Nominated or your own: who chooses the forwarder, and what it costs

Who is allowed to choose

On PO NBK-7714 the incoterm is FOB Alexandria. An incoterm is the rule in the sale contract that says where the seller's job ends and the buyer's begins. Under FOB the seller delivers on board and the buyer contracts the carriage. So Norlbeck chooses the forwarder. That is not a policy, it is what the term says. Norlbeck nominates Halvorn Logistics. Fanara books through Halvorn, presents documents to Halvorn, and pays Halvorn the origin charges that fall on the seller.

The opposite arrangement is a free or own-choice shipment. The supplier books whoever it likes, and the buyer receives whatever transport document turns up. Between the two sit routing guides, preferred-supplier lists, and nominations that apply to some lanes and not others.

Merchandisers on both sides tend to treat this as an administrative fact. It is a commercial one, and it moves money in both directions.

What the nomination buys the buyer

Norlbeck did not nominate to be difficult. Across a season it receives from twenty-two suppliers in four countries, and a nomination gives it:

• One format. One set of shipping instructions, one document layout, one arrival notice, one tracking file. Twenty-two forwarders would mean twenty-two of each.
• Consolidation. Volume on one lane is a rate negotiation. Volume spread across twenty-two forwarders is not.
• Control of the documents. The bill of lading, the packing list format and the pre-alert are built to Norlbeck's specification, and its broker gets the same pack every time. Lesson 6 is about what that is worth.
• The ability to hold cargo at origin. When a store launch moves, Norlbeck can tell its own forwarder to hold a box. It cannot tell a supplier's forwarder anything.
• One party accountable at destination. Halvorn's Rotterdam office answers for the file, whoever shipped it.

Priced on this container, the nomination is worth 279 to Norlbeck. It pays 1,833 of ocean and 880 of destination charges with Halvorn, against 1,688 of ocean, 1,160 of destination and 144 of detention with Marbrook.

What it costs the supplier

Origin charges it did not negotiate. Fanara paid Halvorn 778 in origin charges. Marbrook, its own forwarder, would have charged 688 for the same seven services. The difference is 90 a container, and Fanara ships 28 of Norlbeck's 46 containers a season, so USD 2,520.

Put that on a garment and it is 0.0075 a piece, which is 0.05% of the FOB of 14.20. It is a small number and it should be stated as one. The point is not the size. The point is that it is a real transfer, it was never quoted, and it is invisible in a cost sheet that has no line for it.

A single option where there were two. The service Halvorn books sails from Alexandria on Sundays, with a Saturday deadline for delivering the container into the terminal, and a 21-day transit. Marbrook books a line that sails Wednesdays, with a Monday deadline and an 18-day transit. For this shipment those two arrive on the same day: the Sunday sailing on 13 September and the Wednesday sailing on 16 September both put the box in Rotterdam on 4 October. What differs is that the second one gives the factory three more days to finish.

Under a nomination Fanara has one of those two. A nomination does not usually cost a supplier much money. It costs it options, and an option is worth nothing until the week you need it. That week, in lesson 5, is the following one.

Documents typed by a party it does not pay. Halvorn's documentation team builds the bill of lading from Norlbeck's template. Fanara sends a shipping instruction saying 750 cartons. The template rolls it into one container line. Lesson 1 has already shown what that costs when something goes wrong. Fanara can ask for the amendment, but it is asking a supplier of its customer, not a supplier of its own.

The mistake nobody made

Fanara quoted FOB 14.20 in March. The costing included an allowance for origin freight built from Marbrook's schedule, because Marbrook is who Fanara uses. The PO was confirmed in April. The nomination arrived with the shipping instructions in May, in a routing guide attachment, and was read by the shipping clerk rather than by the costing team, because that is who routing guides are addressed to.

Nobody was wrong. The costing used the best information it had. The routing guide went to the right person for the job it was doing. But the price was built on one origin schedule and the order shipped on another, and no document in the chain compares the two.

The fix costs one line in the request for quotation: which forwarder will this ship on, and may I see its origin charge schedule? A buyer who nominates has that schedule, because it is part of the forwarder agreement. A supplier who asks for it before quoting is not being difficult, and a buyer who supplies it gets a price with fewer assumptions inside it.

The documentary trap that only exists because of nomination

There is one more consequence, and it catches sellers who are paid against a documentary credit.

FCA is increasingly used instead of FOB for container cargo, because a seller loading a box at its own factory is not really delivering over a ship's rail. Under FCA the seller hands over before loading and has no contract with the carrier. So the seller cannot obtain an on-board bill of lading, which is a bill stating that the goods are loaded on a named vessel. On-board is a fact about a ship the seller has no relationship with. If its bank requires that document, the seller is being asked for something only the buyer's carrier can issue.

Incoterms 2020 deals with this directly, with an optional provision under FCA. Where the parties agree it, the buyer must instruct its carrier to issue an on-board transport document to the seller. It is optional, so it has to be agreed in the contract, and a seller who assumes it applies discovers otherwise at the bank counter. Documentary credits, and what a bank will and will not accept, belong to track 13. The piece that belongs here is that this problem is created entirely by who was allowed to choose the carrier.