Logistics

The main modes of transport can be roughly divided into surface and air modalities. Sea, rail, road (ship, train, and truck, respectively, generally speaking) make up the surface modalities. Aircraft (fixed-wing and rotor) are the air modalities.

In the United Kingdom and the European Union, road transport is the principal method for national and international freight movement. The convenience of road transport is so great that it outweighs most cost factors. Road transport enables point-to-point collection delivery. Large vehicles can carry bulk to warehouses or central distribution centres, where bulk is broken and smaller orders can be delivered by smaller trucks or vans to commercial or private addresses. In many cases however, it is possible for large trucks to deliver goods directly to the customer without need for distribution centres. Is this flexibility that makes road transport cost and time effective.

The following sums up the advantages and disadvantages of freight by road. ...continue reading

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As might be obvious from the previous posts on incorterms, several Incoterms are applicable to waterway transportation only: FAS, FOB, CFR, CIF, DEQ, and DES.

The following Incoterms apply to all modalities, including Intermodal: EXW, FCA, CPT, CIP, DAF, DDU, and DDP.

In some cases, it is advisable to attach wording to Incoterms that clarifies the responsibilities of the buyer, seller, and carrier. For example, use of the term “DDP VAT unpaid” indicates unambiguously that the seller does not bear responsibility for the payment of VAT.

While undeniably useful, Incoterms also have their limitations: ...continue reading

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  1. DAF: Delivered At Frontier (followed by the named place). The seller bears responsibility for clearing the goods for export and delivering them to the buyer at the location specified (the “named place”). Unloading and clearing for import are the responsibility of the buyer. The buyer is also responsible for insurance, unloading, import customs, and bearing all risks for the moment goods have been delivered to the named place. A “frontier” can be any specified point of delimitation, and can include the frontier of export. DAF is applicable to any modality, provided shipment to the “named place” (i.e. the “frontier”) is by land. DAF is sometimes replaced by DAT – Delivered At Terminal (by the seller).
  2. DDP: delivery duty-paid (followed by the named place of destination). When this code is specified, the seller has agreed to clear goods for export, and bears responsibility for delivering to the buyer at the named destination. The seller also bears the charges of import customs clearance. Under this code, the seller bears and the cost of all transportation, including any tariffs and incidental charges payable at import. The buyer is responsible only for the cost and organisation of unloading. DDP is applicable to any modality, but the buyer bears responsibility and risk until the goods arrived at the “named place”. ...continue reading
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  1. CFR: Cost And Freight (followed by the named port of destination). This code signifies that the seller bears responsibility for clearing goods exported, delivering those goods beyond the ship’s rail at the port of export, and paying all transportation costs involved in moving the goods to the named port destination. CFR applies only to waterway transport. The “named port of destination” is always domestic to the buyer. Under this code, the buyer assumes all responsibility for risk of loss or damage, and bears any additional transportation costs beyond the ship’s rail at the port of export.
  2. CIF: Cost, Insurance, and Freight (followed by the named port of destination). Under this code, the seller clears the goods for export and bears responsibility for the delivery of the goods beyond the rail at the port of export. The seller of transport to the port of destination, and is responsible for paying and procuring Marine insurance in the name of the buyer. Once the goods have passed beyond the ship’s rail and port of export, they become the buyer’s responsibility. The buyer assumes responsibility for risk of loss or damage at that point and until delivery at the final destination. The “named port destination” is always domestic to the buyer. ...continue reading
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  1. FAS: Free Alongside Ship (followed by the named port of shipment). When this is specified, both parties agree that the seller will clear goods for export and position them alongside the vessel of shipping into which they will be loaded. The buyer assumes possession of the goods as soon as they have arrived at the dock from which they will be shipped (the port of shipment/export).
  2. FCA: Free Carrier (followed by the named place). This code signifies that the seller will clear goods for export and transport them directly to the carrier that is specified by the buyer and waiting at a named location. When the goods arrive at that location, the buyer assumes possession. The “named place” is always domestic to the seller. The “carrier” can refer to an operator of any modality: shipping line, a trucker, rail freight operator, a career, or any other individual or company that can provide carriage. For the moment the goods have been delivered to the carrier, the buyer bears all risk of loss or damages.
  3. FOB: free on board (followed by the named port of shipment). This code shows that the seller is responsible for clearing the goods for export and for and risk involved in delivery of the goods “beyond the rail” at the named port of export. Title passes to the buyer when the goods cross the ship’s rail. Free on board is used only for shipping overwater (across seas and over inland waterways).
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  1. EXW: Ex-Works (followed by the named place). When EXW specified, the seller or exporter presents goods on the premises of production, the buyer bears all cost and risk onward from the seller’s named place of business. Sellers do not clear their goods for export, and do not load them for transport. An ex-works arrangement pushes responsibility onto the buyer, who bears all risk from the moment that the seller makes the goods available. Ex-works is often synonymous with “factory gate pricing” (FGP), which refers to the price paid for goods less any transportation and export/customs-related charges.
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The International Chamber of Commerce created Incoterms to codify and standardise the clarification of cost, risk, and the various obligations of buyers and sellers performing international commercial transactions. Incoterms are internationally accepted trading codes defining the responsibilities of both importers and exporters concerning the arrangement of shipments and the transfer of liability entailed at various phases in the journey of freight. Practically every foreign purchase or sale references Incoterms. The definitions of Incoterms have been established since 1936, but modifications have occurred frequently ever since. The ubiquity and standardisation represented Incoterms affords several advantages:

  • Agreement on respective shipping responsibilities can be rapidly established between parties who are familiar with Incoterms. Incoterms abbreviate the shipping negotiation process so can be used as a form of shorthand.
  • The convenience of using standardised trading terms simplifies international business.
  • Most internationally experienced companies have at least a functional knowledge of the Incoterms that are relevant to them and preferred.
  • Incoterms and the conventions they represent embody the orthodoxy of practical international shipping.

Currently, there are 13 Incoterms, and these are divisible into four categories (E, F, C, and D).

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This collection of documents concerns the transportation element of the goods’ journey. The following documents are required:

  • Carnet
    This is usually international transportation, particularly in overland European shipping. A carnet is issued when a container is sealed at origin for opening only on arrival at its declared final destination.
  • Certificate of Origin
    This is required when preferential tariff treatment exist between countries. The certificate proves the country of origin. The inclusion of the certificate is intended to prevent shippers receiving favourable import duties by falsely declaring the country of the goods’ origin.
  • Bill of Lading
    An export bill of lading (B/L) covers the whole journey of a shipment. Bills that combine sea, air, and land are commonplace. ...continue reading
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The inclusion of a comprehensive export sales contract reduces time and cost. Such a document will clearly describe the nature of the commodity, the price paid, the terms of payment, the transportation mode, the nature of the insurance and the identity of the insurer, the carrier, and any other details of special arrangements required. Sales documentation typically consists of invoices.

  • The seller uses the commercial invoice to identify the goods value less freight and other charges. The commercial invoice also acts as the invoice for the goods’ sale. An invoice is a requirement of the letter of credit. Companies and agents use invoices to determine the value of goods for insurance and import duty purposes.
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Customs regulations protect domestic industry by the levying of import duties on incoming products. Charges are usually imposed on the importing party. Customs checks the following:

  • the declared value of the goods matches the value stated on the shipment documentation,
  • the goods are correctly marked labelled according to the law of the country of sale,
  • the goods are legal and meet local standards and the laws of the country into which they are being imported,
  • the quantities reported on the shipping documents are true,
  • the invoice is correct and true, and
  • the shipment does not breach quota amounts (these will be set by the government of the importing country to prevent dumping and maintain the competitiveness of domestic industry).

Goods will not be released until customs are satisfied with the documentation. Any errors or oversights result in costly delays and charges. Firms often use customs brokers to help with customs processing and resultant transactions.  ...continue reading

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