Responsibilities of actors in international transportation

Logistics serves international trade, in which a seller offers the product, and a buyer purchases that product. The variety of payment for goods is described in chapter 3 of the book. When buying and selling physical goods, components or raw materials, not only the conditions of payment for the goods and the receipt of the goods are important, but also the risk during transportation, the principles of payment for transport services, and cargo insurance. The most unexpected situations and disruptions often occur during cargo transportation. For example, the cargo may be damaged when the vehicle is involved in a traffic accident, or the goods may be stolen. Sometimes even vehicles are stolen along with shipped cargo. Thus, in the case of international trade, the place and time of transfer of responsibility become very important. If the cargo is lost or damaged, when the responsibility lies with the buyer, then the seller is safe and protected, because he has basically not incurred any losses. In case of loss or damage, when the responsibility is with the seller, then the buyer is safe and protected. To avoid long negotiations, and possible misunderstanding between parties about the responsibility during transportation in international trade there are standardized terms used. INCOTERMS – International Commerce Terms have been created by the International Chamber of Commerce – ICC. The conditions were systematized and described for the first time in 1932. There have been minor changes since then, but the essential principles have continued to be the same.

The essence of these conditions is to divide the responsibility between the seller of the goods and the buyer during the transportation of the cargo. The seller is considered the consignor, and the buyer is considered the consignee. The place of transfer of cargo ownership and responsibility for the cargo can be both the sender’s warehouse and the recipient’s warehouse, as well as any other intermediate location – for example, in a seaport or in a logistics operator’s terminal. Thus, the buyer can buy the goods on the condition that the seller delivers the goods to his door, or he can buy the goods on the condition that the buyer picks up the goods himself. A possible option is that the trade condition is that the buyer delivers the goods to some intermediate location. The terms of trade are usually decided by the buyer and the seller together or by the seller unilaterally. Depending on what condition is agreed, the price of the product also depends.

Ex. 13‑24 INCOTERMS

Keywords: Ex work, Duty delivery paid, Free on board, INCOTERMS

Source: adopted from International Chamber of Commerce, https://iccwbo.org

For example, the product with delivery included may be more expensive than the product that the buyer must pick up from manufacturers warehouse. To be more precise, in that case buyer must take care of the transportation services himself and take responsibility for the product, right after product to be loaded into vehicle. Thus, both a seller and a buyer can order transport services. Each term in INCOTERMS is described and named with three-letter code names (Exhibit 13-24). There is a wide range of conditions, but the two extreme conditions are EXW and DDP. EXW stands for Ex Works, the clause stipulates that the buyer orders and pays for the transportation service, pays for the cargo insurance and bears the consequences if anything happens to the goods from the moment it is loaded in the seller’s warehouse into vehicle. As opposite, DDP stands for Duty Delivery Paid, the clause stipulates that the seller orders and pays for the transportation service, pays for the cargo insurance and bears all the consequences if anything happens to the goods until it is unloaded at the buyer’s warehouse. In the case of DDP, the sender undertakes not only to deliver the goods, but also to pay all necessary taxes and duties, for instance customs duty. For example, if the seller is shipping goods from Hong Kong to São Paulo, then the trade terms will be written as EXW Hong Kong or DDP São Paulo, depending on condition to be chosen. The buyer and seller can agree that the ownership of the goods will pass at any other intermediate place, for example, at the terminal, at the port of departure on the shore, at the port of departure on the ship, at the port of arrival on the ship. Since international trade very often involves ocean transportation, terms such as FAS – free along ship, or FOB – free on board, are quite often used. FAS means that the seller delivers the goods to the port of departure, but the payment for loading the goods onto the ship, transporting them by ship and further by land to the buyer’s warehouse is the buyer’s own concern. This is used quite often because the seller in their own country or continent is considered to be more experienced and know how to order transportation, so getting to the port is often the seller’s concern. In the meantime, orders related to shipping, including loading onto the ship, are made by the buyer of the goods. The exhibit 3-24 which presents and graphically illustrates the full range of international trading conditions.

In addition to the seller and the buyer, forwarders and carriers are involved in the transportation process. Large manufacturers, large exporters or importers often have logistics departments that take care of the fulfilment of the aforementioned trade conditions, transportation orders, insurance, but smaller market players usually turn to freight forwarders when they need transport services. Freight forwarding services are often provided by 3PL service providers, which are described in Chapter 12. The role of the freight forwarder is to respond to the needs of the cargo owner to select and organize the optimal transportation process, starting with the selection of the mode of transport. The cost of transportation, frequency of service, number of trips, delivery terms and other conditions are also discussed and agreed upon between the cargo owner and the forwarder. Although there are cases when the consignor directly tells the freight forwarder what type of transport his cargo should be transported by, what means of transport, what route and even what border crossing points need to be crossed.

Forwarders are intermediaries between cargo owners and carriers. Forwarders carry out expedition activities. The concept of forwarding is interpreted by the International Federation of Freight Forwarders Associations – FIATA together with the definition of forwarding and logistics services approved by the European Association of Forwarding, Transport, Logistics and Customs Services – CLECAT: “Freight forwarding and logistics services are services of any kind relating to the carriage (performed by single mode or multimodal transport means), consolidation, storage, handling, packing or distribution of goods, as well as ancillary and advisory services in connection therewith, including but not limited to customs and fiscal matters, declaring the goods for official purposes, procuring insurance of the goods and collecting or procuring payment or documents relating to the goods. Freight forwarding services also include logistics services with modern information and communication technology in connection with the carriage, handling or storage of the goods, and de facto total supply chain management. These services can be tailored to meet the flexible application of the services provided.”

The emergence of freight forwarders was due to the fact that it is not always convenient for a carrier to serve one customer, the carrier does not always have enough vehicles to meet the customer’s needs, and customers do not always have enough cargo to fully utilize the carriers’ vehicles (Stroh, 2006). A freight forwarder is an agent or a broker who mediates to meet the needs of the cargo owner and the carrier. A freight forwarder organizes the consolidation of shipments into a single route, thereby making better use of the vehicle, or the freight forwarder consolidates the capacity of several carriers to meet the needs of the cargo owner. The freight forwarder also mediates between the carriers and the owner of the cargo, if the cargo has to be transported successively by different modes of transport.

Accelerating economic integration has also resulted in global trade, which in itself has led to demand for services in the transport sector. The rapid development of modern technologies, their knowledge and ability to use them created a real opportunity for freight forwarders to supervise and manage international supply chains.

The freight forwarder, which has signed the contract for the provision of services with the customer, becomes the general contractor in relation to the customer. The forwarder manages all the information about the entire transportation process, involving other forwarders or service providers. This importance of the freight forwarder increases when transporting goods by multimodal or intermodal transport. The responsibility of the freight forwarder is to take care of the delivery of goods from the sender to the recipient.

In global practice, quite often large manufacturers choose a freight forwarder to organize cargo transportation for a longer period of time. A forwarder formally becomes the general forwarder and it in turn selects other forwarders or hires carriers. Often, large forwarders organizations operate globally, establishing their own networks in other countries of the world, thereby pooling the potential to perform all forwarding services.

The main functions of freight forwarders in general are same as 3PL providers:

• Taking transport orders from cargo consignors or owners, coordination of delivery conditions including price.
• Finding carriers capable of providing transport services, harmonizing delivery conditions, including price.
• Management of information and documentation.
• Managing customs procedures, customs mediation.
• Ordering, renting and delivery of loading units such as containers or trailers.
• Grouping of transport orders into a larger shipment and organizing distribution.
• Warehousing and storage services.

Forwarders perform the listed functions themselves or hire subcontractors. Sometimes freight forwarders have their own terminals, and sometimes they provide terminal services to their customers on the basis of cooperation agreements with terminal owners.

Freight forwarders usually focus on different types of transport. Often, some forwarders are engaged in road carriage arrangements only, others in railway forwarding, and others work as sea and ocean shipping agencies. The basis of segmentation is usually the differences between customers and the specifics of their service. For example, in road transport, the specifics differ:

• Serving customers with full truck load or wagon load shipments, i.e., when one customer loads one or more full transport units for instance trailers, containers or wagons.
• Serving customers with less than full truck load shipments, i.e. when one customer submits a load that only partially fills the vehicle. The freight forwarder then searches for other customers who have a partial load and are willing to send it along a similar route or at least in the same direction with similar delivery times. After collecting several partial loads, the freight forwarder concludes as many contracts as possible with customers, and only one contract with the carrier that provides the vehicle. It should be noted that this type of carriage is quite popular in Europe, where road freight volumes are world highest. It significantly improves the load factor of vehicles even filled with small size shipments. Most often, this grouping of cargo takes place in terminals and is transported from terminal to terminal.

In railway transport, the specifics differ depending on whether single loads or large consignments are being dispatched, when the entire set-up is ordered for one transport. In sea transport, the forwarder is called ship agency. The specifics of agency differ depending on whether the agency is between a ship owner and a cargo owner, or between a ship owner and another carrier, such as a trucking or rail operator.