Structure of Maritime

Transportation Industry
Introduction

• Of the world’s international trade 90% is transported by sea.

• Sending cargo by sea is ideal for high-volume cargoes that are not
necessarily time sensitive or have long lead times for delivery.
• However, this mode of transport is slow and fraught with possibilities
for delay.
Introduction

• As globalization has increased and sources of manufacturing moved

eastwards to India and China more companies have outsourced their
manufacturing to this part of the globe.
• As a consequence, due to the elongated supply lines and slowness of
this form of transport, higher levels of in-transit inventory need to be
accounted for.
Structure of the industry
• Liner conferences. Formal groups of shipping lines that operate on
certain shipping routes that bring together all lines operating in a
specific geographic zone.
• They were first set up to control the trade between colonial powers
and their colonies in the 1870s.
• Today they are seen by many as being a controversial anachronism as
they work together to agree tariffs for certain routes.
Liner conferences

• They work fundamentally for the interests of the member shipping

lines to help to avoid destructive price competition.
• The shipping lines have invested huge amounts of capital in the ships
themselves and the conference system provides
Liner conferences
• The European Union has criticized liner conferences for anti-
competitive actions
• On 25 September 2006, the EU voted unanimously to stop liner
shipping lines from meeting in conferences to fix prices and regulate
capacities on trades to and from the European Union.
• This came into effect on 18 October 2008.
Liner conferences

• The liner conferences are the only industry that is currently exempted
from anti-competition laws in the United States.
• There is a huge body of opposition to these price-fixing organizations
and it is very likely that further legislative action will be taken against
them.
 Structure of the industry

• Shipping lines. They own and operate the various types of ships in
their fleets.
• Their role is to provide the physical means by which cargo may be
safely and efficiently transported by sea.
Structure of the industry
• Ships’ agents. They provide services to the shipping lines in the ports
• These services may include:
✓ provisioning with food and spare parts;
✓ arranging any necessary repairs for the ship;
✓ dealing with local port and customs authorities;
✓ organizing berths, pilots, tugboats (if required), crew change and
refueling.
Tugboat in Suez Canal
Structure of the industry

• Freight forwarders. Often referred to as freight management

companies
• Their role is to oversee and manage the movement of the freight from
the point of origin to the point of destination.
• They usually have worldwide networks of offices, and agents in many
countries.
Structure of the industry
• Freight management companies provide integrated door-to-door
solutions for their customers that may include:
➢ arranging different modes of transport,
➢ customs clearance and documentation,
➢ arranging port handling
➢ supervising all aspects of the movement.
Common shipping terms

• As with many specific areas of industry, sea-freight has developed a

whole plethora of terms and abbreviations over a period of time that
spans centuries.
• In fact, there are so many that it is not possible to outline them all.
• The terms that are listed below are the ones that most commonly
cause problems
 Surcharges

• When international sea-freight prices are being quoted anywhere in

the world as a matter of custom and practice, as well as convenience,
all prices are generally quoted in US $ or euros.
• In addition to the basic cost of sea-freight there are a number of
other surcharges that may be applied.
 Surcharges

• Bunker adjustment factor (BAF). common surcharge applied to sea-

freight rates by shipping lines.
✓ Takes account of the variations in the price of marine fuel in
different parts of the world.
✓ The BAF is changed from time to time.
Surcharges
• Currency adjustment factor (CAF). takes account of any differences in
cost incurred by the shipping line due to currency exchange
fluctuations for services bought by them in foreign currencies in the
execution of their services on the customer’s behalf.
• All sea-freight rates are generally priced in US $ or euros but local
services purchased by the shipping company will be in the local
currency
• The surcharge is designed to compensate the shipping line for this
and is usually charged as a percentage of the basic freight charge.
Surcharges
• Peak season surcharge (PSS). a surcharge that is applied to both air
freight and sea-freight originating in the Far East.
• Due to the rapid growth in exports from countries such as China,
backlogs occur in the provision of infrastructure at certain times of
the year.
• A shortage of transport carrier capacity and an imbalance in trade
flows means that carriers can apply this surcharge, which customers
are forced to pay.
Surcharges
• Repositioning charge. a surcharge that is sometimes applied by the
shipping line to cover the cost of returning an empty container to a
location where it may be loaded with revenue-earning cargo.
• This type of charge is most likely to be applied where there is an
imbalance in trade volumes on a given route.
• For example, between the United States and China there is an
imbalance. More cargo is shipped in full containers from China to the
United States than the other way round
Surcharges

• War risk surcharge

• This may be applied to any mode of transport in a war zone as well as
an area around the actual war zone.
• It is applied to take account of the increased possibility of incidents
that could result in the partial or total loss of the company’s assets.
Common shipping terms

• As with many specific areas of industry, sea-freight has developed a

whole plethora of terms and abbreviations over a period of time that
spans centuries.
• The terms that are listed below are the ones that most commonly
cause problems
Common shipping terms

• Full container load (FCL). refers to a load that will fill a given
container.
• Less than container load (LCL). shipment that will not fill a container
and therefore will require to be consolidated with other LCLs in order
to economically fill a shipping container.
Common shipping terms

• Hook to hook. used by many shipping lines when quoting prices for
break-bulk sea-freight.
• It means that the shipping line’s price includes loading the goods on
to the vessel and unloading the goods at the destination port.
• It also includes the cost of transporting the goods between the origin
and destination ports.
• This price does not include insurance and other port handling costs.
Common shipping terms

• Liner in. The shipping line is responsible for the cost of loading the
cargo on board the vessel.
• Liner out. The shipping line is responsible for the cost of unloading
the cargo at the destination port.
Common shipping terms

• Free in and/or free out. the opposite of hook to hook.

• Purchasers may make the mistake of interpreting ‘free’ as meaning
free to them.
• The term ‘free’ is used in this context means free to the shipping line.
• Therefore the party purchasing the sea-freight will be responsible for
the cost of loading and unloading the goods on and off the ship.
Common shipping terms

• Break bulk cargo. general term for non-containerized loose freight.

• Out-of-gauge cargo and heavy-weight items that are unsuitable for
containerization fall into this category.
• Bulk cargoes such as crude oil, loose grain or bulk powders, and iron
ore would not be classified as break bulk.
Common shipping terms

• Weight or measure (W/M). This is a common method used by

shipping lines to price sea-freight for break-bulk shipments.
• This method considers that 1 tonne is equal to 1 cubic metre and that
the price quoted applies to the higher of the two numbers.
• Rather confusingly this system can also be referred to as ‘freight
tonnes’ or ‘revenue tonnes’.
Weight or measure

• Example. The cargo to be transported by the carrier weighs 1,500

metric tonnes and has a volume of 7,500 cubic metres. The price
quoted is US $75 per weight or measure. Therefore, the price will be
calculated by taking the higher number of the weight or measure and
multiplying it by US $75:
• 7,500 × US $75 = US $562,500
Common shipping terms

• Stackable cargo. Not all cargo is stackable. In other words, it does not
lend itself to having cargo loaded on top of it.
• If a cargo is non-stackable it will mean by definition that any space
above it will be lost as loading capacity
Stackable cargo

• The shape of the cargo or the contours of the ship may also result
in lost loading capacity
• These issues will be dealt with by the shipping company who
will prepare a stowage plan
Common shipping terms

• Stowage plan. This is a plan prepared by a representative of the

shipping line, which will clearly show where each item to be loaded
will be placed in the ship’s holds or on the open deck.
• The plan will be based on a detailed packing list provided by the
consignor.
Stowage plan
• In this case the carrier will be forced to either load the container on
the top of the stack or lose the potential for loading on top of this
particular container.
• This will lead to a request from the shipping line for the consignor to
pay for the ‘lost slots’.
• In other words, pay for the slots that cannot be used by the shipping
line because the cargo is protruding into another slot’s space.
Common shipping terms

• Lost slots. A slot is a term used to describe the space taken up by an

ISO shipping container on a cellular container vessel.
• If certain types of specialist container are used to transport the
goods, such as flat-racks or open-top containers, then there is the
possibility that the cargo will protrude outside the normal cubic
dimensions of a standard shipping container.
Common shipping terms
Flat-racks Open-top containers
Documentation

• One very important aspect of moving goods internationally by sea is

the associated documents required by various government agencies,
financial institutions and trading partners at both origin and
destination.
• The following contains a brief overview of some of the major
documents used.
Documentation

• Bills of lading. Issued by the shipping line as a receipt for the cargo
being transported on its ship.
• It is also a contract of carriage to deliver the cargo to a named
destination.
• In addition it lays out what has been loaded and in what condition.
Documentation

• A bill of lading is a negotiable document unless it states otherwise.

• This means that the goods may be bought and sold during the sea
voyage using the bill of lading as title to the goods.
• Therefore, the legal bearer of the bill of lading is the owner.
Documentation
• Letters of credit (LC)
• A letter of credit, or "credit letter," is a letter from a bank
guaranteeing that a buyer's payment to a seller will be received on
time and for the correct amount.
• In the event that the buyer is unable to make a payment on the
purchase, the bank will be required to cover the full or remaining
amount of the purchase.
Documentation
• A letter of credit (LC) issued by a bank in one country (the issuing
bank) on behalf of a buyer names the seller as beneficiary to the
funds outlined in the LC provided that certain terms are clearly met
by the seller.
• The LC is then sent to the seller’s bank in a different country, which is
known as the advising bank.
• This method is used to guarantee that the seller gets his payment in
time and in full, and that the buyer does not release funds until the
goods are received in full and in good condition.
Documentation

• Certificate of origin
• This is a document issued by a certifying body that establishes the
origin of the goods being transported.
• This is often required by customs authorities at the final destination
due to trade tariffs, international trade treaties or embargoes on
trade with certain countries.
Documentation
• Commercial invoices
• The commercial invoice produced by the seller establishes amongst
other things the weight of the goods, the number of items, a
description of the goods, and the price of the goods being sold.
• Where LCs are also being used there should not be any discrepancy
between the details contained in the two documents.
• The cost of the goods being imported assists the customs authorities
to arrive at a customs duty tariff.
Documentation

• Packing lists. detailed list of all the items to be transported.

• A packing list typically contains as a minimum a brief description of
the items: their weight; the length, width, height of each item; and
how many items are contained in each package.
• This allows a cubic capacity to be calculated for each item.
Documentation
• The shipping line will ask the consignor to identify which items on the
packing list may be stackable and which items could be loaded on
deck and exposed to the elements.
• It is very important to understand that items loaded on the open deck
will be exposed to extremes of temperature, salt and water from sea
spray or rain, and the possibility of being lost overboard in the sea.
• Packing lists are required for customs formalities as well.
Documentation
• Other documents. Depending on the nature of the goods, the
originating country and the final country of delivery, various other
documents may also be required. These may include:
✓insurance certificates;
✓certificates stating that the goods meet a certain safety or
engineering standard;
✓data sheets relating to the management of certain hazardous
chemicals.