphri president, ABC Consulting
'It's a business where you can make a living, but you need to have skilled people, cash control, and a solid understanding of market pricing.'

      The FMC publishes the names of ocean freight forwarders that are licensed and bonded, as well as NVOs that are licensed, bonded and have filed an FMC-1, or are foreign-domiciled NVOs that are bonded and filed an FMC-1. This information can be found on the FMC's Web site (www.fmc.gov) under 'OTI List.'
      Both Jorgensen and Leff told American Shipper that they found the FMC's application review process in line with their expectations.
      'I've done this before, and so has many of my managers,' Jorgensen said. 'There were no surprises.'
      Leff believes the FMC is doing a better job to ensure that OTI applicants deserve to be licensed freight forwarders or NVOs. 'I think this level of scrutiny helps to produce a better industry,' he said.
      Due to the thoroughness of the application and its requirements, Leff recommended using an experienced maritime attorney to assist in the process. 'It is money well spent,' Leff said.
      The licensing process is one step in building a forwarder-NVO operation. Careful planning is equally important.
      'You need a realistic business plan that can deliver results,' Leff said. 'Work toward what you can accomplish weekly and monthly.'
      ILS will use its new ocean freight division first to secure more business in international household good moves and expand into other commodities.
      'As small startups go, you can't be everything to everyone,' Jorgensen said. 'You need to identify your customer base and set up an agent network.'
      In addition to Green Worldwide's Atlanta location, the company has a branch office in Los Angeles. Most of the company's 12 employees worked with Jorgensen at his previous firm. 'It's still a people business and maybe even more than it was before,' he said.
      Due to Jorgensen's industry experience, Green Worldwide has focused its initial services on the inbound Asia/U.S. and U.S./Scandinavia trades. 'The Asia market is still large and it's fairly easy to gain market share,' he said.
      'It's been a very positive experience,' he added. 'Everyone we counted on came through.'
      Some shippers are in better shape than others in the global recession. 'I don't have a crystal ball, but it seems like there's a little light at the end of the tunnel,' he said.

Greg Howard president, CaroTrans International
'If you're not capitalized and you're starting out, it will be a challenge to get the right credit facilities in place. A flashy Web site and e-mail address just won't cut it.'

      'It's a business where you can make a living, but you need to have skilled people, cash control, and a solid understanding of market pricing,' said Albert Saphir, president of ABS Consulting, a firm specializing in assisting forwarders and NVOs with setup, operations management, and regulatory compliance issues.
      'There's still an incredible amount of inefficient workflow and that may be the downfall of some of these new companies,' Saphir said. 'Many companies need to find better ways to do things.'
      Saphir recommends that startups invest in computer systems to help manage their operational processes, such as cargo tracking and tracing, pricing, and cash flow. Companies should expect to spend $8,000 to $15,000 for a decent off-the-shelf industry software package, he said.
      Another aspect that is equally important, but often neglected is compliance with federal regulations, including those of the FMC, Customs and Border Protection, Bureau of Industry and Security, and Transportation Security Administration. The penalties for non-compliance can be large enough to shutter a small forwarder or NVO.
      'You need to make sure you're compliance trained, and you will have to make investments in this,' Saphir said. 'I see a lot of companies that have never done it.'
      But it's often these same non-compliant firms who pose the biggest competition to legitimate startups.
      'You'll be competing with fly-by-nights and shady operators,' Saphir warned. 'You will need to differentiate yourself because you can't realistically compete with them otherwise.'

Additional Scrutiny.    Once a startup forwarder, NVO, or combination of both, has amassed its first shipments, it will likely face additional scrutiny and checks from carriers.

Abisch

      'Econocaribe does enjoy some support from new OTIs, but certainly the bulk of our business comes from the established OTIs,' said John Abisch, president of the Miami-based neutral NVO, which consolidates freight on behalf of forwarders and other NVOs. 'They're not necessarily the largest OTIs, but rather the ones whom have been in the business for a while and trust our service and integrity.'
      When a new OTI does knock on the door, Econocaribe uses the FMC Web site to identify if it is licensed. Next, the NVO requires the OTI provide a copy of its license. In order to establish credit, Econocaribe has the new OTI fill out a credit application, which details Econocaribe's expectations and credit terms, as well as runs a Dun & Bradstreet credit report to help determine the OTI's credit limit, Abisch said.
      Econocaribe's financial background checks mirror the neutral NVO industry approach to startups at large. Although some new forwarders and NVOs have established contacts among carriers and freight consolidators, freight transportation providers aren't taking chances with their cash flow and credit management, not even with long-time customers.

Govan

      'We don't want to cut corners,' said Fiona Govan, corporate general manager for Hoboken, N.J.-based Shipco Transport. 'Otherwise, there's the risk that we could miss out on steps in the due diligence process.'
      'Frankly, if you're not capitalized and you're starting out, it will be a challenge to get the right credit facilities in place,' said Greg Howard, president of CaroTrans International, a Union, N.J.-based NVO. 'A flashy Web site and e-mail address just won't cut it.'