International Logistics Ch. 9-12

Types of Air Services

1) Airmail: The origin of air freight (small % of shipments) 2) Express Air: Guarantee a pre-determined delivery date (time-defined delivery), generally the next day or overnight (FedEx, UPS) 3) Scheduled Airfreight: Operate on a regular schedule 4) Charter Airfreight: Do not operate on a regular schedule and depend on demand -Fulfill emergency shipments of large parts, or operate on seasonal traffic (wine, flowers, fruits) 5) Leased Airfreight: Contracts between the owner and user of an aircraft, and can take multiple forms -Reduces capital costs of the carrier and satisfies short-term demand fluctuations

Transport Documents

1) Bills of Lading -Ocean, Air, Intermodal (more than one mode of transportation) -Uniform Bill of Lading (road/rail) 2) Charter Parties 3) Aircraft Leases 4) Packing List 5) Manifest

Conformity of the Goods - Import Document

1) Certificate of Certification: A document that attests that the goods conform to the agricultural standards of the importing country -Provided by an independent inspection company, or by the Agricultural Department of the exporting country's government 2) Certificate of Free Sale: A document that attests that the product exported conforms to all of the regulations in place in the exporting country and that it can be sold freely in the exporting country -Some importers use this as a guarantee of quality if they are worried the exporter will ship sub-standard goods

Inspection of the Goods - Import Document

1) Certificate of Inspection: A document provided by an independent inspection company that attests that the goods conform to the description contained in the invoice provided by the exporter 2) Certificate of Analysis: Attests that the goods conform to the chemical description and purity levels contained in the invoice provided by the exporter 3) Phyto-Sanitary Certificate: Attests that the agricultural goods exported are free of disease and pests and conform to the standards of the importing country

Other Import Documents

1) Consular Invoice: A commercial invoice that is printed on stationery provided by the consulate of the country in which the goods will be imported 2) Import License: The express authorization, granted by the gov't of the importing country, to import a particular product in a given country 3) Import Forms: All countries have specific administrative forms that have to be submitted by the importer in order to clear Customs

Ocean Transportation - Vessel Measurements (Weight)

1) Deadweight Tonnage: Total carrying capacity of a ship, measured in long tons, and is determined as the difference in water displacement when the ship is empty and when it is fully loaded 2) Cargo Deadweight Tonnage: Obtained by subtracting the weight of the bunker, crew-related items, and stores for a specific voyage -Actual cargo capacity of a ship for a given voyage -Measure of greatest interest to shippers, as it is the theoretical carrying capacity of a ship

Credit Insurance - U.S. Programs

1) Ex-Im Bank: Its mission is to help create jobs in the U.S. by supporting export sales -Offers political credit insurance and loan guarantees 2) Overseas Private Investment Corporation (OPIC): Its purpose is to encourage private investments in developing countries -Offers loans, political insurance, and private equity investment funds 3) Small Business Administration (SBA): Designed to help exporters finance sales abroad with working capital loans and long-term loans for capital investments

Export Documents

1) Export License 2) Destination Control Statement 3) Shipper's Export Declaration (SED) 4) Certificate of End-Use

Export Taxes and Export Quotas

1) Export Tax: A tax collected on the value of the goods exported 2) Export Quota: A limit on the quantity of a particular commodity that can legally be exported in a given year -Set by the exporting country's government -Used when the commodity is scarce, or when their country is one of the few who produce the product

Credit Insurance - Private Companies' Products

1) Foreign Credit Insurance Association (FCIA): Offers products that combine the Ex-Im Bank's political coverage and commercial credit insurance products 2) Lloyd's: Certain syndicates have added coverage of political risks to their underwriting portfolio -Offers insurance for countries for which the U.S. gov't will not 3) Private Insurance Companies: Companies such as Euler-ACI and COFACE offer commercial credit insurance policies

Insurance Vocabulary

1) General Average: A loss incurred on an ocean voyage that is general in the sense that it involves all cargo on board 2) Particular Average: A partial loss incurred by a cargo owner on an ocean voyage (wet/damaged cargo) -The costs fall on the owner of the cargo or its insurance company

Vessel Measurements (Volume)

1) Gross Tonnage: Total volume of a ships carrying capacity, measured as the space available below deck, and expressed in tons (hundreds of cubic feet) 2) Gross Registered Tonnage (GRT): Volume capacity of a ship, calculated in a way that meets the requirements of a specific authority, generally for the purpose of determining the fee that a ship will pay to use a canal (Suez Canal, Panama Canal) 3) Net Tonnage: Volume capacity of a ship, after subtracting the space used for the operation of the ship -Obtained by subtracting the volume occupied by the engine room and the space necessary for the operation of the ship from the gross tonnage

Ocean Liability Conventions

1) Hague Rules (1924) 2) Hague-Visibility Rule (1968) 3) Hamburg Rules (1978) 4) Rotterdam Rules (2009) -Special Drawing Rights (SDR) is an artificial currency

Types of Ocean Services

1) Liner Service: Operates on a regular schedule, traveling from a group of ports to another group of ports 2) Tramp Service: Doesn't operate on a regular schedule and is available to be chartered for any voyage, from any port to any port

Steps to File an Insurance Claim

1) Notifying the insurance carrier 2) Protecting of the damaged cargo 3) Filing the claim 4) Understanding carrier liability limits

Import Documents

1) Origin of the Goods -Certificate of Origin -Certificate of Manufacture 2) Inspection of the Goods -Certificate of Inspection -Certificate of Analysis -Phyto-Sanitary Certificate 3) Conformity of the Goods -Certificate of Certification -Certificate of Free Sale 4) Certificate of Insurance 5) Other Import Documents -Consular Invoice -Import License -Import Forms

Packing List and Manifest

1) Packing List: A document prepared by the exporter that lists out what a shipment contains, in great detail (used in every shipment) 2) Manifest: A document generated by the shipping company (the carrier), which lists all cargo onboard the transportation vehicle -Used for every voyage undertaken by the carrier -The manifest is frequently requested by the Customs authorities of a port of call

Types of Vessels

1) Panamax: Max size of a ship that can enter the locks of the Panama Canal -The locks are 110 feet wide, and 1,000 feet long 2) Post-Panamax: A ship that is too large to enter the locks of the Panama Canal 3) Handy Size: A ship in the 10,000 - 50,000 dead-weight ton range 4) Suez-Max: A ship roughly 150,000 dead-weight tons, the maximum size that can fit through the Suez Canal 5) Capesize Ships: A large dry-bulk carriers of a capacity greater than 80,000 dead-weight tons -Relates to the ships that originally couldn't fit through the Suez Canal and had to go around Africa by the way of the Cape of Good Hope 6) Aframax: A large oil carrier of a capacity between 80 and 120,000 dead-weight tons

Types of Aircrafts

1) Passenger: Carriers cargo in its' "belly" which is loose or palletized, or the cargo is containerized in a wide-body aircraft -Weight or volume is the main constraint 2) Airfreighters: Dedicated to carrying cargo (most are "liners") -A "roller deck" is used to allow cargo to move in any direction without much friction 3) Combination: Carries both cargo and passengers on the main deck 4) Quick-Change: Can be converted from a cargo to a passenger plane with the use of palletized seat sections

Other Types of Invoices

1) Pro Forma: A quote (preview of the commercial invoice) provided by the exporter for the purpose of obtaining a letter of credit 2) Consular: A commercial invoice that is printed on stationery provided by the consulate of the country in which the good will be imported 3) Specialized: Some countries require that invoices be printed on special forms

Types of International Insurance Risk

1) Speculative: The chance (or probability) of a loss or a gain, and it's not insurable 2) Pure: The chance (or probability) of a loss, and it's insurable 3) Objective: Actual probability of a loss, determined from actuarial data 4) Subjective: Perceived probability of a loss by an individual or company (not reliable) -Determine if the perception is correct by calculating the objective risk

TEU & FEU

1) TEU: The equivalent of a twenty-foot container -A forty-foot container is two TEUs 2) FEU: The equivalent of a forty-foot container

Size of Vessels

1) Very Large Crude Carrier (VLCC): Oil tanker of up to 300,000 dead-weight tonnage 2) Ultra-Large Crude Carrier (ULCC): Oil tanker of more than 300,000 dead-weight tonnage 3) Very Large Ore Carrier (VLOC): Large ore carrier, of more than 200,000 dead-weight tonnage 4) Ultra-Large Ore Carrier (ULOC): Large ore carrier, of more than 300,000 dead-weight tonnage

Types of Cargo

1) Wet Bulk: Liquid cargo that is loaded directly into the hold of a ship 2) Dry Bulk: Dry cargo that is loaded directly into the hold of a ship, and it takes shape of the hold even though it's dry (ex: grain) 3) Breakbulk: Cargo that is packed (boxes, pallets, crates) but not containerized (ex: vehicles) 4) Containers: Cargo that is placed into containers before it's loaded onto a ship (metallic boxes that are 8x8x20 or 8x8x40 feet)

Shipper's Export Declaration (SED)

A data-collection document collected by U.S. Customs detailing the type and value of goods exported, as well as their destination -Many other countries have a similar data-gathering export requirement -The EU has a similar requirement, called the Single Administrative Document

Certificate of Insurance

A document provided by the exporter's insurance company that attests that the goods are insured during their international voyage -Can be based on a single policy specifically contracted for a specific voyage, or on an open policy that covers all of an exporter's shipments -With an open policy, the insurance company provides the exporter with a series of certificates that it then uses as needed

Certificate of End-Use (on s.g.)

A document required by some exporting countries that attests the goods are purchased for a legitimate purpose based on the exporting country's gov't opinion -Used with sensitive exports, such as ammunition (military)

Charter Party

A type of contract of carriage between a carrier and a shipper, in which the shipper uses all or most of the carrying capacity of the ship -Generally used to transport bulk commodities, such as grain, fertilizer, ore, or oil -Can be used for a single voyage, a series of voyages, or for a specific duration of six months or a year

Environmental Issues

Airlines and aircraft manufacturers have been active in reducing the carbon footprint of the industry because of their heavy reliance on fossil fuels -The IATA and ICAO have been involved as well -Progress on noise reduction has also been made in the last two decades -Some airports close at night because of noise which affects cargo transport

Coverage A

All-risks policy that covers all risks of loss or damage to the subject-matter insured -Does not cover some risks such as war, seizure of the cargo or ship by a government, or strikes and civil disturbances -A policy written with Coverage A is identical in all countries -Maximum coverage an exporter or importer would need to purchase for a shipment traveling on most trade lanes in the world

Perils of the Sea

Cargo movement, water damage, overboard losses, fire, sinking and stranding, general average, piracy, theft, and collision -Other cargo contaminating or affecting cargo -Stowaways damaging the cargo -A government seizing or arresting the ship -The owners of the ship declaring bankruptcy -The port shutting down because of a strike -Weather delaying loading or unloading of the cargo

Risk Management Strategies

Companies can manage international transportation risks through: 1) Retaining the risks 2) Transfer the risks to an insurance company 3) Adopt a mixed approach -The difficulty in determining the proper strategy is correctly assessing the risks of a particular shipment

Air Cargo Security

Dominated by requirements similar to the ones put in place by the Transportation Safety Administration (TSA) as well as Customs and Border Protection (CBP) in the U.S. 1) Advanced Manifest Rule: All cargo manifests must be sent to CBP at least four hours before the cargo is to arrive in the U.S 2) Certified Cargo Screening Program: All cargo shipped on passenger aircrafts must be 100% inspected prior to being loaded -Inspections must be conducted by Certified Cargo Screening Facilities

Bill of Lading (BOL) (on s.g.)

Generic term used to describe a document that fulfills three functions in international transport: 1) A contract between the carrier and the shipper where the carrier agrees to transport the goods from A to B for a given price -Shipper is either the exporter or importer depending on the Incoterms rule used 2) A receipt for the goods which is signed by the carrier, signifying the goods were received in good condition 3) A certificate of title -Whichever party has the original BOL is the owner of the goods -Each contract of carriage can be negotiated, but most are standard agreements -Some include loading and unloading costs, and others do not

Institute Marine Cargo Clauses - Coverage A, B, or C

Governed by British Law, and it was completely rewritten in 1982, and modified further in 2009 -It is the standard for many countries, except the U.S. -Allows international traders to tailor the coverage to the specific needs of a shipment, but they don't cover: 1) Improper Packing 2) Inherent Vice: Damage caused by a natural change in the goods such as steel rusting 3) Ordinary Leakage: Decrease in weight due to evaporation and ordinary wear and tear 4) Unseaworthy Vessel 5) Nuclear War -Another policy is the "All-Risks Policy" which is used in the U.S. (older)

Charter Aircrafts

Hired to transport goods that cannot be shipped through traditional airfreighters: -The goods can be too heavy/large -The goods need to be delivered to a location not serviced by regular routes -The destination airport's runway is sub-standard, or the cargo handling facilities are poor

Person or Entity Purchasing the Product - U.S. Export Controls

If the product is classified as EAR99, exporters need to determine if the purchaser is on the Entity List, the Unverified List, the Specifically Designated Nationals and Blocked Persons List, or the Denied Person List even if the product is sold domestically

Electronic Data Interchange (EDI)

Instantaneous electronic exchange of documents from computer to computer -The sender and recipient must reach two agreements: 1) The type of technology used for the exchange -No official international standard 2) There must be a legal agreement between the two parties defining the responsibilities, timing, liabilities for errors, the "evidentiary value" of messages, and other legal issues

Perils Faced by International Shipments

Insurance polices cover specific perils, and the premiums are based on the hazards of a particular shipment 1) Peril: An event that causes a loss (theft, fire, piracy) -Jettison: Act of throwing part of the cargo overboard (or fuel of a plane) in an attempt to lighten the load -Barratry: Act of disobedience or willful misconduct by the ship captain or crew that causes damage to the ship or the cargo 2) Hazard: A situation that increases the probability of a peril (loss) -Certain regions of the world are more hazardous than others -There are more risks for international shipments because there are multiple shipment methods and are therefore handled more times than domestic shipments

Hague Rules (1924)

Limits carriers' liability to $500 per package or per customary freight unit -U.S. and U.S. carriers adopted them in 1936 by incorporating them into the Carriage of Goods by Sea Act (COSGA) -Allows carriers to invoke seventeen "defenses" to avoid liability

Hague-Visibility Rule (1968)

Limits carriers' liability to SDR 667 per package or SDR 2 per kg., whichever is higher -Not yet ratified by the U.S. but it has been by all of its major trading partners -Switched to SDR because of the declining value of the U.S. dollar

Hamburg Rules (1978)

Limits carriers' liability to SDR 835 per package or SDR 2.5 per kg., whichever is higher -Have been ratified by a small number of countries, only a handful of which are significant international traders -Eliminates most of the "defenses" a carrier could use to discharge itself of liability

Rotterdam Rules (2009)

Limits carriers' liability to SDR 875 per package or SDR 4 per kg. and it is most likely to become the most commonly adopted convention by 2015 -Eliminates most of the "defenses" -Applies "door-to-door", which subjects the legs of the voyage that are in the exporting and importing countries to the same liability limits

Syndicates

Made up of members who share the premium proceeds if there is no loss, and share the costs if there is a loss -Wagering that a loss will not occur -Members of a syndicate can either be: 1) Bespoke Names: Individuals with great wealth who join to add to their investment portfolio (unlimited liability) 2) Corporate Members: Corporations that join to increase their diversification strategy (limited liability) -Mostly corporate members because they have limited liability

Credit Insurance

Managed in the same way as transportation risks (retain, transfer, mixed approach) 1) Commercial Risk: Risk presented by the customer defaulting on its obligation to pay, for whatever reason 2) Political Risk: Risk presented by the country in which the transaction takes place (high tariffs, embargo)

Types of Theft

Much greater risk onshore, specifically in-transit to the port of departure, and from the port of arrival 1) Pilferage: Unplanned theft, based upon the opportunity to steal part of a cargo shipment 2) Organized Theft: Deliberate and carefully-planned theft of cargo or containers by an organized group 3) System's Theft: The use of technology to access and change files of a particular shipment, and steal it -By changing or deleting files, the cargo can be removed without immediate detection

Lloyd's of London

Often considered an insurance company, but it is actually the oldest insurance market in the history of shipping -Insurance policies are written for uncommon risks, or risks that don't generate a lot of premiums, and therefore traditional insurance companies cannot operate their traditional business model -Companies that need a risk covered are put in touch with syndicates, or groups of people who are willing to take that risk

Bill of Lading as a Certificate of Title

On a BOL, there is a box called "consignee", in which the shipper identifies the firm that will take delivery of the goods from the carrier -There are two alternative ways to fill this box: 1) If the box is left blank or the words "to order" are used, then the BOL is said to be negotiable, and the owner of the goods in the destination port is the entity with the original BOL -Goods can be sold while they are being transported 2) If the name of the consignee is entered, then only that firm can pick up the goods from the carrier (Straight BOL) -Only ocean BOLs are negotiated

International Insurance Risks

One of the greatest concerns is making sure the coverage selected is the one the shipper prefers -Finding out the firm is improperly insured is discovered only after a loss 1) Complexity of the Field: There is a minimum of six different standard insurance policies which have countless variations in the specific clauses that can be included or excluded 2) Unique Vocabulary: Terms have a completely different meaning than in everyday language 3) The Incoterms Rules are Somewhat Misleading: CIF and CIP mention insurance, they refer to the most basic coverage available, which is inadequate for many goods -Under the various liability conventions, carriers offer very limited coverage (basic, low limits, exempt of liability)

International Air Regulations

Operates under the principle that every country has complete and exclusive sovereignty over its airspace -These restrictions were relaxed by the "Open-Sky Agreement" which is an agreement between two countries, in which airlines of one country are allowed to serve any of the other country's airports 1) International Air Transport Association (IATA): Works with gov'ts and airlines to ensure that goods move around the world easily 2) International Civil Aviation Organization (ICAO): Agency of the UN who design and implement standards for international civil aviation practices regarding safety, security, and other operational issues

Mixed Approach

Retain some of the risk and transfer the rest -The decision is based on: 1) Maximum amount of exposure the firm is willing to risk -Achieved with the use of a deductible or a franchise 2) The types of risks the firm is willing to take, and those it would rather transfer

Security for Ocean Cargo Shipments

Security concerns in ocean cargo shipments are dominated by two requirements, and they are implemented by Customs and Border Protection (CBP) in the U.S. 1) Pre-Shipment Notifications: All cargo manifests must be sent to CBP at least 24 hours before the cargo is to arrive in the U.S. -Called "Importer Security Filing (10+20 rule)" in the U.S. 2) Pre-Shipment Inspections: CBP inspectors, located in foreign ports, inspect cargo before it is loaded on ships bound for the U.S. -Called "Container Security Initiative" (CSI) in the U.S.

Non-Vessel-Operating Common Carriers (NVOCC)

Shipping companies that do not own or operate their own ships -They operate by purchasing space on a ship on a given voyage and then selling this space to companies that need to ship cargo -Sometimes, the NVOCC has only one container onboard a ship and consolidates multiple shippers' cargo in that container

Airline Freight Tariffs

Simpler tariff structure than ocean -Airlines calculate freight charges by: 1) Weight of a shipment 2) Dimensional Weight: Volume weight of a shipment (artificial weight) -Calculated based upon the dimensions of the shipment -The airline will charge the higher of the two prices -Ocean freight charges are based on weight (kg.)

Risk Retention

Some firms decide it is more economical to not purchase insurance: 1) Very large international traders with many shipments 2) Exporters or importers with little exposure because the goods have such little value 3) Exporters or importers with little relative exposure because international transactions are such a small percentage of their business 4) Firms that don't evaluate their international transportation risks clearly

Type of Product Exported - U.S. Export Controls

The BIS maintains a Commerce Control List (CCL) which is a list of products that can't be exported from the U.S. -The products are given an Export Control Classification Number (ECCN) if they are seen as potentially dangerous or have "dual use" -Goods not requiring a license are classified as "EAR99" by the BIS (most goods)

U.S. Export Controls

The U.S. export control policies are regrouped under the Export Administration Regulations (EAR) and administered by the Bureau of Industry and Security (BIS) -It is the exporter's responsibility to insure the goods can be exported from the U.S. -Determine if an export needs a license based on: 1) The type of product exported 2) The person or entity purchasing the product 3) The ultimate country of destination

The Ultimate Country of Destination - U.S. Export Controls

The U.S. has a total embargo on 5 countries, and other trade limits on many other countries -If a license is needed, the U.S. needs to obtain an Individual Validated Export License, or an express authorization to ship to a country -A "Destination Control Statement" is needed if an Individual Validated Export License is used

Commercial Invoice

The document sent by the seller to the buyer that lists the goods purchased and the amount due. Must include: 1) A detailed description of the goods, with a Harmonized System (HS) Number, so the goods can be classified correctly by customs 2) Incoterms rule of the transaction 3) Details on costs of domestic transportation, loading, insurance, etc. so customs can determine the dutiable value of the goods 4) Details on the weight and dimensions of the goods 5) Details on the itinerary of the shipment 6) The terms of payment

Origin of the Goods - Import Document

The documents are provided (signed) by the exporter's chamber of commerce 1) Certificate of Origin: Attests that the goods originated from the country in which the exporter is located 2) Certificate of Manufacture: Attests that the goods were manufactured in the country in which the exporter is located -The NAFTA Certificate of Origin is actually a Certificate of Manufacture

Export License

The express authorization, granted by the exporting country's government to the exporter, to export a particular product before it is shipped -A country can do this to control the export of: 1) Raw materials, usually to conserve natural resources and to promote their domestic industry 2) National treasures, antiques, or art 3) Political or military purposes

General Average

The owner of the ship and all cargo owners share the same goal of a successful completion of the voyage, therefore all share in the risks and the costs of the venture -Force Majeure: Things you can't plan on (Act of God) -If the ship captain saves a portion of the cargo by unloading some of the cargo at sea, it is also a general average -Can occur when there is a fire, the vessel is grounded, or when the ship capsizes

Perils of Air Shipments

The perils to which an air shipment is exposed are minimal compared to ocean shipments -The biggest concerns are cargo handling, cargo movement, theft and pilferage, and exposure to inclement weather -A large percentage of air cargo demands controlled temperatures and pressures -The greatest risk is usually not while in flight, but when the cargo is on the tarmac where it can be exposed to extreme temperatures as well as rain and snow

Bill of Lading as a Receipt for the Goods

Two alternatives when the carrier receives the goods in the exporting country: 1) If the goods are received in good condition, the carrier just signs the BOL, without any other annotation (Clean BOL) -Letters of Credit always call for a clean BOL 2) If the goods are received in a condition that concerns the carrier, the shipper makes an annotation of the issue, then signs (Soiled BOL)

Risk Transfer

When firms transfer their risk to an insurance company in exchange for a premium: 1) Firms with high exposure (high value goods) 2) Firms with high relative exposure (small firms) 3) Firms that lack experience in international trade

Aircraft Leases

When the shipper intends on utilizing the entire capacity of an aircraft 1) Wet Lease: The owner of the aircraft provides everything to the lessor except the variable costs such as airport fees 2) ACMI Lease: The owner of the aircraft provides everything to the lessor except variable costs such as airport fees and fuel 3) Dry Lease: The owner of the aircraft provides just the aircraft 4) Damp Lease: The owner of an aircraft provides some services in addition to the aircraft (ex: AMCI Lease)