class objectives: gain clear understanding of a basic shipment … · 2018-02-08 · • shipping...

• Gain clear understanding of a basic shipment life cycle

• Compare/contrast Ocean vs Air transportation services

• Determine Shipper/Buyer cost obligations in an international

transaction (Incoterms 2010)

• Become familiar with standard export and import

documentation

Class Objectives:

• Address Exporter’s compliance obligations and responsibilities

• Understand risk, carrier liability, and the role of insurance

• Provide an open forum for questions and concerns

Class Objectives:

Unit 1: Shipment Life Cycle Unit 2: Freight - Speedy or Cheap? Unit 3: So what’s it going to cost me? Unit 4: Incoterms Unit 5: Export Documentation Unit 6: Export Compliance Unit 7: Cargo Security Unit 8: Liability and Insurance

• Objectives

By the end of this unit, learners will:

– Be able to list general parties involved

– Define role of each party

– Understand general cargo flow

Unit 1: From 30,000 Feet

Supply Chain Partners

Buyer / Seller

Consolidator

Forwarder

Export Customs Broker

Local Trucking Company

Origin Stevedores / Air Cargo Handling Agents

Steamship lines / Airlines

Destination Stevedores / Air Cargo Handling Agents

Import Customs Broker

Customs

Destination Local Trucking Company

Warehouse / Distribution Providers

Bank / Financier

Shipment Life Cycle

• Negotiate price of product

• Pro forma invoice sent stipulating terms of sale

• Buyer places order

• Product made ready for export

• Booking made with forwarder or carrier (airline / steamship line)

• Trucker dispatched

• Shipping documents processed

• Customs notified of export

Shipment Life Cycle (continued)

Empty positioned or freight delivered to consolidator

Cargo might be inspected

Cargo exports

Cargo in transit / trans-shipment hubs

Shipment arrives at destination

Cargo entered and cleared through Customs

Freight released by carrier

Trucker dispatched

Cargo delivers to buyer

Supply Chain

• Objectives

– Be able to compare and contrast air vs. ocean transportation

– Understand cost and timing differences

– Be able to decipher rate quotations

– Recognize critical success factors

Unit 2: Freight – Speedy or Cheap?

Ocean Freight Like cookin’ good barbecue

• Ocean - LCL & FCL, Contracts, Transit Times, Forwarders

• Why Ship Ocean? Cost Savings, Space, Commodity Value, Extra Lead Times

• What To Look For - Experience, Competitive Pricing, Schedules, Volumes, Carrier Links, EDI

• Air Structure - Pay by weight or volume, Transit times, Hazardous Materials

• Why ship air- Time Sensitive Cargo, More Reliable (less delays/frequent flights), Cost of Products, Lower Minimums

• What To Look For- Customer Service, Competitive Pricing, Carrier Relationships, Technology/Tracking Ability

Air Freight Caffeinated and with $ to burn

Unit 3: So what’s it going to cost me?

Sample Rate/Quote Sheets

Review Ocean Rate Quotations

Ocean rate – generally by measure (CBM)

LCL and FCL

Based on commodity

Accessorial Charges

‘Special Notes’

Review of Ocean Freight Surcharges

GRI – General Rate Increase

BAF – Bunker Assessment Factor

CSF – Carrier Security Fee

ACS – Alameda Corridor Surcharge

PCS – Panama Canal Surcharge

IFS – Inland Fuel Surcharge

Others -- Equipment Imbalance, War Risk, Port

Congestion, Pier Pass, Clean Truck Fee, Chassis

Surcharge, etc.

Review Air Rate Quotations

• Air rate – generally by weight (kg)

• Service requested (A/A, D/A, A/D, D/D)

• Weight breaks, incl. pivot rate

• Foreign currency

• Not based on commodity

• Volumetric rule

• FOB Charges

• ‘Special Notes’

Review Airfreight Surcharges

• Pick up

• Airport Transfer

• Handling Charge

• Export Clearance

• Fuel Surcharge

• International Security Surcharge

Unit 4: Incoterms – Do I have to pay for all of this?

• Objectives -

– Define the word Incoterm and its application

– Understand correct use of term FOB and name it’s Air equivalent

– Know the top 7 Incoterms

– Be able to read an Incoterms chart and define seller and buyer responsibility

Incoterms – What are they?

• Incoterms = INternational COmmercial TERMS

• First developed by the International Chamber of Commerce in 1936, and revised in 1953, 1967, 1976, 1980, 1990, 2000, 2010

• The purpose of the Incoterms rules is to provide a set of international rules for the interpretation of the most commonly used terms in foreign trade.

• Written to assist, not dictate.

• Help divide cost, risks, and obligation/responsibilities between buyer and seller

• Incoterms rules are available in their entirety through

the ICC’s publication, “INCOTERMS 2010”

• Represented by 3 letters (i.e. FOB) and a place

(Shanghai, China)

Incoterms – What are they not?

• They are not law. They must be specified in the contract in order to apply.

• They are not all inclusive.

• They do not address passage of title.

• They do not address recognition of revenue

• They do not address remedies for breach of contract

• They do not address more than one contract (i.e. if goods are sold in transit)

• They do not address container loading

• They do not define vessel loading

• They do not address cargo security

• They do not address payment terms for the contract goods.

• They do not resolve all possible problems in international trade.

International Terms Of Sale: Incoterms 2010

Group Goods available from Incoterm Meaning

E Departure EXW Ex Works

F Main carriage unpaid FCA Free Carrier

FAS Free Alongside Ship

FOB Free On Board

C Main carriage paid CFR Cost and Freight

CIF Cost, Insurance and Freight

CPT Carriage Paid To

CIP Carriage and Insurance Paid To

D Arrival DAT Delivered At Terminal

DAP Delivered At Place

DDP Delivered Duty Paid

7 Most common terms

• EXW (Ex Works)

• The seller makes the goods available at their facility to the carrier nominated by the buyer.

• FCA • Free Carrier

• The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. Similar to FOB but may be used for all modes of transportation.

• FOB • Free On Board

• The seller delivers when the goods pass the ship’s rail at origin port.

7 Most common terms (continued)

• CFR

• Cost and Freight

• The seller delivers when the goods pass the ship’s rail at destination port.

• CIF

• Cost, Insurance, and Freight

• Same as CFR but the seller also provides insurance coverage

7 Most common terms (continued)

• CIP

• Carriage and Insurance Paid to

• Similar to CIF but may be used for all modes of transportation

• DDP (Delivered Duty Paid)

• Shipper pays all costs, including duty, up to the named delivery point (often the customer’s door).

Incoterms 2010 – What changed?

• Effective January 1, 2011, but Incoterms 2000 are still acceptable

• Several revisions:

• Replaced DAF, DES, DDU with DAP

• Replaced DEQ with DAT

• Guidance for selecting the appropriate rule relative to mode of transit (ocean or multi-modal)

• Advice for using electronic procedures

• Discussion of security related clearances

• Terminal handling charges clarified

• Using Incoterms for domestic transactions

Why do INCOTERMS change?

• As trade practices change, so must our terms

• September 11, 2001

• Container Security Initiative

• “Known Shipper” requirements for Air cargo

• Sarbanes Oxley

• 2004 revision of the UCC (Uniform Commercial Code)

• FTSR (now FTR) revised relative to Routed Export Transactions

• New EEI filing requirements

• Importer Security Filing

• National Export Initiative

• 100% inspection of cargo on passenger flights

• Etc…

Incoterms ® 2010

Information gathered from International Chamber

of Commerce and available in full form in the

Incoterms Chamber of Commerce Incoterms 2010

iccbooksusa.com

www.iccwbo.org/incoterms

Disclaimer

Please consult the Incoterms ® 2010 rules. Incoterm ® 2010 rules

are a registered trademark of the International Chamber of

Commerce.

This presentation provided a brief overview of the basic concepts

and 2010 changes, and should not be employed, by itself, in

business planning or in international transactions nor should it be

construed as legal advice or opinion.

This material should not be distributed without the written

consent of Expeditors International of Washington.

• Objectives -

– Understand why documents are required

– Understand what documents are required

– Become familiar with L/Cs and select key elements

Unit 5: The Exciting World of Documentation!

Export Documentation Overview – Why?

Certain documents are required to meet US export regulations

Convey shipment instructions and terms of sale to all parties

Required by bank to fulfill obligations under letters of credit (L/C)

Used to assess import and sometimes export duties overseas

Used to gather statistical data

Documentation Required for Export – What?

Shipper’s Letter of Instruction (SLI)

Instructs the freight forwarder on how and where to send the shipment

Electronic Export Information (EEI) and AES

Used by US Government Agencies to control exports

Source document for official US export statistics

Filed online with US Customs

Documentation Required for Export – What?

• Commercial Invoice

• A bill for the goods from the seller to the buyer

• Used by foreign governments to determine the value of goods when assessing customs duties

• Packing List

• Itemizes the material in each package

• Used by foreign customs officials to verify cargo

• Certificate of Origin

• Required by certain foreign governments

• Signed statement as to the origin of the goods

Documentation: The Infamous B/L

• Bill of lading

• Contract between the owner of the goods and the carrier (i.e. forwarder, airline, steamship line, trucking company)

• Two basic types:

• Original/Negotiable – controls ownership

• Waybill (Air or Sea/Express) – contract of carriage only

• What do you use them for?

• When do you need them? Importer / Exporter

• Why does the carrier need them back?

Ocean Bill of Lading - Review

• Negotiable document (OBL)

• Express bills lading / Sea Waybill

• Letter of Indemnity

• Expeditors’ house waybill number

• Shipper / Consignee information

• Sailing information

• Container number

Air Waybill - Review

• Not a negotiable document

• Expeditors’ house air waybill number

• Shipper / Consignee information

• Flight information

• Air rate and ‘other’ charges

• Prepaid or collect

• Total charges

US Export Compliance

Why does the US Government control Exports?

1. National Security Interests

2. Control for Domestic Short Supply

3. Enforce US Foreign Policy

US Export Compliance

What is an export? Any item sent from the US to a foreign destination.

Mode of transport does not matter.

BIS responsible for implementing and enforcing the Export Administration Regulations (EAR)

EAR regulates commercial and “dual-use” items – i.e. having both commercial and military use

EAR do not control all goods, services, or technology exports. Other US Gov’t agencies also regulate exports

Depts and Regulations Governing Exports

Compliance - as simple as What, Where, Who

1. What are you exporting? Know your product - schedule b number/ECCN/CCL

• www.census.gov/foreign-trade/schedules/b/

• Licensable freight examples – night vision goggles and ball bearings

2. Where is your final destination?

• Embargoed Countries

• Cuba Sudan

• Iran Syria

3. Who is your customer?

1. Screen Denied Parties List

2. www.mkdenial.com

Required to Notify US Customs of Export

EEI = Electronic Export Information

EEI is required for exports when

Any Schedule B commodity has a value of over $2,500

Commodity is under an export license, regardless of value

Destination is Cuba, Iran, Iraq, Libya, North Korea, Sudan or Syria

EEI must be filed prior to export, except if exporter has been granted post-departure filing privileges

Exports to Canada do not require an EEI, unless the shipment is under a license.

Exports to Guam do not require an EEI (but shipments to PR do!)

In-Bond shipments by air do not require an EEI.

US Export Compliance - EEI

Timely Filing Requirements:

Ocean: 24 hours prior to loading the cargo on the vessel at the US port of lading

Air: 2 hours prior to scheduled departure of the air carrier

Rail: 2 hours prior to the time the train arrives at the US border

Truck: 1 hour prior to arrival of the truck at the US border

US Export Compliance - EEI

Penalties:

$1,100 for each day of delinquency beyond the applicable period but not more than $10,000 per violation may be imposed for failure to file the electronic information

A penalty of not more than $10,000 may be imposed for filing false, misleading information or any other information that may further any illegal activity

US Export Compliance – General Penalties

Civil - $500K

Criminal - $1M + 10 years imprisonment

Fine up to $10,000 or imprisonment for not more than 5 years, or both, for each violation.

Civil – up to $500K for individuals + seizure/forfeiture of goods + debarment from licensing or govt contracting

Criminal – up to $1M and up to 10 years in prison

Unit 8: Any other worries?

Hazardous cargo

Pests and Solid Wood Packing Materials

TSA Security

Hazardous Cargo

Definition – A substance or material which has been determined to be capable of posing an unreasonable risk to health, safety, and property when transported in commerce.

Examples:

Aerosols

Oxygen tanks

Batteries

SWPM: Don’t let the Cargo Bugs Bite!

• SWPM is:

• Wood packing materials used with cargo to prevent damage, including but not limited to dunnage, crating, pallets, packing blocks, drums, cases, spools, and skids.

• SWPM does not include:

• Synthetic or highly processed wood materials used as packing materials (plywood, corrugated paperboard, plastic).

Solid Wood Packing Material

• Shippers must pay attention to the type of wood used in packaging their shipments • International Standards for Phytosanitary Measures No. 15 (ISPM

15) • Developed by International Plant Protection Convention (IPPC) • All SWPM / bracing / dunnage must be heat treated or fumigated

and properly stamped in order to prevent transport and spread of disease, insects, and certain pests

• Exempt are paper, plastic, and wood panel products like OSB, and plywood.

• Any wood not stamped or branded as heat treated or fumigated may be subject to fines and cargo seizure

• Majority of countries participate in ISPM 15

Wood can either be heat treated or fumigated with Methyl Bromide.

The official phytosanitary certificate is no longer required.

Instead, the wood must bear the IPPC mark.

Example:

Solid Wood Packing Material

Air Freight – New TSA Security Regulations

Significant changes in cargo security

February 2009: 50% of PAX cargo required to be screened

August 2010: 100% of PAX cargo now must be screened

Air Freight – New TSA Security Regulations

Advantages of cargo being screened prior to tendering to airline:

• Reduces cost

• Reduces chance of loss or damage

• Reduces chance of freight being delayed (special receiving lane)

• Your freight is kept secure

• Objectives -

• Recognize the difference between liability and insurance.

• Assess when a carrier is likely liable for loss or damage.

• Understand liability differences by mode.

• Determine what insurance covers

Unit 10: When Bad Things Happen to Good Cargo…

Liability, and Insurance

MSC Flaminia: July 14, 2012

3 dead due to mis-declared DG

Oil Field Machinery $800,000 loss

Claims

Conclusion

Insurance

Liability

Liability exists ONLY:

• When there is a contract of carriage in place when the loss or damage occurs, and

• All obligations under the contract of carriage have been met by the Shipper/Consignee.

Liability

If there is a contract of carriage in place at the time that the loss occurs, then the carrier may be financially responsible for whatever that contract says.

• Air Liability:

• Warsaw Convention $20/k or value of goods

• MP4: 19 SDRs per kilo (about $26 per kilo)

• Ocean Liability:

• $500 per Customary Shipping Unit or V.O.G.

• COGSA - 17 Defenses

• Truck Liability:

• Varies by country and by trucker. Usually $.50/lb. or $50 per lot.

• Warehouseman Liability:

• Varies by warehouse contract. Usually $.50/lb. or $50 per lot.

Liability

• Shipment Details:

• 2 Pieces

• 100 kilos

• Commercial Value: $20,000

― One Piece is lost.

― Is the carrier financially responsible for the lost piece? If yes, why?

― How much is the carrier responsible for?

Liability

You cannot answer the question without the rest of the information.

• Piece One

Weight: 99 kilos

Value: $100

• Piece Two

Weight: 1 kilo

Value: $19,900

• $26 per kilo or the value of the goods whichever is less.

• 1 k x $20/k = $20

• Value: $19,900

• Liability: $20

Liability

Act of God, Carrier not Liable

What is insurance?

• Risk Transfer tool – transfer loss from the importer to the insurance company

• Contract of indemnity – releases the importer of responsibility for loss.

Who can purchase insurance?

• Party who would suffer the financial loss

Insurance

• Property in transit (the Cargo)

• What losses would be covered?

All Risks against direct physical loss or damage.

Exclusions – yes but very few

• Geographical Scope – covers from to?

“Door to Door” (in most cases)

• Coverage Sections International, Domestic and Stock at locations while “in transit.” If you ask us to hold an import shipment in our warehouse it is now no

longer “in transit”. Additional coverage can be added at this time.

Insurance Covers:

• Liability limits are minimal

• Carriers Limit their liability – Why?

To promote International Trade!

Ocean - $500 CSU governed by COGSA

Air – 19 SDR per kgs (approx $26.00), governed by Warsaw convention

• General Average

Penalties assessed to all interests, held on bond!

• Protect against uncertainty of large loss

Willing to pay known small loss (premium) to

transfer unknown large loss?

Why Purchase Insurance?

• What is the difference between liability and Insurance?

• Why would a shipper / importer buy insurance?

• What is Insurance designed to do?

Conclusion

Arnold Maersk

18 overboard 53 damaged

Seattle November 22, 2013

MOL Comfort: June 17, 2013

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