Shipping Knowledge

By Tyler Kelly,2014-10-14 15:33
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Lesson 1

    ; General overview of international trade

Lesson 2

    ; General overview of international shipping industry

    ; Shipping terms (Incoterms 2000)

Lesson 3

    ; Letters of credit

    ; Types of letters of credit

    ; Opening a letter of credit

Lesson 4

    ; Bill of Lading

    ; Common Shipping Terms

    ; Insurance

Lesson 5

    ; Shipping documents

    ; The role of freight forwarder

    ; The documentary progression of an export order

Lesson 6

    ; Shipping documentation system

Lesson 7

    ; Shipping Nature and functions of bills of lading

    ; Types, terms and conditions of bill of lading

Lesson 8

    ; Principles and documentary practices relating to transshipment

Lesson 9

    ; Shipping Fraud and Malpractice.

Lesson 10

    ; Principles & practical aspects of claims management

    ; Typical port tariff items of a container terminal

    Lesson One

1.1 Globalization

    In the present era of Globalization, we witness that the world is becoming more integrated. The increasing flows of goods, service, capital and know-how between 1989 and 1996, have grown at an average annual rate of 6.2%, almost twice as fast as the average annual growth rate of 3.2% in the world‟s GDP during the same period.

    After WWII, the advanced industrial nations of the west, under US leadership, committed themselves to removing barriers to the free flow of goods, services and capital between nations. The goal was enshrined in the treaty known as the General Agreement on Tariffs and Trade (GATT). Under the umbrella of GATT, there have been eight rounds of negotiations among member states which now number over

    130 designed to lower barriers to the free flow of goods of services. The Uruguay round, which was completed in December 1993, had further reduced trade barriers, which extended GATT to cover services as well as manufactured goods.

    In additional to reducing trade barriers, many countries have also been progressively removing restrictions to foreign direct investment (FDI). According to the United Nations, between 1991 and 1996, more than 100 countries made 599 changes in legislation governing FDI.

    The lowering of trade and investment barriers allow firms to base production at the optimal location for that activity, serving the world market from that location. Thus, a firm might design a product in one country, produce component parts in two other countries, assemble the product in yet another country, and then export the finished product around the world.

1.2 Regionalization

    It is a body formed by countries within the same region, serves to remove tariff and non-tariff barriers to the free flow of goods among member countries, such as EU, NAFTA, ASEAN. It has greatly stimulated the global and regional shipping activities when volume of cargo grow at a promising pace from the late 80s to mid-90s.

    The cargo throughputs, as reported, have grown 8.8% annually from 1996 to 2000 from the top 20 ports in the world.

    Asian ports, particularly Hong Kong, Singapore, Taiwan and South Korea, have become 4 largest ports in the world in terms of throughput, constituting close to 50% of total volume in top 20 largest ports in the world.

    1.3 Level of Economic Integration

    1.3.1 Free Trade Area (FTA)

    - Trade restrictions between member countries are removed by


    - Each member country is allowed to determine its own trade policies

    with regard to non-members.

Eg. European Free Trade Association (EFTA) Iceland, Norway, Lichtenstein,

    Switzerland (1960)

    1.3.2 Customs Union (CU)

- eliminates trade barriers between member countries.

    - adopts common external trade policies.

    - administrative machinery to oversea trade relations with nonmembers.

Eg. Andean Common Market (ANCOM) Bolivia, Colombia, Ecuador, Peru,

    Venezuela (1969 revived 1990)

    1.3.3 Common Market (CM)

    - like a customs union, theoretically, no barriers to trade between

    member countries and has common external trade policies. - Unlike a customs union, allows factors of production (capital, labour

    etc) to move freely between members.

    - establishing a common market demands a significant degree of

    harmony and cooperation on fiscal, monetary, and employment


Eg. Caribbean Community (CARICOM) Barbados, Belize, San Cristobal,

    Dominica, Grenada, Guyana, Jamaica, Montserrant, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Trinidad & Tobago. (1973)

    1.3.4 Economic Union (EU)

    - Involves the free flow of products and factors of production between

    member countries and the adoption of a common external trade policy. - Unlike a common market, a full economic union also requires a

    common currency, harmonization of members‟ tax rates, and a

    common monetary and fiscal policy. Such a high degree of integration

    demands a coordinating bureaucracy and the sacrifice of significant

    amounts of national sovereignty to that bureaucracy.

    Eg. European Union (EU) Austria, Belgium, Denmark, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, UK. (1992)

    1.3.5 Political Union (PU)

    - the EU leads to establishing a coordinating bureaucracy accountable to

    the citizens of member nations. The European parliament, which is

    playing an ever more important role in the EU, has been directly

    elected by the citizens of the EU countries since the late 1970s.

    - Canada and US provide examples of even closer degrees of PU; in

    each country, independent states were effectively combined into a

    single nation.

    Lesson Two

2. Shipping Industry

    Ship is one of the oldest and most important means of transportation, carrying cargo regionally as well as globally. Everyday, thousands of ships cross the oceans, sail along seacoasts, and travel on inland waterways. Trade among countries depends heavily on ships.

2.2 types of ship

Tankers for petroleum, vegetable oil, wines and other liquids.

Refrigerator ships for fresh fruits, meats and vegetables.

Dry bulk carriers for grain, ore and sand.

    Container ships for goods packed inside the standard containers in 20 and 40 footers.

2.3 Organization structure of a shipping company

2.3.1 Head Quarter

    It‟s the heart and brain of a shipping company with the office usually situated in the home country of the major shareholders‟.

2.3.2 Regional offices

    RO reports to the HQ. It oversees trade performances within the area and it has principal‟s responsibility. Shipping line has 100% ownership of RO.

2.3.3 Agency offices

    AO reports to RO. It acts as an agent for the RO within the individual trading country. Shipping line may own some or whole interest in the agency office for better control. However, some AO, due to political and economic reasons, may only be appointed as third party agency by the shipping line.

2.3.4 Shipping Lines

The following table shows vessel capacities of top 17 shipping lines in July 2001

    versus March 2004.

     2001 2004 04V01 04V01

     CAP SHPS CAP SHPS % CAP % SHPS 1. MAERSK 648,900 257 791,743 295 22.0% 14.8% 2. PONL 351,877 135 388,170 141 10.3% 4.4% 3. MSC 268,036 144 540,525 216 101.7% 50.0% 4. APL 247,574 92 271,218 79 9.6% -14.1% 5. EVERG 215,946 66 357,624 129 65.6% 95.5% 6. COSC 196,076 115 253,433 131 29.3% 13.9% 7. HJ 181,315 50 279,395 70 54.1% 40.0% 8. KL 146,161 60 190,801 63 30.5% 5.0% 9. OOCL 145,590 49 191,297 57 31.4% 16.3% 10. NYK 145,400 65 217,867 65 49.8% 0.0% 11. HMM 143,797 39 131,724 34 -8.4% -12.8% 12. CMA 141,280 58 267,527 104 89.4% 79.3% 13. YML 141,261 52 154,967 57 9.7% 9.6% 14. MOL 138,809 56 205,489 63 48.0% 12.5% 15. CSCL 127,984 76 184,921 89 44.5% 17.1% 16. HPL 116,901 31 174,834 44 49.6% 41.9% 17. ZIM 116,068 56 137,841 54 18.8% -3.6%

TTL FLEET 8,406,579 7,325

Ranking after new builds

     W FLT W FLT


    1 MAERSK 201,123 42 992,866 337 8.8% 4.2%

    2 MSC 221,890 32 762,415 248 6.7% 3.1%

    3 PONL 113,650 20 501,820 161 4.4% 2.0%

    4 CMA 156,186 23 423,713 127 3.7% 1.6%

    5 EVERG 64,800 8 422,424 137 3.7% 1.7%

    6 COSC 119,828 16 373,261 147 3.3% 1.8%

    7 HJ 71,000 10 350,395 80 3.1% 1.0%

    8 CSCL 162,935 27 347,856 116 3.1% 1.4%

    9 APL 25,926 6 297,144 85 2.6% 1.1% 10 KL 101,212 19 292,013 82 2.6% 1.0% 11 NYK 71,038 9 288,905 74 2.5% 0.9% 12 OOCL 95,367 13 286,664 70 2.5% 0.9% 13 YML 85,724 22 240,691 79 2.1% 1.0% 14 MOL 19,200 3 224,689 66 2.0% 0.8%

15 HPL 30,732 4 205,566 48 1.8% 0.6%

    16 ZIM 35,169 7 173,010 61 1.5% 0.8%

    17 HMM 34,000 5 165,724 39 1.5% 0.5%

     TTL FLEET 2,925,158 746 11,331,737 8,071

2.4 Shipping terms (Incoterms 2000)

    2.4.1 The terms of delivery will have the implications to the following :

i. The cost of goods quoted by the seller to the buyer.

    ii. The charges and expenses incurred by each party at different stages of the

    delivery process.

    iii. Where and when delivery of the goods take place.

    iv. The mode of transport involved.

    v. Where and when the title to the goods passes from the exporter to the importer. vi. Where and when the risks of carriage is passed from the exporter to the


    vii. Who pays for cargo insurance and the type of insurance coverage. viii. Export and import license application, customs duties and tax payable for

    export and import.

2.4.2 Terms F.A.S - (Free Alongside Ship) …named port of shipment

    Seller :-

    - supplies the goods according to sale contract.

    - packs the goods and delivers them alongside the vessel on the date and

    vessel specified by the buyer.

    - bears all costs and risks of the goods until they are placed alongside the

    vessel and notify the buyer when delivery is done.

    - pays duties, tax and charges pertaining to export of goods.

     Buyer :-

    - books shipping space and pays freight charges at destination.

    - takes up adequate insurance cover for the goods.

    - obtains import licenses and applies for customs clearance. FOB (Free on Board) .. named port of shipment

    Seller :-

    - supplies the goods according to the contract of sale.

    - delivers the goods on board the vessel and date as specified by the


    - informs the buyer for insurance arrangement once the shipment is


    - bears all costs and risks of goods until they have been delivered on

    board the vessel.

    - pays any export tax, duties, cost of packaging and checking operations

    of the goods.

    - provides the buyer with clean shipping documents evidencing delivery

    of the goods.

     Buyer :-

    - charters ship, books shipping space and pays for freight charges at


    - bears all costs and risks of the goods from the time they are loaded on

    board the vessel.

    - takes up insurance cover for the total cost of goods (110% of CIF value) - pays import duties and port charges incurred on arrival of the goods. CFR (Cost and Freight) .. named port of destination

Seller :-

    - loads the goods on board the vessel within the delivery date, and pays

    freight charges for the goods to the port of destination. - notifies the buyer as soon as the goods are loaded on board the ship. - bears all risks and costs until the goods are loaded on board the vessel. - provides the buyer with full set of clean on board bills of lading or air

    waybill made out to order and endorsed in blank or to order of any

    party named by the buyer.

    - bears the costs of packing and checking operations.

     Buyer :-

    - receives the goods at the agreed port of discharge and pays the costs of

    unloading such as lighterage and wharfage charges.

    - bars all risks and costs of the goods from the time they are loaded on

    board the ship.

    - arranges for insurance cover for the goods on or before shipment is

    effected. C.I.F - (Cost, Insurance, Freight) .. named port of destination

Seller :-

- all the above as CFR

    - provides the buyer with the insurance certificate/policy made out in

    negotiable form

    - endorsed in blank covering marine risks and the insured value must be

    for 110% of the CIF invoice value.

Buyer :-

- all the above as CFR

    - the insurance cover will be done at the seller side. DES (Delivered Ex ship) .. named port of destination

Seller :-

- pays for freight charges.

    - bears all risks and costs until the goods are at the buyer‟s disposal on

    board the ship at the destination

    - provides signed invoices and other documents such as certificate of

    origin, packing list etc.. if so required by the buyer.

     Buyer :-

    - bears all risks and expenses when the goods are available for his

    collection. DEQ (Deliver Ex Quay) .. named port of destination

Seller :-

    - loads the goods on board and pays all freight charges for carriage of

    the goods up to the quay (Wharf) at the named port of destination. - bears all risks and costs until the goods are at quay for the buyer‟s


     Buyer :-

    - bear all risks and expenses of the goods from the time they are at his

    disposal at the quay. FCA (Free Carrier) . named place

    This term can be used for any mode of transport and delivery which involves multi-modal transport.

Seller :-

    - delivers the goods to the named place at the disposal of carrier or

    another person nominated by the buyer or chosen by the seller. - provides relevant transport documents as proof of delivery such as

    clean on board bills of lading made out to “order” and blank endorsed

    or to order of any party named by the buyer etc.

    - provides signed invoices and other documents such as certificate of

    origin, packing list etc.

     Buyer :-

    - makes arrangements for the goods to be transported from the named


    - bears all risks and expenses from the time the goods have been


    - informs the seller with sufficient notice on the name of the party/place

    nominated to take delivery, specific time and date of delivery and the

    mode of transport utilized for the delivery. EXW (EX Works) .. named place

    This trade term imposes minimum responsibilities on the part of the seller.

    Seller :-

    - places the goods at the disposal of the buyer within the specified time.

    - bears all costs and expenses incurred in packing, checking and

    counting of the goods.

    - bears all risks and costs of the goods until they are available for

    collection by the buyer.

     Buyer :-

    - takes delivery of the goods as soon as they are ready for collection at

    the seller‟s factory or the named place for his disposal. CPT (Carriage paid to) .. named place of destination

    Seller :-

    - loads the goods on board and pays all freight charges for carriage of

    the goods to the agreed point at the place of destination or to the first

    carrier if there are subsequent carriers involved.

    - bears all risks and costs which include loading and unloading charges

    at the destination for the buyer‟s disposal.

     Buyer :-

    - pays all costs and accepts delivery of the goods from the carrier at the

    named place.

    - bears all risks and loss of goods from the point of delivery. CIP - (Carriage and Insurance paid to ) .. named place of destination

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