Shipping and Transport
Shipping is a mode of transport that is most commonly used when transporting large and heavy bulk commodities. When choosing the best mode of carriage for goods one usually looks at road, rail, sea and air. We wanted to discuss the factors to be aware of when looking at shipping as when trade finance facilities and more generally, multi-jurisdictional trade is involved we usually see shipping used as the most common mode of transport.
Why use shipping and what are the advantages?
One will consider various factors when deciding if shipping is the most appropriate transportation type to use – this will include your business’ requirements, destination country and the type of goods that are being transported. One must also ask what is being distributed along with the size and weight of the product. It is also central to a decision to look at the quality, any costs, organisation and time.
When transporting goods one must look at the local taxes and tariffs when product moves between jurisdictions. A carrier should also look at their VAT liability. There is sometimes a possibility of VAT relief in scenarios when product passes between EU member states and when countries are outside of the European Community. One must also ask:
- When the product must reach the destination;
- How different transport costs impact the margin or profit in relation to the transaction;
- What is the destination of the goods and what types of transport links are there in the destination. Is it a remote part of land?
- What is being distributed along with the size and weight of the product. It is also central to a decision to look at the quality, any costs, organisation and time.
- What is value of the goods, are they insured and if so, what does the insurance cover them for?
- What is the type of goods and what conditions do they need to be shipped under e.g. fruit will differ to oil.
- What possible risks are there on route?
- Do your clients or customers have special requirements in relation to the goods?
- Are there specific rules in relation to the transport of those specific goods e.g. the carriage of animals.
- Do goods need to be kept refrigerated on route?
- What are the advantages of shipping as a mode of transport?
- How is shipping regulated, how will this effect trade finance costs and what is predicted to happen?
- What do the goods need to be transported in? Is it a bulk container or only dry storage?
Using shipping in trade finance
- It is relatively low cost;
- There are extensive road networks but roads are likely to have problems. Shipping allows scheduled delivery days;
- Goods can be tracked;
- It is possible to have private consignments;
- It will usually be quicker than a long distance overland;
- There may be traffic delays;
- There may be charges faced on road such as tolls that may not apply on sea and there may be relevant road regulations;
- The route may be safer than going by road;
- Toll charges are high in some countries;
- In other modes of transport, if personally undertaken then one would have to look at licences, cost of fuel, regulations, driver training and tax;
- The best option for a large quantity of goods at a low cost;
- A freight forwarder can be used to consolidate consignments to reduce costs; and
- Shipping containers lend themselves to also be transported on railways or road.
- Timetables and voyage routes are inflexible;
- It is sometimes difficult to track the progress of goods;
- Taxes and port duties must be paid;
- There will also be a need for road transportation from the vessel; and
- Basic freight rates mean that there will be fuel and currency surcharges.
- Couriers – they will deliver packages fast for a high price, so are usually used for local delivery;
- Hauliers – they will deliver on road and collect goods from a business; and
- Freight forwarders – they understand the parameters in which a business must operate in relation to shipping. They will help with various aspects of shipping.
What goods are dangerous when shipping?
Goods which are transported should be given special consideration and extra time if transporting.
Items which can corrode or damage human skin, or corrode steel at a rate of 1cm per year
Any substances which are flammable or combustible.
Items which have projectile properties, explosion hazards or minor blast potential.
Any materials that are poisonous or goods which contain infectious agents.
Flammable or non flammable compressed gases, as well as poisonous gases.
Any radioactive materials or substances which are radioactie I-III classification.
What other transportation should be considered?
- Rail transportation is regularly used for international trade;
- There are well developed rail networks that spans throughout Europe, allowing quick, low cost transport; and
- Rail is an environmentally friendly and a sustainable choice for transport.
There are risks involved in rail:
- Outside of mainland locations, routes and timetables may be inflexible;
- It depends on the goods and weight, but rail transport may be more expensive than other modes of carriage;
- Services may be disrupted if there are mechanical or industrial failure; and
- Another form of transportation will be required from the railway terminal.
Transport by air provides a number of advantages for international trade, but one needs to look at their requirements for the voyage and understand:
- Goods can be transported far and delivered quickly;
- Goods can be protected and so it is well suited to more precious goods using air and does not restrict the type of goods that can be transported;
- The price will be higher for air and so it depends on the cost and needs of the goods;
- There may be delays or cancellations;
- Taxes will be incurred at each airport;
- There will be freight costs as well as fuel and currency surcharges; and
- There will be a need for further transportation from the airport.
How do you insure and document shipping?
When insuring moving goods, one usually obtains goods-in-transit insurance much in the same way as other types of insurance is obtained. This will protect from events when goods are damaged or lost during vessel. When transporting goods by road, protection is under the Convention des Marchandises Routiers (CMR) which outlines the conditions for transporting goods by road. This allows basic cover, but it’s advisable to take out further insurance.
The maritime transport conventions automatically provide limited insurance cover under the Hague-Visby and Hamburg rules. Many obtain further insurance, such as general cargo insurance to get increased protection.
The international transport of dangerous goods by road is subject to international legislation, in particular the European Agreement on the International Carriage of Dangerous Goods by Road (ADR). Drivers of vehicles that carry dangerous goods must hold an ADR training certificate in handling dangerous goods. It is worth noting that all commercial vehicles that carry dangerous goods must pass the ADR test, and some have to be built to special standards. Information about the documentation needed is listed on the Department for Transport (DFT) website.
In relation to railway transport, the Convention Concerning International Carriage by Rail (COTIF) applies in the 45 states in Europe, North Africa and the Middle East that are members of the International Organisation for International Carriage by Rail.
The CIM consignment note outlines the conditions for transporting non-dangerous goods by rail. The effect of the note is that the carrier only takes responsibility for insuring your consignments against loss or damage from the time possession is taken until delivery. A dangerous goods declaration must be completed if you have a UN dangerous goods code, or goods are considered to be dangerous by the transporter.
General cargo insurance is also available in different levels. The level of insurance is reflected in the premiums paid and should be decided on the possible risk relating to your consignment.
What documents are used?
An Air Waybill (or Bill of Lading) outlines the agreement between the transporter and company. To speed up this process and in order to make it paperless, an e-freight project has been rolled out.
Whatever international transportation you use, there are common documents that you may need to complete:
Other documents that may be needed are:
- Export Cargo Shipping Instruction (ECSI) are used when a freight forwarder is instructed
- Single Administrative Document (SAD or customs form C88): this is the customs document for import, export and goods transiting in the EU
- Standard Shipping Note (SSN) will assist port authorities process your consignments. This form should be sent with deliveries
- A dangerous goods declaration should accompany dangerous product (as set out in the UN Hazard code)
Why would you use warehousing when trading cross border?
Customs warehousing may be a requirement when transporting goods. There are many reasons why this may be helpful outside of the general storage benefits. Import duty payments and VAT on imported goods may be delayed; this will inevitably assist with long-term cashflow planning. It could prevent the need to pay duties or VAT if there will be re-exporting to a non-EU country. In the event that the correct licences are not held, then one may remedy this while holding the goods in warehouse.
What types of private warehouses are there?
One type will be a public warehouse which is authorised for use by a warehousekeeper, but there will be no responsibility or liability on the part of the warehousekeeper.
It is important to know that outside of goods needing a vetinary check and meat related products; most products can be stored in warehouse. In relation to unaltered agricultural goods that are intended for export, it is also possible that there may be a time limit on storage of goods.
In terms of documents that are usually required – one usually asks for an inventory of the location, evidence of movement of goods, stock records and receipts that show the goods have come into the warehouse.
Why are shipping transportation costs high?
The current costs for shipping are high and this will effect budgets that are set for transportation. The high cost has shifted from the prior cheap services relating to transportation and low costs of holding inventory due to the excess of free capacity. There was also a push for just in time delivery and so frequent and fast processes were encouraged. The playing field has now changed leaving transporting costs higher due to volatility in oil and so allowing difficulty in forward purchasing fuel with a lack of consistency of freight services due to fluctuating supply and demand. Demand is continuing to outstrip supply causing congestion in freight lanes; this is set to increase by almost 70% by 2040.
How have the goal posts changed?
- In order to reduce the amount of miles that transport is to cover, there has been a move from offshoring to nearshore sourcing. This means that instead of manufacturing goods in a location with the cheapest labour, goods are actually produced near to the end consumer. This allows quicker shifts in freight movements, shortened lead times and it being easier to cater for adaptability in demand;
- Products and packaging design now focus more on considerations relating to “shipability,” with product able to be in a concentrated area in thinner or more flexible packaging, to allow efficient loading and offloading of product; and
- Transportation chains have been improved as there has been a change from lean inventory strategies to hybrid lean transportation strategies. This is coupled with consolidation on shipping routes.
What about using a freight forwarder if you know very little about logistics?
When people are not comfortable about shipping logistics, it is sometimes easier to use a freight forwarder. Their services vary and they can assist in improving efficiency both in relation to cost and time, as they are able to consolidate smaller shipments. They can also assist in your navigation around the rules when considering a voyage that you are not familiar with.
How do I choose a freight forwarder?
Are they a member of the British International Freight Association (BIFA) and so covered by freight liability insurance?
- Have they worked with clients similar to you and do they have experience with similar products?
- Do they work in the same countries you are shipping in?
- Are their expertise restricted to a number of countries?
- Can they handle multiple transport methods?
How do I choose a mode of transport?
There are many factors to consider when choosing a mode of transport. Many are listed above and others will have to be taken into account when understanding the goods you are dealing with, expertise you have available, distance of shipment, parties involved, profit margin and general criteria that surround the transaction. The above is a useful guide, but the reality rests with one financing and/or trading the goods.
Courtesy of our education partners – ABTS Training for the following infographic on the Shipping and Freight Forwarding!