After completing the process of freight booking, the following step is shipment. The step of shipment helps you to import the product to the home country. In this chapter, you will know about the significant activities in freight handling. The entire journey of freight from packaging till the last step of delivery will be briefly discussed.
SHIPPING BASICS
This topic will cover many major headings such as testament, incoterm, key players, phraseology, and their impact on the shipment you are importing as well as affecting your mark-up.
KEY PLAYERS
Carriers– The movement of freight requires companies that deal with such services as American Airlines, etc. They are limited with the harbor to harbor or airport to airport movement of freight. They facilitate bookings on ships and planes for their clients.
Forwarders- They are multi-utility operators who provide end to end shipment service of the freight. They can be large courier companies that own resources such as cargo ships and planes. They also act as carriers at times when they have a fleet of trucks to themselves.
Customs Brokers– They are agents who will help you in clearing the excise department and provide assistance in custom duty filling for the freight. They work in coordination with forwarders with in house customs.
Third-Party Logistics Providers– They take on some or all of a company’s distribution and fulfillment services for their client. Many larger forwarders also provide this service.
Shippers- The shipment industry will term you as a shipper. You are the person responsible for the entire process of shipping in the first place.
KEY PHRASEOLOGY
Door to Door & Port to Port- In a literal sense, it means whether the freight will be offloaded at the port or it will be further moved to a different destination with the help of other means of transportation. Major transit is the transportation of the freight from the exporter’s country to your county. If the freight is collected from the manufacturing point itself, it is known as door to port. Similarly, when the freight is transited from the exporting country’s port to the final destination, it is called port to door. When the forwarder is taking care of the entire shipment, then it is called door to door.
Multimodal- The introduction of the modern-day “containers” completely revolutionized the way freight is shipped worldwide, and it helped the world become an open economy in a faster and safer way. These containers can be transported on a ship, cargo plane, truck, or railroad to the final destination, making it a versatile transit mode. These “inland ports” are also known as inland freight interchanges.
Some terms used under multimodal-
FCL (full container load) means the entire container is carrying just your freight even if it is not filled. It is often cheaper to book FCL if the freight will occupy more than 3/4th of the container.
LCL (less than container load)- This means that your shipment will not be occupying the entire space of the container so that it can be arranged with other shipments of different shippers.
Consolidation/Deconsolidation- It is the segregation of the different shipments transited in LCL in a single container.
Intermodal- It involves multiple forwarders in it, which means it’ll be more resource-consuming for the shipper.
Trucking- Full Truck Load (FTL) and Low Truck Load (LTL) are similar to multimodal FCL and LCL. Still, the critical difference between them is that trucking involves the shipment’s density and charged accordingly. A complicated way of calculation is used to calculate the truckloads; the method is called freight class. This freight calculator estimates the freight class for density products. It describes to us how the method freight class works.
Dimensional Weight- Shipments that occupy more space than their weight, such as raw cotton bundles or Styrofoam, will be shipped according to the weight and dimension in a calculated manner. The method freight class might seem a little complicated, but other methods also have the same process. Shipments that weigh less but occupy much more space accordingly are charged by dimensional weight, i.e., the weight at which your shipment’s dimensions and proportions would be economical for the shipper to carry. That weight is known as the chargeable (or billable) weight. You can use the chargeable weight calculator when you receive the invoice for shipment and see if you are charged accordingly or not by your carrier.
KEY TESTAMENTS/ DOCUMENTS
Commercial Invoice- It is a bill slip of the shipment containing the brief details of the shipment with the sole purpose of being a proof of sales. The customs department requires it for authentication of the shipment and the process of clearance.
Certificate of Origin (COO)- This document helps the customs to know about the shipment, whether it is admissible in the importing country, and it is issued with due order from the chamber of commerce under which the supplier is a member. Your forwarder will require this when the parties prepare the Shipper’s LOI (Letter Of Instruction) document.
Material Data Safety Sheet (MSDS)- This document is issued by the seller or the exporter when the shipment contains hazardous and life-threatening goods. Your forwarder will require this when the Shipper’s Letter Of Instruction is prepared.
Fumigation Certificate- When the shipment contains timber, wood, or other products derived from nature, the supplier has to issue this document. It is usually applicable when the shipment uses pallets and crates. Your supplier is responsible for this. Again, it is required for customs clearance, and your forwarder will need it when the parties issue the Shipper’s Letter Of Instruction.
Freight Forwarder Contract (“T&Cs”)- It is basically an agreement that you have to sign for the forwarder for agreeing to standards terms of the shipping process. It is signed before they commence their work on your shipment.
Power Of Attorney (POA) is similar to a commercial invoice; this is a widely used document outside the freight industry. After your signing, you solemnly resolve that your forwarder can deal with Customs on your behalf. You will sign a POA at the same time you do the terms and conditions of the agreement.
Shipper’s Letter of Instruction (SLI)- It is a form of approval that you have approved your forwarder to begin the shipment on your behalf. After all the forms mentioned above are entirely fulfilled, this piece of document kick starts the entire shipping process. It is proof that you are purchasing the services provided by your forwarder.
Booking Confirmation- This is your receipt for the main transit for your air or ocean freight. The carrier provides it to your forwarder; then, it is provided to you for the record. In some cases, the booking confirmation number is also used as the shipment tracking number.
Bill of Lading/Air Waybill– These are agreements that depict your forwarder and carrier’s liability for your shipment. The rigidity level is relatively low in making arrangements with a truck fleet company than with a carrier who owns container ship or airline carriers. Mails are usually the only documentation necessary for it. The same formality with booking pickup and drop-off is not practiced.
Packing List– It is a detailed receipt of the shipment given to you when the shipment finally arrives at your doorstep. The seller fills this form, although the carrier or forwarder will also fill in a form if the goods are packed again at their warehouse.
BUY PRICE AND LANDED COST
LANDED COST
When you are trying to bargain and settle at a lower price with your supplier, there are other additional costs that you should keep in mind, too, before fixating the price. They are custom charges and freight costs. The landed cost document is structured on the receipt of the goods that are made by the seller. Since it uses the good’s receipt as the base reference for the entire import process, you have to be sure to enter the good’s prices and quantities rightly when you create the receipt for goods that are being shipped.
When you file the landed costs document, the price of the items is calculated. A journal entry is created after all the costs in the landed cost are allocated accordingly to show additional import costs in your accounts. Landed cost can be used as an estimated cost if you are unaware of the shipment’s actual cost.
The formula for calculating the landed cost is given below.
LANDED COST = BUY PRICE + FREIGHT COSTS + CUSTOMS CHARGES
INCOTERM
It is a highly recommended set of terms and conditions used widely in the global shipping industry. It consists of 11 regulations that are accepted by almost all international bodies and countries that govern the seller, buyer. It rules over who is liable to pay to different players like customs, excise, insurance, documentation, etc.
The critical and widely used incoterms that one should be aware of are –
EXW (Ex Works)- where the shipper takes full responsibility and liability from the manufacturing point itself.
FCA (Free to Carrier)- Your liability and responsibility begin when the shipment is given to the carrier or the supplier’s forwarder.
FOB(Free On Board)- Your liability and responsibility begin as soon as the shipment crosses the ship’s rail in its premises.
Calculating Landed Cost- Now that we know the landed costa and incoterms, we can easily calculate our actual landed cost. Suppose you want to see the target price by keeping in mind EXW and FOB.
Firstly calculate the door to door freight rate for EXW and then port to door for FOB.
Further, add your custom charges to get different costs.
Now you have got your target price for negotiating.
SUMMARY:
With just 10% of knowledge about the phraseology, you can quickly get through 90% of the shipping process.
You can benefit yourself in price negotiation if you understand landed cost and incoterms clearly.