Sea Transport - Notes

Shipping, Freight Forwarding & Global Trade Operations
TOPIC PAGE
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, 3
rd
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
23 Air cargo 83-87

Workshop on Shipping, Freight Forwarding & Global Trade Operations
Facilitator: Rajiv Sathe
Contact : H/P 09823015374 email rajiv@rsathe.com www.rsathe.com
2

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
9. To utilize installed capacity: If the installed capacity of the firm is much more
than the level of demand of the product in the domestic market, it can export
the surplus production.

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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 nations know-how
8. Physical Exports

4

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.
17. Import license.

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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)
17. Export Promotion Councils

6

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.

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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
27. Wool & Woolens Export Promotion Council

8
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 cant be loaded on to the vessel / aircraft unless it is approved by
customs.
2. Cargo cant 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)

9
Letter of credit and other payment terms

Buyers Bank is known as ISSUING BANK and Sellers 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. Sellers 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/Cs terms.

2. Buyer asks its bank to
issue L/C in accordance
with sellers terms.
3. After approving
buyers credit line,
buyers bank notifies
sellers bank that it has
issued L/C
6. Sellers bank
examines and
approves
documents, then sends
them to buyers bank
by air mail or courier

7. Buyers bank examines
and approves
documents. Once
approved, it debits
buyers account and
wires money to sellers
bank.
8. On receipt of funds,
sellers bank credits
sellers account (If a
confirmed L/C, sellers
bank would have paid
seller after Step 6

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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.
11. The Invoice must show the breakdown of the amount as follow:
F.O.B. Value ---------------------

11
Freight --------------------- (In case CFR or CIF)
Insurance Premium. -------------------
Total (CIF / CFR)
12. B/L should indicate name, address and telephone number of the carrying
vessels 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.

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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.

2. PREPARE B/L

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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 COS 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 LLOYDs 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.
3. SHORT FORM AND THIRD PARTY B/L ARE NOT ACCEPTABLE

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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.

2. PREPARE B/L

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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.

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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
buyers 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
Instructions to the Paying/ Accepting/ Negotiating Bank
Sender to Receiver Information

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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-transshipmentpart Shipment
Packing, Labeling & Marking
Terms Of Payment Amount, Mode & Currency
Discounts & Commissions
Licenses & Permits
Insurance
Documentary Requirements
Guarantee
Force Majeure
Remedies
Arbitration

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DIFFERENT METHODS PAYMENT RISK TABLE
Term Of
Settlement
When goods
available to
buyer
When 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
bankers 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
documents.
When shipment
has been made
and documents
presented to the
negotiating
bank.
Documents
must be
approved by the
issuing/
confirming bank
Buyer cannot
examine goods
till payment is
made. Must rely
on seller to ship
the goods as
per L/C.

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DOCUMENTS AGAINST PAYMENT

Documents Against Payment:
Instead of Promissory note buyer makes a payment to
bank and collects documents.

20
NOTES

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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.

UCP 500 is replaced by UCP 600 in July 2007:

22

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 carriers 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 cant 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

23

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

24

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 its 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 shippers 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
surrender of Original B/L

25

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 traders 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/-
1
st
set of B/L issued at load port
2
nd
set of B/L issued at Hong Kong

26

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.

27

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 carriers
space.

CONTAINER
NVOCC
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
FCL
27 CBM = $1560
PAY
SHIPPING
LINE
$1200
PROFIT
$360

28

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
B/L

29
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

30

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 doesnt 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 dont print B/L form with heading House B/L

Master B/L issued by shipping line works as service B/L because NVOCC, Forwarders
dont 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.

31

NOTES

32
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.
22. "Delivery order" charges payable to shipping line/carrier to take physical
delivery of cargo.

33
23. Transportation from place mentioned as final destination on "Transport
Document" to buyers 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),
Forwarders Cargo Receipt (FCR)
Sea Waybill (SWB) etc.

Main Carriage = Transportation covered under "transport document"

34
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.

35

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.
is involved.
Ocean B/L Buyer
CIF Ocean freight paid by seller.
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.

36
NOTES

37

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.
3. Less prone to accidents and mishaps as compared to road transport.

38
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.

39

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%
8. In the year 2000 World container traffic reached to 236.7 million TEU.

40
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:

41

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 ships 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.

42
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.

43

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.

44
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 cant pass through Panama Canal.

45
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.

46
MULTI-MODAL TRANSPORT

What is multi modal transport?
Inter-modal or multi-modal transport became integral part of shipping industry and
undoubtedly goes hand in hand with containerization.

As per U. S. Department of Transportation, "Intermodal used to denote movements
by cargo containers interchangeably between transport modes, i.e. motor, water
and air carriers, and where the equipment is compatible within the multiple system".

Business Environment
In competitive Business environment, liner-shipping companies are striving to
achieve a competitive edge over- their rivals in the markets.

Liner companies are becoming more and more marketing / customer oriented. The
multi-modal transport operator issues one Bills of Lading covering entire journey and
shoulders the responsibility for the whole transport operation in all its stages. Future
of shipping companies depends to a great extent, on their ability to fulfill the
customers' needs.

International Multi-modal transport system

The International multi-modal transport system, one company offers combined, or
multi-modal transport services.

The transport operation utilizes at least two modes of transport.
The transport operation is from the exporter's stores to the consumer's
stores.

Due to the pressing necessity to provide an International system for multi-modal
transport, UN UNCTAD submitted a proposal for- the International Multi-modal
Transport Convention, which was adopted during its session, held in Geneva in 1980.
This convention stipulates that a contract should be concluded between the shipper
and the multi-modal transport operator, by which the latter undertakes to carry out
an International transport operation, whether he himself carries out the operation,
or whether- it is carried out through other parties.

The companies, which function as multi-modal transport operator, are:

Liner shipping lines, especially those operating container ships. In order to serve the
customers better in addition to maritime transport services, the shipping lines are
offering value added services such as air and land transport services or sea and road
/ rail transport. In other words these companies function as multi-modal transport
Operators. Land or air transport operations are effected through sub-contracts or
own assets.

Freight Forwarders: They depend on the services and assets of other companies.

47

Why multimodal transport has been successful in USA?

Large distance between the West Coast and the East Coast.
Rail service is very reliable.
The possibility to serve all inland points in the USA via the West Coast without
crossing the Panama Canal (which is both expensive and time consuming).
Buying power of people situated in cities and towns located in interior parts of
USA is good with the result movement of merchandise to inland areas is
substantial.

Multimodal Service in U.S.A.
The Americans define intermodal move as a haul of sea container along a distance
that is longer than 500 miles usually by rail. Less than 500 miles is by road.
1. Land bridge service Far East to Europe cargo via USA.
2. Mini Land bridge service Port to Port rail transport.
3. Interior Point Intermodal Port to interior point rail transport.

In Europe the situation is totally different.
1. Smaller distances between ports and inland destinations
2. Fragmented population within many different nations
3. The slow pace of investments in the transport infrastructure
4. The lanes are crossing tunnels, eliminated the possibility to build an
intermodal transport system similar- to the American one.

Due to smaller distances between ports and inland destinations containers in
Europe travel short distances:
1. Average 75 km by truck,
2. Average 200 km by rail
3. Average 140 km by inland waterway

The most popular means of inland transport is the road followed by rail (15 %) and
by inland waterways barges (10 %)

In Europe, intermodal transport is usually named "Combined Transport".

48
Feeders /Hub & Spoke Operations

Break-bulk Liners

Exporters and importers always prefer to use shipping line that offers faster transit,
better frequency and carry cargo safely.
Prior to containerization, liner companies used break bulk ships. Transshipment of
break bulk cargo was not acceptable to the trade because of risk of damage. In view
of this limitation Break Bulk Liner shipping companies offered direct services with
smaller ships.

Container Liners

With introduction of containers, ship owners acquired big ships to cut down
operating costs. Improved turnaround time of container ships also supported
acquisition of large size container vessels. However their success was dependant on
near full-load without lowering freight rates. To secure full loads shipping lines have
to call at more ports, additional port of call results in increased Transit time.
Increased transit time weakens competitiveness. Hence to maintain transit time of
important markets and to gain more business, carriers operate feeder service from
smaller markets to nearest hub port.

Is it transshipment for Bankers?

UCP 500 Article 23 D
Even if the credit prohibits transshipment, banks will accept a bill of lading which
indicates that transshipment will take place as long as the relevant cargo is shipped
in Containers, Trailer or LASH barge as evidenced by the bill of lading, provided that
the entire ocean carriage is covered by one & the same bill of lading.

49
Feeder vessel
A vessel normally used for Carriage of export containers from ports to hub port. At
hub port main line vessel loads these containers and transport to final destination.
At hub port feeder vessel also loads import containers discharged by main line vessel
and transport to final destination.

3
rd
Party Common Carrier - Feeder Vessel

3
RD
PARTY CC
Mainline Vessel to
Hamburg
3
RD
PARTY CC
AAA LINES CUSTOMER
PAYS FREIGHT TO UPTO MALMO
AAA LINE ISSUE ONE B / L UPTO MALMO MALMO (Sweden) CALCUTTA
HAMBURG CALCUTTA COLOMBO
AAA LINE PAYS
SLOT HIRE $200 TO
3
RD
PARTY CC
CCU TO CMB
CONTAINER
RIDES ON
AAA LINES
OWN VESSEL
MALMO(Sweden)
AAA LINE PAYS
SLOT HIRE $250 TO
3
RD
PARTY CC
Hamburg To Malmo
CALCUTTA TO MALMO FREIGHT OF $1300 IS COLLECTED BY AAA LINE
REVENUE TO AAA LINE $850

50

Types of containers & dimensions

1. General Purpose (GP) or Dry (D) container 20
2. General Purpose (GP) or Dry (D) container 20 High Cube ( 9' 6" height)
3. General Purpose (GP) or Dry (D) container 40
4. General Purpose (GP) or Dry (D) container 45 ( 9' 6" height)
5. General Purpose (GP) or Dry (D) container 40 High Cube ( 9' 6" height)
6. Flat Rack (F / R) or Flat Bed or Flat
7. Bulk Head Container
8. Tank Container (Tanktainers)
9. Flexitank
10. Open top container
11. Half Height Container
12. Open Side Container
13. Pallet Wide Container
14. Reefer Container
15. Garments on Hanger Container

THOUGH ALL CONTAINERS ARE OF ISO STANDARDS INTERNAL DIMENSIONS MIGHT
VARY, HENCE CUSTOMER SERVICE REPRESENTATIVE MUST ADVISE INTERNAL
DIMENSIONS TO AN EXPORTER AT THE TIME OF BOOKING.

51

20' Standard - Volume 33.200 cubic meters 11,170 cubic feet
Payload (Weight) 21,850 kg to 28,160 kg 48,171 lb - 62,082 lb
Tare Weight 2,150 kg to 2,220 kg 4,740 lb - 4,894 lb
Max Gross Weight 24,000 kg to 30,480 kg 52,911 lb - 67,197 lb
Internal Length 5.898 m 19'4"
Internal Width 2.352 m 7'9"
Internal Height 2.392 m 7'10"
External Length 6.058 m 19'10 1/2"
External Width 2.438 m 8'0"
External Height 2.591 m 8'6"
Door Opening Width 2.340 m 7'8"
Door Opening Height 2.280 m 7'6"

40' Standard - volume
67.700 cubic meters 2,391 cubic feet
Payload (Weight) 26,760 kg - 28,760 kg 58,996 lb - 63,405 lb
Tare Weight 3,720 kg - 3,740 kg 8,201 lb - 8,245 lb
Max Gross Weight 30,480 kg - 32,500 kg 67,197 lb - 71,650 lb
External Length 12.192 m 40'0"

40' High cube - volume 76.400 cubic meters 2,700 cubic feet
Payload (Weight) 26,750 kg - 28,550 kg 58,974 lb - 62,942 lb
Tare Weight 3,730 kg - 3,950 kg 8,223 lb - 8,708 lb
Max Gross Weight 30,480 kg - 32,500 kg 67,197 lb - 71,650 lb

52

45' High Cube
Cubic Capacity 86.500 cubic meters 3,055 cubic feet
Payload (Weight) 28,280 kg 62,350 lb
Tare Weight 4,740 kg 10,450 lb
Max Gross Weight 33,020 kg 72,800 lb

20' Open Top
Roof Opening Length 5.500 m 18'1"
Roof Opening Width 2.220 m 7'3"

40' Open Top
Roof Opening Length 11.600 m 38'1"
Roof Opening Width 2.140 m 7'0"

53

20' Reefer
Cubic Capacity 28.300 cubic meters 999 cubic feet

40' Reefer
External Length 12,192 m 40'0"

40' Reefer Hi Cube

54
Freight rates and basis of calculation
Factors affecting freight rates

The weight & measurement ratio of the commodity being shipped
The value of the commodity
The distance
Efficiency of the port of origin as well as the port of destination
Waiting time at each port
Maintenance of the containers
Port charges including tug hire, berth hire, pilotage etc.
Cargo handling expenses including labor costs and crane charges
Taxes
Commissions for cargo booking
The commodity's susceptibility to damage or extra care required in terms of
handling and stowage
The value of commodity
Fluctuation in Fuel costs
Currency exchange rates fluctuations
Canal dues
Insurance costs
Depreciation of the ship and equipment onboard
Salary paid to the crew members
Maintenance of the ship
Cargo availability at the port of call
Demand & supply of ships / cargo.
Equipment repositioning cost
Faster transit
Value added services
Influence of similar products and ports located in one region.

Freight
Consideration paid by the exporter or importer to the carrier for transportation
of goods. Freight also refers to the cargo carried.

Two most important parameters of any Cargo.
1. Weight
2. Volume
In other words the economies of the transport industry indicate that costs of
service are related to the volume and weight of the consignment.
W / M = Weight or measurement whichever is greater.
W = Weight 1 Metric Ton of 1000 Kgs.
M = Measurement 1 Cubic metre.
Break-bulk cargo rates & LCL rates are quoted W / M.
FCL rates are based on size and type of container.

55

Freight ad-valorem
Value of consignment mentioned in a Bill of Lading, amends carriers limitation of
liability to the stated value. Because of increased liability, carrier recovers freight
on Ad Valorem basis. e.g. 4% of declared value. High value cargo is charged rate
on value basis. e.g. Gold, Silver etc.

Ad Valorem rate works out to be expensive hence many exporters dont indicate
value of cargo on the B/L. Shipping line also doesn't welcome declaration of
value because they have no means of checking value of cargo

Freight rates are primarily dependent on the following costs.
1. Fuel costs
2. Currency exchange rates
3. Canal dues
4. Insurance
5. Port charges & efficiency of port.

Freight surcharges:
Any fluctuation in above costs must be recovered from shipper or consignees.
Since such fluctuations are temporary shipping lines prefer to introduce freight
surcharges rather than tariff amendment. These surcharges are either increased
or decreased or abolished from time to time.

1. FAF or BAF = Fuel Adjustment Factor or Bunker Adjustment Factor
2. CAF = Currency Adjustment Factor
3. Canal surcharge
4. War risk surcharge or Insurance surcharge.
5. Congestion Surcharge
6. Peak season surcharge
7. Winter Surcharge
Terminal handling charges (THC)
Fees collected in addition to ocean freight by shipping lines from shippers at load
port & consignees at discharge port. Fees cover the cost of paying the terminals
operators for the
1. Storage of cargo at CFS
2. Stuffing / de-stuffing of cargo at CFS
3. Transporting containers to or from CY/CFS to Port terminal.
4. Storage of containers at terminal,
5. Moving containers to or from terminal / vessel.
6. Loading and unloading of containers and other costs related to cargo
handling.
THC is also known as Container / Port Service Charge.

56
Federal Maritime Commission
(FMC)

The Federal Maritime Commission established in 1961 as an independent agency
of U.S. Government.

FMC - Functions
1. FMC is responsible for the regulation of shipping in the foreign trade of
the United States.
2. To protect American shippers / consignees, carriers and others engaged
in the foreign commerce of the U.S. against restrictive rules and
regulations of foreign governments and practices of foreign-flag carriers
that have an adverse effect on shipping in U.S. trades
3. To investigate, upon its own motion or upon filing of a complaint,
discriminatory, unfair, or unreasonable rates, charges, classifications, and
practices of ocean common carriers, terminal operators, and freight
forwarders serving in the foreign commerce of the U.S.
4. FMC receives agreements among ocean common carriers or marine
terminal operators and monitors them to assure that they are not
substantially anticompetitive or otherwise violation of the Shipping Act of
1984
5. To review tariff publications under the access and accuracy standards of
the Shipping Act of 1984
6. To regulate rates, charges, classifications, rules, and regulations
contained in tariffs of carriers controlled by foreign governments and
operating in U.S. trades to ensure that such matters are just and
reasonable;
7. To conduct investigations. Investigations are conducted into alleged
violations of the full range of statutes and regulations administered by
the Commission, including:
8. Legal rebating
9. Mis-descriptions or mis-declarations of cargo
10. Illegal or unfiled agreements
11. Untariffed cargo carriage
12. Protect American business from various types of consumer abuses, such
as failure of carriers or intermediaries to carry out transportation
obligations, resulting in cargo delays and financial losses for shippers.

* Source FMC website

57
Export & Import Documentation / Cargo Flow
Exports:
Exporter to prepare documents for export clearance. Exporter must despatch
following documents to CHA before despatch of goods.

Shipping instructions.
Declaration form for export of goods (with / without claim of drawback or other
schemes).
Form SDF or GRI (exchange control copy)
Pro-forma / Commercial Invoice
Packing list
AR4 form (in case of excisable goods)
Letter of credit
Advance import licence
Generalised Scheme Preference form or quota (if required)
Certification on nature of goods (i.e. dangerous goods, perishables, etc)
Timely despatch of documents enable CHA to process the shipping bill and avoid
the delays in unloading trucks.

Procedure
1. CHA on receipt of above documents types the shipping bill and submits to
customs.
2. Customs allocate the serial number of shipping bill.
3. Custom appraiser at customhouse will scrutinize invoice and shipping bill and
pass the shipping bill.
In case of EDI all data as per declaration form is fed into electronic data information
systems by customs data entry staff. In case of EDI, after data entry is made, CHA
verifies checklist generated (printed) by customs.

4. CHA takes carting order from shipping line / airline and along with relevant
export documents; LCL consignments are taken into CFS or export section of the
air cargo complex. Factory stuffed FCL containers are taken to the Port terminal
or CY
5. CFS manager or CY manager or Air India accepts cargo on behalf of shipping line /
airline on the basis of shipping bill and the gate pass
6. Cargo is carted by the agent into the CFS or air cargo examination hall ( cargo
from truck is discharged in the warehouse and cargo is stacked as per warehouse
managers instructions)
7. CHA approaches the customs appraiser and examiner (customs officials) located
in this warehouse and requests them for cargo examination.

58
8. Few packages required by customs for physical examination will be moved from
stack to customs desk. These boxes will be opened for inspection of cargo and
repacked after examination.
9. After examination, CHA obtains the let ship order from custom officials.
10. After detailed entry into register, warehouse operator hands over documents to
relevant shipping line / airline staff or representative.
11. Shipping line staff (or their contractors) stuff LCL cargo in container. For airfreight
cooling period is applicable.
12. Shipping line staff gives mates receipt or its equivalent to CFS manager.
13. LCL containers are sealed by customs and are moved to stack yard within CFS
14. 48 hours prior to arrival of vessel, containers are moved to pre-stack area in the
port. The shipping line arranges this movement.
15. On arrival of the vessel, containers are moved by trailers to ship side and are
loaded on to the ship.
16. CHA pays CFS manager the wharfage or warehousing charges and obtains Mates
Receipt.
17. Later on, CHA submits this mates receipt and obtains the B/L.

Export Documents
Documents prepared by or obtained by exporter and sent to buyer.

Invoice
Packing List
Insurance Certificate if insurance paid by seller.
Certificate of Origin Certificate
Bill of Lading or A.W.B
Other Documents

Documents retained in India
Shipping Bill
Export Declaration Form
GR Form S.D.F. Form
ARE-1 Form
H Form (May Change based on VAT)
N Form
Export Authorisation
Quota Certificate in quota is involved.
Other Documents

For export clearance Shipper has to file and process Shipping Bill (a document)
required for customs clearance. Upon shipment shipper collects original bills of
lading from shipping line and surrenders the B/L to his bank.

59

For import clearance Consignee collects original documents from his bank.
Consignee hands over Original B/L to carrier and obtains Delivery Order. Without
Delivery Order consignee cant arrange custom clearance. Consignee has to file and
process Bill of Entry (a document) required for customs clearance.

60
Import Documentation / Cargo Flow
Prior to arrival of the vessel, carrier files Import General Manifest (IGM) with the
customs. Filing of IGM is a must. Without an IGM Importer cannot file a Bill of Entry.

On receipt of Arrival Notice from carrier, importer approaches the bank and on
payment obtains the original B/L.

Importer hands over the original B/L, Invoice, Packing list, Import declaration form
and import license copy to the CHA / Custom Broker.

CHA surrenders the OBL and obtains Examination order or Delivery order from
carrier. CHA prepares Bill of Entry, which is a customs document and gets the goods
examined.

After customs examination CHA pays import duty to the customs banker and moves
the goods to consignees warehouse.

Though procedure mentioned above looks very simple the entire process is very
difficult because of the stringent norms of Import Policy.

LCL containers are de-stuffed and cargo is stored at CFS.

FCL containers in India are de-stuffed for customs examination. In developed nations
importer pays import duty prior to arrival of ship so that import containers can move
directly. Customs do not insist on physical examination of cargo. However customs
randomly select containers prior to arrival of vessel, these containers are detained in
port for physical examination of cargo.

IMPORT DOCUMENTS

Received from supplier
Invoice
Packing List
Insurance Certificate if insurance paid by seller
Certificate of Origin
B.L. or A.W.B
Other Documents

Prepared or obtained by Importer
Purchase Order/ O.A /L.C
D.F. Under Valuation Rules, 2007
I.E.C. No.
Industrial Approval
Insurance Certificate if insurance paid by buyer
Import License
Other Documents

61
Services offered by Shipping lines and various service
providers in Global Logistics.

Prior to containerization shipping business was primarily restricted to port to port
shipments. Exporter was responsible for all pre shipment activities and importer was
responsible for all activities at destination.

Custom broker or Custom House Agent (CHA).
For pre and post shipment activities
At origin, shipper uses CHA to custom clear cargo
At destination consignee uses custom broker or CHA to custom clear cargo & pay
duty on behalf of importer.

Clearing & Forwarding Agent
Services offered by CHA in addition to customs clearance is known as freight
forwarding service. Such services are:
Octroi formalities
Selection of shipping line or airline
Booking of space with carrier.
Release of B/L or AWB
Warehousing of import cargo
Forwarding import cargo to importers warehouse.
Such service provider is known as Clearing & Forwarding Agent or C&F Agent.

Forwarders, international freight forwarders and .

With containerization and modern management concepts the world trade has
undergone a change. Importers and exporters have changed their buying pattern.
Instead of buying on Port-to-Port basis the trade has shifted to ware house to ware
house-buying. This has resulted in to Door-to-Door services.

This is how Multi Modal Transport came in to existence.

To survive competition Customs Brokers / CHA and shipping lines had to offer value
added services.

Few CHA, by offering value added services became freight forwarders. Shipping lines
became Multi Modal Transport operators.

When buyer wants to buy Ex. Works, buyer has to rely upon the forwarder who will
organize all the formalities at origin and at destination. What buyer gets is all
services under one roof.

When exporter sells on DDP or DDU basis, seller has to rely upon the forwarder who
will organize all the formalities at origin and at destination.

62
As intermodal transportation becomes more complex, the job of a freight
forwarder becomes more essential and difficult.

He needs to coordinate the complexity in finances, transport and other service
activities. For example, he will:

Importers and Exporters expect following services from the freight forwarder:
1. Freight forwarders are familiar with the import laws of foreign countries. Often
exporters expect guidance from forwarders. Forwarders are expected to
comply with those foreign laws and ensure that all paperwork meets law of the
country.
2. Freight forwarders are expected to locate the most suitable shipping line or
airline to transport the export shipment of goods and to make certain that
these goods reach destination in most efficient and economical manner.
3. Forwarders are expected to keep a watch on the constantly changing
regulations, which affect cargo movements; such as foreign documentation
requirements, hazardous materials rules, government regulations, special
packaging or handling restrictions, and any applicable licensing provisions.
4. Help buyer / seller select terms of sale
5. Make routing recommendations for air cargo.
6. Prepare commercial invoices
7. Export packing
8. Obtain port warehouse space
9. Obtain export licenses
10. Issue export declarations
11. Obtain certificates of origin
12. Obtain and prepare consular invoices
13. Compile air way bills and B/L.
14. Obtain cargo insurance
15. Pay all charges to port authority (port dues/wharfage).
16. Consolidation on behalf of buyer.
17. Pay freight charges
18. Trace and expedite shipments

Many exporters and importers consider Freight forwarder, more than a partner- in
the international business.

There are two types of freight forwarders:

1. Ocean freight forwarders
2. International air cargo agents, which are accredited by the international Air
Transportation Association (IATA).

63
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.

3. Consolidator
4. 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 carriers
space.

CONTAINER
NVOCC
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
FCL
27 CBM = $1560
PAY
SHIPPING
LINE
$1200
PROFIT
$360

64
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.

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

65
Value Added Services.

Customers needs of the day
Today's shippers and importers demand a very high standard of service.

1. On -Time delivery
2. Overall responsibility
3. Price
4. On-Time pick-up
5. Transit time
6. Service territory
7. Billing accuracy
8. Correct equipment
9. Degree of control
10. Claims processing
11. Container Tracking or Tracing capability

These may be grouped into three main factors:
1. Quality
2. Price and
3. Delivery time.

Just in Time
To minimize cost of inventory many companies adopt s "Just In Time" logistics
concept. Shippers give more importance to accurate information. They want to know
what is happening to all their shipments in terms of location. They want it
electronically as well as verbally, and they want it to be available at any given time.

66

Logistics service providers offer following value added
services.

1. 3rd party and 4th party logistics service provider (3PL and 4PL)
2. Air Freight - Direct & Consolidation Services.
3. Air Freight Services: Air Port to Air Port, Door to Door.
4. Automated documentation
5. Bonded storage service
6. Break-bulk services
7. Buying Assistance: similar to buying house or buying agent.
8. Cargo Management
9. Cargo tracking system
10. Communication facilities
11. Consolidation - Full-container-load (FCL).
12. Consolidation - Less-than-container-load (LCL)
13. Container services
14. Container stuffing at Factory - useful for EXW.
15. Custom Clearance & Forwarding.
16. Customs Brokerage
17. Export packaging
18. Fumigation
19. International sales assistance similar to indenting agent.
20. Insurance
21. Kitting
22. Multi-Modal Transport Operations (Sea, Air, Rail & Road)
23. Nomination freight - Consignee and Consignor nominated cargo
24. Non-Vessel Operating Common Carrier (NVOCC)
25. Ocean freight services
26. Packing & Removing
27. Pre shipment survey.
28. Project cargo - out of gauge, project shipping
29. Purchase order processing
30. Shipment follow-up with shippers.
31. Quality inspection.
32. Refrigerated Services
33. Sea Cargo: Port-to-Port, Door-to-Door.
34. Shipment reporting
35. Supplier follow-up
36. Warehousing - Bonded facilities
37. Warehousing & Distribution.

67

Conference, Consortiums and Alliances

Liner Conferences
Is an organization of a group of shipping lines. Conference agreements are made
between two or more ocean carriers operating on the same route. There are more
than300 liner conferences in the world whose membership is ranging from 2 to 40
member lines. Conference member lines agree to operate a common freight tariff.

In mid 18th century, excess tonnage caused cutthroat competition in shipping
industry. Companies operating / competing on specific routes organized into cartels.

Trans-Atlantic shipping conference was the first organized cartel formed in
1868,between shipping companies serving North America and Europe trade.

In 1875 Calcutta Conference was formed, with the formal price & space selling
mechanism. Calcutta conference member lines offered services between North
Europe and India.

Objectives of conferences

1. Improve Market share of member lines.
2. Improve revenue by implementing administrative pricing policy.
3. Blocking non-cartel lines from the route

Administration of Conferences is in hands of Conference Secretariat. Conference
Secretariat is responsible for

1. Fixing of freight tariff rates.
2. Appointment of auditors to ensure that all member lines adhere to uniform
tariff rates.
3. Conditions of value added services offered by member lines.
4. Space rationing or Revenue distribution amongst the member lines.
5. Curtail inter-liner competition by fixed allocation or rationalization of space.
6. Provide satisfactory services to the shippers.
7. Protect shipping lines from outside competition. By signing rate contracts /
loyalty contracts / deferred rebate contracts with shippers.

Similar to shipping industry all airlines in the world are members of
FIATA & IATA.

68

Consortia or Alliance
Consortia is a group of Shipping lines or CTO's who agree to rationalize sailings in a
particular trade route and carry each others' containers.

In 1992, liner shipping was in troubled water. That time many leading carriers
wanted to offer a global service network to their customers. However, investment
would have been huge. At this time, like-minded carriers came up with the idea of
forming a strategic alliance with other international carriers to establish a global
service network. The worlds first global alliance came in to existence in 1994.

Supply and demand of cargo & space also plays a role in long-term investment
decisions. Carriers must order new ships for 15 to 20-year cycles, weighing long-term
demand forecasting against price trends in the global vessel construction market.

Trans-Pacific trade saw solid, double-digit cargo growth in the Asia trades in 1991-
92-93. Major Trans-Pacific carriers looked at this growth as great future at the same
time they were being offered highly concessionary terms from shipyards looking to
fill their order books. Many Trans-Pacific shipping lines decided to acquire new
vessels.

1996-97 saw a dramatic increase in new container capacity in the Pacific, just when
cargo demand was beginning to level off. The pressure to fill ships in both directions
and hold onto market share caused rates to fall by $600 to $1,200 per 40-foot
container a 30 to 50 percent drop over eighteen months.

Looking at the benefits of consortium and drop in cargo volumes, majority of carriers
followed the suit, forming similar alliances. Major advantage of consortium is that
carrier continues to deal with their loyal customers and maintain corporate identity.

Consortia addresses the rationalization of
1. Freight rates amongst Consortia members,
2. Container shipping services & operations by sharing all resources.

Improved quality of service
1. Sailing frequency
2. Ports of call and
3. Transit time

Other Benefits:
1. Make the most appropriate joint use of their fleets.
2. Reduce their operating costs such as feeder costs and ports / terminals.
3. Maintain their own corporate identity.
4. Maintain fair competitive conditions among its member.
5. Greater sales coverage.
6. Through the sharing of vessel space, terminals and equipment. participating
shipping companies can achieve cost reduction derived from economies of
scale.

69

Mergers and acquisitions
Another major trend has been corporate enlargement through mergers and
acquisitions
1. Maersk / Sealand / CMB / P&O / Nedlloyd
2. APL / NOL
3. Hanjin / DSR / Senator
4. CMA / CGM
5. CP Ships/ Hapag Lloyds

70
Classification Societies:

In the second half of the 18th century, marine insurers, based at Lloyd's coffee house
in London, developed a system for the independent inspection of the hull and
equipment of ships presented to them for insurance cover. This was an attempt to
'classify' the condition of each ship on an annual basis.

The condition of the hull is classified 'A1', meaning 'first or highest class'.

Today many classification societies exist in the world.

1. American Bureau of Shipping (ABS)
2. Bureau Veritas (BV)
3. China Classification Society (CCS)
4. Croatian Register of Shipping (CRS)
5. Det Norske Veritas (DNV)
6. Germanischer Lloyd (GL)
7. Indian Register of Shipping (IRS)
8. Korean Register of Shipping (KR))
9. Lloyd's Register of Shipping (LRS)
10. Nippon Kaiji Kyokai (ClassNK)
11. Registro Italiano Navale (RINA)
12. The Russian Maritime Register of Shipping (RS)

71
Dangerous Goods

Goods are to be considered dangerous if the transport of such goods might cause
harm, risk, peril, or other evil to people, environment, equipment or any property
whatsoever.

International Maritime Organization (IMO)
IMO was established in London, in 1958, as a specialist agency of UN. One of the
most important tasks allocated to IMO when it met for the first time was to develop
international standards, which would replace the multiplicity of national legislation
that then existed. IMO regulates the transport of dangerous cargo by formulating
rules and regulations. The vast majority of maritime countries have ratified the most
important conventions, as the table below shows.
1. Load Lines
2. SOLAS :Safety of life at sea
3. STCW : Standards of Training, Certification, and Watch keeping
4. Collision Regulations
5. International Convention on Tonnage Measurement of Ships.
6. MARPOL: The International Convention for the Prevention of Pollution from
Ships
Carriage of hazardous commodities is restricted and controlled by IMDG Code.
IMDG introduces the basic principles such as
1. Classification
2. Marking,
3. Identification and consignment procedures
4. Labeling documentation
5. Packing of dangerous goods shipments.
6. Stowage
7. Container traffic and stowage
8. Segregation of incompatible substances

IMDG General Classification
Class 1 - Explosives
Class 2 - Gases:
Class 3 - Flammable liquids.
Class 4 - Flammable solids or substances
Class 5 - Oxidizing substances:
Class 6 - Toxic and infectious substances
Class 7 - Radio active materials
Class 8 - Corrosives
Class 9 - Miscellaneous materials

72

Hazard
Condition that increases the probability or severity of a loss.

Dangerous Goods
Goods which are hazardous to human or marine environment.

Flash Point
The minimum temperature at which a liquid gives off enough vapors to form an
ignitable mixture with the air near the surface of the liquid. Materials with flash
point <61oC are considered to be dangerous goods.

Flammable
Capable of being easily ignited and / or burning with extreme rapidity, and has a
flashpoint under 100 degrees F

Corrosive
A Corrosive material is one, which causes damage to skin, eyes or other parts on the
body on contact. The technical definition is - "destruction, or irreversible damage to
living tissue at the site of contact".

Toxic
Any substance, which is harmful to human health, when exposed beyond certain
permissible limits.

Throughout the voyage dangerous cargo requires careful
1. Packaging
2. Planning
3. Stowage and
4. Monitoring

Why we give importance to Dangerous Goods Declaration?
1. To ensure that accidents do not happen
2. If accidents do occur, to ensure the amount of damage is minimized
3. Risk Management & Damage Control

Dangerous Goods Declaration
Document issued by a shipper in accordance with applicable conventions or
regulations, describing hazardous goods or materials for transport purposes, and
stating that the latter have been packed and labeled in accordance with the
provisions of the relevant conventions or regulations.

Dangerous Goods Packing Certificate
A document as part of the dangerous goods declaration in which the responsible
party (shipper or forwarder or NVOCC or carrier) declares that the cargo has been
stowed / packed in container in accordance with and in compliance with the IMDG
regulations.

Source IMO website

73

RULES FOR TRANSPORT OF DANGEROUS GOODS

AIR SHIP ROAD RAIL
International
Civil Aviation
Organisation
International
Maritime
Organisation
United Nations
Economic
Commission
for Europe
Office of
International
Rail Transport
(ICAO) based
in Montreal
(IMO) based in
London
(ECE) based in
Geneva
(OCTI) based
in Berne
Technical
Instructions
for the Safe
Transport of
Dangerous
Goods by Air
(T1)
International
Maritime
Goods Code
(IMDG)
European
Agreement
concerning the
International
Carriage of
Dangerous
Good By
Road
(ADR)
Regulations
concening the
International
Carriage of
Dangerous
Goods by
Rail
(RID)

74
P&I Club, T.T. Club General Average

P&I Club
Protection and Indemnity club is insurance in respect of third party liabilities and
expenses arising from owning ships or operating ships as principals. It is not hull
insurance, war risk insurance, loss of profit / freight insurance, detention insurance,
strike insurance or uninsured legal expenses (Defence) cover.

T T Club
Works on similar lines of P&I Club. It offers cover to MTO and ship agents.

GENERAL AVERAGE
When a marine casualty arises steps may need to be taken to protect or save the
ship and cargo from serious damage or total loss. The steps taken may result in
expenditure being incurred and/or deliberate loss or damage to some of the
property at risk, but result in the saving of other property.

Example 1: A ship has suffered a fire in the cargo hold. Water is poured into the hold
to extinguish the fire and prevent it spreading through the ship and cargo. Other
cargo that was in the hold but not on fire is damaged by the water used to extinguish
the fire. Who pays?

Example 2: If cargo vessel will encounter a potentially serious accident on the sea,
such as a fire or encountering severe heavy weather, which may result in the ship
having to incur additional costs to save the entire journey (such as towing costs,
emergency repairs costs). Because the vessel has had to pay these costs in order to
save the cargo and the journey, both the ship and all cargo owners share in the
payment of these costs.

General Average is designed to provide an equitable distribution of these losses or
sacrifices between the Parties that have benefited.

In such cases all the property that has been saved at the completion of the voyage
contributes to the financial compensation for the water damage suffered.

The amount of the claim is usually calculated by Average Adjusters, appointed by
Ship owners. The contribution of each Party is calculated pro rata to the value of
their property at the end of the voyage.

If importers (usually beneficiary of insurance policy) are advised that a General
Average has been declared, it will be necessary to either have a General Average
Guarantee signed by importer underwriters or pay a cash deposit, to ensure the
release of the cargo.

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Various parts of ship

76

Harbour and port

Harbour

77
Container Stuffing

Stuffing Plan
Freight is usually paid on per container basis. That means more you stuff in a
container less is per unit cost of transportation. Hence to avoid overflow of cargo or
wastage of space, it is essential for shippers to have a stuffing plan before cargo is
loaded into the container.

Measurement
Volume capacity of a 20' container is 33 CBM and 40 container capacity is 67 CBM
however the actual loading capacity of a container depends on the internal
dimensions of a container, door dimension of a container, dimensions of the carton
boxes and many other factors such as the packaging material and the competence
and experience of the stuffing personnel.

Weight
Weight carrying capacity of containers differs. In many countries the permissible
weight limits for road and rail transportation are lower than the maximum payload
of a container. Therefore the stuffing plan should also take the weight into
consideration.

Use of Pallets
Palletisation is widely applied in some countries to increase cargo handling
efficiency. When pallets are used, it is important to observe the following:

1. Wooden pallets must be strong enough to allow storage of three tiers when
loaded. Pallets must be fumigated as per the regulations of importing country

2. Carton boxes must not overhang the edges of the pallets.

3. Boxes which utilise less than 90% of the pallet surface and do not align with
the pallet edge can shift in transit.

4. Slipsheets can be used for easy loading and discharge and save wastage of
space.

78
Hints and Tips..

As per UK P&I clubs research one in six container journeys result in damage to cargo
.Yet over half of these could be easily avoided!

Damage is often the result of bad packaging, choosing inadequate containers, poor
labeling and insufficient security and safety measures.

The following is the advice from Thomas Millar P&I Ltd (TT Club), the world's largest
marine mutual insurer, aims to increase awareness, identifying some of the most
frequent causes of cargo claims and suggesting ways in which you can avoid them.

A minimal amount of time could save you a lot of expense in the long run.

Basic Principles

1. Choosing the right container
2. Checking your container
3. Produce a packing plan
4. Packaging Goods
5. Security Safety and
6. Unpacking

1. Choose the right container

Containers come in several types, lengths, widths and heights. Different shipping
lines have different types of containers with different inner dimensions. Match this
to your requirements.

Do not overlook climatic changes along the route that could affect your cargo.
Choose a container type that is appropriate. It is often false economy to avoid the
additional cost of a container with a fan, temperature control or ventilation.

Temperatures can increase inside a container e.g. a tropical climate can produce
temperatures of 50 degrees plus which in turn causes condensation and roasting.

Ensure the container has enough lashing points of the strength you require.

Confirm your requirements in writing to the freight forwarder and shipping line.

Seek guidance of the experienced freight forwarder or a shipping line.

Remember the responsibility of choosing equipment is of exporter and or importer
and not of the freight forwarder. The onus is on you!

79
2. Checking your container

Prior to stuffing do a light test, which can reveal small holes in the container. Holes
could let in moisture.

Leftovers from previous consignments may contaminate your consignment.
Residues of previous cargo could be hazardous. If in any doubt return the container
for cleaning.

Watch out for structural damage such as damage to post rails or corner castings. This
can cause damage to cargo. If in doubt reject the container.

Before stuffing check that you can securely lock the doors. If not reject the
container.

Always check that the container is dry.

Ensure that the door gaskets aren't hard or damaged. If gaskets are damaged
rainwater might seep in.

Check for rust as rust is porous, rainwater might seep in.

Watch out for taped up vents to avoid condensation.

Remove old labels as these can be misleading and lead to delays

Just a few minutes of your time prior to stuffing can reduce the chance of your cargo
being damaged. If you overlook defects a court might decide negligence on your part
and you may find your insurance claim is drastically reduced or even rejected.

3. Prepare a container packing plan

Most shipping lines charge by the container load. The more goods you fit into the
container lower will be per unit cost to ship your goods. It is wise to draw up a
packing plan to maximize the fill factor.

Remember less free space in the container mean less risk of cargo shifting.

Weight must be evenly spread; side to side, end to end.

Always keep the centre of gravity as low as possible. Place large heavy items on the
bottom of the container and lighter ones on the top

Never exceed the containers maximum pay load. Pay load capacity is mentioned on
the door of a container.

Never exceed over the road restrictions on route.

80

If cargo doesn't fill the container (under utilized box), start by covering the floor
space at an even height.

If you have to leave gaps try and leave them in the centre so that the cargo can be
secured by wedging them to the sidewalls.

If the upper tier doesn't run the full length of the container a vertical separator can
be used to restrain it.

Use an interlocking stow whenever possible.

Unitized cargo (pallets) is often more stable and quicker to pack.

Make a point of strongly shoring and blocking the face of the stow as this prevents
the cargo from falling out when the doors are open.

Place the heaviest items in the centre of the container.

Always place liquids underneath dry goods.

Ensure drums and barrels are stowed buns up and if possible separated as vibration
can wear away the seams and allow the contents to escape. It is best to use a double
layer of dunnage to limit damage.

Ensure you are aware of the safe loading limits of the lashing points.

Do not pack cargoes that are incompatible together e.g. cargoes that are prone to
sweating packed with moisture sensitive cargo.

Some destination countries require a packing list fixed to the inside of the container
door. Some destination countries require wood treatment certificates attached here
too. Follow the rules.

Declare the cargo weight accurately.

4. Packaging Goods

The forces exerted on a containers contents in transit by road, rail, ship or gantry
crane are considerable. If the contents are not properly secure, no matter how
heavy, damage will occur.

Most shippers tend to undercut costs by not packaging their goods properly which
often leads to crushed, unsalable goods. Appropriate packaging should be used to
protect your investment.

81
Remember free space in a container increases the risk of cargo shifting. Packaging
that fits in exactly (i.e. cardboard boxes) will reduce dead space and reduce the cost
of dunnage. All loose items must be chocked / lashed.

Stretch or shrink wrap is great for protection against wet damage. It's not cheap but
could save you money in the long run.

Use dunnage to protect non unitized cargoes from damage.

Dunnage: Materials of various types, often timber or matting, placed among the
cargo for separation, and hence protection from damage, for ventilation and, in the
case of certain cargoes, to provide a space in which the tynes of a forklift truck may
be inserted.

Ensure that dunnage is not wet or made from unseasoned wood as this may cause
condensation and damage. Be careful to check the quarantine regulations in the port
of destination as they may require the dunnage to be treated or fumigated.

5. Security

No seal can stop a theft. It's main function is to signal where and when a container
has been broken into.

Bolt seals are the best. Always check the seal and ensure it is the right type.

Always record the date and the seal number and keep these records safe.

Seal container yourself. Never leave the sealing of a container to a third party. Who
knows how honest they are?

Enter the seal number on all shipping documentation.

Arrange a convenient time for your cargo to be delivered as this reduces the time
the container is exposed to the elements and the risk of theft.

6. Safety and unpacking

Do not overlook what type of equipment the consignee has for unloading the
container

Always look at all external notices/labels before you open the container

If the contents is hazardous and appears to be leaking you should evacuate the area
immediately

If gas is present let it dissipate before entering the container

82

Always document the external appearance of the container. Are there any dents,
holes, rust. Keep camera handy to take photographs.

Inspect the internal contents of the container for damage and document any found.
Keep camera handy to take photographs.

It is always best to take photographs where possible as this could assist any claims.

Before opening import container always check the seal is the right type and that the
serial number agrees with the documentation. Has the seal been tampered with?

Always keep both parts of the seal until you have checked that all the cargo is
present and correct.

A useful idea is to use a strap tied round the door stanchions. This will prevent the
doors from swinging open and goods falling on you. Once you know you are safe you
can remove the strap and open the container fully.

Doors can easily cause damage if the wind slams them - secure them open.

It is the consignees responsibility to clean the container to a level that you would
wish to receive it.

83

AIR CARGO
Air cargo industry compared to other transport industry is new. Major competitor of
air cargo is road & rail transport in domestic trade and sea transport in case of
international business.

ADVANTAGES OF AIR TRANSPORT
1. Schedules & frequencies : Majority of air cargo is shipped on scheduled
passenger flights with the result 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.

Limitations of air transport
Service limitations: Air cargo cant offer door to door service. Terminal to terminal
transportation is one of the limitations of air cargo industry. Air transport provides
frequent and reliable service and faster transit time, but terminal and delivery delays
and congestion often reduce some of this advantage. Virtually every air shipment
begins and ends as a truck movement.
As mentioned above Terminal-to-terminal service involves additional cargo handling.
Multiple handling increases total cost of transportation and risk of loss / damage.
Limited reach: Airlines can serve the customers only where airports are located,
this, in some instances, can be a location quite far from the main business centers of
the city.
Transportation of over dimension cargo overweight cargo is not possible.
Prone to pilferage: due to terminal handling at origin & destination. This problem
primarily exists in underdeveloped countries.
Air is very expensive mode of transport.

Unit load device (ULD)
This results in to higher operations cost and risk of loss or damage to cargo. Early
years the airplane or aircraft used to suffer delays due to time spent in loading
individual packages (break bulk cargo), stacking the packages inside the airplane and
securing the packages. Solutions to similar problems in rail, road and sea transport
were found. The solution to the problem is unitization making one unit out of
various packages for example: master cartons, pallet, jumbo bag, containers etc. The
air cargo industry introduced similar idea. Introduction of the Unit Load Device (ULD)
revolutionized the air cargo industry.

Benefits of ULD:
1. After security and customs clearance cargo is stuffed / secured in the ULD.
Such ULDs are kept ready for loading. On arrival of airplane, these ULDs are
quickly loaded aboard the airplane. This saves loading and unloading time.
2. Reduces chances of damages in transit and wrong delivery.

84
3. Improves space utilization of airplane. In other words, ULD assists airline to
improve revenues.

Ideally, shipper must load cargo in ULD at their warehouse but aviation safety will be
at a great risk and because of that, airline stuff all ULDs at air cargo terminals.

The IATA has developed the technical specifications for the ULDs. IATA studied the
development and set the rules for airworthiness certification of ULDs. In the current
competitive environment, each airline wants a tight control over other airlines' ULDs
in its system. IATA operates a ULD control system to facilitate quick return of ULDs to
the rightful owners.

International air transport is very well organized sector. In order to offer safe,
reliable, secure and economical air services to the customers airlines around the
world have come together and have formed IATA, the International Air Transport
Association. There are approximately 81,000 IATA agents worldwide.

To improve standards in shipment documentation, IATA Cargo works with
Airline Members
Customs administrators
Shippers / shippers associations
Freight forwarders
Government authorities
International Chamber of Commerce

IATA cargo has also worked on computerized cargo / document tracking. IATA also
helps to develop streamlined procedures, support cargo agent activities and fine-
tune regulations pertaining to the transportation.

IATA has provided vital input to the development of Conditions of Carriage, the
contract between the customer and the transporting airline.
Member airlines work on issues such as:

Pricing issues
Division of revenues gained from interlining
Settlement of airline accounts.
Issues of safety and passenger and cargo care and
Rules and regulations related to air transportation.

Apart from avoiding competition idea behind common freight/fare tariff was to
avoid inconsistencies between tariffs affecting neighboring countries and thereby
avoiding traffic diversion.

IATA is also instrumental in setting rules for the following :
Multi-sector trips, revenue allocation i.e., pro-rating rules,
Baggage allowances,
Ticket and air waybill design

85
Passenger and cargo agency appointment requirements, procedures and
agreements
Designing a variety of standard formats and technical specifications for
tickets and air way bills.

Export & Import Documentation / Cargo Flow
Exports:
Exporter to prepare documents for export clearance. Exporter must despatch
following documents to CHA before despatch of goods.

Shipping instructions.
Declaration form for export of goods (with / without claim of drawback or other
schemes).
Form SDF or GRI (exchange control copy)
Pro-forma / Commercial Invoice
Packing list
AR4 form (in case of excisable goods)
Letter of credit
Advance import licence
Generalised Scheme Preference form or quota (if required)
Certification on nature of goods (i.e. dangerous goods, perishables, etc)
Timely despatch of documents enable CHA to process the shipping bill and avoid
the delays in unloading trucks.

Procedure
1. CHA on receipt of above documents types the shipping bill and submits to
customs.
2. Customs allocate the serial number of shipping bill.
3. Custom appraiser at customhouse will scrutinize invoice and shipping bill and
pass the shipping bill.
In case of EDI all data as per declaration form is fed into electronic data information
systems by customs data entry staff. In case of EDI, after data entry is made, CHA
verifies checklist generated (printed) by customs.

4. CHA takes carting order from airline and along with relevant export documents;
consignments are taken into export section of the air cargo complex.
5. Air India accepts cargo on behalf of airline on the basis of shipping bill and the
gate pass
6. Cargo is carted by the agent into the air cargo examination hall ( cargo from truck
is discharged in the warehouse and cargo is stacked as per warehouse managers
instructions)
7. CHA approaches the customs appraiser and examiner (customs officials) located
in this warehouse and requests them for cargo examination.
8. Few packages required by customs for physical examination will be moved from
stack to customs desk. These boxes will be opened for inspection of cargo and
repacked after examination.

86
9. After examination, CHA obtains the let ship order from custom officials.
10. After detailed entry into register, warehouse operator hands over documents to
relevant airline staff or representative.
11. Airline contractor makes ULD. For airfreight cooling period is applicable.
12. On arrival of the aircraft, ULDs are moved to aircraft and are loaded.
13. CHA pays the wharfage or warehousing charges.

For export clearance Shipper has to file and process Shipping Bill (a document)
required for customs clearance. Upon shipment shipper collects original bills of
lading from shipping line and surrenders the B/L to his bank.

For import clearance Consignee collects original documents from his bank.
Consignee hands over Original B/L to carrier and obtains Delivery Order. Without
Delivery Order consignee cant arrange custom clearance. Consignee has to file and
process Bill of Entry (a document) required for customs clearance.

AIRCARGO
TERMINAL
AIRCARGO
TERMINAL
AIRLINE

87

Import Documentation / Cargo Flow
Prior to arrival of the vessel, carrier files Import General Manifest (IGM) with the
customs. Filing of IGM is a must. Without an IGM Importer cannot file a Bill of Entry.

On receipt of Arrival Notice from carrier, importer approaches the bank and on
payment obtains the BRO.

Importer hands over the BRO, Invoice, Packing list, Import declaration form and
import license copy to the CHA / Custom Broker.

CHA surrenders the BRO and obtains Examination order or Delivery order from
carrier. CHA prepares Bill of Entry, which is a customs document and gets the goods
examined.

After customs examination CHA pays import duty to the customs banker and moves
the goods to consignees warehouse.

Though procedure mentioned above looks very simple the entire process is very
difficult because of the stringent norms of Import Policy.

Cargo from ULDs is removed and is stored at Cargo Terminal. At cargo terminal
customs carryout cargo examination.

88

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