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Category Archives: Maritime Law

What is an ATA Carnet in Shipping?

In French, the word ‘carnet’ simply means a notebook. Later on, this word came to be commonly used for ticket books or a bunch of tickets bound in the form of a simple booklet from which it can be torn off and used.

Today, if you were to check the dictionary for the word ‘carnet’ you will find that it means ‘a permit, license, or document issued by a customs authority for the movement of an item from one country to another for a short period after which it has to be brought back to the country from where it was sent’.

Global business operations these days may require the movement of goods or equipment from one country to another for a short period. In such cases, it is not taken for sale or consumption.

To take an example, business organizations often display their products at international exhibitions, trade fairs, etc. A product for display has to be first exported to the country where the exhibition or trade fair is being held. It may have to pass through several countries, enroute.

Once the event is over, the product has to be taken back to its country of origin. Such temporary transfer of goods between countries without having to pay customs duties or following the normal customs formalities is facilitated through an easy customs arrangement called the ATA Carnet.

It allows goods into a country on a temporary basis while guaranteeing payment of customs duty in the event of a default. That is, if the goods are not taken back to their country of origin within the specified period, customs duty becomes payable.

An ATA Carnet can be availed by any legally registered business organization. It is more popular among exhibitors, motion picture filming crews, sports teams, etc.

What is an ATA Carnet?

The acronym ATA stands for ‘temporary admission’ or ‘admission temporaire’ in French. It is an international agreement between customs authorities of certain countries that allows for the movement of goods between these countries without having to pay customs duty or having to move the goods through a bond.

Currently, there are about 80 member countries to the Customs Convention on ATA Carnet that is administered by the World Customs Organization (WCO). A council working closely with the WCO called the World ATA Carnet Council (WATAC) is in charge of managing the system. Representatives of the member countries make up the WATAC.

The ATA Carnet does away with the need to pay customs duty at a port of entry, keep the imported goods in bond, furnish sureties and guarantees, or fulfill other customs formalities normally associated with the import of goods. It is a system of quid pro quo where the appointed bodies of the member countries guarantee each other on the agreements.

Member countries usually have a single body that would guarantee such transactions, but a few leading countries have several bodies that are authorized to issue guarantees.

What does the ATA Carnet issuer guarantee?

The basic guarantee states that duties and taxes will be paid by the guaranteeing body in case the arrangement is found to have been misused. As such, an exporting organization cannot sell or transfer the goods once it reaches their destination. It has to ensure that the goods are taken back to the country of origin within a specified time frame.

Most guaranteeing bodies take security from the exporting organization to cover claims that may come up in case of any default. Such securities are usually in the form of bank checks or surety bonds.

Benefits of ATA Carnets

The popularity of ATA Carnets stems from the fact that it can be prepared easily by any legally registered organization wishing to export their product and bring it back within a certain period. This document is then checked and verified by the customs. As we can see here, it does away with cumbersome processes that are otherwise involved in exporting and later re-importing an item under a duty-exempt agreement.

There are considerable savings in time and money when an ATA Carnet is used. It benefits both the organization sending the goods as well as the customs departments as there is much less administrative work to cover.

In the event of an exporter defaulting on taking back the goods within the specified period, customs duty is automatically charged and becomes payable immediately by the guaranteeing body. A penalty is also usually charged when such goods exceed their validity of stay in the foreign country. Most of the ATA Carnets are valid for one year making it convenient for professional exhibitors and those who travel frequently with goods or equipment.

The validity may be extended in certain cases. Some countries accept extended carnets, also known as ‘replacement carnets’. But they have to be extended well before their original expiration date.

What are the goods that are normally covered under the ATA Carnet?

This list can be quite exhaustive however, it can be generalized as follows:

  • Items used in exhibitions and fairs
  • Professional or sports equipment

ATA Carnets are mostly used for the temporary movement of goods such as exhibition materials, sports equipment, race cars, race horses, camera and filming equipment, musical instruments, etc.

Items that are generally not covered under the system of ATA Carnet are goods that are consumed or disposed of at the destination. Examples are, samples that are meant for visitors or clients, printed brochures, oil, lubricants, cleaning materials, etc. Items that will be sold to customers do not come under ATA Carnet. Food and beverages, tobacco, fuels, etc. are some of the other items that normally cannot be taken abroad using the ATA Carnet.

Since different countries have different specific rules and regulations regarding the import and export of goods to and from their territories, exporters are advised to check with the respective customs authorities before making any arrangements to move their goods under the ATA Carnet agreement.

Who issues and guarantees an ATA Carnet?

In India, the Federation of Indian Chamber of Commerce and Industry (FICCI) is the appointed authority for issuing and guaranteeing ATA Carnets. In the US, it is the United States Council for International Business (USCIB). The USCIB has two appointed service providers under them (Roanoke ATA Carnet and Boomerang Carnets). The London Chamber of Commerce and Industry and the Paris Chamber of Commerce issue ATA Carnets from the UK and France respectively.

Source: Marine Insight

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What Is A Ship Trim?

Vessel Stability measures the ship’s uprightness or how it remains at water level. Now, in a broad sense, this uprightness can be conceived from two perspectives, and ship stability can be described in two ways: i) longitudinal and ii) Transverse stability.

Transverse stability is the vessel’s tendency to remain upright when viewed in a longitudinal direction or when looking at the vessel from its fore or aft. Thus, we look at the vessel’s cross-section or faceward view.

Now, when the vessel inclines towards its port or starboard side about its longitudinal axis or, in technical terms, the ship’s centreline, we say that the vessel has lost its uprightness. When a vessel inclines towards the starboard, there is more draft on the starboard side than on the port and when the vessel leans towards the port side, vice-versa.

We have also studied the several facets of transverse stability, including the disturbing forces responsible for this loss in uprightness, heel and list (remember the difference?), myriad technical terms associated with this problem like the centre of buoyancy, the centre of gravity, metacentre, metacentric height, righting arm, and so on. Moreover, we have also learnt about the inclining experiment and how to attain stability.

Let us briefly look at another aspect of ship stability.

SHIP TRIM AND A BRIEF ON LONGITUDINAL STABILITY

Longitudinal stability is the measure of a vessel’s uprightness’ when we describe it from a lateral or sideways sense. That is, looking at the vessel’s length from any side. Here uprightness is defined as the vessel’s state of remaining level or even with the waterline throughout its length or span.

Now consider a situation when this state is lost, the vessel inclines towards the fore or aft by bow or stern respectively, and the even waterline changes. This is known as the ship’s trim. In other words, when the draft or water level is different or variable throughout the vessel’s length, the vessel is said to be trimmed.

When the draft or water level is higher at the bow or forward as compared to the stern or aft, the vessel is said to have a trim by bow or trim by forward. Conversely, when the draft is higher at the stern or the aft of the vessel compared to the bow end, the vessel is said to have a trim by aft or trim by stern.

The causes for this disparity in the drafts in a longitudinal sense of a vessel can be various factors more or less similar to the ones in the case of transverse stability, i.e., external like weather or sea conditions or internal like loading or weight shifts.

Measuring Trim

Trim measurement is very important for both designers and vessel operators. In simple terms, the mathematical difference between the forward and aft drafts, measured at the extreme ends of the vessel, is the Trim. Suppose the vessel has a draft TF measured at the forward end and a draft value TA measured at the aft end. The net trim of the vessel is the difference: +/- (TF – TA ).

Trim angle is also important while studying trim. A vessel has differential submergence at forward and aft, and throughout its length, the waterline changes as expected. Assuming the waterlines to be straight lines and ignoring effects like waves, ripples, etc., for basic calculation purposes, the previous and the new waterlines intersect at a certain point in the vessel’s length.

The equal and opposite angles subtended at the point of intersection are known as the trim angle. By the simple laws of geometry, this is directly proportional to the extent of trim faced by the vessel at a given time.

Physics of Trim and A Brief on Longitudinal Stability

Now trim is caused due to a force and an associated moment, whether external or internal. So, from the point of view of physics, this force and moment need to act somewhere to bring about the desired effect of trim.

They essentially act about a transverse axis passing through the point where the original and new waterlines intersect, as described in the last section. This point is known as the centre of flotation, or F.

This point is also the geometric centroid of the vessel’s water plane at the given time. Suppose some weight is added at a point lying on the same vertical line as the centre of flotation. In that case, there won’t be any change in the net trim, but only sinkage as from the physics of bodies, any kind of force acting on the centroid does bring about any change in the resultant moment, which effectively remains zero. Forces and loads acting anywhere else results in effective trimming moments acting about F that can cause changes in the trim.

The terms associated with longitudinal stability are more or less similar to that of the transverse. While the point keel K, and the centre of gravity, G, remain the same in a vertical sense, the centre of buoyancy, B, and the Metacentre, M, are taken as longitudinal.

The distance from the keel to the metacentre, KM, is once again the sum total of the distance between the keel and centre of buoyancy, KB, and the metacentric radius, BM, which is also the vertical distance between the centre of buoyancy and the Metacentre, M, or the sum total of the distance between the keel and the centre of gravity, KG, and the metacentric height, GM (distance between G and the M ), all quantities being analogous to those being discussed concerning transverse stability.

However, as already mentioned, specific measures like KM, GM, and BM are relevant from the point of view of longitudinal stability. They are marked with a subscript L while denoting for all practical purposes. We will not go into the detailed aspects of these and their associated calculations and derivations, which are beyond the scope of this article, which is mainly for understanding trim and longitudinal stability.

However, one very important quantity in our discussion that needs to be discussed is the moment to cause trim or MCT.

As we have already discussed, trim is always related to some enacting moment. So, for a given trim, t, there needs to be a certain moment associated with it. In the simplest of cases, when there is a shift in some weight, w, from one point to another over a certain distance, h, the moment is simply the product, w x h.

Similarly, when there is a change in internal loading, say, for instance, some kind of weight being added at a certain location, the moment can be likewise considered the product of the added weight w’, and the distance, say l, from the given point to the centre of flotation, F.

However, the scenario is different for external causes bringing about trim, though there are classifications and other empirical relations for the determination of the forces and moments due to these, like in transverse stability.

But for convenience, the moment to cause trim, which is a determiner of the ease or the minimum effort required to cause the trim has been standardised. Now the question arises: standardised to what? The answer is standardised to cause unit trim. Now carefully note the last term.

This means that given the disposition of a vessel, the minimum moment to cause this unit trim can be determined from physical relation. This is given as W X GML / L, where W is the displacement, GML is the longitudinal metacentric height, and L is the vessel’s length. We do not go into the derivation of this relation and its implications in calculations.

Now, this term unit trim can be ambiguous. The above relation essentially gives the moment to cause a trim by 1 metre. If we want to get the moment to cause a trim of just 1 cm, we simply divide the above quantity by 100. This has been further standardised as MCT1cm. Similarly, for getting in other units like feet or inches, the above relation can be transformed accordingly, though centimetres and metres are the two most common units of today.

MCT is also useful for estimating the drafts at which the vessel is likely to float at given conditions of loading.

Similarly, sometimes under certain conditions, trimming by bow is also important. Other than efficiency, trimming under certain limits is also crucial for instances like weather, sea-states, and other ballasting requirement issues. Several modern ship operators are purposefully using this useful trim to not only optimise efficiency but also save on energy consumption and even reduce emissions. The best trim for a vessel at a given time is determined by optimising all conditions of speed, draft, external conditions, and design.

Source: Marine Insight

 

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What is Fire Safety System (FSS) Code on Ships?

Fire is one of the most common and dangerous emergency onboard ship which has lead to disastrous results including loss of property and life. As the resources available onboard to fight fire are limited, preventive measures are more effective than fire fighting measures. For this reason, an international safety system was laid down by regulating authorities to make a ship fully prepared for fighting any kind of fire.

The Safety system on chapter II-2 of SOLAS is known as Fire Safety System Code (FSS code), which came into force on July 2002 after Marine Safety Committee (MSC) adopted it in 73 session and became mandatory by resolution MSC 99(73).

The main purpose of FSS code is to provide specific standards of engineering specification for fire safety system present onboard. It includes total of 15 chapters.

The 15 chapters are as follows:

Chapter 1 – General definitions: In this chapter, all the important terms are defined clearly for transparent and smooth implementation of the FSS code.

Chapter 2 – International shore connection: This chapter gives specific details for dimension and materials for International Shore Connection (ISC).

Chapter 3 – Personal protection: In this chapter, details of personal protective equipments and clothing are specified like fire fighter suit and breathing apparatus. It also specifies the requirements for EEBD onboard ship.

Chapter 4 – Fire Extinguisher: The engineering specification and application of portable fire extinguishers are explained in this chapter.

Chapter 5 – Fixed gas fire extinguishing system: This chapter describes different types of fixed gas fire fighting system along with the installation and control requirements.

Chapter 6 – Fixed foam fire extinguishing system: This chapter describes fixed foam fire fighting system along with the installation and control requirements.

Chapter 7 – Fixed pressure water and water spraying system: Detailed specification for fixed pressure water spraying and water mist fire extinguishing system that includes installation and control requirements.

Chapter 8 – Auto sprinkler, fire detection and fire alarm system: This chapter describe Auto sprinkler system, fire detection and fire alarm system along with the installation and control requirements.

Chapter 9 – Fixed fire detection and alarm system: Detailed specification for – fixed fire detection and alarm system that includes installation and control requirements.

Chapter 10 – Sample extraction smoke detection system: In this chapter, details of Sample extraction smoke detection system including installation, control and testing requirements are specified.

Chapter 11 – Low Location Lighting system: Detailed specification for requirements of lights in low location areas like tank top, duct keel etc is given.

Chapter 12 – Fixed Emergency fire pumps: The requirements for emergency fire pump in cargo and passenger ship is given in this chapter.

Chapter 13 – Means of Escape: In this chapter, the requirements for means of escape from engine room, in case of any emergency, is explained along with dimensions and attachments, both in passenger and cargo ships.

Chapter 14 – Fixed deck foam system: The fixed fire fighting for cargo space by means of foam is explained in this chapter with installation and control requirements.

Chapter 15 – Inert gas system: The requirement of I.G system in tanker vessel is specified along with installation and control system.

Source: Marine Insight

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NVOCC with Freight Forwarder: Your guide to differences and how to choose

Logistics is flooded with all kinds of service-providers. NVOCCs and freight forwarders are two such groups that are commonly mistaken to be the same.

You’ll learn:

  • NVOCC is an ocean carrier that transports cargo without operating any vessels
  • Freight forwarder is a multi-functional supply chain operator
  • Functions of freight forwarders
  • Key differences between NVOCC vs. freight forwarder
  • NVOCC is cheaper than a freight forwarder
  • Freight forwarders use SOC containers to avoid carrier surcharges

It’s true that both NVOCC and freight forwarders help ship your goods. It’s also true that they can issue their own House Bill of Lading (HBL). But despite these glaring similarities, the two players are fundamentally different from each other.

What is NVOCC in shipping: Meaning

NVOCC stands for Non-Vessel Operating Common Carrier. As the name suggests, an NVOCC is an ocean carrier that transports your cargo without operating any vessels. Now, how do they do that without owning any ships?

NVOCC actually buys space from vessel-operating common carriers (VOCC) and resells it to shippers. They enter into an agreement with ocean carriers to provide freight business to them. So, they create their own tariff and charge you for the space on the shipping lines.

As a result, NVOCC becomes the ‘carrier’ and whoever buys the space becomes the ‘shipper’. They dutifully undertake the liabilities and responsibilities of carriers, including the issuing of HBL.

Who is an NVOCC agent?

An NVOCC agent is a representative of the NVOCC they’re a part of. They’re usually your first point of contact when you’re approaching an NVOCC. Working as a bridge between the NVOCC and shippers, it’s usually the NVOCC agent who books the slots for shippers.

To put it simply, they’ll aid you in all your queries. You can state your requirements and request freight quotations and other details such as container capacities, packing dimensions, and much more.

What is the function of an NVOCC?

You must be wondering why people opt for NVOCC. Why don’t they directly get in touch with the shipping lines? Honestly, the chances of you hearing back from NVOCC is far greater than a shipping line.

NVOCC is much more flexible and attentive to the requirements of small-businesses. In fact, they’re likely to fix you the most cost-effective shipping at low freight rates. And nobody wants to lose out on that advantage, right?

But, before you decide to search NVOCC, it’s crucial to know about their scope of activities. The functions of NVOCC are:

  • Concluding international goods carrier contracts as carriers with the shippers.
  • Delivering and receiving cargo in the form of carriers.
  • Issuing various transport documents along with the House Bill of Lading.
  • Handling booking space as well as the mainline carrier shipping.
  • Arranging payments for transportation between port to port along with other essential charges.
  • Consolidation as well as deconsolidation of containers using third party services or through Container Freight Station (CFS).

Who is a freight forwarder?

A freight forwarder is a supply chain expert who arranges for the seamless movement of cargo. And they do that by arranging and facilitating the transportation of your goods via different modes: ocean, rail, air, or road. The only golden rule about freight forwarders is that they are not the ones moving your cargo, only arranging for it.

Exporting goods is not easy with way too many steps, documents, and certificates to clear. It’s almost impossible for novice exporters to know all about these. So when you’re hiring a freight forwarder, you’re basically paying them to get all of these in order. As a result, in many instances, the freight forwarders are referred to as ‘shippers’ in relation to the ocean carriers.

In a way, freight forwarders are multi-functional operators — jack of all trades!

Let’s try to understand what freight forwarders actually do.

What is the function of a freight forwarder?

Freight forwarders are one of the most popular players in logistics. To put it simply, they act as a travel agent for your cargo. Let’s see this through an example.

For instance, you have to ship your cargo of seafood from Shanghai to Hamburg. A freight forwarder will arrange all the necessary documents, reefer containers, trucking, book a carrier for reefers, inspection and custom clearance in Hamburg, and finally the delivery to the distribution center in Germany.

Although, it’s not as simple as it sounds.

A freight forwarder uses their existing networks with all the other players of supply chain to provide following functions:

  • They arrange cargo movements for domestic and international destinations.
  • Arranges storage for the cargo.
  • Negotiate freight rates on behalf of the exporter.
  • Take responsibility to dispatch shipments under their own freight contract
  • They process and prepare documentation related to all shipment activities.
  • Can issue their own House Bill of Lading.
  • They’re able to arrange custom clearance.
  • Offer other services relating to a trade such as bank paperwork, cargo insurance and inventory management.

However, freight forwarders also work in different ways. We’ve seen a rise in digital freight forwarders in the past years, changing how freight forwarding is done.

NVOCC vs Freight Forwarder: Key differences

By now you know the definition and functions of both NVOCC and freight forwarders. It’s clear that many of their functions are the same, but they’re still not the same entities. Confused? Let’s look at the basic differences between NVOCC vs freight forwarder.

You just have to remember that the difference between the two lies in the kind of relationship they have with shippers and other players. An NVOCC acts as a middleman between the shipper and the vessel operator and also issues their own bills of lading. Whereas, a freight forwarder is authorized by the shipper to act and make decisions on their behalf.

Another major differences between NVOCC and freight forwarder is that you’ll (exporter / importer) always appoint the freight forwarder to act as your agent, whereas you’ll employ the services of NVOCC as a carrier.

We have created a table for you that lists out key differences between NVOCC vs freight forwarder.

Freight Forwarder NVOCC
They are associated with the International Federation of Freight Forwarders Association (FIATA); following procedures according to FIATA standards. They are not linked with any international associations, thus, do not follow any standard procedures.
Freight forwarders are agents to shippers. NVOCCs are carriers to shippers.
Freight forwarders do not operate or own containers. NVOCCs manage or hold cargo containers.
Freight forwarders typically own and operate the warehouses they use for the cargo they load to/from airports and seaports. NVOCCs do not own and operate warehouses. Only large NVOCCs that take on nearly all functions of freight forwarders own warehouses.
Freight forwarders around the world cooperate in their operations to reduce costs and improve timely deliveries. NVOCCs work independently, using agents or third-party companies to support them.
Freight forwarders may function as agents of NVOCCs. NVOCCs work independently.

NVOCC vs freight forwarder: How to choose

Now that you’ve understood the difference between the two players, it’s time to figure out whose service fits you the best. Frankly, it all boils down to three parameters:

  • Level of service
  • Cost
  • Availability

The first thing you need to decide on is what level of service you’ll be needing. If you know what you’re doing and only need a passage on a vessel, then NVOCC will save you a lot of money.

On the other hand, a freight forwarder will listen to your requirements and assist you in finding the best route for shipping your goods, arrange the containers and transportation, find best freight rates, and provide other services at higher expense. It’ll be worth the money to appoint a freight forwarder if you have no to less awareness about shipping processes.

But if money is a constraint, then rest assured that NVOCC will save you money. By going directly to NVOCC, you’ll save the middleman fee of a forwarder at the cost of losing out on extra additional services.

There may also be such times when the choice comes down to who is available. In the current container global crisis, not all NVOCC and freight forwarders have containers to meet your demands. In such situations, it’ll be best to go with who is available.

NVOCC and freight forwarder avoid surcharges with SOC containers

The truth about the shipping industry is that it’s extremely volatile. You’ve seen how the COVID-19 pandemic sky-rocketed the freight rates in almost all parts of the world. Plus, the slow-down in global trade resulted in Carrier-Owned Containers (COC) piling up at depots. To recover the losses, the ocean carriers relentlessly charged NVOCC and freight forwarders with detention and demurrage charges.

Anybody who knows about these charges knows that they’re mainly the sore points for both NVOCCs and freight forwarders. These charges are levied by ocean carriers when COCs aren’t delivered back within the allowed free days. Calculated per day, the demurrage and detention charges, over-time, become huge fines.

Fortunately, NVOCCs and freight forwarders can do away with these charges if they bring Shipper-Owned Containers (SOC). Essentially, they’re no longer bound to pay the demurrage and detention charges to carriers if they’re using their own containers.

Because of this huge advantage, NVOCCs and freight forwarders are now actively using SOC boxes in their services. Our recent edition of Mystery Shopping Survey on SOCs found that the use of SOCs has grown by 18% since 2019.

Source: xChange Container

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ICC Incoterms®: The mightiness of three capital letters

Who would have guessed that a collection of three-letter acronyms would have had such an impact on the development of international (and domestic) commercial transactions? We can thank a group of industrialists, financiers and traders whose determination to bring economic prosperity to a post-World War I era eventually led to the founding of the International Chamber of Commerce (ICC). With no global system of rules to govern trade, it was these businessmen who saw the opportunity to create an industry standard that would become known as the Incoterms® rules.

Below are short descriptions of the 11 rules from the Incoterms® 2020 edition. 

EXW (EX Works) means that the seller has only to place the goods at the disposal of the buyer, at the seller’s premises or at another named place. Seller does not have any other obligation. Any other task of export & import clearance, carriage and insurance is to be arranged by the buyer.

FCA (Free Carrier) means that the seller delivers the goods to the carrier or another person nominated by the buyer at the named place. The parties must specify as clearly as possible the point in the named place of delivery. The risk passes to the buyer at that point.

FAS (Free Alongside Ship) means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. The seller is obliged to clear the goods for export. From the moment, when the goods are alongside the ship, all costs and risks pass to the buyer. This term can be used for ocean transport only.

FOB (Free On Board) means that the seller delivers when the goods pass the ship’s rail at the named port of shipment. The buyer has to bear all costs and risks to the goods from that moment. The seller must, also, clear the goods for export. This term can be used for ocean transport only.

CFR (Cost and Freight) means that the seller delivers when the goods pass the ship’s rail in the port of shipment. Seller pays the cost & freight necessary to bring the goods to the named port of destination. Also, seller must clear the goods for export. But, the buyer has to bear the risk of loss or damage, as well as any additional costs due to events occurring after the time of delivery. This term can only be used for ocean transport.

CIF (Cost, Insurance and Freight) means that the seller delivers when the goods pass the ship’s rail in the port of shipment. Seller pays the cost & freight necessary to bring the goods to the named port of destination. Seller must clear the goods for export. Risk of loss & damage same as CFR.

The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The seller is obliged to obtain the minimum marine insurance protection. If the buyer wants to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

CPT (Carriage Paid To) means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place. The seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. After that moment, the buyer bears all costs. The seller must, also, clear the goods for export. This term may be used irrespective of the mode of transport (including multimodal).

CIP (Carriage And Insurance Paid To) is the same as CPT with the exception that the seller must obtain the minimum marine insurance protection. If the byer wishes to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

DAT (Delivered At Terminal) means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named port or place of destination. “Terminal” includes a place, whether covered or not, such as quay, warehouse, container yard or road, rail or air cargo terminal. Seller pays for carriage to the terminal, except for costs related to import clearance. In addition, seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

DAP (Delivered At Place) means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller pays for carriage to the named place, except for costs related to import clearance and bears all risks prior to the point that the goods are ready for unloading by the buyer.

DDP (Delivered Duty Paid) means that the seller delivers the goods when the goods are placed at the disposal of the buyer. The goods must be cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination. In addition, the seller is obliged to clear the goods for export and import. The seller has also to pay any duty for both export and import and to carry out all customs formalities, including the payment of taxes and custom fees.

WE JOURNEY THROUGH 80 YEARS OF MILESTONES FOR THE COMMERCIAL TRADE TERMS THAT HAVE TRANSFORMED THE GLOBAL TRADE INDUSTRY.

1923: ICC’s first sounding of commercial trade terms

After ICC’s creation in 1919, one of its first initiatives was to facilitate international trade. In the early 1920’s the world business organization set out to understand the commercial trade terms used by merchants. This was done through a study that was limited to six commonly used terms in just 13 countries. The findings were published in 1923, highlighting disparities in interpretation.

1928: Clarity improved

To examine the discrepancies identified in the initial survey, a second study was carried out. This time, the scope was expanded to the interpretation of trade terms used in more than 30 countries.

1936: Global guidelines for traders

Based on the findings of the studies, the first version of the Incoterms® rules was published. The terms included FAS, FOB, C&F, CIF, Ex Ship and Ex Quay.

1953: Rise of transportation by rail

Due to World War II, supplementary revisions of the Incoterms® rules were suspended and did not resume again until the 1950’s. The first revision of the Incoterms® rules was then issued in 1953. It debuted three new trade terms for non-maritime transport. The new rules comprised DCP (Delivered Costs Paid), FOR (Free on Rail) and FOT (Free on Truck).

1967: Misinterpretations corrected

ICC launched the third revision of the Incoterms® rules, which dealt with misinterpretations of the previous version. Two trade terms were added to address delivery at frontier (DAF) and delivery at destination (DDP).

1974: Advances in air travel

The increased use of air transportation gave cause for another version of the popular trade terms. This edition included the new term FOB Airport (Free on Board Airport). This rule aimed to allay confusion around the term FOB (Free on Board) by signifying the exact “vessel” used.

1980: Proliferation of container traffic

With the expansion of carriage of goods in containers and new documentation processes, came the need for another revision. This edition introduced the trade term FRC (Free Carrier…Named at Point), which provided for goods not actually received by the ship’s side but at a reception point on shore, such as a container yard.

1990: A complete revision

The fifth revision simplified the Free Carrier term by deleting rules for specific modes of transport (i.e., FOR; Free on Rail, FOT; Free on Truck, and FOB Airport; Free on Board Airport). It was considered sufficient to use the general term FCA (Free Carrier…at Named Point) instead. Other provisions accounted for increased use of electronic messages.

2000: Amended customs clearance obligations

The “License, Authorizations and Formalities” section of FAS and DEQ Incoterms® rules were modified to comply with the way most customs authorities address the issues of exporter and importer of record.

2010: Reflections on the contemporary trade landscape

Incoterms® 2010 is the most current edition of the rules to date. This version consolidated the D-family of rules, removing DAF (Delivered at Frontier), DES (Delivered Ex Ship), DEQ (Delivered Ex Quay) and DDU (Delivered Duty Unpaid) and adding DAT (Delivered at Terminal) and DAP (Delivered at Place). Other modifications included an increased obligation for buyer and seller to cooperate on information sharing and changes to accommodate “string sales.”

2020: Looking ahead

To keep pace with the ever evolving global trade landscape, the latest update to the trade terms is currently in progress and is set to be unveiled in 2020. The Incoterms® 2020 Drafting Group includes lawyers, traders and company representatives from around the world. The overall process will take two years as practical input on what works and what could possibly be improved will be collected from a range of Incoterms® rules users worldwide and studied.

Source: Container News

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What Are Foldable Containers For Shipping Cargo?

When the Japanese registered Hakone Maru set sail for the first time from Japan on August 27, 1968, on its voyage to Oakland, United States it was a giant step in maritime cargo transportation – especially the transportation of standardized box containers. On its maiden voyage, it carried 752 twenty-foot shipping containers (TEUs).

Corrugated steel containers for cargo transport developed by the American entrepreneur Malcolm Maclean in 1955 were already popular by then.

Today, containerization and transport of cargo by container ships are the two most common methods of moving goods between locations. Intermodal containers that can be transported and shifted easily between the three modes of transport – sea, rail, or land account for transporting roughly 85% of the global cargo.

Dedicated shipping containers are used for the transport of general cargo and cargo that is temperature-sensitive.

The International Maritime Organization (IMO) introduced standardization of containers in the late 1960s’ aimed at bringing consistency in the loading, unloading, and transportation of such containers. The container handling equipment used in ports and warehouses, as well as related facilities adapted to these changes as well.

Currently, the most commonly used container sizes are the TEU and the FEU (Forty-foot Equivalent Units). These containers are available as general or temperature-controlled containers, depending on the customer’s needs. Such standardized cargo containers have maintained their general features by and large until recently.

While containers laden with goods criss-cross the oceans on freight vessels and are transported by different modes of land transport to their destinations, the logistics of returning empty containers after unloading their cargo, to their origin, is often not given a thought.

Only when the empty containers are returned and made available at their origin can they be used to fulfill customer demand effectively. Empty containers account for a major part of global container traffic.

An estimated 40% of containers in circulation around the world are said to be empties. From time to time, empty containers clog up the world’s ports and container yards causing container shortages and an increase in freight rates at other locations.

They have to be then moved to those locations where there is demand. The movement of empty containers is a costly affair – monetarily as well as ecologically when CO2 emissions from transport and industries are at an all-time high.

The cost aspect associated with the movement of empty containers is one main reason why there is often an unhealthy lag in moving these. It is an unproductive cost unless suitable return cargo can be found to take in these containers. Is there an economical and environmentally safe way to overcome this situation?

Enter the Foldable Container

Business establishments and freight and transport operators got so used to rigid shipping box containers that foldable containers never came to light until about 2008.

Imagine flat-packing your empty shipping containers and stacking them when not in use or during transportation. Think of the enormous space-saving possibilities when empty containers are stored this way. Space requirements of warehousing and logistics operators will reduce drastically, and so will container handling costs.

Holland Container Innovations (HCI) a company based out of The Netherlands, came out with the concept of foldable containers in 2008. Further to research and trials, in 2013 it developed a foldable or collapsible container that was certified by both the ISO (International Organization for Standardization) and the CSC (Container Safety Convention 1972). This container is called the 4FOLD.

HCI claims an amazing 75% saving in space as four 4FOLD containers, when stacked, take only the space of a single conventional rigid container. This would mean less cost on transportation of empty containers, their storage, and other associated costs. Certain other studies have put savings at 50 – 60% though these figures vary according to different studies.

Besides creating more shipping space, we can see here that it has its own environmental benefits by way of less emissions from transport and Material Handling Equipment (MHE). HCI claims that CO2 emissions are brought down by 37% as a result of using their foldable containers.

Folding and unfolding of such containers take only ten minutes and four folded containers are connected or ‘bundled’ together to form a single unit. These bundled single units are then handled like a single container using normal MHE.

Besides the ISO and CSC certifications, 4FOLD is certified by several other reputed registers such as the Lloyds Register (LR), American Bureau of Shipping (ABS), the Korean Register (KR), etc.

Currently, the company is calling upon organizations, shipping lines, and transporters to use their foldable containers and take advantage of their benefits. HCI won the Global Innovation Award recognizing sustainability instituted by DP World in 2021.

Staxxon is another company that is coming out with foldable containers. This year, the US-based company operating out of New Jersey began trials of their foldable containers collaborating with freight vessels, road transport operators, and railcar companies.

Staxxon’s version of foldable containers is expected to launch in the global market next year (2023). The company claims that foldable containers made by them can be folded and unfolded either manually or with the help of normal MHE, with ease.

How Does a Foldable Container Work?

While the containers from HCI are of the collapsible type, those from Staxxon fold vertically, in the company’s words ‘accordion style’.

To fold an HCI container, an MHE would lift the roof of the container, and then the sides are folded inward. The roof is then lowered gently to rest on the folded sides creating a kind of horizontal flat-pack. Four folded HCI containers are placed on top of one another to form a single standard container size for storage or transportation.

A Staxxon foldable container is folded like an ‘accordion’ vertically. In other words, it is ‘compressed’ from side to side to form a vertical, much flatter unit. Such foldable containers are compatible with the normal ISO-approved TEU or FEU and are strong enough to be placed anywhere on a shipboard stack. Any number of containers from 2 to 5, can be folded and stacked in such a way to form a regular container size for transport or storage.

While the 4FOLD is already in circulation, Staxxon is expected to initially come out with 20’ and 40’ container sizes, with the same payload capabilities.

The tare weight of foldable containers might be slightly on the higher side considering the folding joints and other extra features. Depending on their usability and success we can expect more standard sizes from the manufacturers in the near future.

The Downside of Foldable Containers

Foldable containers are expected to cost more than normal ones. Some shipping experts say that it is also susceptible to damage more easily than its rigid counterparts and therefore its lifespan will be much less.

Considering the millions of conventional shipping containers that are in circulation today, replacing them with the foldable option will be a daunting task. And then, what to do with the containers that have to be replaced?

Currently, the post-pandemic surge in freight cost and non-availability of containers is easing up a bit. Several thousands of empty containers that were lying in European and American ports have started moving and the global imbalance in container placements is said to be getting better, bringing down global freight costs with it.

Reduced freight costs, the increased upfront cost of foldable containers, and questions on their durability are bound to bring hesitancy to the mind of customers.

Innovators and manufacturers of such containers are surely bound to come up with solutions to address these perceived problems. Nevertheless, foldable containers are an exciting option to combat the increasing global space crunch and cut down on environmental pollution.

Video Credits: 4FOLD Containers

Source: Marine Insight

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Understanding Customs Clearance Process in Shipping

Airports, seaports, and land ports of a country are its entry and exit points—people and cargo move in and out of a country through these gateways. Typically, while the Immigration department of a government keeps track of passenger movement through these entry-exit points, the Customs department monitors goods coming in and going out of these ports.

From a buyer’s perspective, goods brought in from another country are called imports, while those sold to an overseas customer are called exports. Imports and exports are essentially the transfer of goods between different countries.

Customs Department

Imports and exports are monitored by laws enforced by a country’s Customs department, following government policies. Different countries have organizations that formulate guidelines and rules for imports and exports. For example, it is the DGFT (Directorate General of Foreign Trade)in India. At the same time, in the US, it is the US Department of Commerce through the BIS (Bureau of Industry and Security).

A country’s customs department, a government-appointed body, will have its intelligence system, investigation methods, infrastructure for patrolling, enforcement, and other preventive measures. The customs department collects duties and tariffs on imports as well as exports. Generally, all a country’s ports connected to international destinations will have customs offices to carry out these functions.  A country’s customs department is empowered to confiscate goods, dispose of them as necessary, or make arrests.

Import and Export

Different countries may have a different set of rules when it comes to imports and exports. Some countries allow for the unfettered import of goods legally allowed into the country, while restrictions for bringing in or sending out certain types of goods may apply in other countries.

All the goods that are imported or exported have to be declared to the customs. To import goods, the specified customs duty has to be paid to the customs department to obtain the release of the goods. Until this payment is made and the customs release goods, it is held in storage by the customs department. This storage area is known as the Customs Bonded area.

Goods can be exported only after making related payments to the customs department. The importer or exporter may carry out all these formalities or appoint a government-licensed clearing agent or a freight forwarder (also known as a Customs Broker).

A clearing agent represents the party importing the goods and acts on its behalf. He takes care of all the ports and customs-related work for clearing the goods and getting them delivered to the importer. Similarly, the freight forwarder acts on behalf of the exporter to ensure that goods are exported on time, following government rules and regulations.

Customs Clearance

The customs clearance process may be common globally. However, depending on the nature of goods, some may have special requirements. Typically, customs clearance is getting the imported goods customs-cleared for delivery to the importer’s premises for sale or reprocessing.

It involves preparing and submitting documents required for customs clearance, arranging an inspection, paying customs duty, and collating all the documents to show that the goods have been cleared correctly following customs rules and regulations. Once these steps are followed, the imported goods can be cleared from the port or customs bonded warehouse to the customer’s premises.

Harmonized System Classification (HS)

Goods traded globally are classified by the World Customs Organization (WCO). This globally recognized classification, the HS Classification (Harmonized System Classification), is used to levy customs duties and other taxes.

HS codes consisting of a minimum of six digits is a unique numbering system that references sections, chapters, headings, and sub-headings of the harmonized coding system. It is common to find another two to four digits added to this number that are country-specific.

 An importer of goods or his clearing agent has to ensure that the goods are shown under the correct classification and duties, and taxes are calculated accurately. Wrong classification of goods can result in overpayment or underpayment of duties and taxes.

Besides, correcting incorrect classifications or miscalculations may be time-consuming, often leading to delays in clearance. Customs departments of most countries have special software that can be accessed by licensed clearance agents and freight forwarders for processing documents and payment of customs duties and taxes.

Documents Required for Customs Clearance

Typically, the following documents are required to clear a sea freight consignment:

  • Purchase order of the buyer
  • Commercial invoice issued by the seller
  • Packing list
  • Bill of lading or seaway bill issued by the shipping line transporting cargo or its representative
  • Certificate of Origin issued by the Chamber of Commerce of a country or a body authorized by the government
  • Insurance certificate
  • Bill of Entry prepared by the clearing agent or the buyer
  • Importer’s license of the buyer

Most of the above documents are commonly used in trading – exports, and imports and exchanged between the buyer and seller. It may be mandated by the relevant authorities, too. While the above list is self-explanatory, let us look at some specific documents used in imports and exports.

Bill of Lading or Seaway Bill

This is the contract of carriage between the exporter of goods (or the seller) and the shipping company transporting the goods. Most bills of lading are negotiable contracts. However, seaway bills are non-negotiable and deliverable only to a specific party. These legal documents are proof of ownership of the cargo.

Certificate of Origin

As the name implies, this document certifies the country where the goods meant for export are made. A Certificate of Origin is usually issued by the Chamber of Commerce or other government-appointed bodies such as the Trade Council.

Bill of Entry

A bill of entry of an import consignment will contain all the information about the goods. It is prepared by the clearing agent or the importer and has essential details of the import, such as:

  • Name and address of the importer
  • Import license number
  • The clearing agent’s registration code
  • Country of origin of the goods
  • Details of the vessel carrying the consignment
  • Customs duty and other taxes paid by the clearing agent etc.

The bill of entry may be submitted before the arrival of goods at the port or within 30 days of arrival. A customs officer will verify and confirm it, after which the clearing agent pays all applicable duties and taxes. Any corrections or changes that may be required will have to be made at this stage. Once it is all found to be in order, the customs officer will permit the movement of goods out of the customs storage area.

Some of the documents mentioned above may be common for exports and imports. Besides, other documents may be required for importing a particular special classification of goods. Examples of such documents are technical details reports, test reports, etc.

In India, the customs department comes under the Department of Revenue, Ministry of Finance. The Indian Custom’s Compliance Information Portal (CIP) provides details of customs procedures and compliance requirements for imports and exports. Some of the vital information that can be found in this portal are:

  • Contact details of regulatory bodies, their websites
  • Item-wise customs tariffs
  • Commodity-wise customs duties and taxes
  • List of customs offices, seaports, airports, and land ports serviced by it.

Source: Marine Insight

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How Shippers Select Container Carriers – 11 Important Factors

The container shipping industry is characterised by the presence of a multitude of players on global, regional, and local scales. Despite the intense M&A activity that the industry has witnessed since 2000, there still exists healthy competition on almost all trade lanes (a fact attested to by the US FMC, which after conducting a comprehensive investigation into allegations of anti-competitive practices and profiteering by container carriers, finally concluded that the prominent trade lanes were characterised by robust competition).

Over the past two decades, in response to aggressive competition, slim margins, and lack of customer discernment regarding transit times, the industry has become highly commoditised, with relatively little differentiation in service levels provided or, regardless of the prices charged, proportional to that.

Besides, the market is replete with products from multiple carriers, which have little to differentiate between them. Shippers and Exporters have been focussing on freight spending and displaying an increasing propensity to prioritise lower rates over faster transit times, which further perpetuates the trend of commoditisation (due to the reduced commercial viability, Carriers have little incentive to offer shorter times in the absence of demand).

In such a scenario, Shippers are often in a dilemma regarding the choice of container carriers. Apart from obvious factors such as origin and destination ports served and price, there are many other considerations that Shippers must consider while selecting a container carrier.

In this article, we will delve into these factors and understand how they influence the decision of which Carrier to use and the relative importance of each element.

1) Services offered / Ports served

This is perhaps the most elementary criteria, i.e. whether the Carrier serves the origin and destination that the shipper requires. The ideal situation would be one where the Carrier serves both the origin and destination ports (or at least as close as possible); however, given that there are a many major and minor ports dotting the coastlines of various countries and regions, it is generally neither operationally possible nor commercially feasible for a Carrier to serve all such port combinations.

Therefore, if the Carrier doesn’t serve the exact locations required, the Shipper/ Exporter will need to look at other alternative ports that the Carrier does serve and gauge how suitable those ports are for the shipper’s transportation requirements. (in terms of distance from the final destination, hinterland connections, reliability and frequency of such links, transit time from origin port to the final destination and the incremental transit days vis-a-vis the originally requested port, cost, etc.).

Generally speaking, with the steady increase in global port connectivity, shippers are highly likely to find a carrier which will serve their preferred ports of call.

Often, different Carriers call to varying ports in a country, wherefore even if one Carrier is unable to offer a direct service (or at least provide a suitable option that would adequately serve the shippers’ transport requirements), there will most likely be other carriers offering services on the desired port corridors.

This criterion assumes greater importance when calling at second rung or smaller ports because while most major ports are serviced by multiple carriers (thus offering exporters a reasonable range of competing products to evaluate and select from), in the case of second-tier or smaller ports or ports in niche trades, only a minimal number of carriers might offer services, in which case the process of elimination ensures that the choice is almost by default.

2) Freight rates

Freight rates are a prominent factor in deciding on a carrier. While lower freight rates make the Carrier more attractive from the shipper’s perspective, it must be gauged in conjunction with the overall service provided (as determined by all the factors mentioned in this article).

The shipper has to judge whether the service levels are commensurate with the rates quoted, as well as calculate the impact on its supply chain and potential impact on its business and revenues in the unfortunate event of service delivery failures.

Thus, the quantification of the potential risk involved in utilising the services of carriers who offer low rates but possess a poor track record when it comes to customer service will determine whether to avail of the lower rates or go in for an alternate carrier who charges more but has a reputation for providing exemplary service and operational excellence.

Thus, this is a trade-off between savings from lower freight rates and the incremental increase in overall TCO (arising from factors such as excess inventory, contingency planning for delays, risks of stock-outs and obsolescence etc.).

3) Routing and whether Transshipment or Direct

In international shipping, most regions and countries are accessible via more than one route, depending on the length of their coastline and access to oceans, construction of canals etc. This enables the Carriers to provide multiple products catering to a port/ region/ country, i.e. more than one service calling the port/ country but following a different route.

An excellent case illustrating this is the US East Coast trade. Services from Asia to US East Coast ports can take the Westbound route via the Suez Canal or the Eastbound route, traversing the Panama Canal. Note: the Panama Canal option was facilitated only a few years back due to its expansion, which now enables it to accommodate vessels of close to 15,000 TEUs, as opposed to its earlier limit of 5,000 TEU vessels. Carriers, therefore, can offer two distinct products for shippers wishing to export to US East Coast ports, from which the shipper can pick the option that suits his requirements better.

Another example is Asia to Europe trade, where the traditional route traverses the Suez Canal. This involves additional costs in terms of paying Suez Canal transit fees but saves considerable time and money that would otherwise have been spent on the increased bunker, consumed by following the longer route via the Cape of Good Hope, which essentially involves circumnavigating across the entire length of the African continent.

While the Suez Canal route is almost the default route for most services, the Cape of Good Hope route was used by a few Carriers when the Suez Canal was blocked due to the grounding of a mega container vessel last year. Carriers also use the alternative route on the backhaul leg (return journey from Europe to Asia, where volumes and freight rates are far lower than the head haul Asia-Europe leg of the service).

The rationale was that the incremental bunker costs on account of the higher consumption to cover the longer distance were still lower than Suez Canal toll fees. Further, given that there was plenty of excess capacity, additional transit time could be compensated through the infusion of more vessels on the service – thus striking an optimal balance (from the Carrier’s perspective) between costs, margins, transit times and deployment of all available capacity. This option has become popular in a low freight rate environment, where Carriers try to rationalise expenses as much as possible.

Shippers must carefully evaluate routing options in detail, as the distances involved, rates, ocean transit times, and schedule reliability will differ for each route.

The shippers’ route choice will be contingent on factors such as the cargo’s nature and value,  the urgency of shipment, onward connections, weather conditions, geo-political environment etc.

 4) Frequency of services 

The frequency of services, along with the scheduled transit times, determines the average transportation time and when the cargo will reach its destination (and, after that, be able to generate revenue by being sold as a finished product or being processed into the final product). Frequency determines the shippers’ backup options if sailing is missed or when the cargo is rolled over onto the next vessel.

The nature of the Container shipping industry is such that on most major trade lanes, shipping services are offered weekly. However, in the case of smaller trades, the frequency might be lesser, which will lengthen the time required for the product to reach its ultimate destination.

 Bigger carriers with relatively larger fleets can deploy more vessels and thus offer more frequent services, while smaller carriers are hampered by their smaller fleet sizes.

5) Customer service 

Following the adage of price and quality being co-related, a carrier’s level of customer is an essential factor in selecting a transport partner.

Given the number of pitfalls and bottlenecks in international trade, numerous things could go wrong. If the cargo is in transit, then the shipper is almost entirely reliant on the Carrier for regular updates and daily status reports, as well as the actual safe and timely delivery of the cargo.

Suppose the Carrier has a solid and well-trained customer service team backed by sophisticated systems and supply chain management platforms. In that case, the shipper can, to a great extent, be assured of timely updates, cargo visibility and security, proactive support to ensure timely cargo delivery and cooperation from the Carrier.

Given today’s business reliance on JIT and that most companies operate their supply chain with little or no buffers, the value of these intangibles to any business is far greater than would be evident to a casual observer.

This is why carriers increasingly invest in boosting their internal customer service departments whilst outsourcing or offshoring routine documentation tasks.

The shippers’ decision is made easier if the Carrier has a track record of providing good customer service and is proactive in handling customer issues.

6) MQC schemes and Rebates

This factor assumes greater importance, especially for bigger shippers, who control considerable volumes and hence are considered to possess the prime potential for carriers. To gain the sizeable volumes over a more extended period and ensure a regular flow of cargo and revenue, Carriers often offer lower rates in return for a particular minimum quantity commitment (MQC). The rates typically depend on the quantity committed; the higher the volumes committed, the lower the rates.

Rebates are offered to shippers to incentivise them to ship more cargo with the Carrier. Rebates are based on slabs (of containers) and corresponding amounts offered as rebates. The rebates are generally per TEU and depend on the annual volume contracted to the Carrier.

The difference between MQC-linked lower rates and Rebates is that the former are guaranteed rates offered upfront to the shipper and recorded in the contractual agreement between the shipper and the Carrier. The latter is determined by the quantity/ number of containers the shipper ships in that particular year (or the contract duration period). The rebate amount and applicable pay-outs are determined after the contract is over.

More prominent shippers can save considerable amounts from their transport costs by leveraging their volumes to negotiate lower rates and sizeable rebates.

7) Transit Times

While the transit times factor has been rendered somewhat secondary by the phenomenon of commoditisation, there still exist certain situations where transit times are deemed essential.

When it is high-value reefer cargo, the shipper would want the shipment to reach the destination as fast as possible so that he can sell it more quickly, earn revenue and realise his dues earlier, and ensure high turnover. Also, the reduced turn times decrease the risk of damage, pilferage, etc.

Likewise, as happens with fast-moving or time-sensitive goods, such as high fashion clothing and garments or seasonal clothing, their shelf life is relatively short, and it is imperative that the cargo arrives in time and as planned, failing which the shipper could potentially be facing lower sales and revenue losses, besides a reduction in margins.

Companies have recently attempted to balance the demand for commoditised services with the need for premium services by adding a certain number of premium services, guaranteeing faster turn times. These services are offered on high-volume corridors to be utilised by shippers of high-value or time-sensitive cargo.

This typically happens in North-South trades (NAM-SAM or Australia) or Transpacific. The vessels used for the premium/ faster services are usually smaller than the average size of all ships plying that particular trade.

There usually exists an inverse correlation between transit times and freight rates. Carriers with a slower service often offer a lower rate to entice shippers to book with them, while those offering faster services charge a premium. The commoditisation of the container shipping industry means that the premium commanded for faster services has been steadily declining (as shippers prioritise cost savings over faster lead times) and is modest at best. However, it still exists, leaving the shipper to evaluate whether the monetary benefit of getting the cargo shipped faster is worth more than the incremental freight costs.

8) Historical schedule reliability levels

Sailing schedule reliability is the primary driver of overall supply chain reliability. Given the international nature and inherent complexity in the shipping industry, as also the numerous extraneous and non-controllable factors that can adversely impact sailing schedules, carriers always make it a point to highlight that the transit times in published sailing schedules are indicative/ tentative and subject to change without prior notice.

Supply chain disruptions can drive up not just freight rates but the overall TCO as well, as was seen in the post-covid pandemic period when the widespread disruptions led to an unprecedented spike in freight rates.

The implications for the exporter are that their supply chains, and consequently their business, will suffer if carriers’ schedule reliability displays extreme variability or if transit times are prolonged to the point of being unpredictable – which will render supply chain planning extremely difficult.

It is therefore essential for shippers to refer to historical schedule reliability levels for each Carrier before selection (though this can serve only as an indicator for reference, and there is by no means any guarantee that current or future schedule reliability will be similar to historical schedule reliability).

Data related to aggregate carrier-wise schedule reliability for each trade lane can be obtained from market research and market intelligence agencies which offer such services.

9) Availability of Equipment

After vessels, the biggest CAPEX item for Carriers is containers, which they must procure in varying sizes and types to cater to diverse business requirements. The most common size of the container is the 40′, followed by the 20′ and then the other types (such as 45′). In terms of container type, the most common type is the Dry container, followed by the Reefer container, and then particular equipment types such as flat racks, open tops, tank containers etc.

Carriers should ensure that their container equipment pool comprises the right mix of container types and sizes, designed to optimally serve the trades they cater to and product verticals they focus on.

Larger carriers have the money to buy more containers of varying dimensions and hence are at an advantage vis-a-vis smaller competitors.

From the exporter’s perspective, this translates into ready availability of equipment, i.e. whether the equipment will be available when his cargo is prepared and available for export. By possessing a bigger equipment pool, bigger carriers are better placed to allocate equipment immediately, while smaller carriers might sometimes not have the equipment.

On busy trade lanes, most carriers have adequate equipment supplies. However, on secondary or niche trades or equipment deficit locations, the bigger carriers are more likely to have the required container types readily available. The exporter will be compelled to choose that Carrier. This factor is significant when the shipment is reefer, out of gauge, or project cargo.

10) Environmental concerns

The growing focus on the environmental impact of shipping and the concerted efforts to reduce greenhouse gas emissions that the shipping industry accounts for is gaining increasing weightage in the selection criteria that shippers use to evaluate and rank carriers.

Shippers have increasingly preferred Carriers who have demonstrated a strong commitment to protecting the environment and reducing emissions. This is partly driven by end-consumer preferences for products and services with a low carbon footprint. Ikea and Walmart have stringent selection criteria for carriers.

Many companies are emulating the praiseworthy example of Walmart and Ikea and resorting to similar selection criteria.

11) Long-term relationship / strategic partnership approach

 Due to the global scale of their business, supply chain reliability and long-term stability of transport models are of utmost importance for bigger exporters. To meet these requirements, they need equally strong transport partners who can complement their geographical presence with a worldwide network of services and capacity large enough to accommodate significant volumes. The intent is to develop a symbiotic and mutually beneficial relationship where both parties endeavour to optimise long-term strategic advantages rather than short-term gains.

For this reason,  bigger shippers often prefer to partner with the more prominent carriers and generally enter into multi-year and multi-trade lane contractual relationships.

This factor doesn’t apply to smaller shippers in equal measure because the smaller scale and lower margins restrain smaller shippers from prioritising the reduction in transport cost by opting for the lowest-cost carriers rather than building long-term partnerships.

Source: Marine Insight

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Reducing Lead Time in Logistics – Why It Is Important?

Teleportation, one of the favourite subjects of science fiction is still a hypothesis. Until it becomes a reality and logisticians are rendered useless, it takes time and planning to move materials from one location to another.

Normally, goods are moved between a raw materials storage to the manufacturer’s processing facility, from the manufacturer’s warehouse to a customer, or from the customer back to the supplier, known as reverse logistics.

The time taken for goods or services to move from their origin to a destination is called lead time. Logistics lead times are critical to any business activity – be it the delivery of goods or services. It is one of the most important factors of inventory control.

Typically, in goods warehousing and logistics, it is the elapsed time between the placement of a purchase order by a customer and receipt of goods according to the purchase order, at the customer’s warehouse or the preferred location. It may also be viewed as the total time taken for the customer’s order to be fulfilled by the supplier.

It is not just the movement of materials that are affected by lead times. Intangible services have lead times too. It could be from the date of agreement to deliver a service to a customer, to when it is finally delivered to the customer for his use – ready for implementation at his preferred location.

The time or gap between the two, which is the service lead time, is the time taken to process and deliver the services according to what is agreed between the customer and the supplier.

In short, lead time is the fulfilment time. Here let us take a look at lead times related to goods or materials.

Lead time is critical to all businesses for planning their activities and for ensuring customer satisfaction. Most companies aim to achieve shorter lead times to streamline their operations.

In the event of an out-of-stock situation, this can be helpful as goods are received within a short period and an extended stock-out is avoided.

Shorter lead times mean that a large stock holding can be avoided by the business as stocks meant for processing or resale are received within a short period. Lesser volumes of stocks held mean less capital tied up. This ‘extra cash’ that becomes available to the organization can be used for other purposes within the business.

Lesser stocks mean fewer space requirements as well as labour, that would otherwise be required to handle larger quantities of stocks.

Generally, organizations that measure lead time break it down into the following components:

Purchase order processing time

This is the time it takes for the customer to generate a purchase order and dispatch it to the supplier, either electronically or by mail.

Goods processing time

Time taken by the supplier to process the customer’s purchase order and keep the goods ready for pickup and dispatch by a freight forwarder or by the supplier’s logistics section is called the goods processing time.

Transit time – including the period of pre-transit storage, inspection, etc.

It is the time taken for the cargo to move from point A to point B. It could be the supplier warehouse to the customer’s premises. It includes time on pre-transit storage, any inspections carried out by the relevant authorities, and the sailing time by a freight carrier.

Some organizations take only the sailing time as the transit time.

Clearance time

This is the time taken by the appointed clearing agent to get the cargo cleared by the customs at the destination port, after inspection and payment of all customs duties, taxes, and surcharges.

Transportation & Delivery

Following payment of all dues and customs clearance, the goods are moved from the port premises to the customer’s warehouse or the preferred location.

Are Lead Times Important?

Calculation of accurate lead times is crucial for processing the purchase orders of a business and in maintaining an optimum stock position. Outdated or wrong lead times can result in stock shortages or accumulation of stocks that are not needed at that time, also referred to as overstock.

The health of an organization may be measured, based on these two factors – stock shortages and overstocks. Both these situations are undesirable as organizations aim towards lean, mean operations.

Calculation of lead times and a study of its effect on inventory management is important for all businesses to meet the satisfaction of their customers. Lead time can be one of the important Key Performance Indicators (KPI) for such companies.

Calculation of Lead Time

Typically, lead time is calculated as the total number of days it takes to fulfil a purchase order. This includes placement of a purchase order with a supplier, dispatch of goods by the supplier, arrival and customs clearance of the goods at the destination port, and final delivery to the customer’s warehouse or the preferred location.

In some organizations lead time is referred to as the Supplier Purchase Order Turn-around (SPOT). Maximum and minimum lead times are considered while preparing forecasts and placing orders. A simple method to calculate lead time for placing purchase orders is to take the average lead time from recent, historic data.

Reducing Lead Times

Several factors can be looked into for reducing logistics lead times. Some of them are as follows:

Formulas Used in Purchase Order Calculation

Any abnormal variations between the calculated lead time and the actual lead time should be investigated and steps are taken to correct them immediately. Are formulas used in the calculation of purchase orders correct? A forecasting and purchase ordering system with wrongly set parameters can create havoc with the order quantities as well as their placement intervals and arrivals.

Any other glitches in the system should be ironed out prior to placing purchase orders. The parameter settings of a stock management system must be checked from time to time for their accuracy by the stock management team and the necessary changes made immediately.

Purchase Order Receipt by Supplier

The purchase orders generated may not be getting transmitted to the supplier on time. These days, most purchase orders are system-generated and do not require a confirmation signature.

However, those orders that require a signature could be waiting to be signed by the relevant authority in the company? Delays in purchase order transmission can lead to extended lead times.

Proximity to Suppliers

Dispatch of goods or raw materials from far-flung suppliers often gets delayed. Ineffective communication and cultural distance can get in the way between such suppliers and their customers – especially when they are located on different continents. In such cases, it would be better to opt for nearby, reliable suppliers who can deliver goods with a short lead time.

Change in Freight Forwarder or Shipping Line Used

A new freight forwarder or shipping line may not be familiar with the customs and formalities of the customer. In such cases, it is suggested to communicate with them and make matters clear or in other cases, use local service providers who are familiar with such matters.

A customer may also consider changing shipping methods when it is found that the current method of shipping is ineffective.

Consolidation of Orders

A purchase order may not be a full container load (FCL). Instead of waiting to increase the purchase order quantity and fill a container, consolidation or groupage can be considered. Consolidation or groupage is the shipping of several Less-than Container Load (LCL) consignments by a single container to form an FCL. Each LCL shipment will be under a separate Bill of Lading (BL).

Effective Communication

Above all, an effective and efficient communication system between the parties involved in shipping – the customer, supplier, and the shipper or freight forwarder is of utmost importance. The concerned internal departments of these parties should also be part of this communication.

The after-effects of a delay in delivery of a consignment or any anticipated delays can often be reduced or even negated if it is communicated on time between the parties. Various track and trace software is used these days to follow shipments and improve communication between the concerned parties.

Reduction of human involvement in the calculation of purchase order quantities and placement of purchase orders is another solution to avoiding errors and delays.

Reduced lead times mean less inventory on hand and therefore less input to manage these materials. As a result of holding less inventory, the exposure to risk and wastage is also reduced drastically. However, if it is not managed properly, it can result in stock outage or overstock.

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How to Calculate Ocean Freight Charges?

Transportation by sea is the most common method of moving bulk as well as Less-than Container Load (LCL) shipments between locations, especially in international trade. Typically, ocean freight invoices are issued by shipping lines to their customers for transporting cargo. It may also be issued by an agent on behalf of the shipping company.

Besides the ocean freight charges, an ocean freight invoice would usually include all other related costs such as goods collection charges, cost of road or rail transport, and the various other charges connected with transporting goods by sea.

Especially when a shipment is multi-modal and the agreement is door-to-door, it would include charges for collection and transport, labour charges for handling the goods, and any other charges that are incurred during the course of its movement from the customer’s premises to the port of origin. It may also include charges incurred after the container is discharged from the vessel till it reaches its final destination.

Some common charges found in a freight quotation are Terminal Handling Charges (THC), Inland transport and handling charges, Bunker Adjustment Factor (BAF), Currency Adjustment Factor (CAF), Bill of Lading fees, etc.

Ocean Freight and Incoterms®

It is not always necessary for a freight quotation or freight invoice to include such related charges. It would to a large extent depend on the Incoterms® agreed between the seller and buyer. A door-to-door transport agreement between buyer and seller would include all the above charges.

Incoterms® are trading terms published by the International Chamber of Commerce (ICC), meant to ease communication among global trading parties and to fix the responsibilities of each of them – the seller, the transport agent, and the buyer. It is therefore recognized by all global trading bodies, the government, and the law.

Freight companies normally deal with the seller of the goods or the party that books the transport of a consignment. It is from them that they get all the booking and shipping instructions. The ocean freight payment is also arranged by them. But there are also instances when the freight company is paid ocean freight charges by the buyer or the party that receives the goods.

In a different scenario, a company that books a consignment by sea freight may pay the freight company charges related to transporting the goods to the port, repacking – if required, inspection and customs charges, Terminal Handling Charges (THC), documentation charges, or any other dues incurred until the cargo is put on board the vessel. Ocean freight charges may be paid by the company that receives the cargo. It would also bear the cost of inland transport and other charges at the destination port.

A contract of sale must therefore state clearly all the terms and conditions of the sale using the correct Incoterms®.

Ocean Freight Base Rates

Freight and shipping companies have base rates that are used in the calculation of ocean freight charges. Typically, the ocean freight charge for a Full Container Load (FCL) of cargo will be based on the size of the container, that is, 20’ or 40’ or 45’, and its type – refrigerated, non-refrigerated, etc.

An LCL consignment will be charged according to its weight or volume, whichever is higher. The weight in tons or volume in cubic meters (CBM) is multiplied by an LCL base rate that is charged by the freight company. CBM is the volume of an object that is 1 meter in width, 1 meter in length, and 1 meter in height.

Also known as the volumetric weight, it is the space taken up by the packed cargo inside a container or on the transport. LCL ocean freight charges are based on the gross dimensions or weight. This is the total dimensions or weight of the consignment including its packing, palletization, etc.

In the case of LCL cargoes, when the weight of cargo exceeds 1000 kilograms (1 ton), then the exact weight is used to calculate freight charges.

The reason why ocean freight is charged either by weight or its dimensions is because of the proverbial ‘kilogram of iron and kilogram of cotton’ difference.

As we know, packed goods need not always be of regular shapes. They may sometimes be cylindrical or of other abnormal shapes. The freight charges of such irregularly shaped cargo are calculated in different ways.

The method of arriving at volumetric weight varies between road, ocean, and air modes of transport. It may vary between different countries or freight operators may have their own method of calculating this. However, the generally accepted factors are as follows:

Road freight: 1 CBM equals 3000 kilograms (3 tons)
Ocean freight: 1 CBM equals 1000 kilograms (1 ton)
Freight by air: 1 CBM equals 6000 kilograms (6 tons)

Based on the above, a freight operator will charge his customer for LCL shipments either by gross weight or volumetric weight, whichever is higher. This is called the chargeable weight.

Let us take an example here of how the ocean freight charge is calculated for an LCL shipment.

Cargo dimensions: 5 m X 5 m X 5 m
CBM: 125 m³
Gross cargo weight: 300 kilograms (0.3 ton)
Freight rate: USD 60 per CBM or ton
Freight charged: 125 m³ X USD 60 = USD 7500

The CBM factor used for ocean freight is 1 CBM = 1 ton. In this example, the actual ton weight is less than the volumetric weight (CBM) and hence, the ocean freight charges are calculated based on the CBM.

A table showing the general dimensions and volumes accommodated by the different types and sizes of containers is given below:

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This brings us to the question of how many CBMs does a normal pallet hold? While the exact CBM will depend on the height to which a pallet is stacked, generally the CBM of a pallet is taken as 1 m X 1 m X 1 m = 1 CBM.

Most cargo carriers and freight operators have aligned together for their common benefit, these days. Known as shipping alliances, it helps operators to cover and share the global shipping routes as well as stabilize ocean freight rates.

Shipping alliances are helpful to customers as well as they can find better routes and therefore reduce transit times. Customers may sometimes benefit from better rates offered by the members of such shipping alliances.

Source: Marine Insight

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