Logistics in International Business

Prof. V. P. Arora

Associate Profesor

LEGAL ASPECTS OF CARRIAGE OF GOODS BY SEA AND BY AIR

In recent times, the entire procedure and documentation process has undergone a major change due to containerization and use of multimodal transportation. A typical sea bound multimodal cargo has to cover various steps between the point of origin to the final destination. The following flow diagram depicts the various transit steps of the cargo.

Cargo by Road / Rail

Port of Destination

Cargo by Road / Rail

Cargo by Sea

Cargo by Road / Rail

Manufacturer

Inland Container Depot

Importer

Port of dispatch

At each point, the cargo is handled by a different agency and the responsibility of the cargo keeps on shifting from one agency to another. From legal point of view, it is important for the contract of freightment / transport document to cover the various aspects such as responsibility , liability, jurisdiction, limitation of liability, remedies etc.

A shipper may avail the services of a shipping line in two ways. He loads his cargo in a ship which has a predefined voyage or route and which accepts the goods from any shipper to be taken to any port of call during the voyage. Such a ship is called “General Ship”.

Alternatively, the shipper can hire the whole vessel to carry the cargo exclusively for him. Such a ship is called “Vessel on Charter Party”.

Carriage of Cargo on A General ship -

In case of a General ship, the shipping line advertises its voyage through the newspaper and their freight brokers. This advertisement announces the dates of arrival and departure of the ship from a particular port, final port of destination, ports of call enroute etc.

The shipper books the cargo through his C & F Agent/freight broker, who prepares the “Bill of lading, gets it signed by the representative of the shipping line, and loads the cargo on board the ship

Responsibilities and Liabilities The Shipping Line The shipping line, by virtue of being the custodian of the

cargo has tremendous responsibility towards the shipper. To fulfill such responsibility adequately the shipping line must ensure the following :-

1. The ship is seaworthy to undertake the proposed voyage.

2. The Ship is adequately staffed and suitably equipped.

3. The cargo holds, refrigerators, cold chambers and all other critical parts and equipment of the ship are in good condition and the ship is safe to operate.

4. The ship has adequate facilities to safely handle, carry, store and care for the cargo during the voyage.

5. The shipping line must issue a Bill of Lading confirming the receipt of cargo and the apparent condition in which the cargo is received. The bill of lading must also show the container number/shipping marks for easy identification of the cargo. The Bill of lading furnished by the Master of the ship is the prima facie evidence of the receipt of the goods by the carrier.

CHARACTERISTICS OF BILL OF LADING

1.Bill of Lading is the evidence of the contract of freightement. It is only an evidence of contract and not a contract by itself. In case there is a dispute between the shipper and the ship owner regarding the carriage of the goods, the court considers not only Bill of Lading but also any other contract between the two parties as evidence.

2.Bill of lading is the document of receipt of the goods given by the representative of ship owner while taking charge of the consignment. If the goods are received without any damage or apparent defect “Clean Bill of Lading” is issued. But in case the representative of the ship owner is not satisfied with the condition of cargo, he may put his adverse remarks on the Bill of Lading. In such case, Bill of Lading will be called a “dirty Bill of Lading” or “Claused Bill of Lading”. In such case the bank may not accept this document and can refuse the payment.

3. Bill of Lading is the document of title, which means that anyone in the possession has the title to the goods. Bill of Lading is a negotiable or transferable document. An endorsement in favour of the buyer passes the title of the goods to him.

TYPES OF BILL OF LADING1. Received for shipment Bill of Lading :- A bill of lading, which confirms the

receipt of goods by the carrier, but not their actual loading on board. A received for shipment bill of lading can be accepted under letters of credit only if this is specifically permitted in the letter of credit, or if the credit stipulates a document covering multimodal transport. Otherwise, received for shipment bills of lading must show an additional “on board” notation in order to be accepted as an ocean bill of lading.

2. Clean bill of lading :- is a bill of lading where the carrier has noted that the merchandise has been received in apparent good condition (no apparent damage, loss etc.)

3. Claused bill of lading :- is a bill of lading, which contains notation, which specifies deficient conditions of the goods and/or packaging.

4. Negotiable bill of lading :- is a bill of lading, which can be transferred by endorsement. A copy of bill of lading is utilised either for the transfer of title to the goods or realisation of the money. The opposite of negotiable bill of lading is straight bill of lading.

5. Straight bill of lading :- indicates that the shipper will deliver the goods to the consignee. The document itself does not give title to the goods. The consignee has to only identify himself to claim the goods. A straight bill of lading is often used when payment for the goods has been made in advance.

6. Through bill of lading :- is a single bill of lading covering receipt of the cargo at the point of origin for delivery to the ultimate consignee using two or more modes of transportation.

7. Charter party bill of lading :- is issued by a charter party. They are not accepted by the banks under letters of credit unless they are specifically authorised in the credit

CHARTER PARTY Charter party or charter agreement is a contract between a shipper and a

shipping company under which an entire ship or some part of it is booked by the shipper, also called charter for carrying the goods on a determined voyage to one or more places or until the expiry of a specified period.

A charter party agreement can be done on various basis e.g. on the basis of time or on the basis of defined voyage etc. Following are the different criteria's for a charter party agreement :-

1. Voyage Charter Party :- In this case the shipper books a particular ship for a designated voyage to one or more destinations. In this contract the ship owner has to declare the condition capacity and other details of the ship. The owner has to guarantee the sea worthiness of the vessel.

The ship should be sea worthy for a particular cargo and for a particular voyage. The ship also had to compete the voyage in a reasonable time frame. The deviation from the route can be made only in case of emergency.

2. Time charter party :- As the name suggests the ship is booked for a fixed period of time in this case. Here the ship owner under an agreement provides the ship to the shipper for a fixed duration, which is mutually agreed. The agreement also mentions size, capacity and speed of the ship along with ports is the responsibility of the ship owner to arrange for the crew and pay crew’s wages. Also ships insurance, fuel, dock charges “loading and unloading charges of the cargo are the responsibility of the ship owner”.

3. Charter party by demise :- Under this agreement the vessel is leased by the ship owner to the shipper, whereby the shipper/charterer gets the possession and control of the ship during the lease period. Charter has the freedom to select the route and operate the vessel accordingly. In such case ship owner has no liability towards the goods loaded and the crewmembers of the ship become the employee of the charter during the lease time.

4. Bareboat Charter:- A contract where the charter party has the right to use his own Captain and crew on the ship.

DIFFERENCE BETWEEN CHARTER PARTY AND BILL OF LADING1. The main difference between the charter party and bill of lading is that

bill of lading represents the title of the goods. By endorsing the Bill of lading the ownership of the goods can be transferred from one party to another. Charter party on the other hand is only a contract of affreightment for the carriage of goods between the shipper and ship owner.

2. In case a bill lf lading is issued to a charterer who is also a shipper under shipper the contract, then the bill of lading will only be a receipt of goods placed on board by the representative of the ship owner also called the master of the vessel. In such case the charter party is governed by the terms of contract of carriage of goods between the owner and the charter.

3. When a charter party contract is followed by issuance of a bill of lading any dispute between the charterer and the ship owner will be decided on the basis of bill of lading only. It is because a bill of lading is a subsequently document and the law will presume that is was subsequently mutually agreed between the buyer and the seller to treat the charter as null and void. The bill of loading is considered the to embody all the conditions of the new agreement.

Contract of Affreightment

Binding agreement which sets forth the obligations and rights of the owner of a vessel (aircraft or ship) and a merchant. The vessel owner undertakes to provide cargo-space (at a specified time, and for a specified freight) to the merchant who is liable for payment whether or not the cargo is ready for shipment. This contract addresses issues associated specifically with a vessel, its crew, and the routes on which it will be plied. Also called contract of freightment.

INTERNATIONAL CONVENTIONS ON CARRIAGE OF GOODS & INTER MODAL TRANSPORT

In order to regulate international carriage of goods various international conventions were held. Among them Hamburg rules determine the extent of liability of a carrier and a shipper issuance of goods and procedure for claims etc. These rules provide the formula for calculating the liability of the carrier and stipulate that any arbitration or legal action must be initiated within two years.

Other important conventions are :-

Hague Rules :-These rules govern liability for loss or damage to goods carried by sea under

a bill of lading. These rules were agreed in 1924 during an international convention at Brussels. The main features of the Hague rules are as follows:-

A Carrier may offer the minimum terms for the carriage of all goods other than live animals, non-commercial goods (personal and house hold goods), experimental shipment etc.

The carrier must provide a seaworthy vessel at the beginning of the voyage, and must take due care of the cargo during transit. In case of loss or damage, the carrier is only liable for loss or damage caused by his own negligence, or that of his servants, agents or subs contractors, The maximum liability was fixed Pound Sterling 100 per package in case of loss or damage.

Hague-Visby rules

These rules came into effect in 1968 as a result of some amendments in the Hague rules. These rules were mainly concerning the maximum liability in case of loss or damage. Hague-Visby rules were applicable to all bills of lading, where the port of shipment is in a ratifying nation.

Hamburg rules

The Hamburg rules were adopted in March 1978 in an international conference. The major features of the Hamburg rules are as follows :-

1.The carrier is responsible for loss, damage or delay to the goods unless he proves that all the precautions to avoid the occurrence had been taken by him, his servants or his agents.

2.If the goods are delivered at the port of discharge within the agreed time, the carrier is not liable for delay in delivery.

3.The amount of liability was increased by 25% more than the liability defined under the Huge-Visby rules.

4.The Hamburg rules are applicable to all contracts of carriage by se, except charter party contracts.

5.The Hamburg rules cover shipment of live animals and deck cargo, which Hague and Hague-Visby rules did not cover.

6. The Hamburg rules applied to both imports and exports to and from a signatory nation, where as the Hague and Hague-Visby rules apply only to exports.

As can be seen the above convection addressed to the various provisions under carriage by se, rail and road. However the United Nations Convention for the international combined transport of goods also called TCM convention for the first time tried to make a framework of rules for inter modal transport. This conventions was adopted by the UN conference on 24 the may 1980. Some of the significant changes brought about by this convention are as follows :

1. It introduced single contract between the shipper and the carrier irrespective of any number of modes of such transport.

2. It introduced Multimodal Transport Document also called MTD as a replacement to the bill of lading.

3. It made MTD as the document of title.

4. It simplified custom regulation to facilitate cross border trade.

5. It introduced single party responsibility throughout the voyage, even if the cargo is carried by several carries.

6. By enforcing the liability of Multimodal Transport Operator (MTO) more strictly than of the conventional carrier in shipping law.

7. By making MTO liable for loss or damage due to delay in transportation.

This UN convention was not ratified by India. Instead it adopted

Multimodal Transportation of goods act, 1993, which was more in

line with the maritime trade proactive prevailing in India. Another

reason for not ratifying the UN Convention was that it would not

have served any purpose because it was not converted in to an

international law.

Concept of UnitisationOne of the main concerns of a manufacturer is damage of goods during loading and unloading and times consumed in these activities. They constantly look for avenues to reduce these concerns. One of the methods of doing so is that of combining packages into a unit. This lends itself to mechanical handling and reduces the number of handlings which the package would have. Literally speaking, in unitization the products and grouped together in cartons, bags and barrels for handling efficiency. But specifically, the containers used to group individual products are called master cartons. When these master cartons are grouped together it is called unitization. For examples, Pears comes in a box. This is called the individual package. But it is delivered to the dealer in a combined package of 100 or more soaps . This is called master carton. These master cartons are then grouped together in a box, by some rope etc. to form one unit for shipment purposes. This is called unitization.

Unitisation is based upon the theory that all shippers should pack their cargo so it may be moved and handled entirely by mechanical equipment, such as lifts and cranes, throughout the distribution network. This practice reduces the need for labour, the handling of boxes, and the amount of damage. Also, it allows for faster loading and unloading by transportation equipment, more efficient distribution centre operations and a reduced level of pilferage. The reduced costs of the distributor in terms of labour and time often result in cost discounts for the retailer.

In practice, the unit load concept means that small, highly expensive items such as calculators, should first be totally enclosed in wooden boxes, or double, even triple wall containers to avoid pilferage and damage. Second, the boxes or containers should be secured to pallets with shrink-wrap or steel strapping. Large items can be secured directly to pallets, assuring that they are adequately protected from damage. Unitising leads to:• Economy • Greater speed of handling • Decreased damage to the material • Safety • Less chance of pilferage • Protects against environmental variables• Efficient untillsation of space

Container Terminal

A container terminal is a facility where cargo containers are transshipped between different transport vehicles, for onward transportation. The transshipment may be between container ships and land vehicles, for example trains or trucks in which case the terminal is described as a maritime container terminal. Alternatively the transshipment may be between land vehicles, typically between train and truck, in which case the terminal is described as an inland container terminal.

Maritime container terminals tend to be part of a larger port, and the biggest maritime container terminals can be found situated around major harbours. Inland container terminals tend to be located in or near major cities, with good rail connections to maritime container terminals.

Both maritime and inland container terminals usually provide storage facilities for both loaded and empty containers. Loaded containers are stored for relatively short periods, whilst waiting for onward transportation, whilst unloaded containers may be stored for longer periods awaiting their next use. Containers are normally stacked for storage, and the resulting stores are known as container stacks.

Container Freight Station (CFS)

A shipping dock where cargo is loaded (“stuffed”) into our unloaded (“stripped”) from containers. Generally, this involves less than containerload shipment, although small shipment destined to same consignee are often consolidated. Container reloading from / to rail or motor carrier equipment is a typical activity. These facilities can be located in container yards, or off dock.

AGENCIES RELATED TO SHIPPING INDUSTRY

The entire logistic chain functions smoothly if there is a good co-ordination between various agencies. The exporter and the importer could be far away from each other on different continents. They conduct their business through various intermediaries. These include clearing and forwarding agents, logistics companies, road transporters; warehousing corporations, shipping lines, port authorities etc. In addition to these, various government agencies such as Customs & Central Excise department, Sales Tax department, Municipal Corporations etc. are also involved. The passage of cargo becomes smooth if there is a clear understanding and a good co-ordination between all these agencies. The exporter wants to despatch the cargo and obtain the shipping documents and entrust the cargo to the agencies who can ensure the smooth passage of cargo. Importer on the other hand is concerned with safe arrival of the cargo ordered by him.

To facilitate the smooth and trouble free passage of cargo from the point of manufacture to the destination, following agencies help the shippers-

A. CLEARING & FORWARDING AGENT – C & F AGENT

C & F Agent is an important link between the exporter and various other agencies. Activities of a C & F agent are as follows :-

1. C & F agent works closely with the shipper right from the offer stage. He provides freight rates to various destinations and also informs the shippers about the most economical modes of transportation. He also advises the most cost effective routing advice for the destination.

2. Once the order is received by the shipper, C & F agent makes the ship booking keeping in mind the last date of shipment on the letter of credit.

3. As the despatch dead line approaches C & F Agent estimates the transit time between the factory and the port of shipment as mentioned in the L / C. He advises the despatch date from the factory to the shipper so that the cargo reaches the port right in time. If the cargo reaches too early, it attracts demurrage charges. On the other hand, if the cargo reaches late, it may miss the ship, thereby causing the delay. Such delays are inconvenient and expensive to both the importer as well as exporter.

4. Once the goods are despatched from the factory, the C & F Agent intimates the shipping line regarding the expected arrival schedule of

goods at the port, along with the mode of inland transportation. He also completes the octroi formalities (wherever necessary) so that the export goods are not subjected to octroi duty.

4. C & F Agent then applies for and secures port permit so that the goods can enter the port premises. At the same time, the export declaration showing the names of shipper & consignee, value of the goods and commodity classification number etc. are prepared.

5. After this, the C & F Agent prepares bill of lading in compliance with the terms and conditions of the sale / letter of credit.

6. After this, the bill of lading is submitted to the shipping company and the cargo is loaded on board the vessel. The shipping company’s representative examines the cargo for its condition & signs the bill of lading accordingly. In case of C & F and CIF contracts the ocean freight is also paid at this stage and the “Freight Prepaid” seal is obtained on the bill of lading.

7. C & F Agent then collects all the documents such as bill of lading, custom’s certified invoice, consular invoice, certificate of origin etc. from the respective authorities and sends them to the shipper for further negotiations of documents as per L/C conditions.

The above activities ensure that the shipper can effect his shipment in time and in the most efficient manner thanks to the various services and advice provided by his C & F Agents. C & F Agent plays a vital role in fulfilling the various delivery commitments made by the shipper to the importer abroad, there by ensuring repeat orders and growth in business for the shipper.

B.FREIGHT FORWARDERS

For international cargo movement the exporter needs an expert with knowledge of various formalities and contacts with various agencies such as shipping lines, port authorities, customs, warehouses etc. Freight forwarder possesses such contacts and knowledge for the benefit of the shipper. Normally, freight forwarder prepares the shipping documents on behalf of the shipper. With the advent of containerisation and the new developments in the shipping industry, many freight forwarders now offer extended services as transport operations for inland transportation as well as multi modal inland and ocean bound transportation. These freight forwarders are called as non-vessel operation common carries (NVOCCs) and are authorised to issue transport documents. Freight forwarders perform the following functions :-

Arranges transport services and prepares documentation.

Advice the shippers on the best and the most economical model/s of Transportation.

As a multi modal transport operator (MTO) he assumes the direct responsibility for the carriage of goods on door-to-door basis. He is liable also for those segments of transit where he himself may not be the operator.

Provides other specialist services such as packing, containers stuffing / destuffing customs clearance etc.

Outsourcing and Third –Party Logistics Providers (3PLs)

Outsourcing is one of the important features of the supply chain management. In logistics and supply chain management too, firms have been outsourcing the activities of transportation, warehousing, clearing and forwarding to different operators. But the entire package of services –– transportation, warehouses management, bills and order processing was something that was not offered by many companies.

Logistics providers around the world as well as in India, are offering a suite of services that includes logistics planning, developing customized logistics solutions, implementing solutions, warehousing management, shipment consolidations, carrier selections, rate negotiation, fleet management, logistics information systems, reverse logistics, order fulfillment and processing, inventory management, multi-model transportations, value-added services like tracking and tracing or the shipment, relebelling /repacking, product assembly and testing supply chain management, freight forwarding, consultancy, etc.

Outsourcing and 3PLs provide several advantages for the long-run strategies cores competency of the firms which are as follows. Cost Reduction3PL providers are specialized service providers with core competency in managing logistics operations. Just as an auto or a consumer durable company has manufacturing expertise, 3PL provider offers benefits of economies of scale and lesser cost of services. Maximizing RevenuesBy outsourcing the logistics function, companies are able to concentrate on their core areas and can utilize both financial and non-financial resources where it can maximize returns. The 3PL providers take care of routine work that frees human resources and time spent on routine functioning. 

FacilitiesProviders have entered into specialized operational research models to quantify the impact on the cost for different patterns for the distribution chain for any combination of multimodel movement under given cost parameters.  Cost ControlControlling costs is distinct from reducing costs. A company’s primary concern is to control costs and then think of reduction. While individually, these ‘kaizen’ or cost-control measures may not transform into tangible results but collectively, all the companies stand to gain in the long run. Working ModelsFirst and the most widely used model in India even today is of internal purchase, sales and dispatch departments that handle all the commercial and sourcing functions for the company.

The second model is that of a separate logistics department that handles all the logistics activities of transport, inventory, warehouse management and co-ordinating with suppliers and its client- which may be the company itself.

The third option is of outsourcing the entire logistics function to a third –party that specializes in logistics management.

Except for automotive, no other industry is currently utilizing the services of a 3PL, which reveals the state of outsourcing in India. In FMCG, paints and consumer durables companies in India, the C&F agents are doing the job of logistics providers so the companies do not feel the need to outsource. In case of cement and steel, none of the companies have gone for 3PL services.

Fourth-Party Logistics Providers (4PLS)

In today’s industrial scenario, there has been an unprecedented increase in customer’s demand ––for better service and on-time deliveries at reduced cost. The 4PL is a supply chain integrator that assembles and manages the resources, capital, technology and capabilities of its own organization and other organizations who provide complementary services to design, build, and deliver a comprehensive supply chain solution.

4PLs have evolved because of constraints faced by the 3PLs. It leverages the competencies of 3PLs and business process manages to deliver a supply chain solution through a centralized point of contact. As the 4PL caters to multiple clients, the investment is spread across clients, thus, taking the advantage of economies of scale.  

The fourth-party logistics 4PL responds effectively to the broad complicated need of today’s organizations by delivering a comprehensive supply chain solution. This solution is focused on all elements of supply chain management, continuously updated and optimized technology and is tailored to specific client needs.

With the advent of IT’s role, the effectiveness of fourth-party logistics can be greatly enhanced by implementing systems at all levels –ERP, DSS ––transactional and functional.

EXPORT DOCUMENTATION IN AIR TRANSPORT

Invoice – This contains the names of exporter, importer, airport of dispatch, airport of destination, description of goods, their respective quantities and values, IEC number of exporter, GR form number etc.

Packing list – This contains all the information in the invoice (except value), plus the number of boxes, their gross weight and net weight, shipping mark, if the cargo is containerized, then the container number is mentioned. This list facilitates the customs examination.

Guaranteed Remittance (GR) form – This is an exchange control form issued by RBI. By signing this form, the exporter commits himself to realize and bring to India the foreign exchange equivalent to invoice value within the specified time limit of RBI. This form is to be submitted in duplicate.

Airway bill – It is equivalent to Bill of Lading, except that it is NOT a document of title of goods but it only acts as receipt of goods for dispatch. It mentions names of the airports of dispatch and destination, names and addresses of consignor and consignee, name of air carrier, freight amount, date and number of the flight etc.

Airway bill is a contract between the shipper or his agent, and the airline or its agent. It contains instructions for the airline handling staff. It also acts as a custom declaration form and in case insurance amount is included on the Airway bill, it serves as certificate of insurance. Since the freight charges are also mentioned, it acts as freight bill also.

Shipping bill – This is a customs document and not to be confused with airway bill. It is classified in terms of drawback goods, dutiable goods and duty-free goods.