MULTI-MODAL TRANSPORT

This course aims to provide a fundamental knowledge in multi-modal transport

and containerization operations. It explains the concept of multimodal transport
and the physical Infrastructure required for multimodal transport. It also
discusses the commercial aspects such as multi-modal transport pricing.

The topics to be studied include:

- Concept of Multi-modalism

- Components of Intermodal Transport chain

- Multimodal Transport operations

- Project Transport

- Documents used in Multimodal Transport

- Applicable Law in Multimodal transport.

1
 MULTIMODAL TRANSPORT

1. BACKGROUND

Multimodal transport is essentially an international through-transport combination with

various modes of transport such as ship, rail, truck, aeroplane, etc., primarily through the use
of containers. Containers will ensure the transport of unitised cargo from its origin to its final
destination, with efficiency and least possible risk (UNCTAD, 1993).

According to Woxenius (1998), the concept of using freight containers dates from Roman
times but container transport by rail was introduced by the Liverpool & Manchester Railway
that used Roll-on/Roll-off containers for the hauling of coal back in 1830. The Birmingham
& Derby Railway introduced an early form of multimodal transport with the transfer of
containers between rail wagons and horse carriage in 1839. New York Central Railway
developed and inaugurated the first dedicated container service from Cleveland and Chicago
on March 19, 1921. Containerisation grew further as a means of ‘door-to-door’ transport,
spurred on by the development of the Piggy Back System where trailers themselves were
carried aboard specialised ‘Flat cars’ (ESCAP, 1983).

Containers for sea transport appeared during the 1960s and should be attributed to the
innovativeness and the sea/land strategy of Mr. M McLean, the founder of Sea-Land Inc.
(UNCTAD, 1993). He was originally an executive of a trucking company who took over a
shipping company. As he was familiar with road/rail combination operations for land
transport, he decided to apply the concept with sea transport to enable sea/land through
transport with the help of standardised dimensions for containers. It followed that containers
had to be fitted with special devices for the ease of switch between different modes of
transport and that ships had to be equipped with rail structures known as cell-guides for
vertical sliding and stowing into the ship’s hold.

Containers ultimately enabled multimodal transport to be applied to most types of general

cargo by means of an international standardised transport unit. Only particularly large (out-
of-gauge) and particularly heavy cargoes cannot be containerised. Containerisation is

2
basically the largest form of unitisation. Containers are loaded with products at the shipper’s
premises and sealed, and then they are carried over to the consignee’s premises intact, without
the content being taken out or re-packed en route. This is the essence of container transport as
well as multimodal transport, but containerisation is not synonymous with multimodal
transport. Containerisation contributes to a higher efficiency in the development of
multimodal transport operations (see Table 1). The focus, now, is more on the organisation of
the transport industry and the synchronisation of the integrated logistical system (Hayuth,
1987). In order to achieve multimodal transport, intensive co-operation and co-ordination
among transport modes are essential.

Table 1: Keys elements in containerisation and multimodal transport

Containerisation Multimodal Transport
1. Unitisation 1. System concept
2. Standardisation 2. Management and Co-ordination
3. Cellular ships 3. Control over cargo
4. RoRo vessels 4. Mergers
5. Gantry cranes 5. Multimodal Transport Operators
6. Straddle carriers 6. Modal Integration
7. Specialised terminals 7. Through rates and billing
8. Ship-to-shore productivity 8. Information system
9. Terminal back-up land 9. Logistics channels
10. Multi-rate structure 10. Deregulation

Source: Derived from Hayuth (1987)

2. DEFINITIONS

The terms ‘Through Transport1’, ‘Combined Transport’, Intermodal Transport’ and

‘Multimodal Transport’ are all used in the context of cargo movement, from origin to
destination. These four terms have very similar meanings, i.e. the transportation of goods by
more than one mode of transport and a through freight rate. However, the United Nations

1 The HMSO (1966) publication Through Transport to Europe has defined through transport as: “The methods
of distribution and transport which give through flow of traffic, from the point of origin to the final point of
destination, with minimum transhipment delay.”
3
made a distinction between each term and introduced definitions of transportation
terminology in their Multimodal Transport Handbook (1995):

• Modes of Transport: The method of transport used for the movement of goods, e.g. by rail,
road, sea or air.

• Means of Transport: The vehicle used for transport, e.g. ship, truck, or aircraft.
• Types of Means of Transport: The type of vehicle used in the transport process,
e.g. wide-body, tank truck, passenger vessel, etc.
• Unimodal Transport2: The transport by one mode of transport only, where each carrier
issues his own transport document (B/L3, airwaybill, consignment note, etc.).

• Combined Transport4: The transportation of goods in one and the same loading unit or
vehicle by a combination of road, rail, and inland waterway modes.

• Intermodal Transport: The transportation of goods by several modes of transport where

one carrier organises the whole transport from one point or port of origin via one or more
interface points to a final port or point. Depending on how responsibility for the entire
transport is shared, different types of documents are used. There are also different
definitions for intermodal transport. The ECMT (European Conference of Ministers of
Transport) and the European Committee for standardisation (CEN) use the following
definition for intermodal transport: “the movement of goods in one and the same loading
unit or vehicle which uses successively several modes of transport without handling of the
goods themselves in changing mode”. The EC definition goes beyond the ECMT/CEN
definition, and corresponds with the ECMT/CEN definition of multimodal transport: “the
movement of goods whereby at least two different modes are used in a door-todoor
transport chain”. For Mahoney (1986), “Intermodality” means the movement of freight
via two or more dissimilar means of modes of transportation while for Hayuth (1987),
“Intermodality” means the movement of cargo from shipper to consignee by at least two

2 Traditionally a “through bill of lading” is issued to cover the move from the port of loading via the port of
transhipment to the port of discharge. Depending on the back clauses, the first carrier might be responsible for
the entire transport, or maybe only for that part which took place on board his vessel. For the sake of clarity, it is
best to restrict the use of the expression “THROUGH BILL OF LADING” or “through transport” to one mode of
transport but covering several means of transport.
3 Bill of Lading
4 The International Chamber of Commerce Rules for Combined Transport has defined Combined Transport as
“the carriage of goods by at least two different modes of transport, from a place at which the goods are taken in
charge situated in one country to a place designated for delivery situated in a different country.”
4
 different modes of transport under a single rate, through-billing, and through liability. The
term “intermodality” has been widely adopted by European Union policy-makers.

• Multimodal Transport: Where the carrier organising the transport takes responsibility for
the entire door-to-door transport and issues a multimodal transport document.

Multimodal transport is therefore a concept (see Figure 1) which places the responsibility for
transport activities under one operator, who then manages and coordinates the total task from
the shipper’s door to the consignee’s door (see Table 2), ensuring the continuous movement
of the goods along the best route, by the most efficient and, cost-effective means, to meet the
shippers requirements of delivery. This means simplified documentation, and increasingly by
electronic means such as electronic data interchange (EDI).

Figure 1: Components of a multimodal transport system

Origin/Supplier

Destination
Cost & Pack Inland Papers Port to Papers Inland Unpack Co
Delivery Movement Port Movement De
Depot Road/Rail Terminal Sea Terminal Road/Rail Depot
Trunk /Leg
/Customer Physical Base

Commercial System

Packing Container Inland Terminal Ship Stowage / Route Scheduling

Positioning Movement Operations

Booking Waybill Invoice Manifest Delivery Instruction Release of Cargo

s

Forwarder Road Rail Terminals Sea Forwarder

Management &
Co-ordination

Flow of
Information

Liability Network

Source: Adapted from D’Este (1996)

5
A multimodal transport operator (MTO) acts as a principal and therefore as a “carrier”,
because the MTO contracts with the shipper to carry goods by one or more modes of transport
as may be necessary. The MTO has accepted total responsibility and liability to perform the
transport contract; he has become the sole interface point for the shipper’s transport function.

Table 2: Typical steps in the transport chain

8. Delivery to consignee
Source: The Author

5
Multimodal Transport Operator

It should be stressed that the expression “Combined Transport” is based on the now obsolete
1975 ICC Rules for Combined Transport. These have now been replaced by the 1992

6
UNCTAD/ICC Rules for Multimodal Transport. Therefore, the expression “Multimodal
Transport” should be used when referring to a type of transport where the carrier is liable for
the door-to-door transport, while the expression “Combined Transport” should be reserved for
road/rail combinations in the context of European or American intermodal transport.

The concept of multimodal transport is not new, the first efforts to establish a suitable legal
regime for multimodal transport was made by the International Institute for the Unification of
Private Law (UNIDROIT) in the 1930s. At that time, these efforts were considered more
theoretical than practical in commercial circles (UNCTAD, 1994a). Figure 2. illustrates the
evolution of transport terminology related to multimodal transport. Even though the term
multimodal transport was officially introduced in 1980 with the United Nations sponsored
Multimodal Transport Convention; the term attained legal recognition on 1 January 1992 with
the introduction of the 1992 UNCTAD/ICC Rules for Multimodal Transport.

Figure 2: Evolution of transport terminology

The advent of the marine container provided the impetus for the development of multimodal
transport which enabled transport service providers to extend their services to provide door-
to-door services using a combination of carriers’ notes, consignment notes, waybills, bills of
lading, etc., each with their own terms and conditions of service and limit of liability.

It is interesting to note that transport terminology relating to intermodal/multimodal transport

continues to evolve. The term “multimodalism” is now used in some of the literature (Tai,

7
1999). It seems that since the 1920s with the introduction of the term “intermodalism”, many
authors have tried to attribute different names to what is basically the movement of goods by
at least two modes of transport. For the sake of clarity in this thesis, “multimodal transport”
will refer to all types of goods movement by at least two modes of transport and “intermodal
transfer” will refer to the change of transport mode.

3. MULTIMODAL TRANSPORT SERVICES

When a multimodal transport service is provided, the multimodal transport operator (MTO)
will be liable from the point of origin to the point of destination (UNCTAD, 1995a). He will
issue one transport document that will include invoice for freight charges, and also a
guarantee for the transit time. From that point onwards, the MTO concludes a number of sub-
contracts with individual carriers, road, rail, shipping lines, port authorities, terminal
operators, stevedores, etc., on the MTO’s own name, not that of the shipper or the consignee.
Only the MTO is entitled to take delivery of the goods from each actual sub-carrier and pass
them to the next sub-carrier. The MTO, in acting as a principal, is therefore responsible for
the whole transport chain.

It is fundamental for the MTO to have the ability to design and provide effective transport
arrangements. When goods are moving from the shipper to the consignee, it may take up to
ten or twelve distinct transport links. At each transfer point, goods will then be unloaded and
loaded, waiting or stored, weighted, checked or recorded, packed/reconsolidated. All of these
intermodal transfers cost time and money, thus affecting the competitiveness of particular
routes (Beresford & Savides, 1997; Beresford, 1999a).

The MTO will have to rely on transport system analysis for the design and planning of the
multimodal transport operation. According to Manheim (1979), the field of transportation
system analysis has the following characteristics:

• It is multimodal, covering all mode of transport.

8
• It is multi-sectoral, encompassing the problems and viewpoints of government, private
industry, and the public.

• It is multi-problem, ranging from rules, regulations, and policies to customer service levels
and financial and economic feasibility.

• It is multi-disciplinary, drawing on the theories and methods of engineering, economics,

operations research, political science, psychology, other natural and social sciences,
management and law.

This means that in the analysis of a transportation system, the total transportation system of a
region must be viewed as a single multimodal system. The consideration of the transportation
system cannot also be separated from consideration of the social, economic, and political
system of a region.

Through transport systems analysis, the MTO will be able to use an integrated approach in
operation, management and control of traffic, so that shorter delivery from origin to
destination is made possible. The shorter delivery, and often more reliable delivery, will
lower transit time of transport from origin to destination and will enable a greater control of
costs, schedules and cargo safety. It is often due to the lack of co-ordination at the various
intermodal transfers point that delay occurs. An UNCTAD (1995a) training module has
described that the cost of the main transport leg, usually the sea leg, in the transport chain is
not as high as it is generally believed to be (see Table 2.3). The module focused on
multimodal transport in developing countries. It is an aim of this thesis to verify these figures
against field data.

Table 3: Average costs involved in the movements of goods

(1) Feeder trucking cost 14%

(2) Truck turn around time 8%
(3) Container handling cost from/ to truck at port 5%
(4) Stacking/unstacking costs 10%
(5) Dwell time costs at inland and port terminals 8%
(6) Ship transport costs 34%

9
 (7) Ship turn around time/costs 6%
(8) Container ship loading/unloading costs 15%
TOTAL 100%

Note: These percentages will vary according to the distance

involved, especially in the case of sea leg 5. Source: Derived from
UNCTAD (1995a)

Massive savings on the transport chain are therefore possible, by improving overall efficiency
through proactive management techniques and better control over cargo flow. To be able to
improve overall efficiency, the MTO must be able to plan a high level of utilisation of
transport links in conjunction with a continuity of cargo flow. Intralink storage must also be
minimised (MacLeod, 1998).

The MTO is the only responsible party that is able to co-ordinate all modes of transport and
organise multimodal transport. Shippers and consignees are not capable, nor do they have the
time to determine the best route or the best price, as they do not have the MTO’s expertise in
transport management. They also do not have the capability to determine, forecast and even
to solve problems that might occur to their cargo during transit (see Table 4).

Table .4: List of typical transport considerations

a) Shippers
1) Inland Transport complications
2) Transit time to terminal
3) Transit costs to terminal
4) Terminal charges
5) Frequency of service of main transport leg
6) Transit time of main transport leg
7) Costs of main transport leg

5 Developing countries generally import goods by sea over long distances and may consequently be using
relatively more expensive liner services since, owing to the limited demand on certain routes, transport services
cannot be available on the basis of appropriate economy of scale operations, resulting in higher costs to the users
(UNCTAD, 1990).
10
 b) Consignees
1) Terminal charges
2) Delay in obtaining inward clearance
3) Costs of bonds, etc. at inward clearance point
4) Transit costs from terminal to destination
5) Transit time from terminal to final destination
6) Border delays
Source: The Author

These two tables actually represent the minimum considerations that must be taken into
account by both shippers and consignees, when exporting or importing. By using a MTO,
shippers and/or consignees do not have to worry about their cargo as that burden has shifted
to the service provider. As the MTO offers a one-stop service, the MTO will consider what is
the best alternative for its client and propose a tailor-made solution (see Figure 3).

Figure 3: Segmented Transport vs. Multimodal Transport

Segmented Transport

SHIPPER Pre-Carriage
Outward clearance

On Carriage Inward Clearance Main carriage

CONSIGNEE

11
Multimodal Transport

CONSIGNEE

SHIPPER MTO
One liability from point to point
One Document
One invoice and freight charges
Guaranteed transit time

Source: Derived from Hayuth (1987)

12
4. MULTIMODAL TRANSPORT REQUIREMENTS

The use of multimodal transport implies overall structural changes covering new trade and
transport practices. Various measures are needed to implement multimodal transport, from
the streamlining of commercial regulations to the development of transport infrastructure.
The upgrade of three main elements is necessary for an efficient multimodal transport system.
These elements are commercial practices, administrative requirements and transport
infrastructure.

Commercial practices

They refer to INCOTERMS. The purpose of Incoterms is to provide a set of international

rules for the most commonly-used terms in foreign trade. Thus, the uncertainties of various
interpretations of such terms in different countries may be avoided or reduced. Frequently
parties to a contract are unaware of the different trading practices in their respective countries.
This can give rise to misunderstandings, dispute and possible legal action, with all the waste
of time and money that this entails. In order to remedy these problems the International
Chamber of Commerce (ICC) first published in 1936 a set of international rules for the
interpretation of trade terms. These rules were known as Incoterms 1936. Amendments and
additions were later made, leading to Incoterms® 2010 being the rules in line with current
international trade practices.

Incoterms by grouping

Group E Departure

EXW: Ex works

Group F Main carriage unpaid

FCA: Free Carrier

FAS: Free Alongside Ship

FOB: Free On Board

13
Group C Main carriage paid

CFR: Cost & Freight

CIF: Cost, Insurance & Freight

CPT: Carriage Paid To

CIP: Carriage & Insurance Paid To

Group D Arrival

DAT: Delivered at Terminal

DAP: Delivered at Place

DDP: Delivered Duty Paid

NOTES:

The letter F signifies that the seller must hand over the good to a nominated carrier Free of
risk and expense to the buyer. Seller arranges pre-carriage to reach an agreed point for
handling the goods over to the carrier.

The letter C signifies that the seller must bear certain Costs even after the critical point for the
diversion of the risk of loss or damage to the goods has been reached.

The letter D signifies that the goods must arrive at stated destination.

The following definitions are brief explanations as far as the costs and risks associated with
each term are concerned.

EXW – EX WORKS (…NAMED PACE):

This term represents the seller’s minimum obligation, since he only has to place the goods at
the disposal of the buyer. The buyer must carry out all tasks of export & import clearance.
Carriage and insurance is to be arranged by the buyer.

FCA – FREE CARRIER (…NAMED PLACE):

This term means that the seller delivers the goods, cleared for export, to the carrier nominated
by the buyer at the named place. Seller pays for carriage to the named place.

FAS – FREE ALONGSIDE SHIP (…NAMED PORT OF SHIPMENT):

14
This term means that the seller delivers when the goods are placed alongside the vessel at the
named port of shipment. The seller is required to clear the goods for export. The buyer has to
bear all costs and risks of loss or damage to the goods from that moment. This term can be
used for sea transport only.

FOB – FREE ON BOARD (…NAMED PORT OF SHIPMENT):

This term means that the seller delivers when the goods are loaded unto the vessel. This
means the buyer has to bear all costs and risks to the goods from that point. The seller must
clear the goods for export. This term can only be used for sea transport.

CFR – COST & FREIGHT (…NAMED PORT OF DESTINATION):

This term means the seller delivers when the goods are loaded unto the vessel in port of
shipment. Seller must pay the costs and freight necessary to bring the goods to the named
port of destination, but the risks of loss or damage, as well as any additional costs due to
events occurring after the time of delivery, are transferred from seller to buyer. Seller must
clear goods for export. This term can only be used for sea transport.

CIF – COST, INSURANCE & FREIGHT (…NAMED PORT OF DESTINATION):

The seller delivers when the goods are loaded unto the vessel in port of shipment. Seller must
pay the cost and freight necessary to bring goods to named port of destination. Risk of loss
and damage are the same as CFR. Seller also has to procure marine insurance against buyer’s
risk of loss/damage during the carriage. Seller must clear the goods for export. This term can
only be used for sea transport.

CPT – CARRIAGE PAID TO (…NAMED PORT OF DESTINATION):

This term means that the seller delivers the goods to the carrier nominated by him but the
seller must in addition pay the cost of carriage necessary to bring the goods to the named
destination. The buyer bears all costs occurring after the goods have been so delivered. The
seller must clear the goods for export. This term may be used irrespective of the mode of
transport (including multimodal).

CIP – CARRIAGE & INSURANCE PAID TO (…NAMED PLACE OF

DESTINATION):

15
This term is the same as CPT with the exception that the seller also has to procure any mode
of transportation.

DAT – DELIVERED AT TERMINAL (…NAMED TERMINAL OF DESTINATION):

This term means that the seller delivers when the goods once unladed from the arriving means
of transport, are placed at the disposal of the buyer at a named terminal at a named port or
place of destination. "Terminal" includes any place, whether covered or not, such as a quay,
warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks
involved in bringing the goods to and unloading them at terminal at the named port or place of
destination.

DAP – DELIVERED AT PLACE (…NAMED PLACE OF DESTINATION):

This rule may be used regardless of the mode of transport and may also be used where more
than one mode of transport is utilized. DAP means the seller delivers when the goods are
placed at the disposal of the buyer on the arriving means of carriage ready for unloading at the
names place of destination. The seller bears all risks involved in bring the goods to the named
place.

DDP – DELIVERED DUTY PAID (…NAMED PORT OF DESTINATION):

This term represents maximum obligation to the seller. This term should not be used if the
seller is unable to directly or indirectly obtain the import license. This term means the same
as the DAP term with the exception that the seller also will bear all costs and risks of carrying
out customs formalities including the payment of duties, taxes and customs fees.

16
Case study

The company ANGELA FRULATI produces fruits in Yaounde. They decided to ship 20 tons
of exotic fruits to an important Belgium customer. The consignment will be transported from
Yaounde to the Douala seaport by road. The main carriage is performed by sea and the
delivery segment by train from Antwerp to Brussels.
The fees are given in € as follows:
Profit ………………………………………….20%PC
Packaging……………………………………..200
Inland Carriage …………………………… 200
Loading fee ……………………………… 300
Customs Export……………………………….. ................500
Putting at Quay ………….…………………….200
Main Carriage …………………………… 1200
Insurance…………………………………….0.6% CIF+10%CIF
Customs Duties and Taxes import …………………3000
Unloading fee ………………………………275
On Carriage ……………………………… 420
Exchange rate……………………..………1€=655, 95 FCFA
A kg of fruits is sold 10 € Yaounde.
As the export manager of the freight forwarder, you are in charge of the whole shipment.
Question: Determine offer prices for the following incoterms in FCFA; FOB, CIF and DDP.

17
BANKING PRACTICES AND DOCUMENTATION SYSTEM

In the transport of goods in break bulk form, the critical point at which the carrier accepted
responsibility for the goods and the risk of the goods often passed from the seller to the buyer
was the ship’s rail. In the financing of such sales 6, the banks were accustomed to receiving a
bill of lading issued once the goods were on board the ship (Brooke & Buckley, 1985). With
containerisation and the carrier accepting to transport the goods by more than one mode of
transport this critical point moved inland, with the carrier accepting the goods for shipment
before the ships rails, initially at the container yard, CFS or even ICD. The carrier thus
reflected this change in the documents issued to the shipper by revising the conventional bill
of lading to be a combined transport bill of lading and amending the statement in the
combined transport bill of lading to read “Received for shipment, in apparent good order...”
(Murr, 1979).

To banks accustomed to the traditional “on-board” bill of lading 7, this change in

documentation meant a venture into unfamiliar territory, and the new bill of lading was
looked upon with considerable suspicion. Banks thus insisted that the only acceptable bill of
lading where those issued by the carriers confirming that the goods had passed the ship’s rail
by stamping the word “shipped on board” (Edward, 1980).

Nonetheless, after a certain period of time, banking practice made provision to accommodate
the developments that were taking place in containerisation and multimodal transport through
the revision of the ICC’s Uniform Customs and Practices for Documentary Credit (UCP). In
the 1983 revision of the rules (UCP 400) banks would accept any transport document, which

6 See United Nations Manual on Freight Forwarding (1992), Module 10: Documentary Credits
7 Walker A.G. (1987) Export Practice and Documentation, Butterworths, London, chap.6, pp.89-137.
18
has been issued by a carrier accepting liability for the entire transport, unless the parties had
agreed otherwise in the letter of credit. The 1983 revision also allowed for “received for
shipment” bill of lading to be accepted.

An update of the rules released at the end of 1993 (UCP 500) clarified the situation with
regards to the banking procedure by indicating that unless the letter of credit stated the
contrary; the following types of transport documents are to be recognised by banks:

• Article 23: Marine/Ocean bill of lading

• Article 24: Non negotiable seaway bill

• Article 25: Charter bill of lading

• Article 26: Multimodal transport document

• Article 27: Air transport document

• Article 28: Road, rail or inland transport document

• Article 29: Courier and post receipts

• Article 30: Transport documents issued by freight forwarders

In some countries, however, banks have not kept abreast of the new developments in
multimodal transport or the current rules governing documentary credit sales. As a result,
banks are reluctant to allow the shipper to negotiate the transport document issued by MTOs
and insist on an ocean bill of lading as proof of shipment (del Busto, 1994). The lack of
support for MTO from the banking sector is at times justified, where there is no official or
legal recognition of the MTO by the government or no regulation of the industry; the banks
would be reluctant to accept MTO’s transport document as evidence of shipment of goods.
Although there may be no legal obligation on the banks to go beyond the letter of the rules in
the UCP 500, banks are unwilling to expose the exporters and importers to the risk of being
swindled by an unscrupulous MTO who disappears with the goods and the freight.

19
2.4.2 Administrative Requirements

2.4.2.1 Trade facilitation

One of the main problem that occurs in international trade is that each country has its own
rules and procedures concerning the import and export of goods, and also that the cargo
velocity today has outpaced the document velocity, in other words, the goods in many cases
and on certain routes may arrive before the transport documents. This is one of the reason for
the success of courier services8 but courier services are however not the ideal solution to the
problem of getting the various documents to their destination fast enough. For this reason,
FALPRO9 is standardising and simplifying documentation and trade procedures through
regional or national facilitation organisations.

According to FALPRO, trade facilitation is done through the streamlining of the information
flow mainly on three levels:

(i) Simplification: The reduction of the amount of information required by the various
authorities to an absolute minimum. This has already been done in a number of developed
countries and some developing countries. Simplification must be carried out, both of the
procedures required and of the documents.

(ii) Normalisation: The reduction of variants of formalities, procedures and documents

both at the national and at the international levels (i.e., they must be identical in all ports of a
country and must be aligned to similar procedures and documents in other countries). This
mainly concerns, transport documents, INCOTERMS, payment conditions and trade
documents.

8 “Value chain approach part of DHL revamp”, in: Bangkok Post Business Section, 17 April 1999, p. 8.
9 United Nations Trade Facilitation Programme
20
(iii) Harmonisation: The harmonisation of statistics of streamlining of the transmission of
data using EDI. Such change from paper documents to electronically transmitted information
is difficult to carry out but will greatly facilitate trade. However, because of the many
different systems in use, harmonisation of such systems is required.

2.4.2.2 Customs

Customs is an important agency of every government. In many countries, Customs is a

principal source of revenue for the government. In all countries Customs play a major role in
enforcing laws at the nation’s borders. As world trade has grown, so too has the complexity
and workload of Customs. According to Lane (1999), the mission of Customs is as follows:

• To ensure all goods entering and exiting the country do so in compliance with all laws
including revenue.

• To facilitate the entry of all legitimate merchandise into the country.

The globalisation of the world economy has placed increased pressure on the world’s Customs
administrations. Merchants have demanded faster, more standardised and uniform service
while governments require more revenues. At the same time Customs must produce trade
statistics and enforce other agency laws (i.e., health, intellectual property, etc.) at the nation’s
border. Customs are faced with the prospect of balancing the requirement of facilitation with
enforcement. Using a traditional approach to Customs practices and procedures is not suitable
for trade facilitation. In the European Union and in other regional grouping (e.g. NAFTA),
Customs have reduced their day-today work and the number of officers to concentrate mainly
on intelligence gathering rather than high profile policing. Table 2.6 is a review of the
traditional Customs operation still in service today contrasted with the more modern approach
being put in place in many countries.

21
Table 2.6: Customs procedures

Customs Procedure or Traditional Customs Modern Customs

Practice
International Standards of Non conformance or only Full conformance with all
the WCO10 and WTO11 partial conformance international Customs
standards for classification,
value, and procedure
Customs Automation No or only partial Full automation
Measures of Performance Limited output measures Full measures of compliance
and process measures & & facilitation leading to
frequently the wrong improved performance
measures
Tariff System Complex & high duty Simplified & reduced duties
rates
Revenue Collection Prior to entry of goods Entry & collection separate.
Duties paid after entry
Enforcement and Characterised by manual Minimal inspections
compliance approach inspections nearing 100% & paper
& paper reviews documentation
Information Provided at time of entry Advance & historical
information prior to arrival of
goods & conveyance
Personnel Poorly trained and low Highly trained
skilled &
professional
Appeals of Customs Limited & unknown Fully defined appeals process
decisions and appeal process, limited within & beyond Customs,
transparency publication notice of rules full transparency and co-
& practices operation with trade

10 World Customs Organisation

11 World Trade Organisation
22
RESULTS: Low & unknown High & measured
compliance, high cost for compliance, lower costs for
government & industry government & industry,
& poor facilitation vastly improved facilitation
& framework for continued
improvement
Source: Compiled from http://www.wcoomd.org

To implement multimodal transport, Customs are required to facilitate the container flows,
through minimisation of import/export documents and to permit the movement of cargo to
and from ports under bond or in a sealed container. Customs procedures can be eased through
the adherence to various Customs Conventions (see Table 2.7).

Table 2.7: Conventions on Simplification and Harmonisation of International Trade

Procedures (in chronological order)

1944 The Convention on International Civil Aviation

1948 The General Agreement on Tariffs and Trade (revised)
1954 & Customs Conventions on the Temporary Importation of Private and

1956 Commercial Road Vehicles

1956 The Customs Convention on Containers
1965 The Convention on the Facilitation of International Maritime Traffic
1971 The International Transit of Goods Convention (ITI)
1972 The Customs Convention on Containers
1973 The Kyoto Convention on Simplification and Harmonisation of Customs

Procedures
1975 Customs Convention on the International Transport of Goods under cover
of TIR Carnets (TIR Convention)
1980 The Multimodal Transport Convention
1982 The International Convention on the Harmonisation of Frontier Control of

23
 Goods
1994 Container Pool Customs Convention

Source: Compiled from http://www.unicc.org

These conventions are aimed at the facilitation of international trade and transport. Customs
Conventions are designed to abolish unnecessary procedures at border crossings or to
harmonise indispensable procedures. The following is an explanation of selected Customs
Facilitation Conventions:

• Customs Conventions on the Temporary Importation of Private and Commercial Road

vehicle of 1954 established the principle of temporary importation of such vehicles under
the cover of the “carnet de passage en douane”.

• TIR Convention of 1975 permits the international carriage of goods by road from one
Customs office of departure to a Customs office of arrival, through as many countries as
necessary, without any intermediate frontier check of goods carried.

• International Convention on the Harmonisation of Frontier Control of Goods of 1982 aims

at reducing the requirements for completing formalities.

• Container Pool Convention of 1994 aims at the duty and tax-free admission of containers
belonging to a Pool. Each contracting party’s assigns a certain number of its container into
a Pool and allows an equal number of such Pool containers to travel within its territory
without any restriction.

2.4.3 Transport Infrastructure

Where transport infrastructure is poor, the development of multimodal transport may not be
easy. In order to be able to gain maximum benefit from multimodal transport, infrastructure
that is capable of handling containers must be in place (see Table 2.8).

24
Table 2.8: Infrastructure required to handle containers

*Cranes-Ship to Shore
PORTS *Stacking Areas-Container Yards

*Container Handling Equipment

*Communications Systems
INLAND TRANSPORT

ROADS *Axle Loading

*Bridges & Tunnels

RAIL *Rolling Stock

*Motive Power

*Bridges & Tunnels

*Cranes & Stacking Areas

INLAND WATERWAYS *Lake/River craft (barges, etc.)

INLAND DESTINATION12

*Container Handling Equipment

INLAND CLEARANCE DEPOT (ICD) *Stacking Areas

*Road, Rail & Inland Waterway access

Source: Derived from UNCTAD (1990)

This minimum level of transport infrastructure must be in place, in order to benefit fully from
multimodal transport. The exporter will benefit by being more competitive in reaching the
foreign buyer at minimum costs, minimum time with goods delivered in good conditions.

12 Note that ICDs are commonly referred to as “destinations” and are often the point to which goods are
consigned under a multimodal transport document, though in practice they are usually a collection point
before the final movement to actual customers’ premises. 22 All European countries are member of the ECE
25
The importer will also benefit from multimodal transport, as goods he has ordered, will be
delivered to his premises at minimum cost and in good conditions.

United Nations Agencies, such as the Economic Commission for Europe (ECE 22) has also
provided a framework for inter-governmental co-operation and agreement aimed at trade
facilitation and integrated transport. These agreements are at the core of a simplified,
normalised and harmonised European transport system. The following are a few examples:

• Framework for a coherent European infrastructure

1. European Agreement on Main International Traffic Arteries (AGR) of 1975 provides all
member countries with the international legal framework for the construction and
development of a harmonised international road network.

2. European Agreement on Main International Railway Lines (AGC) of 1985 provides an

international legal framework for the development of a coherent international rail network
with a view to facilitate and develop international rail traffic.

3. European Agreement on Important International Combined Transport Lines and Related

Installations (AGTC) of 1991, provides the legal framework for the development of
international combined transport infrastructure and services, particularly combined
road/rail transport infrastructure and services, and for the improvement of their efficiency.
The idea behind the AGTC is that door-to-door transport is only as strong as its weakest
link therefore the AGTC sets minimum standards for rail lines and terminals as well as for
inland waterways and terminals.

4. European Agreement on Main Inland Waterways of International Importance (AGN) of

1996, provides a legal framework for the establishment of an internationally agreed
European network of inland waterways and ports, as well as the uniform infrastructure and
operational parameters to which they should conform.

• Road traffic safety

26
1. Convention on Road Traffic, of 1968

2. Convention on Road Signs and Signals, of 1968

3. Protocol on Road markings, of 1973

4. Agreement on Minimum Requirements for the Issue and Validity of Driving Permits (APC),
of 1975

These international agreements provide a set of uniform traffic regulations, commonly agreed
road signs, signals and markings, uniform safety requirements for motor vehicles and other
acceptable regulations aimed at the improvement of safety in international road traffic.

• Transport Operations

1. European Agreement Concerning the Work of Crews of Vehicle Engaged in International

Road Transport (AETR), of 1970. This agreement establishes uniformworking conditions
of drivers of commercial vehicle engaged in international road transport in accordance with
the principles of the International Labour Organisation.

2. Convention on the Contract for International Carriage of Goods by Road (CMR) of 1956
and 1978. This agreement establishes the uniform conditions to which the Contract for the
international carriage of goods by road, including the documents used for such carriage and
the liability of the carrier, should conform.

To remain competitive, exporters and/or importers must be able to reduce transportation costs
that are included in the goods’ delivered price. In order to improve or eliminate such hidden
costs, it is essential to improve the quality of a region’s or a country’s international transport
and logistics capabilities. The adaptation of commercial practices to international standards is
a prerequisite as well as removing any unnecessary trade barriers.

27
Efficient operations of transport modes and intermodal facilities, resulting from reduced
physical barriers and institutional interference, and from simplified legal regimes, is the
necessary precondition for effective improvement of international trade and transport. These
improvements will lead to the existence of a mature multimodal transport system in that
region or country.

2.5 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

In recent years, the changes in production patterns within commerce and industry have called
for new transport services regarding material supply and physical distribution with mass
production becoming increasingly globalised. Transportation has for years been recognised,
among its other roles, as a sub-function of logistics.

According to Hayuth (1987), the inter-relationship between logistics and transportation has
been so strengthened that many regards logistics as being synonymous with physical
distribution, both involving pre-production and post-production control of material flows.

Multimodal transport is a service by which the MTO assumes contractual responsibility to

move goods from a point of origin (in one country) to a destination (in another country) under
a transport contract, for an agreed upon time and price. This multimodal transport service will
ensure that the goods will move to their destination as fast and as securely as possible, at a
known cost in advance.

The MTO’s competitiveness in offering his services will depend on how he can take
advantage of all possible management techniques available to make better use of the existing
capacity and operating conditions of each specific link of the transport chain.

The MTO is thus providing logistical services.

28
Logistics is a management technique that controls the physical and information flows on a
synchronised basis. Transport operators must therefore comply with the specification laid
down in the logistics system. This system’s approach to the individual activities (supply,
production, and distribution) in the manufacturing process eliminates the separation of such
activities and links them in new and more powerful combinations to achieve increased levels
of efficiency, enhance quality and reduce costs of finished goods (UNCTAD, 1994a).

Logistics management also plays a strategic role in the decision-making process as well as in
the organisation’s structure. Novack et al. (1992) presented five group of activities in their
logistics management concept and emphasised that some linkages and common processes
must be established between them (see Figure 2.4)

Figure 2.4: Activity integration of logistics management

Production/Operations
(M anufacturing)
Ma nagement

Market ng Purc a ing

Physical D istribution Transportation

M anagement M anagement
Source: Novack et al. (1992)

Chiu (1996) described that “These five groups of activities can be classified into two
dimensions. The first dimension includes the physical activities that are required to create
the form, time, place, and quantity utilities. They are manufacturing/operations and
transportation, which create the product/service and movement, as well as physical

29
distribution that stores the product/service. The second logistics dimension includes the
transaction activities (behaviour and information flows) that follow or initiate the physical
activities discussed previously.”

Williamson et al. (1990) proposed 23 specific activities associated with the logistics process
and classified them into five groups (see Table 2.9). They further commented that
transportation management, inventory management, and facility structure management are
traditionally regarded as the core of the logistics function.

Table 2.9 Functional grouping of logistics activities

Activities Functional Groups

• Inbound traffic
• Outbound traffic
• International traffic Transportation
• Carrier selection
• Mode selection
• Public vs. private carriage
• Warehouse management
• Warehouse planning
• Distribution centre management Facility Structure
• Distribution centre planning
• Plant site selection
• Purchasing
• Raw material inventory
• Work-in-process inventory Inventory
• Finished goods inventory
• Parts/Service support
• Return goods handling
• Salvage/Scrap disposal •
Material handling
• Packaging Communication & Information

30
• Order processing
• Demand Forecasting
• Production scheduling
Source: Williamson et al. (1990)

Kent and Flint (1997), studied logistics “thought” and discovered that logistics has evolved
from a transportation focus based primarily on agricultural economics to the view that it is a
diverse and key component of business strategy, differentiation, and link to customers. They
also discussed that logistics “thought” can be structured into six distinct eras, starting from the
turn of the last century and ending as a projection into the future. The six eras, based on their
findings, are (1) farm to market, (2) segmented functions, (3) integrated functions, (4)
customer focus, (5) logistics as a differentiator, and (6) behaviour and boundary spanning.

Table 2.10 presents six definitions for logistics that have evolved during the twentieth century.
This move from a focus on physical distribution within the marketing domain in the early
1900s to the contemporary process orientation focused on conforming to customer
requirements.

31
Table 2.10: Evolution of logistics definitions

Year Definition
1927 “There are two uses of the word distribution which must be clearly
differentiated...first, the use of the word to describe physical distribution such
as transportation and storage; second, the use of the word distribution to
describe what is better termed marketing.”1314
1967 “A term employed in manufacturing and commerce to describe a broad range
of activities concerned with efficient movement of finished products from the
end of the production line to the consumer, and in some cases includes the
movement of raw materials from the source of supply to the beginning of the
production line.”24
1976 “The integration of two or more activities for the purpose of planning,
implementing, and controlling the efficient flow of raw materials, in-process
inventory and finished goods from point of origin to point of consumption.”15
1985 “The process of planning, implementing, and controlling the efficient,
costeffective flow and storage of raw materials, in-process inventory, finished
goods, and related information from point-of-origin to point-of-consumption
for the purpose of conforming to customer requirements.”16
1992 “The process of planning, implementing, and controlling the efficient,
effective flow and storage of goods, services, and related information from
point-of-origin to point-of-consumption for the purpose of conforming to
customer requirement.”17
1998 “Logistics is that part of the supply chain process that plans, implements, and
controls the efficient, effective flow of storage of goods, services, and related
information from the point of origin to the point of consumption in order to
meet customers’ requirements.”28
Source: Derived from Kent & Flint (1997)

13 Ralph Borsodi, The Distribution Age (New York, NY: D.Appleton, 1927), p.19.
14 National Council of Physical Distribution Management, Chicago IL, 1967
15 National Council of Physical Distribution Management, NCPDM Comment 9, Number 6,
NovemberDecember, 1976,pp.4-5.
16 Council of Logistics Management, Oak Brook, IL, 1985.
17 What It’s All About (Oak Brook: Council of Logistics Management, 1992). 28 Council of
Logistics Management, Oak Brook, IL, 1998.
32
The 1998 definition of logistics acknowledges that, today, logistics is a part of the supply
chain process29. The supply chain in, say, consumer goods production starts with raw
materials, their sourcing and delivery, through manufacturing to distribution of the finished
goods to the consumer. One single company is unlikely to own mine, forge, factory,
wholesaler and retailer but it is vital for those involved that the management of the supply
chain is the best it can be. Along the supply chain, transport and inventory are intermediate
links where cost can be reduced, performance raised, and value added30.

Mentzer (2000) defined “supply chain” on four levels (see Figure 2.5):

(1) Definition of a ‘basic’ supply chain

“A supply chain is a set of 3 or more companies directly linked by one or more of the
upstream and downstream flows of products, services, finances, and information from a
source to a customer.”

(2) Definition of an ‘extended’ supply chain

“An ‘extended’ supply chain includes suppliers of the immediate supplier and customers of
the immediate customer, all linked by one or more of the upstream and downstream flows of
product, services, finance, and information.”

(3) Definition of an ‘Ultimate’ supply chain

33
“An ‘ultimate’ supply chain includes all the companies involved in the upstream and
downstream flows of products, services, finances and information flow from the initial
supplier to the ultimate customer.”

29
“Supply chain management-it’s the discipline of the 1990s”, in: Freight Management
International, January/February 1998, pp. 13-14.
30
“Explained Logistics”, in: Seatrade Review, March 1999, pp. 31.
Figure 2.5: Evolution of supply chain

(1) ‘Basic’ supply chain

SUPPLIER LOCAL IMMEDIATE

FIRM CUSTOMER

(2) ‘Extended’ supply chain

SUPPLIER

IMMEDIATE LOCAL IMMEDIATE

SUPPLIER FIRM CUSTOMER

CUSTOMER

34
(3) ‘Ultimate’ supply chain

INITIAL
SUPPLIER FINANCIAL
PROVI DER

SUPP LIER

FOC AL MARKET
FIRM RESEARCH FIRM

1 /3 P ART Y LOGIST ICS CUS T OME R

SUPP LIER

ULTIMATE
CU ST OMER

Source: Mentzer (2000)

(4) Definition of supply chain management

Mentzer (2000) defined “supply chain management” (SCM) as: “the systematic, strategic co-
ordination of the traditional business functions within a particular company and across
companies within the supply chain, for the purposes of improving the long term performance
of the individual companies and the supply chain as a whole.”

Other authors such as Taylor (1997) have considered logistics management and supply chain
management as essentially synonymous terms. Logistics management is a systematic and
holistic approach to managing the flow of materials and information across the whole supply
chain from raw materials sources to end user consumption. Supply chain management is seen
as the extension of logistics management principles to customers and suppliers, crossing
geographical and organisational boundaries.

35
The term ‘advanced logistics’ has also been used in two OECD reports (OECD, 1992; 1996)
to signify: “...the concept of synchronising the activities of multiple organisations in the
logistics chain and feeding back necessary information to organisations in production and/or
physical distribution sectors on a real time basis, by fully utilising information technology
and digital communication networks.” The OECD acknowledges that this definition also fits
the term ‘supply chain management’ (OECD, 1996).

It can be derived from the above that transport, and multimodal transport in particular, is only
one of the aspects playing a role in logistics and supply chain management. Multimodal
transport possibilities are part of the framework within which different supply chain strategies
are made feasible. Transport-related decisions are dependent upon a set of transport service
requirements, such as lead-time, reliability, etc. This means that the shippers generally do not
specifically demand a special transportation mode, but rather a transport performance
(Henstra & Woxenius, 1999). Shippers expect to receive a reliable door-to-door service from
transport/logistics service providers.

Figure 2.6 describes a typical shipper’s perception of multimodal transport within the supply
chain framework.

Figure 2.6: Shipper’s perspective on multimodal transport

supply chain management

logistics

tr anspor t

m ultimo dal t ranspo rt

36
Source: Derived from Henstra & Woxenius (1999)

2.6 SUMMARY

The container revolution has facilitated the development of multimodal transport as an

international through-transport means with various modes of transport. Containers will
ensure the transport of unitised cargo from door-to-door with efficiency and least possible
risk.

Confusion on transport terminology relating to multimodal transport is an area where

standardisation may be necessary. Terms such as ‘through transport’, ‘combined transport’,
‘intermodal transport’, ‘intermodality’, ‘multimodalism’ and ‘multimodal transport’ have very
similar meanings, i.e. the transportation of goods by more than one mode of transport from
door-to-door with a through freight rate.

In order to benefit from multimodal transport, shippers must acquire the services of
multimodal transport operators as only they have the know how to design efficient
transportation systems suited to shippers requirements. Multimodal transport operators play a
very important part in physically transporting the goods but other requirements are also
needed for efficient multimodal transport systems. Commercial practices such as the
selection of suitable INCOTERMS, banking procedures and documentation can help or hinder
the development of multimodal transport. Shippers and consignees are dependent upon trade
facilitation measures and Customs practices for the development of multimodal transport
systems and seamless trade. Infrastructure that is capable of handling containers must also be
in place in order to fully benefit from multimodal transport.

Today, transport and multimodal transport in particular, is acknowledged as a subfunction of

logistics, which itself is part of supply chain management. Multimodal transport decisions
have an impact on the feasibility and reliability of supply chains. Shippers and consignees are

37
more interested in supply chain performance than on the actual multimodal transport
operations. They require efficient and reliable door-to-door service offered by
transport/logistics service providers, who may be multimodal transport operators.

38