1 Global Business Environment. 2 - 3 2 Various factors affecting international trade –
Tariff & Non Tariff Barriers
4
3 Regulatory Authorities & Government Policies
Role of Department Of Commerce & Finance Ministry
5-8
4 Letter of Credit & other payment terms 9-20
5 Bills of Lading, switch B/L, air & sea-waybill, master & house B/L 21-31 6 INCO TERMS – International Commercial Terms 32-36 7 Modes of Transport & Selection of Mode of Transport 37-39 8 Shipping and Sea Borne Trade, Liner and Tramp Shipping 40-43
9 Types of ships used in Tramp Trade 44
10 Evolution in shipping industry – Bulk, Break Bulk, Containerization and Multimodal Operations
45-47 11 Feeders /Hub & Spoke Operations, 3rd Party Common Carrier 48-49
12 Types of containers & dimensions 50-53
13 Freight rates and basis of calculation, Freight Surcharges and Role of FMC in the U.S. Trade
54-56 14 Sea freight Export & Import Documentation / Cargo Flow 57-60 15 Services offered by Shipping lines and various service providers in
Global Logistics. Role of NVOCC Role of Consolidators
61-64
16 Value Added Services. 65-66
17 Conference, Consortiums and Alliances, Mergers 67-69
18 Classification Societies 70
19 Dangerous Goods 71-73
20 P&I Club, T.T. Club General Average 74
21 About Ships, Harbour, Port and Docks 75-76
22 Container stuffing 77-82
Global Business Environment
Importance of International Business:
Importance of International Business in the National economy: 1. To meet imports of industrial or human needs
2. Raw material of critical nature
3. Oil imports to keep the country on the move
4. Debt Servicing: It is necessary to aim at sufficient export earnings to cover both imports and debt servicing
5. Government is keen on reducing the adverse Balance of Payment position 6. Profitable use of natural resources
7. Increase in employment opportunities
8. Increase in the standard of living: i.e. by exporting the producer improves the quality of the product by applying the latest technology and it is made available in exporting country.
9. Peace: International collaboration & closer cultural relations help in political peace between the countries. Countries have come closer on account of international marketing. In modern world export marketing is an inevitable part of business activity of a country.
Importance of International Business for individual firm:
1. Product in declining stage of Life Cycle in domestic market or when Product becomes obsolete in domestic market it may be in demand in foreign market or sold in foreign market.
2. High-tech oriented companies enter into less developed countries to skim the market.
3. International Market is vast and internal market is limited hence export volumes help manufacturers.
4. Building-up of image and reputation in International Market as an expansion strategy.
5. Technical know-how for building the industrial base in the country.
6. Restrictions in domestic market force companies to view export as an alternative.
7. To pay for import bill, Government pressurizes companies to export and earn valuable foreign exchange. Many firms go for overseas market for availing of incentives such as import facilities to modernize their plant.
8. Fulfill export obligation
10. Insufficiency of domestic demand: If the domestic demand for the product is not sufficient to consume the production, the firm can enter the foreign market and utilize its unutilized capacity.
11. Reduce business risk- A diversified export business helps the exporting firm in minimizing the risk of sharp fluctuations in the domestic business
12. Economies of scale: mass production helps manufacturer to keep the price low in domestic and international markets.
13. With improved business and international business needs, the company spends more money to research and developmental activity. This also helps in improved standard of living.
The Scope of International Marketing:
1. Overseas manufacturing 2. Working with local partners 3. Brand names
4. Trademark 5. Patents 6. Processes
7. Negotiating and entering in licensing/ Franchising agreements, where by foreign firms are permitted to use the exporting nation’s know-how
Various factors affecting international trade
For developing or underdeveloped countries managing B.O.P. is a challenging task. To protect the home trade & manage B.O.P. all countries in the world have introduced barriers for the International Business.
1. Tariff Barrier: Import duty increases the landed price of goods. With the result imported goods become expensive.
2. Non Tariff Barrier • Government laws, • Regulations, • Policies, • Conditions, • Restrictions, • Or specific requirements Examples of Non Tariff Barriers
1. Quotas or quantitative restrictions or license. 2. GSP (Generalized System of Preferences) 3. Counter trade
4. Import levies on imported goods are often collected towards the usage of ports and terminal facilities.
5. Import Pre-shipment Inspections
6. Consular Invoice or Legalization or Visa of Export Documents 7. Health, Safety and Technical Standards
8. Foreign Currency Deposit for imports. 9. Product Labeling in Foreign Language 10. Closed Market Distribution
11. Free and Preferential Tariff Treatments 12. MFN (Most Favored Nation)
13. Free Trade (FT)
14. British Preferential Tariff ( BPT)
15. A preferential duty on goods or services originating from some members of the British Commonwealth.
16. Export quota is to protect the domestic supply of the goods, for example, sugar, cement and lumber. Export quota may also be used to boost the world prices.
Regulatory Authorities & Government Policies
Role of Department Of Commerce – Responsible for
1. International Trade and Commercial Policy including tariff and non-tariff barriers.
2. International Agencies connected with Trade Policy e.g. United Nations Conference on Trade and Development (UNCTAD), GATT / WTO
3. All matters relating to foreign trade. 4. Import and Export Trade Policy and Control.
5. Export products and industries and trade facilitation
All fiscal concessions and policy issues having financial implications are decided with the concurrence of the Department of Economic Affairs (Ministry of Finance) or failing such concurrence with the approval of the Cabinet.
Various organizations under Department of Commerce 1. Directorate General of Foreign Trade
2. Directorate General of Anti-Dumping and Allied Duties and related matters. 3. Directorate General of Commercial Intelligence and Statistics.
4. Export Inspection Council 5. Indian Institute of Foreign Trade 6. Indian Institute of Packaging
7. Federation of Indian Export Organizations 8. Indian Council of Arbitration
9. Indian Diamond Institute, Surat 10. National Centre for Trade Information 11. The State Trading Corporation of India Ltd. 12. Spices Trading Corporation of India Ltd. 13. Tea Trading Corporation of India Ltd. 14. MMTC Ltd.
15. Export Credit Guarantee Corporation of India Ltd. (ECGC) 16. India Trade Promotion Organization (ITPO)
Export Promotion Council
The basic objective of export promotion councils is to promote and develop the exports of the country. Each Council is responsible for the promotion of a particular group of products, projects and services.
The major functions of the EPCs are:-
1. To provide commercially useful information and assistance to their members in developing and increasing their exports;
2. To offer professional advice to their members in areas such as technology up gradation, quality and design improvement, standards and specifications, product development, innovation etc;
3. To organize visits of delegations of its members abroad to explore overseas market opportunities;
4. To organize participation in trade fairs, exhibitions and buyer-seller meets in India and abroad;
5. To promote interaction between the exporting community and the Government both at the Central and State levels; and
6. To build a statistical base and provide data on the exports and imports of the country, exports and imports of their members, as well as other relevant international trade data.
The EPCs are Non-Profit, Autonomous and Professional Bodies. The EPCs regulate their own affairs. EPC's are registered under the Companies Act or the Societies Registration Act, as the case may be.
The Ministry of Commerce and Industry & concerned ministry (Ministry of Textiles or Agriculture) of the Government of India, interact with the Managing Committee of the Council concerned, twice a year, once for approving their annual plans and budget and again for a mid-year appraisal and review of their performance.
In order to give a boost to exports, Government expects that the EPCs function as professional bodies.
Export Promotion Councils in India
1. Agriculture and Processed Food Products Export Development Authority 2. Apparel Export Promotion Council
3. Basic Chemicals, Pharmaceuticals And Cosmetics Export Promotion Council 4. Carpet Export Promotion Council
5. Cashew Export Promotion Council
6. Chemicals And Allied Products Export Promotion Council 7. Cotton Textile Export Promotion Council
8. Coffee Board 9. Coir Board
10. Electronic & Computer Software Export Promotion 11. Engineering Export Promotion Council
12. Export Promotion Council For Handicrafts 13. Gem And Jewellery Export Promotion Council 14. Handloom Export Promotion Council
15. Indian Silk Export Promotion Council 16. Jute Manufactures Development Council 17. Leather Exports Promotion Council
18. Marine Products Exports Development Authority (MPEDA) 19. Overseas Construction Council Of India
20. Plastics Export Promotion Council 21. Rubber Board
22. Shellac Export Promotion Council 23. Sports Goods Export Promotion Council 24. Spice Board
25. Synthetic & Rayon Textile Export Promotion Council 26. Tobacco Board
Role of Finance Ministry
Department of Economic Affairs: Reserve Bank of India
Department of Revenue:
Indirect Taxes - Customs & Central Excise Direct Taxes – Income Tax
Reserve Bank of India
1. Exporter has to ensure that he receives money from buyers in 180 day. Failing which shipper will face FEMA.
2. Importer has to obtain forex from RBI (through the banker)
3. Logistics companies collect freight in local currency. They have to approach RBI for remittance of freight collected in India.
Banks are instructed through Reserve Bank of India to ensure
1. Documents are not accepted by the bankers from exporter in absence of GR form or SDF. Money is not released to Exporters in absence of GRI/SDF.
2. L/C is not opened without import license. Central Board of Excise and Customs – CBEC Mission statement (Vide CBEC Web site)
1. Realizing the revenues in a fair, equitable and efficient manner 2. Administer the Government's economic, tariff and trade policies.
3. Facilitate trade and industry by streamlining and simplifying Customs and Excise processes to help Indian business to enhance its competitiveness
4. Create a climate for voluntary compliance by providing guidance and building mutual trust
5. Combat revenue evasion, commercial frauds in an effective manner Customs
Customs is located at entry or exit point of the country. Job of customs is to ensure that lawful import & export takes place. Hence Customs law is applicable to all parties involved in value chain e.g.
1. Port authority 2. Forwarders
3. Shipping line & airline 4. Banks
Customs act applicable to Carrier, Port Authority, Forwarders
1. Cargo can’t be loaded on to the vessel / aircraft unless it is approved by customs.
2. Cargo can’t be delivered to the importer unless it is custom cleared. 3. Carrier has to submit the manifest to customs for all
• Export cargo loaded on board the vessel / aircraft (EGM) • Import cargo, which is to be discharged from ship (IGM)
Letter of credit and other payment terms
Buyer’s Bank is known as “ISSUING BANK” and Seller’s bank is known as ADVISING BANK” Seller is known as “BENEFICIARY”
When buyer is guaranteeing payment. He / she has a right to protect himself. Buyer can insist on the following
L/C Validity (last date for shipment) Marks and numbers Mention whether Part shipment allowed /not
allowed
Certificate of origin (issued by chamber of commerce
Recommend type of packing Port of loading / Port of discharge Insist on packing list to be submitted along with B/L Age of Vessel to be used for loading Ship to be used with Lloyds 100 A 1 Shipment by regular liners/conference Lash vessel Permitted / not permitted Transshipment allowed or not
Type of B/L to be used / Shipped on board B/L Insurance certificate
Pre shipment inspection quality & quantity Documents must be presented to bank within 15 days.
1. Seller asks buyer for letter of credit (L/C)
4. Seller’s bank either adds confirmation (guarantees payment to seller) or simply advises seller that L/C has been issued.
5. Seller makes shipment, presents documents to its bank in accordance with L/C’s terms.
2. Buyer asks its bank to issue L/C in accordance with seller’s terms.
3. After approving buyer’s credit line, buyer’s bank notifies seller’s bank that it has issued L/C
6. Seller’s bank examines and approves
documents, then sends them to buyer’s bank by air mail or courier
7. Buyer’s bank examines and approves
documents. Once approved, it debits buyer’s account and wires money to seller’s
bank.
8. On receipt of funds, seller’s bank credits seller’s account (If a confirmed L/C, seller’s bank would have paid seller after Step 6
LETTER OF CREDIT - SAMPLE 1
XYZ BANK LTD
Shipment from: FOB KANDLA To: JEDDAH PORT
Partial shipment: ALLOWED Transshipment: NOT ALLOWED Container shipment:
Special conditions: (Please also refer to general conditions, overleaf page 2)
1. Payment under reserve owing to discrepancies before our prior approval is strictly forbidden.
2. Documents to be presented within 20 days from date of shipment but within validity of the credit.
3. Documents negotiated under this L/C should be forwarded by DHL courier to our Madina RC Branch 223, souq ghurab, Madina road, Jeddah Attn: L/C Dept, and duplicates by registered air mail on P.O. Box 605, Jeddah 21421, Saudi Arabia. Tel: 6655822/6673641.
4. Negotiation of documents restricted at your counter.
5. “Made in India” should be marked on each pieces. Certificate in this effect is required.
6. Please advise this L/C to the beneficiary through “Bank of Indiana, overseas branch, Shivajinagar, Pune-411005, India”. Telex: 0146-7223
GENERAL CONDITIONS (WHICH FORM AN INTEGRAL PART OF THIS L/C) UNLESS OTHERWISE STIPULATED IN THE CREDIT:
1. All Documents should be manually signed.
2. Documents issued prior to the date of issuance of credit not acceptable. 3. Documents issued by EDI not acceptable.
4. Transport document issued by freight forwarder not acceptable. 5. Charter party / short form bill lading / not acceptable.
6. House airway bill not acceptable.
7. Cost additional to the freight as shown in Article 33 D not acceptable. 8. Transshipment Sub Article 23 D is not acceptable.
9. In case of air shipment, copy of Invoice & Cert. Origin should accompany the goods. AWB to evidence the same.
10. In case of container shipment:
• No. of package in each container should be declared on B/L. • LCL not acceptable.
• Beneficiary must put a strong sticker / label inside the door of container stating name of opener, address, Tel.No., Commodity Description and Mode of Packing, and Packing List must evidence the same.
• Freight --- (In case CFR or CIF) • Insurance Premium. ---
• Total (CIF / CFR)
12. B/L should indicate name, address and telephone number of the carrying vessel’s agent at port of discharge.
B/L must certify that the carrying steamer is not over 15 years of age at the time of loading otherwise the vessel must have a valid certificate for cargo gear and tackle issued by one of the following societies approved by the Government of Saudi Arabia. Copy of it must accompany the documents. 1) American Bureau of Shipping
2) Bureau Veritas 3) Det Norske Veritas 4) Germanischer Lloyds 5) Lloyds Register of shipping 6) Nippon Kaiji Kyokai
13. Negotiating bank telex (other than advising bank) should also confirm that all charges of advising bank have been paid.
14. DOCUMENTS REQUIRED (In the box marked x ) WHICH MUST EVIDENCE THE NUMBER OF THIS CREDIT.
1) Signed Commercial Invoice in --Triplicate Original and duplicate certified by Chamber of Commerce and legalized by Saudi Arabian Consulate.
2) Full set “clean shipped on board marine bills of lading” made out to order of XYZ BANK LTD, marked freight prepaid / to be collected and notify openers & showing the number of this credit.
3) Clean Airway bill showing XYZ BANK LTD as consignee, marked freight prepaid/ to be collected and notify openers and showing the number of this credit.
4) Detailed Packing List in DUPLICATE. 5) Weight Certificate in DUPLICATE
6) Certificate of INDIAN origin issued or attested by Chamber of Commerce and legalized by Saudi Arabian consulate stating the name and address of the manufacturer / producers, and that goods exported are wholly of domestic origin, or, if otherwise the exporter should issued a decoration in the form No.2 detailed overleaf, and appended to the certificate or origin.
7) Negotiable insurance policy or certificate, for full invoice value plus 10% irrespective of percentage showing claims payable in K.S.A.R & C.C. and T.P.N.D. risks, extended cover from warehouse to warehouse. (Showing premium paid & number of this credit.) Instituted cargo clauses (all risks) Land transit clauses.
8) A declaration issued by the insurance company in the form No.3 detailed overleaf.
9) If Saudi Arabian consulate is not available at the port of loading or at the beneficiaries domicile legalization (where application in this credit) may be made by the chamber of commerce and / or industry or the federation of industries at the domicile of the beneficiary and authenticated by any Arab consulate.
Others :
We are informed by applicant that Insurance will be covered by them.
Please advise this credit to beneficiary ---all charges and commissions outside KSA
REIMBURSEMENT INSTRUCTIONS : For reimbursement of drawings (s) under this credit. At Maturity Date 90 DAYS FROM THE DATE OF RECEIVING DOCUMENTS AT OUR COUNTER You are authorized to debit our account with you.
We will credit your account at any bank of your choice. We will credit your account at our Head Office, Riyadh. You may claim on our account directly from
Seven working days from the date of your tested telexes to us stating L/C number, amount, value date, DHL / Courier AWB No. and date B/L date, vessel name, shipping agent name at port of destination and that one set of original documents have already been dispatched by courier, duplicate by a following registered airmail and that all terms and conditions have been complied with.
EXCERSISE
1. PLEASE MAKE A LIST OF DOCUMENTS SHIPPER WILL HAVE TO SUBMIT TO THE BANK AT THE TIME OF NEGOTIATIONS.
LETTER OF CREDIT – SAMPLE 2 FORM OF DOCUMENTARY CREDIT - IRREVOCABLE
DOCUMENTARY CREDIT APPLICANT
ABC CO LTD, PUNE INDIA BENEFICIARY : XYZ CO LTD NEW YORK U.S.A.
• PARTIAL SHIPMENTS PROHIBITED • TRANSSHIPMENT PROHIBITED • DOCUMENTS REQUIRED
• FULL SET OF SIGNED CLEAN ON BOARD SHIPPING CO’S OCEAN B/L OF REGULAR LINER VESSEL
• +2 NON NEGOTIABLE COPIES
• B/L MUST BE MARKED FREIGHT PAID,
• B/L MUST NOT BE DATED LATER THAN THE LAST DATE OF SHIPMENT MADE OUT TO THE ORDER OF ISSUING BANK, AND CLAUSED NOTIFY.
• INSURANCE POLICIES/ CERTIFICATES IN DUPLICATE DATED NOT LATER THAN THE B/L DATE. SIGNED BY INSURANCE CO, IN BLANK FOR FULL INVOICE VALUE PLUS 10 PERCENT IN THE SAME CURRENCY COVERING MARINE RISKS, INSTITUTE CARGO CLAUSES A, INSTITUTE WAR CLAUSES (CARGO) SRCC, TPND, RADIOACTIVE CONTAMINATION EXCLUSION CLAUSE, WAREHOUSE TO WAREHOUSE UPTO IMPORTERS GODOWN AT PUNE, INDIA. CLAIMS PAYABLE AT DESTINATION.
• SIGNED INVOICES IN QUADRUPLICATE CERTIFYING THAT THE GOODS SHIPPED ARE AS PER Purchase Order NO. OF THE APPLICANT, STATING THAT ALL TERMS AND CONDITIONS OF THIS L/C AND ABOVE P.O. ARE COMPLIED WITH BEARING L/C NO AND DATE.
• PACKING LIST AND WEIGHT NOTE IN DUPLICATE.
• CERTIFICATE FROM LLOYDS/OR ITS EQUIVALENT AUTHORITY OR THE SHIPPING CO OR ITS AUTHORISED AGENT TO EFFECT THAT-
• THE VESSEL IS REGISTERED WITH AN APPROVED CLASSIFICATION SOCIETY AS PER THE INSTITUTE CLASSIFICATION CLAUSE AND
• CLASS MAINTAINED EQ TO LLOYD’s 100A1. • THE VESSEL IS NOT MORE THAN 15 YEARS OLD.
• CERTIFICATE OF ORIGIN IN DUPLICATE ISSUED BY CHAMBER OF COMMERCE STATING GOODS ARE OF ………..ORIGIN AND INDICATING NAME OF APPLICANT AS IMPORTERS.
• ADDITIONAL CONDITIONS
1. IMPORTERS CODE NO. TO APPEAR ON ALL COMMERCIAL INVOICES.
2. ONE FULL SET OF NON NEGOTIABLE DOCUMENTS TO BE AIRMAILED TO THE IMPORTER WITHIN …….DAYS FROM DESPATCHES AND INVOICES TO CERITY ACCORIDINGLY.
4. B/L (OR OTHER TRANSPORT DOCUMENTS) SHOULD NOT BE DATED PRIOR TO THE DATE OF THIS CREDIT.
5. BENEFICIARY TO ADVISE APPLICANT THE DETAILS OF SHIPMENT SUCH AS
B/L NO AND DATE, VESSEL NAME, VALUE OF CONSIGNMENT, QUANTITY AND DESCRIPTION OF GOODS BY CABLE/FAX/TELEX WITHIN 3 DAYS FROM THE DATE OF SHIPMENT.COPY OF SUCH CABLE/ FAX/TELEX TO ACCOMPANY THE DOCUMENTS.
• DISCREPANCY CHARGES OF USD 50.00 SHALL BE DEDUCTED FROM THE PROCEEDS IF DOCUMENTS ARE PRESENTED WITH DISCREPANCY / IES.
• CHARGES OUTSIDE INDIA TO BENEFICIARY. EXCERSISE
1. PLEASE MAKE A LIST OF DOCUMENTS SHIPPER WILL HAVE TO SUBMIT TO THE BANK AT THE TIME OF NEGOTIATIONS.
TYPES OF LETTER OF CREDIT Irrevocable L.C
• It can neither be modified nor cancelled without the consent of beneficiary.
• It constitutes a firm commitment on the part of opening bank. Revocable L.C
• A Revocable L.C. could be revoked, cancelled, amended or modified by the opening Bank without notice to the beneficiary.
• A Revocable L.C. does not constitute a legally binding undertaking between the Bank or Banks concerned and the beneficiary.
All credits have to indicate clearly whether they are revocable or irrevocable in the absence of such indication all credits are deemed to be irrevocable.
Transferable L.C.
A credit can be transferable if the opening bank specifically assents & issues a transferable credit.
Revolving Credit
A revolving credit is a credit where the amount is renewed or reinstated from time to time without a specific amendment.
Back to Back Credit
A Back To Back credit is issued on the strength of a credit already received. Deferred payment Credit
• Are usually used in the Import/ Export of Capital Goods.
• Payment is made in installments & each installment is covered by a separate draft.
Red clause credits
It is a method of financing before shipment. It authorises the advising bank to make advances to the beneficiary before presentation of documents.
Green Clause L/C
Green Clause letter of credit is an extension of the Red Clause credits in that it envisages the grant of storage facilitates at the port of shipment over & above pre-shipment finance.
CHECK LIST FOR SCRUTINY OF THE L/C • Date of Issue
• Date and place of Expiry • Applicant Bank
• Applicant • Beneficiary • Currency • Validity of L/C
• Quantity & Size of goods • Value of the L/C
• Stipulation regarding part shipment or transshipment • Partial shipment
• Any additional document
• Correct Name & Spellings of crucial wordings of Shipper as well as buyer’s Name & Address
• Place of Taking in Charge/ Dispatch from…/Place of receipt • Port of loading/ Airport of Departure
• Port of Discharge/ Airport of Destination
• Place of final Destination/ For transportation to…/ Place of delivery • Specific route if any
• Any prohibition of a particular line of Shipping Companies ( Conference vessel or Non- conference vessel)
• Shipping marks requirement • Latest date of Shipment • Shipment Period
• Description of goods and/or services • Documents Required
• Additional Conditions • Charges
• Period for Presentation • Confirmation Instructions
ELEMENTS OF EXPORT/ IMPORT CONTRACT • Product, Standards & Specification
• Quantity • Inspection
• Total Value Of Contract • Terms Of Delivery
• Taxes, Duties & Charges
• Period Of Delivery/ Shipment Etc.
• Pre-shipment-transshipment–part Shipment • Packing, Labeling & Marking
• Terms Of Payment – Amount, Mode & Currency • Discounts & Commissions
• Licenses & Permits • Insurance • Documentary Requirements • Guarantee • Force Majeure • Remedies • Arbitration
DIFFERENT METHODS PAYMENT – RISK TABLE
Term Of Settlement When goods available to buyerWhen the seller gets Paid
Risk to seller Risk to Buyer
Advance Payment Upon arrival at P.O.D. Prior to shipment
None The risk to buyer is maximum as buyer has already paid some times before shipment. Open Account On receipt of
shipment and shipping documents.
As per mutual arrangement, but after receipt of goods Risk to shipper is maximum as buyer to pay on receipt of goods. Risk to buyer is the least or none Bills for collection – on D/P terms After payment of the bills . Upon presentation of the draft and documents to the buyer. Seller is exposed to risk if buyer refuses to collect documents from bank. Seller may have difficulty in finding alternate buyer. Relies on seller to ship goods as per specifications. Cannot examine goods till payment made and delivery taken. Bills for collection – on D/A terms Upon acceptance of time draft / documents. Upon maturity of time draft ( payment on agreed date) Non- payment on due date. Control over goods already lost. Payment to be made regardless of product quality, but buyer can examine goods and negotiate. Bankers Acceptance(BA) Upon acceptance of time draft and co-acceptance by his bank.
Upon maturity of time draft.
Control lost over shipment. However acceptance or co-acceptance by bank ensures payment on due date. Irrespective of possible disputes over quality / quantity buyer or bank must pay. Deferred Payment Documents (goods) delivered on acceptance of time draft and/or co-acceptance by his bank. Seller is paid on due date. Payment on schedule date is assured only if banker’s co- acceptance or deferred payment guarantee(DPG) is available. Irrespective of possible disputes over quality / quantity buyer must pay to bank.
Letter of Credit Only upon payment against LC and taking delivery of
When shipment has been made and documents presented to the Documents must be approved by the issuing/ Buyer cannot examine goods till payment is made. Must rely
DOCUMENTS AGAINST PAYMENT
Documents Against Payment:
Instead of Promissory note buyer makes a payment to
bank and collects documents.
Bills of Lading
WHAT IS A BILL OF LADING?
1. A Bill of Lading is a Receipt for Goods issued by the carrier. 2. A Bill of Lading is an Evidence of the Contract of Carriage.
3.
An Order Bill of Lading is a Transferable Document of Title to Goods.UCP 500
INTERNATIONAL CHAMBER OF COMMERCE (ICC) has standardised customs and practices when issuing and using DOCUMENTARY CREDITS.
ICC Publication No. 50O, is applicable to all Documentary Credits
If a Letter of Credit calls for or permits any of the following transport documents covering a shipment; banks will, unless otherwise stipulated in the Letter of credit, accept following document issued by carrier:
1. Marine/Ocean Bill of Lading 2. Non Negotiable Sea Waybill
3. Charter Party Bill of Lading 4. Multimodal Transport Document
5. Air Transport Document (AWB) 6. Road – Lorry or Truck Receipt
7. Rail Receipt
8. Inland Waterway B/L 9. Courier and Post Receipts 10. Freight Forwarders B/L or FCR TRANSSHIPMENT
For the purpose of Article 23, transshipment means unloading and reloading of cargo from one vessel to another vessel during the course of ocean carriage from the port of loading to the port of discharge.
Article 23 D of UCP 500 reads as follows:
Unless transshipment is prohibited by the terms of the Letter of Credit, banks will accept a bill of lading, which indicates that the goods will be transshipped, provided that the entire ocean carriage is covered by one and the same bill of lading.
Even if the Credit prohibits transshipment, banks will accept a bill of lading which: Indicates that the transshipment will take place as long as the relevant cargo is shipped in Container(s), Trailer(s) and/or "LASH" barge(s) as evidenced by the bill of lading, provided that the entire ocean carriage is covered by one and the same bill of lading.
Clean Transport Documents.
A clean transport document is one which bears no clause or notation which expressly declares a defective condition of the goods and/or the packaging.
Shipped On Board
Loading on board or shipment on a named vessel may be indicated by pre printed wording on the bill of lading that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the bill of lading will be deemed to be the date of loading on board and the date of shipment. On board notation: In all other cases loading on board a named vessel must be evidenced by a notation on the bill of lading, which gives the date on which the goods have been loaded on board, in which case the date of the board notation will be deemed to be the date of shipment.
If the bill of lading contains the indication "intended vessel", or similar qualification in relation to the vessel, loading on board a named vessel must be evidenced by an on board notation on the bill of lading which, in addition to the date on which the goods have been loaded on board, also includes the name of the vessel on which the goods have been loaded, even if they have been loaded on the vessel named as the "intended vessel".
Received for shipment B/L When cargo is received at carrier’s CFS or CY carrier can issue Combined Transport Document stating place of receipt CFS / CY. This is known as received for shipment B/L. If letter of credit requires “SHIPPED ON BOARD” B/L exporter will not be in a position to negotiate this B/L.
Received for Shipment B/L
It is not a type of B/L, in reality it is MTD issued by the carrier on receipt of goods for multimodal transport..
While issuing Received for Shipment B/L carrier must ensure that name of CFS is typed as place of receipt. E.g. Place of Receipt CFS (Name of CFS) Port of Loading (Name of Port)
FREIGHT
Freight shall be deemed fully earned on receipt of the Goods by the Carrier and shall be paid and non-returnable in any event.
Freight prepaid - B/L with this clause does not mean freight is received subject to realization of cheque.
If freight cheque is returned unpaid, carrier can’t exercise LIEN over cargo. Hence never issue FREIGHT PREPAID B/L to unknown customer against cheque.
LIEN
can be exercised by the carrier if consignee refuses to pay the freight
The Carrier shall have a lien on the Goods and any documents relating thereto for all sums payable to the Carrier under this contract………
Important B/L clause
Should we allow following clauses in the Bill of Lading?
1. NEW CASES 2. NEWBAGS
3. BRAND NEW GUNNY BAGS 4. USE NO HOOKS
5. HANDLE WITH CARE 6. CLEAN ON BOARD 7. ACTUALLY ON BOARD 8. CONFIRMED ON BOARD
9. SHIPPER LOAD STOWE AND COUNT 10. SAID TO CONTAIN
11. GLASS WITH CARE 12. STRONG CASES 13. STRONG CARTONS 14. NO HAY OR STRAW USED 15. PACKED IN SEAWORTHY BALES 16. AVOID CONTAMINATION 17. NO SOLID WOOD PACKING
MATERIAL USED.
18. STOWED AWAY FROM BOILERS AND ENGINES
19. KEPT COLD AND DRY
20. STOWED BELOW WATERLINE 21. STOWED AND SHIPPED UNDERDECK 22. NOT TO BE STOWED IN HOLD
WITH….
23. KEEP AWAY FROM FREEZING 24. AVOID DAMPNESS
25. STORE IN A COOL AND DRY PLACE 26. FOR DIRECT DELIVERY ONLY 27. INSURANCE COVERED BY SELLER 28. TRANSHIPMENT PROHIBITED 29. TRANSHIPMENT NOT ALLOWED 30. PARTIAL SHIPMENT PROHIBITED 31. PARTIAL SHIPMENT NOT ALLOWED 32. STRONG SEAWORTHY PACKING 33. DO NOT STACK UPSIDE DOWN
BILL OF LADING
SHIPPER / EXPORTER YZ COMPANY
CONSIGNEE
(NON NEGOTIABLE UNLESS CONSIGNED “TO ORDER”) Or
(NEGOTIABLE ONLY IF CONSIGNED “TO ORDER”,
“TO ORDER OF” A NAMED PERSON OR “TO ORDER OF BEARER”)
TO ORDER OF
STATE BANK OF INDIA NOTIFY PARTY
(It is agreed that no responsibility shall be attached to the carrier or it’s agent for failure to notify)
Name of company typed in this column is the company which has placed an order however cargo must not be delivered to this party unless consignee in consignee column has endorsed the B/L in favour of notify party.
‘TO ORDER”( No name written after “TO ORDER” means “TO
ORDER OF SHIPPER” : At the time of shipment, shipper prefers
not to write name of the buyer. At a later stage when money is
received by the shipper or shipper’s bank, B/L is endorsed in
favour of Buyer.
Means only SBI can endorse the B/L in favour of ultimate buyer i.e. Notify Party
If “TO ORDER” word is not printed, this B/L will be “Non Negotiable” hence name of the company written here is entitled to receive cargo without
Switch B/L
Many carriers do not permit issuance of switch B/L. Hence one needs to check with principles prior to issuing such B/L.
Traders often purchase goods from one country and sell the same goods to buyer in another country (without physically importing goods in trader’s country) for such transaction B/L is switched. Such trading activity is known as “Merchanting of Goods”
RBI approves such trading transactions vide the rules under “Merchanting trade”. Such transactions are permitted only if Indian trader is earning more foreign exchange than what he is spending on purchase of goods.
Procedure
To be allowed to switch Bill, Customer should present all the original Bs/L issued by agent in the POL to the agent in the third port. In the case Customer fails to present a series of Bs/L due to the delay in the POL, customer can demand to issue the Switch B/L in exchange for the guarantee of the bank.
SHIPPER AAA EXPORTS INDIA BUYER FU FU INC MALAYASIA BBB INC. HONGKONG
SWITCH B/L
L/C FOR $ 1,00,000 L/C FOR $1,25,000/-1st set of B/L issued at load port
Air - Waybill
AWB is non negotiable transport document. Since air cargo reaches faster than documents through the bank, airlines have introduced AWB.
Sea - Waybill
Sea Waybill is non-negotiable transport document. Since containerized cargo reaches faster than documents through the bank, shipping lines have introduced Sea Waybill.
Consolidation & Groupage
The advent of containerization has made the consolidation or groupage of small consignments into full container loads a necessity. This activity is carried out in two different manners.
1. Consolidator 2. Groupage operator
Non Vessel Operating Common Carrier (NVOCC)
:NVOCC is an individual or firm who accepts LCL shipments from various shippers, and then combines them for delivery to the carrier as FCL shipment. NVOCC earns money out of the difference between LCL freight earned and FCL freight paid to shipping Line. In the ocean shipment, the NVO buys the shipping space, in a special arrangement with the carrier, and 'resell' the space to individual forwarders or shippers. In such an arrangement, the NVO acts as a carrier retailing another carrier’s space.
CONTAINER
NVOCCSHIPPER - 1
5 CBM = $300
SHIPPER - 2
3 CBM = $180
SHIPPER - 3
7 CBM = $420
SHIPPER - 4
4 CBM = $240
SHIPPER - 5
6 CBM = $360
SHIPPER - 6
1 CBM = $60
FCL
27 CBM = $1560
PAY SHIPPING LINE $1200PROFIT
$360
NVOCC DOCUMENTATION
Containers are either owned or leased by the NVO. Liability of NVOCC is that of principal and / or carrier and is subject to the terms & conditions that apply to the Bill of Lading issued by them.
MASTER B/L HOUSE
Consolidator:
Often buyer negotiates FCL rates with carrier and appoints Consolidator to consolidate various LCL consignments. Consolidator on behalf of buyer accepts LCL shipments from individual shippers, and then combines them for delivery to the
carrier as FCL shipment. The buyer for services rendered pays consolidator.
DOCUMENTATION CONTAINER CONSOLIDATION SHIPPER - 1 5 CBM = $300 SHIPPER - 2 3 CBM = $180 SHIPPER - 3 7 CBM = $420 SHIPPER - 4 4 CBM = $240 SHIPPER - 5 6 CBM = $360 SHIPPER - 6 1 CBM = $60 ON CIF PURCHASE FREIGHT ON LCL WOULD HAVE BEEN 27 CBM = $1560 PAY SHIPPING LINE FCL RATE OF $1200 SAVE $360 ON FREIGHT SAVE $420 ON FREIGHT SAVE ON CUSTOM CLEARENCE SAVE ON LCL TRANSPORT
Master B/L and House B/L
Origin of these terms is air cargo industry. FIATA approved forwarders consolidate the consignments of several independent shippers that are destined to the same airport. Forwarders issue their own House AWB (HAWB) to their customers. Forwarders book / load such consolidated cargo with airline, air line issue one Master AWB (MAWB) for consolidated cargo.
With emergence of NVOCC, Logistics companies and International Freight forwarders, terms such as Master B/L and House B/L were introduced in sea freight industry.
NVOCC, Logistics companies and International Freight forwarders issue House B/L to shippers. Shipper negotiates this B/L through banks. However UCP doesn’t recognize HBL but they recognize Marine/Ocean Bill of Lading, Non Negotiable Sea Waybill, Multimodal Transport Document and Freight Forwarders B/L or FCR. Though we use terms like House B/L we don’t print B/L form with heading “House B/L”
Master B/L issued by shipping line works as service B/L because NVOCC, Forwarders don’t negotiate this B/L through banks.
SEA WAYBILL issued by shipping line to NVOCC is
known as Master Bills of Lading.
OCEAN B/L issued by NVOCC to Shipper is known as
House B/L.
In above situation House B/L is Negotiated through
Bank and Sea Waybill is not Negotiated through Bank.
INCO TERMS
International Commercial Terms
This study material is for information and education only and should not be taken as legal advise. It is viewpoint on the official Incoterms 2010 and what may be contained therein.
You should consult the official publication of ICC.
Incoterms are a set of uniform rules codifying the interpretation of trade terms defining the rights and obligations of both buyer and seller in an international transaction. INCOTERMS are drafted by the International Chamber of Commerce (ICC).
Incoterm 2010 is adopted in major trading countries. Eleven Incoterms enables the businessperson to select the most suitable term for his or her needs.
INCOTERMS are designed to arrange for the transfer of risk from seller to buyer at an convenient place.
INCOTERMS define obligations of buyer & seller such as 1. Transportation from factory to place of delivery. 2. Insurance from factory to place of delivery.
3. Export licence& other export authorization (if required).
4. Security clearance: ACD / ENS payable to carrier at origin. There is no mention of these expenses in Incoterms 2010 however these charges are payable to carrier at origin.
5. Security clearance: Importer Security Filing at destination.
6. Information required for insurance e.g. carrier details, vessel age & registration certificate payable to carrier.
7. Loading of cargo on trailer or rail wagon at seller's premises.
8. Discharge of cargo from seller's means of transport at place of delivery. 9. Loading of goods on means of transport (main carriage) e.g. THC /CFS
charges.
10. Pre-shipment checking i.e. quality, weighing, measuring, counting.
11. Documents: e.g. Certificate of origin, GSP certificate of origin, packing list, Legalization of documents etc. required by buyer for import clearance. 12. Pre-shipment inspection as per buyer's requirement (as per contract) 13. Pre-shipment inspection (mandatory at country of origin).
14. Pre-shipment inspection (mandatory as law of importing country).
15. Export licence (if required), customs clearance (Export) and export duty if any.
16. Miscellaneous cost e.g. Octroi, local taxes, "gate in fees" etc at origin.
17. Transport document fee (B/L, MTD, AWB fee) payable to carrier for obtaining transport document.
18. Import licence, customs clearance (Import) and import duty if any.
19. Miscellaneous cost e.g. Octroi, local taxes, "gate out fees" etc at destination. 20. CFS charges if any at final destination.
21. Destination THC or charges at airport LCL THC.
23. Transportation from place mentioned as final destination on "Transport Document" to buyer’s warehouse.
24. Contract of carriage for main carriage. 25. Contract of insurance for main carriage.
In order to ensure proper selection of Incoterms buyers and sellers are expected to look beyond INCOTERMS 2010 publication i.e.
• What type of transport document (B/L, MTD, AWB ) will be ideal for the transaction.
• What type of logistics service provider one must use. • Which will be the “named place” for each of the INCOTEMS.
• How and when the payment and banking transaction will take place.
• Buyer and seller must have good knowledge of import/export procedures and operations.
Above issues are not discussed in official publication however in this study material few examples are given for the benefit of seminar participants.
In addition to INCOTERMS International Business House must have broad understanding of:
• The contract of carriage. • The insurance contract
• The contract of finance (ICC booklet no.600 on UCPDC) • The export sales contract involving Incoterms 2010.
At the time and place where risk is transferred from seller to buyer, money is payable by buyer to seller. Most of the time banks are involved in financial transactions and various documents are required for negotiations. These specific issues are not discussed in Incoterms official publication.
Most of the examples (e.g.)
Given in this study material are not published in official publication of Incoterms. Following terms are repeatedly used in these study notes.
Place of Delivery = Place where risk of loss of cargo or damage to cargo passes from seller to buyer.
Transport Document = • Bill of Lading (B/L),
• Multimodal Transport Document ( MTD) or Combined Transport Document (CTD),
• Railway Receipt (R/R), • Truck or Lorry receipt (L/R), • Air Waybill ( AWB),
• Forwarder’s Cargo Receipt (FCR) • Sea Waybill (SWB) etc.
INCOTERMS 2010 - TRANSFER OF RISK FROM SELLER TO BUYER
Following seven Incoterms are ideal for containerized cargo or rail, road and air shipments
EXW Seller must deliver goods by placing them at seller's factory or seller's warehouse. FCA Situation 1: when goods are loaded by seller at seller's premises (factory or warehouse)
Situation 2: when goods are placed at CFS, CY, ICD, air cargo terminal, rail/road cargo terminal of carrier nominated by buyer. Carrier nominated by buyer must discharge goods from arriving means of transport.
CPT When goods are delivered to carrier at CFS, ICD, air cargo terminal, rail/ road terminal. (even though carriage is paid by seller till destination, risk is transferred from seller to buyer at country of origin)
CIP When goods are delivered to carrier at CFS,ICD, air cargo terminal, rail/ road terminal. (even though carriage is paid by seller till destination, risk is transferred from seller to buyer at country of origin)
DAT When seller (carrier nominated by seller) discharge goods from arrival means of transport at the named terminal at destination. Terminal includes any place such as open storage area, berth (quay), warehouse, container yard, CFS or rail/road/air cargo terminal.
DAP When goods are placed at the named destination (buyer's warehouse or buyer's factory) on
arrival means of transport. Discharge of goods to be arranged by buyer. (Import duty is not paid by seller)
DDP When goods are placed at the named destination (buyer's warehouse or buyer's factory) on
arrival means of transport. Discharge of goods to be arranged by buyer. (Import duty is paid by seller)
Following four Incoterms are ideal for bulk & break bulk cargo shipment by
sea or inland waterways.
FAS When goods are placed alongside ship. Shipper needs to produce port / terminal operator's receipt as proof of delivery.
FOB When goods are loaded on board the vessel.
CFR When goods are loaded on board the vessel (even though carriage is paid by seller till destination, risk is transferred from seller to buyer when goods are loaded )
CIF When goods are loaded on board the vessel (even though carriage is paid by seller till destination, risk is transferred from seller to buyer when goods are loaded)
CPT, CIP, CFR, CIF
Freight is paid by seller up to destination however risk is transferred
from seller to buyer when goods are delivered to carrier at country of
origin.
Incoterms 2010 – Summary of Contract of Carriage and Insurance
Term Freight Transport
document
Insurance EXW Buyer to pay freight right from seller's factory or warehouse
(Buyer to arrange loading)
MTD,FCR, L/R, RR
Buyer FCA Situation 1
Buyer to pay freight right from seller's factory or warehouse.(Seller to arrange loading)
MTD,FCR, L/R, RR
Buyer
Situation 2 Buyer to pay freight from CFS, ICD, rail/road/air cargo
terminal at country of origin.
MTD,FCR, L/R, RR,
AWB
Buyer
CPT Seller to pay freight from CFS, ICD, rail/road/air cargo terminal at country of
origin to CFS, ICD, rail/road/air cargo terminal at destination.
MTD,FCR, L/R, RR,
AWB
Buyer
CIP Seller to pay freight from CFS, ICD, rail/road/air cargo terminal at country of
origin to CFS, ICD, rail/road/air cargo terminal at destination.
MTD,FCR, L/R, RR,
AWB
Seller
DAT Seller to pay freight up to terminal at destination. Terminal includes any place such as open storage area, berth (quay), warehouse, container yard, CFS or rail/road/air cargo terminal.
MTD,FCR, L/R, RR, AWB, B/L
Seller
DAP Seller to pay freight up to buyer's warehouse or factory or any other place. (Import duty is not paid by seller)
MTD,FCR, L/R, RR
Seller DDP Seller to pay freight up to buyer's warehouse or factory or
any other place. (Import duty is paid by seller)
MTD,FCR, L/R, RR
Seller FAS Ocean freight paid by buyer. (Proof of delivery is dock
receipt) This Incoterm can be used only when port to port transport is involved.
Ocean B/L Buyer
FOB Ocean freight paid by buyer. This Incoterm can be used only when port to port transport is involved.
Ocean B/L Buyer
CFR Ocean freight paid by seller. This Incoterm can be used only when port to port transport is involved.
Ocean B/L Buyer
CIF Ocean freight paid by seller. This Incoterm can be used only when port to port transport is involved.
Ocean B/L Seller
Recommended usage of Incoterms 2010 by modes of transport as
follows:
1. EXW, FCA, CPT, CIP, DAT, DAP, DDP: Rail, Road, Air as a single mode of transport or Rail, Road, Air and Water as multimodal transport (combined transport). 2. FAS, FOB, CFR, CIF: inland waterways or sea transport only. (Port to Port) 3. FCA, CPT, CIP and DAT: can be used for air port to air port service.
Modes of Transport & Selection of Mode of Transport
Air Water:
A. Ocean transport or deep-sea transport, B. Coastal transport
C. Inland waterway i.e. rivers and canals, lakes. Land:
A. Rail,
B. Truck or trailers and other means. Pipelines:
Transport liquids and gases, especially petroleum and natural gas.
Advantages of Road Transport 1. Door-to-Door service 2. Flexibility 3. Frequency 4. Routing options 5. Superior service 6. Greater reach
7. Transportation of over dimension cargo overweight cargo is possible Advantages of Rail Transport
1. Low cost of transportation in case of long hauls and low value/ high volume (tonnage) is transported. Rail transport is more efficient and economical in case of traffic, which can be carried in full trainloads. Products like cement, fertilizers, salt, coal, manganese ore, iron ore, food grains and other products generally move in large quantities. Because parcel size is big such commodities move by rail.
2. Railways are more energy efficient: Using the same quantity of fuel oil railways can carry more than six times the traffic that could be carried by road.
Advantages of Air Transport
1. Schedules & frequencies: Majority of air cargo is shipped on scheduled passenger flights as a result of which shippers enjoy good frequency. In addition to passenger flights; on busy cargo route airlines operate freighters. 2. Transit time - best in industry: When fastest deliveries are required, one has
to think of air transport, which is the most expensive mode of transport. 3. Inventory cost control: For shipment of very high value cargo like diamonds,
gems and jewellery air transport is preferred to keep the inventory cost low. Water Transport
1. Rivers: like Mississippi in the US and Hoogly in India. Rotterdam's hinterland is well connected by waterways. A modern fleet of thousands of barges transport cargo deep into Europe.
2. Canals: The Kiel-Canal in Germany is the world's busiest artificial waterway - more than 38.000 vessels (ships) transited in 2001.It is the safest, shortest and the most convenient shipping route between the North Sea and the Baltic Sea. St. Lawrence sea way is another busy waterway.
3. Lakes: Today, the United States and Canada maintain the largest bilateral trade relationship in the world.
4. Coastal: transportation along the seacoast of a country. In other words, it's domestic sea transport. Many nations have cabotage act which protects the domestic sea / water and air transport from foreign competition.
5. International deep sea: Commonly used where large expanses of water separate countries.
Advantages of Water Transport 1. Lowest cost of transportation:
2. Water is cheapest mode of transport because ships do not require any fuel to float.
3. In view of buoyancy of water, there is no limitation on size of vessel.
4. Cost of fuel, machinery and manning (crew) does not grow proportionately. 5. Therefore, by building bigger ships, per unit or per ton cost of transportation
comes down drastically.
6. Since ships can cut through water easily, fuel consumed is very low. Fuel used by ships is not as expensive as fuel used in airplanes.
7. Because of the low price, sea freight would represent too small a percentage of the product cost. With the result, the exporter can compete in international markets.
Advantages of Modern Water Transport
Ability to offer door-to-door service by using containers: Modern container liner companies or international forwarders offer door-to-door service, which reduces the transportation cost and damage in transit.
Schedules and frequencies: Modern container liner companies offer regular and reliable service to the smallest exporters. Many leading exporters use regular liner ships as floating/moving warehouse and apply modern business practices such as JIT to keep cost of inventory as low as possible.
Transportation of over dimension cargo overweight cargo is possible: Water carrier can transport cargo that is in excess dimensions and is overweight. Air carrier can't handle a package exceeding the dimensions of aircraft or dimensions of Door Opening.
Flexibility:
Various sizes of ships: Majority of transport vehicles such as trailers, trucks, rail wagons and aircrafts are available in particular models / sizes. Where as ships are made to order and ship owner deploys ships to meet the trade requirements. Shipper can find ships as per required size.
UNCTAD TRADE STATISTICS
1. World sea borne trade (goods loaded) in the year 2002 reached to 5.88 billion tons.
2. In the year 2002 world merchant fleet was 844.2 million DWT.
3. The fleet of oil tankers & dry bulk carriers’ together makeup 71.6% of the total world fleet.
4. Average age of world fleet at the end of 2003 was 12.6 years. 5. Average age of general cargo vessels was 17 years
6. Average age of container fleet was 9.1 years
7. Developing countries’ share of world fleet was 20.3%
Shipping And Sea Borne Trade
Introduction:
The ocean transport industry serves five distinct markets, namely • Dry bulk trades,
• The oil and refined products trades • The gas and chemical trades,
• The general cargo trades which is containerized., and • The reefer (i.e., refrigerated cargo) trades.
The industry provides a wide range of shipping services, which may be broadly split into two main categories:
Liner shipping:
Ideal for those who have small volumes or high value products, which do not justify chartering of ships. If high value cargo is shipped on chartered vessels in large quantity the cost of inventory goes up drastically. Liner ships offer regular reliable shipping service to the trade with fixed schedule.
Liner ships
• Ply on a regular scheduled services between groups of ports.
• Offer cargo space irrespective of volume, to all shippers who require them. • Sail on scheduled dates, irrespective of whether they are full or not. • Carry general cargo and unitized cargo in containers
Liner shipping is the common arrangement for general cargo and containers, whereas all other trades are usually accommodated through tramp shipping. However, this divide is not strict, as liner operators may charter tramp ships to complement their fleets in times of peak demand, and tramp operators may occasionally engage in regular liner services for limited periods. Container ships are used for liner service.
Liner operations
Since liner vessel calls at various ports to load / discharge container, vessel must be loaded in such a manner that at each port container can be discharged or loaded without rework. At the same time stability of ship must be maintained.
Closing Date / cutoff date: Last date on which export goods / containers can be accepted for a nominated sailing. Many ports in the world are very strict on closing or cut off date because it helps them to load vessel efficiently and avoid delays. Stowage plan : Stow = To place, arrange or store away especially in a neat compact way. The cargo was stowed in the ship’s hold
Stowage = The act, manner, or process of stowing. Stowage planning of container vessels is also known as Bay Plan. Ship planners in office prepare stowage plan with the help of bookings and containers physically received in terminal as on cutoff date. This stowage plan is communicated to stevedores to ensure that ship is loaded as per the plan. Bay plan shows the locations of all the containers on the vessel.
Liner shipping is a highly capital-intensive segment of the industry.
In the Year 2003 ,daily operating cost of a typical container vessel of 4,000 to 5,000 TEU, was in excess of $40,000 for including capital, administrative and operating costs. Cost of new container ship was an average of $80 million each. Ocean terminals cost anywhere between $100 – 300 m
For any shipping line to serve customers and stay in business a minimum of five ships are needed for a service string, such as between the Pacific Northwest and Asia. Apart from investment in ships, shipping lines either own or use expensive infrastructure on land such as
Port Terminal
All export containers are transported to port terminal prior to arrival of vessel. On berthing of vessel containers from terminal are transported to ship side and are loaded on board the vessel. All containers discharged from vessel are stacked in the import terminal. Storage of containers at port terminals helps in faster turnaround time.
Container Yard (CY)
Is used for collection, distribution and storage full and empty containers. Full Container Load (FCL)
A parcel of goods, which is big enough to utilize all the space in a container. Such parcel is often packed or stuffed by shipper at factory. Some times shipper delivers FCL cargo to shipping line at CFS for stuffing.
Less than Container Load (LCL)
If exporter has small parcel to fill a container i.e. less than a container load, he books cargo with carrier as LCL. Such carrier who is accepting LCL bookings from various exporters stuffs all LCL, compatible goods in one container for the same destination. Container Freight Station (CFS)
Export CFS:
Is very large warehouse complex used for receiving export LCL cargo. At CFS exporters can arrange customs examination of cargo and handover goods to shipping line for stuffing.
Import CFS:
With regards to imports, shipping line de-stuff LCL containers and store cargo in CFS. Importer at his convenience arranges custom clearance, pays import duty and takes delivery of cargo from import CFS.
Inland container Depot
Also known as Dry Ports, C/Bs (in UK), Depots (in Australia) and Rail Head or IPI (in USA). Shipping lines and rail companies promoted Inland Container Depots at landlocked industrial towns. This facilitates usage of low cost rail transport to and from port to ICD. Exporters and Importers can arrange custom clearance at ICD.
Tramp shipping:
Chartering of ships is ideal for those having large cargo volumes, which are to be shipped on one vessel. Crude oil, fertilizers, food grains, minerals, chemicals etc moves by chartered vessels. These commodities are low in value and move in large quantities. Ships serving this trade will be of size anywhere between 5000 m.tons to 500,000 m.tons. Ships are chartered under different terms and conditions, including single voyage or consecutive voyage charters, time charter, trip charter, or bareboat charter. The charter rates depend upon elements of cost on account of ship-owner and charterer. Such cost elements are depicted in the table below.
Types of Charter Elements of cost on account of ship owner Voyage
Charter
Time Charter
Bareboat Charter
Capital investment (ship) Owner Owner Owner
Operating Cost Owner Owner Charterer
Voyage Cost Owner Owner Charterer
Cargo Handling cost Owner Charterer Charterer
Voyage Charter Time Charter 1-5 years Bareboat Charter Ideal for one time or
short term
requirement.
Expenses such as crew salary, cargo loading & unloading, fuel, port expenses are on account of ship owner.
Ideal for the exporters who have regular cargo movement e.g. Steel Mills importing ore, Oil Companies regularly importing crude.
Charterer takes the ship on charter for a fix time frame. Charterer looks after cargo booking. All cargo related expenses are on account of charterer.
All costs such as fuel, crew salary, etc is on account of ship owner. Advantage: Charterer can avoid repeated chartering. Charterer will have long term rate commitment.
Ideal for ship owners who have expertise to operate ships.
Usually large size shipping line or exporter/importer who ship large size consignments very regularly takes ships on bare boat charter from another ship owner.
Charterer just takes the bare ship on charter. Charterer looks after manning, deployment, all costs such as bunkers, crew salary, port charges, booking commissions etc. Advantage: In absence of required funds to acquire the ship, charterer (shipping company or big time exporter like oil company) prefers bareboat charter.
Note: Information in the above table is an attempt to develop basic understanding. In reality one needs to study the charter party very carefully.
The charter rates are quoted on a competitive basis through brokers in various Exchanges throughout the world. One of such exchange is Baltic Exchange.
Types of ships used in Tramp Trade
1.Car Carriers
2.Roll on Roll off ships 3.Passenger/Cruise liners 4.Refrigerator [Reefer Ships] 5.Break Bulk Cargo Ships 9.Timber or lumber carriers 10.Bulk-carriers [Bulkers] 11.Heavy lift cargo ships 12.Cattle Carrier
13.LPG carriers [Liquid petroleum Gas carriers] 14.Chemical Tankers:
15.Product Tankers 16.Edible Oil Tankers 17.Tankers
18.Coal carrier 19.Cement carrier 20.Supply boat
21.Oil Bulk Ore Carrier (OBO) Tankers
Types of Tankers Deadweight tonnage
Product carrier [for petroleum products] 10,000-60,000 t
CC [Crude Carrier] Upto 80,000 t
LCC [Large Crude Carrier] 80,000 t – 120,000 t VLCC [Very Large Crude Carrier] 120,000 t – 250,000 t ULCC [Ultra Large Crude Carrier ] Over 250,000 t Handy size: About 25-35,000mt.
Handymax : Larger form of handy size, about 45,000mt
Panamax : The biggest type of ship able to transit Panama, which has a 32.23m beam restriction as the main restriction. This means ships of around 70-80,000mt DWT
Capesize: Ship bigger than a Panamax, i.e. from about 80,000-200,000 tons deadweight. Too big to transit Panama canal, has to go via Cape Horn, hence 'Cape' sized vessel.
Post Panamax: The type of container ship unable to transit Panama, which has a 32.23m beam restriction as the main restriction. This means ships of more than 70-80,000mt DWT can’t pass through Panama Canal.
Evolution in shipping industry
Bulk Cargo:
Cargo loaded in to the ship without any packing or without containerization. Approx. 70% of world trade in terms of tonnage, moves as Bulk Cargo.
Break Bulk Cargo:
Cargo packed and loaded in to ship (without containerization).
Major problem in Break Bulk shipments is multiple handling of cargo which results in 1. Damage to cargo
2. Loss of time
3. Increased handling cost
4. Pilferage in transit warehouses
To avoid above mentioned problems trade thought of unitization by using Pallets or Jumbo Bags. This is known as UNITIZATION. During 1970 / 80 CONTAINERS were introduced by shipping lines, which is the most popular method of UNITIZATION. Containerization:
With the introduction of containers the entire transport industry underwent drastic change.
1. Design of ships changed. Ship owners acquired Gearless Cellular Ships.
2. Size of ships increased dramatically. With lower operating cost, shipping lines could compete with other carriers.
3. Turn around time of ships improved.
4. Ports underwent major change by building deep-water berths and container terminals.
5. Traditional cargo handling equipments in the port were replaced with most modern Rail Mounted Quay Cranes, Rubber Mounted Gantry Cranes, Reach Stackers and Large Size Fork lifts.
6. Road transport vehicles were split in to two parts i.e. Tractor or Prime Mover or Horse and trailer.
7. Rail companies also took advantage of containerization by introducing services like Trailer on Flat Car (TOFC) and Container on Flat Car (COFC). This change assisted Rail Companies to regain their business from road transporters.
8. Shipping lines and rail companies promoted Inland Container Depots or Container Bases or Dry Ports at landlocked industrial towns. This resulted in Multi Modal Operations and Door-to-Door service.