Export Transportation and Shipment
Quick! Because foreign buyers, in making decision to purchase, will be taking into account the exporter's delivery time. Fast delivery is obviously an important "competitive edge" for an exporter. Of course, the actual delivery date will depend on stocks, production as well as shipping time.
Carefully, because the foreign buyer wants to receive the goods intact. In this way, the exporter gains customer satisfaction and avoids trouble and expenses of filling insurance claims and reshipping all or part of the order.
Economically, because the freight cost can be a substantial part of the final export price. The lower the freight cost, the more competitive the export price quotation.
Flag Preference
In some cases, the foreign buyer arranges the transportation of the goods himself. Many countries now insist that their importers use the country's own merchant fleet or "flag line" for importing goods so as to conserve foreign exchange. Sometimes, as an incentive, they offer a lower rate of import duty and a lower consulate fee. When the foreign buyer arranges his own transportation, the exporter's only responsibility is to get the goods to the port of shipment.
Freight Forwarder
Many exporters, make their own transportation arrangements. Others, delegate this task, on a fee basis, to specialized firms known as "Freight Forwarders". These can be either ocean "freight forwarders or air forwarders". Such a firm can offer a variety of services:
1. Advising on the best routes and relative shipping costs
2. Booking the necessary space with the shipping or airline
3. Arranging with the exporter for packing and marking of the goods
4. Consolidating shipments from different exporters
5. Handling Customs clearance abroad
6. Arranging marine insurance for the shipment
7. Preparing the export documentation
8. Translating foreign language correspondence
9. Scrutinizing and advising on ability to comply with letters of credit
According to its size, number of branches overseas, etc., a freight forwarder will offer all or only some of these services. However, all freight forwarders will advise on the booking of shipping space. Many freight forwarders handle both exports and imports and may also act as Customs brokers.
Alternative Shipping Methods
In shipping goods abroad, the exporter has various alternative methods. These include ship, truck, rail, air and parcel post.
The choice will depend on the nature of the product (light or heavy, fragile or sturdy, perishable or durable, high or low in value per cubic meter, etc); the distance to be shipped; available means of transportation; and relative freight costs.
Goods having high weight or cubic capacity or value ratio, the usual method of shipping overseas is by ocean cargo vessel. However, when speed is essential, air cargo may be preferred, although more expensive. For example, ski jackets are shipped from Germany to Japan by sea but towards the end of the ski season, air cargo is used.
Ocean Shipping Methods
Ocean Shipping
It is normally best to use ocean-going cargo vessels to transport heavy or bulky goods and liquids. Here, reasonable speed and safety is combined with a relatively economical cost. In shipping your goods by sea, you can choose from different types of ocean shipping: conference lines, non-conference lines, tramp shipping lines, or the national flag lines.
The conference lines charge two different shipping rates for the goods carried. The lower rate is available to exporters who sign an "exclusive patronage contract" whereby they agree to use only the conference line ships for their goods on the routes served by the conference lines. Exporters who have not signed such a contract can still ship by conference line ships but at a higher freight rate.
1. Conference Lines
A "conference" is a group of shipping companies that have agreed amongst themselves to levy the same freight rates and to observe the same shipping conditions (e.g. liability for damage to the exporter's goods). Such conference lines operate on all the observed regular shipping schedules, an important consideration for the exporter who needs to be able to quote reliable shipping and delivery dates.
2.Non-conference lines
These are individual lines that operate on the traditional shipping routes with regular sailing schedules and in competition with the conference lines. They have their own individual freight rates - as much as 10 per cent lower than the conference ones. Bookings are accepted from any shipper so long as space is available. No exclusive patronage contracts are required.
3. Tramp Lines
These are companies that do not have a fixed route or schedule of sailing. Instead, they operate on a per voyage basis. Usually, their freight rates are extremely competitive.
4. National or Flag Lines
The exporter may receive a lower rate of import duty and other benefits if he uses the national shipping line of the importing country.
5. Steamship Agent
This person is employed by a shipping company to arrange for the berthing and clearance of vessels, including Customs formalities, loading and unloading of cargo, preparation of bills of lading, the booking of shipping space, etc.
6. Ship Broker
Such a person acts as an intermediary between the shipping companies on the one hand and the exporters on the other. He helps arrange "charters" or booking for tramp vessels and advises ship owner on competitive rates.
Ocean Freight Rates
The freight rates
Most commonly charged by the steamship lines are both conference and non-conference is known as "line terms". Which include the cost of carrying the goods from one port to another but also the cost of loading the goods on to the ship in the port of shipment and unloading them at the foreign port. As well as any harbor charges that the ship may incur. However, the freight rate does not include certain terminal charges that may be levied by the harbor authorities against the cargo.
Another type of freight rate that may be charged is free in and out (f.i.o). Here the exporter pays for the transporting of the goods as well as pay for the stevedoring i.e., the loading and unloading of the goods which must be completed within a certain time, otherwise, penalties, called demurrage, will be levied.
With both types of freight rates, the shore-based costs of loading and unloading the cargo represent a substantial part of the ocean transportation costs. In recent times, the growing use of containers has helped reduce this cost, as well as the pilferage that sometimes takes place with traditional forms of cargo loading and unloading.
Factors that influence the rate charged for any particular type of cargo.
1. The weight of the goods being shipped
2. The dimensions of the goods being shipped
3. The shape of the goods
4. Ease of damage
5. Ease of pilferage
6. Need for refrigeration or other special conditions
7. Direction of traffic
Freight cost are computed by the shipping company based on both weight and cubic size and charges the higher cost. The freight charge is usually quoted, at so many "$" per tone, by weight or measure, whichever is greater. A short ton is 2,000 pounds; a long ton, 2,240 pounds; a metric ton, 2,204.68 pounds. Space measurement is usually 40 cubic feet or one cubic meter.
Freight Surcharges
Levy of additional charges include:
1. Currency Exchange surcharge to allow for charges in foreign exchange rates after publication of freight rates.
2. Bunkers Surcharge to allow for higher world oil prices, as determined by OPEC.
3. Basic Rate Services Additional for Containers. This is a "stuffing" charge for containers to cover stuffing and "un-stuffing" the container, even though you may have stuffed it yourself.
4. Equipment Handling Charge for Containers. This is heavy lift charge for goods shipped in containers.
5. Port Surcharge this is an extra charge to cover extra port fees e.g. for shallow draft vessels.
6. Congestion Surcharge this is to help offset the extra cost of shipping shipping delays caused by port congestion.
Shipping Stowage
"Which part of the ship" the exporter's goods may be placed or "stowed" in different parts of the ship according to arrangements made.
Regular Stowage
If no special request is made, the exporter's goods are placed anywhere in the regular holds, below deck, with other goods probably stacked on top. To avoid damage from crushing, etc., the exporter's goods need to be well packed in a strong box.
Special Stowage
The exporter may request, at extra cost, that his goods be placed in the freezer hold or for certain perishable goods, he may request that they be stowed away from the heat, but not refrigerated or refrigerated, but not frozen.
On Deck Stowage
The cheapest way of shipping goods by sea is to have them carried on deck. However, such goods are then exposed to the weather with no liability of the shipping company for such damage. Also, of course, such goods would be the first to be thrown overboard (or "jettisoned") should the ship run into trouble and need to be lightened. Because of the above factors, marine insurance rates for such goods are higher than for goods stowed below deck.
Liquid Cargo
Most ocean cargo vessels have liquid cargo tanks on board with capacities ranging from 20,000 to 40,000 gallons. Many of these are located in the lowest part of the vessel and are often filled with seawater, if no liquid cargo is available. Other such tanks are between the decks. For very large liquid cargo, specialized tanker ships are used.
Containers
These are metal rectangular boxes of various sizes that can be leased for one voyage or on a round-trip basis. Goods shipped in containers are levied a special charge additional to the regular freight rate.
Ocean Shipping Procedure
Bigger export firm have a traffic department will take care of overseas shipping. With smaller firm, this task is usually delegated on a fee basis, to freight forwarder. The following steps are involved in a typical overseas shipping procedure.
1. The Freight Forwarder is advised of the export order.
2. The terms of sale are examined to determine the exporter's shipping responsibility and ability to fill the order.
3. If letter of credit is involved, it must also be carefully examined to insure that any shipping conditions (such as shipping date, no partial shipments, discharge port, transshipment restrictions, etc.) are met or, if impossible to meet, arrangements be made for the letter of credit to be amended.
4. Quotations on freight rates sought from different shipping agents.
5. A shipping line and vessel are selected.
6. Space is booked as early as possible (as shipping space is not easily available to all destinations) through a shipping agent. The space should be on a ship with an acceptable loading port and acceptable estimated time of arrival (or ETA) at the required port of destination.
The choice of loading port must be balanced against the preferred date of sailing. Information about sailing schedules is available in specialized shipping publications and in the business sections of the major newspapers.
The agent that represents the shipping line will, in booking the space, requires full details of the shipment, including weight, size, contents value, ports of shipment and destination. This is recorded by the exporter onto a shipping note that is sent to the steamship office.
The shipping agent then sends the exporter a contract number and an engagement note showing the details of the shipment, including name of the ship, destination, loading port, loading date, arrival date, and the shipping rate.
The exporter may cancel the space that has been reserved if the export order falls through. However, it should let the shipping company know as soon as possible so that the space can be allocated to someone else. Otherwise the shipping company will invoice the exporter for the unused space.
7. Customs forms are filled out for the country of destination.
8. The shipment is appropriately packaged and marked.
9. Wait for the "calling forward" notice from the shipping company.
10. The shipment is dispatched to the port with a consignment note.
11. A bill of lading is obtained from the shipping company and freight charges are paid.
12. The bill of lading and other required documents are delivered to the bank for collection.
Delivery to the Dockside
One way, is to use the service of a freight forwarder. The shipping company's representative checks the number of items, their condition, shipping marks, weight, and perhaps size, and then issues a "dock receipt". The exporter keeps this dock receipt until the goods are loaded aboard the ship. After this has been done, the shipping company issues an ocean bill of lading to replace the dock receipt.
Another way to deliver goods to the ship is by rail. Small shipments are delivered to the local railway freight depots where they are consolidated with other shipments for the same port. Large shipments go by carload lots and are usually loaded at the exporter's premises. At the port, the shipping line has usually leased or has been assigned a shed in which all the box cars containing goods for the particular ship are unloaded.
The railways assume the responsibility for unloading the boxcars, and checking and placing the goods in the warehouse ready for loading abroad ship. The cost involved is included in the railway freight rate.
Loading the Goods aboard Ship
When the exporter's goods have been unloaded at the dockside, it is the shipping company's responsibility to ensure that they are properly loaded aboard the correct ship. Usually, a stevedoring firm does this on behalf of the shipping company and the cost involved is already included in the freight rate paid by the exporter.
With the goods safely loaded aboard the ship, the shipping agent issues a "clean" ocean bill of lading to the exporter so long as no shortages or damaged crates, boxes, etc. have been discovered. If damage had been noted, the exporter can still obtain a clean bill of lading by signing a letter of indemnity that absolves the shipping line of any responsibility for the damage should insurance claim be made.
The bill of lading, in the required number of copies, is evidence of ownership and is negotiable - it is the key document that is surrendered to the foreign importer upon payment for the goods or acceptance of a time draft as specified in a letter of credit
Truck Transportation
Truck transportation between Malaysia, Singapore and Thailand is quite convenient as it permits warehouse-to-warehouse transportation and reduces the handling involved in transshipment. However, it is more expensive than by freight train for heavy shipments.
Most exporters, if trucking suits their need, prefer to use commercial trucking companies to transport their goods.
Rail Transportation
There are three types of railway freight rates:
1. LCL ("less than carload lot") this is the most expensive rate and applies to small shipments based on a minimum charge for 100 lb.
2. CL ("carload" rate) this is the cheapest rate and applies to shipments 30,000 pounds or more.
3. "Pool-car rate" - this is an intermediate rate and involves the combining of shipments from different shippers.
Rail transportation is most suitable for his shipment if:
1. The goods are heavy.
2. The distance to be traveled not economical by truck.
3. The rail line is located fairly close to his premises and to the port of shipment for goods destined overseas.
Air Transportation
Airfreight transportation is becoming more economical with exporters for small volume goods that makes use of consolidates airfreight. However, air cargo is still very expensive for shipping goods that have a high weight or cubic dimension to value. Freight charges are based on weight or measurement whichever is the higher. The rate is per pound or per unit of 250 cubic inches. The contract between the airline and the exporter is called an airwaybill.
Notes: In 1999, it is estimated about 42 percent of the approximately $5.8 trillion worth of goods that were traded internationally were shipped by air. Published by Praxis Communications Ltd. Asia Inc. July, 2000 Vol.9. No.4, page 42, Contact: editors@team.asia-inc.com
The advantages of using air transportation are:
1. Speed of delivery (e.g. breeding cattle, fish or perishable goods)
2. Permits lower inventories at branch warehouse, etc.
3. Reduces working capital tied up in "goods in transit" and reduces packaging costs.
4. Avoids conditions of extreme heat, dampness, and vermin, often found in ocean-going vessels.
5. Both scheduled and non-scheduled air carriers offer a great variety of air cargo flights.
6. Reduces pilferage of and damage to goods being shipped compared with other methods.
7. Reduces insurance costs because of less theft, damage, etc.
The disadvantages are:
1. The cost is prohibitively high for many goods.
2. Unsuitability for certain types of products as altitude and temperature can cause damage e.g. liquids may leak as pressure decreases with altitude and goods may become frozen.
Air shipment can be arrange by using the services of an airfreight forwarder, for a fee, which usually offers a lower rates through consolidation of shipments from several exporters and handle the booking and paperwork.
In calculating airfreight charges, the airlines use what is known as the "cube rule" namely, that every 194 cubic inches of space occupied by the shipment is considered equivalent to one pound. They then compare this dimensional weight with the actual weight of the shipment and base their charges on the greater of the two.
An example: suppose a box being shipped weighs 60 pounds and measures 20 x 20 x 40 inches, or 16,000 cubic inches. The dimension weight, will be 82 LBS. and is thus greater than the actual weight.
Transportation Strategy
Careful thought should be given as to the best way to ship the goods to market.
In some cases, ocean shipping is the only alternative. But, often, there are different possibilities at the most reasonable cost. In choosing the method or methods of shipment, the exporter must keep in mind:
1. The delivery time, to be as fast as possible to achieve better customer satisfaction.
2. The cost, trying to keep transportation costs to a minimum.
3. The hidden cost, of working capital tied up in goods in transit.
4. Effect on cash flow, on the exporter's business.
5. The cost of packing and insurance, for different modes of international transportation.
In making an export price quotation, the exporter must indicate which method of transportation he plans to use.
