SIC 4731 Arrangement of Transportation of Freight and Cargo

SIC 4731

This category includes establishments primarily engaged in furnishing shipping information and acting as agents in arranging transportation for freight and cargo. Also included in this industry are freight forwarders, which undertake the transportation of goods from the shippers to receivers for a charge covering the entire transportation, and, in turn, make use of the services of other transportation establishments as instrumentalities in effecting delivery.

NAICS CODE(S)

541618

Other Management Consulting Services

488510

Freight Transportation Arrangement

INDUSTRY SNAPSHOT

Companies engaged in the freight transportation arrangement business offer numerous services, ranging from import advice to shrink-wrapping freight crates. These firms are transportation middlemen that support the movement of cargo through the services they offer. Although relationships between forwarders and carriers may develop, the companies involved in arranging freight transportation are not affiliated with any particular carrier.

Automation, consolidation of information, and a strong customer orientation were the hallmarks of the industry in the 2000s. Freight transportation arrangements were rendered by two major types of establishments: freight forwarders and customs brokers. Although many large companies offered both types of services, the businesses were distinct.

ORGANIZATION AND STRUCTURE

Freight Forwarders

Freight forwarders operate under many names and licensing requirements. All freight forwarders, however, are transportation intermediaries that arrange the movement of cargo according to customers' needs. Supplementary services such as shipment tracing, warehousing and storage, and the preparation of letters of credit also are offered by forwarders. Freight forwarders often are referred to as "transportation architects."

Through working with numerous air, road, rail, and water transportation companies, these establishments endeavor to find the least expensive and most efficient freight routings possible. Their services are popular with shippers because freight forwarders are not affiliated with one carrier and therefore are not biased or restricted. Also, forwarders are known for their expertise in the ever-changing regulations that affect cargo movements, such as hazardous goods handling, documentation, and insurance. The carriers, in turn, welcome the business from forwarders. In fact, smaller carriers, who cannot afford to maintain sales staffs, depend on the business tendered by forwarders.

All forwarders that are involved in ocean, truck, or rail forwarding must be licensed by either the Federal Maritime Commission (FMC) or the Interstate Commerce Commission (ICC). However, the majority of freight forwarders are licensed by the Federal Maritime Commission as ocean freight forwarders. Some ocean freight forwarders, known as non-vessel operating common carriers, operate as third party carriers and issue their own bill of lading. Since deregulation of the U.S. air transportation industry, air freight forwarders have not been subject to formal licensing requirements; however, most air cargo agents that are involved in international forwarding are endorsed by the International Air Transportation Authority (IATA).

Customs Brokers

Customs brokers provide services to importers and exporters and facilitate the clearance of shipments through customs. One particularly important service offered by a licensed customs broker is advice on regulations and laws pertaining to customs clearance and the power to argue on behalf of a client during the clearing process. In this regard, a customs broker is similar to a lawyer. Brokers may also provide advice and information on quotas for controlled commodities, trademark restrictions, and dumping duties, among other topics.

The customs brokerage industry is highly regulated by the U.S. Department of the Treasury. According to Section 641 of the Tariff Act, customs brokers must be individually and personally licensed by the Treasury, and brokerage firms must obtain a separate license. In order to be licensed, an individual must pass a comprehensive test, which often is passed by fewer than 40 percent of the test-takers.

Financial Structure

The rate structure for both freight forwarders and customs brokers is extremely competitive. These establishments operate on very thin profit margins. Freight forwarders generate...