Supply Chain and Transport Modes Ebook 1stedition TCGP-80

IATA Supply Chain
& Transport Modes
Course eTextbook
International Cargo Agents Training Program

1st Edition
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IATA Supply Chain
& Transport Modes
Course eTextbook
International Cargo Agents Training Program

1st Edition
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IATA Supply Chain & Transport Modes Course eTextbook

Material No.: 400520
ISBN 978-92-9233-973-9
© 2012 International Air Transport Association. All rights reserved.
Montreal—Geneva
SUPPLY CHAIN AND TRANSPORT MODES COURSE TEXTBOOK
TABLE OF CONTENTS
Introduction to IATA Supply Chain and Transport Modes Textbook ................................1
Course Guide ......................................................................................................................... 5

How Does the Course Work?.............................................................................................. 7
Study Guidelines.................................................................................................................. 7
Examination Procedures..................................................................................................... 8
Registering for the Examination ................................................................................8
Day of the Examination .............................................................................................8
Passing the Examination .................................................................................................... 9
Re-Evaluation of Exam Paper .............................................................................................9
Communications................................................................................................................ 10
Good Luck with the Course!....................................................................................10
Module 1: Introduction to Supply Chain Management .....................................................11

1.0 Introduction to Supply Chain Management.....................................................................13
Module Overview .................................................................................................... 13
1.1 What is Supply Chain Management? ...............................................................................14
1.1.1 Lesson Overview .................................................................................................... 14
1.1.2 What is a Supply Chain?.........................................................................................14
1.1.3 What is Supply Chain Management?......................................................................22
1.2 Supply Chain Management Processes ............................................................................29
1.2.1 Lesson Overview .................................................................................................... 29
1.2.2 Customer Relationship Management......................................................................29
1.2.3 Customer Service Management .............................................................................30
1.2.4 Demand Chain Management ..................................................................................30
1.2.5 Order Fulfillment ..................................................................................................... 32
1.2.6 Manufacturing Flow Management...........................................................................34
1.2.7 Transport Management Systems............................................................................35
1.2.8 Procurement ........................................................................................................... 36
1.2.9 Product Development and Commercialization ........................................................37
1.3 Risk Management of SCM ................................................................................................. 41
1.3.1 Lesson Overview .................................................................................................... 41
1.3.2 Introduction ............................................................................................................. 41
1.3.3 Demand Forecasting............................................................................................... 42
1.3.4 Inventory Management ...........................................................................................43
1.3.5 Combining Lean and Agile Manufacturing ..............................................................44
1.3.6 Supply Chain Strategies Aimed at Matching Demand and Supply..........................45
1.3.7 Managing Supplier Risk ..........................................................................................46
1.3.8 Managing the Risks of Outsourcing and Offshoring................................................47
1.3.9 Supply Chain Trends .............................................................................................. 49
Module Summary ............................................................................................................... 58
Answer Key ........................................................................................................................ 59
Module 2: Introduction to Freight Forwarding Services...................................................63

2.0 Introduction to Freight Forwarding Services ..................................................................65
Module Overview .................................................................................................... 65
2.1 What is Freight Forwarding? ............................................................................................ 66
2.1.1 Lesson Overview .................................................................................................... 66
2.1.2 What is a Freight Forwarder?..................................................................................66
2.1.3 Case Study - IATA Cargo Agent Accreditation........................................................67
2.1.4 What are Freight Integrators? .................................................................................69
2.1.5 Documentation Used in International Freight Transport..........................................73
2.2 Scope of Frieght Forwarding Services ............................................................................83
2.2.1 Lesson Overview .................................................................................................... 83
2.2.2 Introduction ............................................................................................................. 83
2.2.3 Scope of Freight Forwarding Services ....................................................................84
2.2.4 Rights, Duties and Responsibilities of Freight Forwarders......................................86
2.2.5 Relationships with Third Parties..............................................................................91
Module Summary ............................................................................................................... 96
Answer Key ........................................................................................................................ 97
Module 3: Introduction to Transport Management............................................................99

3.0 Introduction to Transport Management .........................................................................101
Module Overview ..................................................................................................101
3.1 Transportation of Freight ................................................................................................ 102
3.1.1 Lesson Overview .................................................................................................. 102
3.1.2 Freight Shipment................................................................................................... 102
3.1.3 Types of Cargo ..................................................................................................... 106
3.2 Modes of transport .......................................................................................................... 119
3.2.1 Lesson Overview .................................................................................................. 119
3.2.2 Air Freight Transport ............................................................................................. 119
3.2.3 Rail Freight Transportation ...................................................................................139
3.2.4 Road Freight Transportation .................................................................................145
3.2.5 Maritime Freight Transportation............................................................................153
Module Summary ............................................................................................................. 165
Answer Key ...................................................................................................................... 166
Module 4: Introduction to Multimodal Transport.............................................................169
4.0 Introduction to Multimodal Transport ............................................................................171
Module Overview ..................................................................................................171
4.1 What is Multimodal Transport? ......................................................................................172
4.1.1 Lesson Overview .................................................................................................. 172
4.1.2 What is Multimodal Transport? .............................................................................172
4.1.3 The MTO's Role .................................................................................................... 173
4.1.4 Key Elements........................................................................................................ 174
4.1.5 Advantages of Multimodal Transport ....................................................................180
4.1.6 Forms of Multimodal Transport Operations...........................................................181
4.1.7 Legal Challenges ..................................................................................................184
4.2 What are INCOTERMS and Bills of Lading? ..................................................................189
4.2.1 Lesson Overview .................................................................................................. 189
4.2.2 What are INCOTERMS?.......................................................................................189
4.2.3 Multimodal Bill of Lading or Multimodal Transport Document ...............................193
Module Summary ............................................................................................................. 197
Answer Key ...................................................................................................................... 198
Module 5: Multimodal Transport Corridor Routing .........................................................199

5.0 Multimodal Transport Corridor Routing ........................................................................201
Module Overview ..................................................................................................201
5.1 Lesson Overview ............................................................................................................. 202
5.1.1 Introduction ........................................................................................................... 202
5.1.2 Integrated Transport Networks Management........................................................203
5.1.3 ESCAP Initiatives.................................................................................................. 205
5.1.4 Transport Corridors and Gateways .......................................................................207
5.1.5 Types of Transport Corridors ................................................................................209
5.1.6 Corridor Management ...........................................................................................210
5.2 Transport Competitiveness ............................................................................................218
5.2.1 Lesson Overview .................................................................................................. 218
5.2.2 Introduction ........................................................................................................... 218
5.2.3 Differences in Modal Split Among Countries.........................................................219
5.2.4 Rationale for Modal Split .......................................................................................220
5.2.5 Characteristics of Different Modes ........................................................................221
5.2.6 Actual and Potential Competition ..........................................................................222
5.2.7 Modal Choice ........................................................................................................ 222
Module Summary ............................................................................................................. 226
Answer Key ...................................................................................................................... 227
Module 6: Unitisation of Cargo ......................................................................................... 229
6.0 Unitisation of Cargo......................................................................................................... 231
Module Overview ..................................................................................................231
6.1.1 Introduction ........................................................................................................... 231
6.1.2 What is Unitisation? .............................................................................................. 232
6.1.3 Containerisation.................................................................................................... 232
6.1.4 Pallets ................................................................................................................... 241
6.1.5 Unit Load Devices Used in the Aviation Industry...................................................242
Module Summary ............................................................................................................. 249
Answer Key ...................................................................................................................... 250
Module 7: Transportation of Dangerous Goods..............................................................251

7.0 Transportation of Dangerous Goods .............................................................................253
Module Overview ..................................................................................................253
7.1.1 Introduction ........................................................................................................... 253
7.1.2 UN Model Regulations on the Transport of Dangerous Goods .............................256
7.1.3 Transport of Dangerous Goods by Air...................................................................257
7.1.4 Air Transport of Infectious Substances .................................................................267
7.1.5 Transport of Dangerous Goods by Land and Sea.................................................270
7.1.6 Transport of Dangerous Goods by Sea.................................................................272
7.1.7 Multimodal Transport of Dangerous Goods ..........................................................274
Module Summary ............................................................................................................. 277
Answer Key ...................................................................................................................... 278
Introduction to IATA Supply Chain and
Transport Modes Textbook
Cargo Training Program
Today, the products we consume travel long distances along global supply
chains to reach us. Production, inventory control, transport, distribution,
and specialized handling and management are all part of these supply
chains. As supply chains become more geographically intricate, their
success depends increasingly on the expertise of competent transport
intermediaries, including freight forwarders.
Increased competition, containerisation and the use of multimodal trans-
port for international freight have all resulted in freight forwarders taking on
greater responsibilities that go beyond simply arranging for the carriage of
goods. Increasingly, freight forwarders are assuming responsibility for the
entire transport operation as principal contractors, subcontracting to
carriers and other transport service providers on behalf of the consignor
(exporter) and consignee (importer). They are also providing additional,
value-added logistics services, and some are specialising in the field of
shipping special cargoes.
The objective of this course is to help prepare you for a role in international
freight forwarding by providing you with the knowledge required to manage
freight forwarding activities within global supply chains. You will learn about
the various methods of shipping different types of cargo, the documents
related to foreign trade, procedures for exporting and importing goods, and
the laws and regulations governing the international carriage of cargo.
Special attention will be given to the role of the freight forwarder in
multimodal transport operations involving two or more transport modes,
including the legal aspects and professional responsibilities of this evolving
role. You will learn how various transport modes—road, rail, sea, inland
waterway and/or air—are used in combination to efficiently and cost-
effectively transport goods and commodities overseas.
This course starts with an introduction to supply chains, supply chain
management and logistics in Module 1, following by lessons for the freight
forwarding profession in Module 2. In the next modules you will learn the
key principles and concepts in freight transport management, multimodal
transport operations, multimodal transport corridor routing, the unitisation
and containerisation of cargo, and the transportation of dangerous goods.
We hope that you enjoy studying this course and trust that you will find the
knowledge gained indispensable in your career.
Introduction to IATA Supply Chain and Transport Modes Textbook 3

4 Supply Chain and Transport Modes

Course Guide
How Does the Course Work?

The IATA Supply Chain & Transport Modes workbook has 7 Modules. The
training materials are all easy to read and understand. Each subject area is
dealt with in detail and numerous examples have been included in each
module to illustrate the instruction. You will be able to monitor your
progress through self-administered sets of review exercises and multiply
choice questions provided at the end of every module.
The enrolment is valid for a period of 18 months, starting with the month
shown on the exam voucher which you received from the IATA Training
and Development Institute (ITDI) in the training kit. This voucher also
shows your client ID number which must be quoted in all correspondence
with ITDI and your Local Co-ordinator.
A MINIMUM OF 100 HOURS OF THOROUGH STUDY ARE

RECOMENDED
The application fee covers only one complete set of training material.
It is strongly recommended that you start studying the training

course immediately so as to be ready to take the first possible
examination.
You should aim to write your exam within 12 months!
Study Guidelines
The following recommendations will help you to make the best use of this
self-study course:
• Study all of the units in the sequence in which they are presented. Do
not skip any subject, even if you are familiar with it.
• Complete all exercises carefully before checking the answer key. Don't
give up too easily!
• If your answers are incorrect, work through the exercise or the text to
which the exercise applies once more to find out where you went
wrong. Study the entire section and, if necessary, do the exercise
again.
• Determine which module or sections require further study. Review
these areas allowing some time to elapse between the first and the
second attempt.
Course Guide 7
Examination Procedures
The examination must be taken within the enrolment period. The examin-
ation consists of one (1) multiply-choice paper. The purpose of the period
of enrolment is to ensure that your course materials remain current and
relevant. Students who are not successful on their first exam attempt can
retake the examination once again within the enrolment period.
Examinations are held in March, June, September and December. The
examination week is determined by ITDI; but the exact date, time, and
location of the exam are decided by the Local Coordinator. In large
countries, the Local Coordinator will try to organise the examination at a
location convenient for the students.
Registering for the Examination

Please note that you are AUTOMATICALLY REGISTERED for the next
available exam session.
Students who register for an examination and do not attend will be
recorded as a “No-show” and will lose one examination attempt.
Three or four weeks prior to the examination date, you will receive an
Exam Invitation Letter from your Exam Organiser/Local Coordinator. If you
do not receive this, please contact your Exam Organiser/Local Coordinator
immediately.
Day of the Examination

To be admitted to the examination, you will need to present the following to
the Exam Organiser:
Your Exam Invitation Letter
Your Client ID
An official identity card with photograph
Note: There will be no exceptions to this rule. The Exam Organiser will
verify your eligibility and identity before you are allowed to take the
examination.
Last minute candidates who have not been properly registered will not be
accepted.
The examination is supervised by the Local Coordinator or a person
appointed by him/her. It lasts three hours and consists of one Multiple
Choice Exam Paper.
All formal examination materials (papers, answer sheets, appropriate
exhibits etc.) will be provided. You are only permitted to take the following
materials into the examination room:
Blue or black pencils;
Language dictionary (for translation purposes only) without any written
notes inside;
The following examples illustrate the flexibility of the examination system
with possible variations:
Given an enrolment validity period beginning in November 201X that
expires in April 201Z, the following would be the examination possibilities
during this 18-month enrolment period:

NAME MARCH 201Y JUNE 201Y SEPTEMBER 201Z

Amarasekara failed passed
Sato failed failed THIRD ATTEMPT passed
Jones No show failed THIRD ATTEMPT failed–
Expired
Please visit the IATA Training webpage for information about enrolment
deadlines and examination weeks.
NOTE–All failed students will be automatically registered for
second attempt at the next available exam session and included
in preliminary list.
All answers must be written in ink on the answer sheet. Answer sheets
returned with pencil markings will not be accepted. You should plan to
have at least two pens with you.
When taking the examination, manage your time wisely. Do not rush! Be
sure to read the questions carefully and answer all questions!
The Exam Organiser will only answer questions concerning the examin-
ation procedures and not on the contents of the exam.
Passing the Examination

All candidates sitting the examination will receive a personal letter from
IATA ITDI with their results, approximately 8 weeks after the examination.
A pass mark of 60% is required. Students achieving a pass mark of 90% or
more at their first attempt will receive a Diploma with Distinction. The
following applies to all candidates without exception:
1. Candidates suspected of cheating will have their enrolment immedi-
ately cancelled and will be required to re-apply to the programme.
2. The examination paper is not returned to any candidate.
3. The Exam Organiser is not responsible for preparing or marking the
examination and will not answer questions about the contents of the
examination. The paper is marked by the IATA Training and Develop-
ment Institute (ITDI) at IATA's headquarters in Montreal.
4. ITDI will not enter into correspondence with students concerning
individual examination results.
5. All results are final. No exceptions are made, regardless of the
difference between individual results and the required pass mark.
Re-Evaluation of Exam Paper

ITDI discourages the re-evaluation (i.e. re-assessment or re-read) of exam
paper(s). However, ITDI does recognise that, on occasion, there may be a
circumstance that would call for a paper's re-evaluation. In such a case it is
entirely at the discretion of ITDI to approve the student's request for a re-
evaluation.
Should the student's request be approved, an administrative cost of
USD 100 will have to be paid in advance for each exam paper that is
re-evaluated.
Course Guide 9
For payment information, please contact examstraining@iata.org or call

ITDI Distance Learning at +1 (514) 874-0202.
Communications
The name and address of the Local Coordinator responsible for the
administration of the training programme in your country is indicated in the
voucher/enrolment letter you received from IATA Training and Develop-
ment Institute (ITDI).
Please contact him/her directly if you have any questions concerning the
course and the examination in your area.
Do not forget to advise ITDI and your Local Coordinator of any changes in
your mailing address or other contact details at any time during your
enrolment period. Please also check the spelling of your name and
address when you receive your Enrolment Letter and report any errors
immediately. Always quote your Client ID number in your correspondence!
IATA Training and Development Institute (ITDI)

Distance Learning
800 Place Victoria
P.O. Box 113
Montreal, Quebec H4Z 1M1
Canada
Tel: +1 (514) 874 0202
Fax: +1 (514) 874 9043
E-mail: examstraining@iata.org
ITDI will also welcome any comments and/or suggestions with respect to
the course material and/or the examination. Please send them to the
following address:
IATA Training and Development Institute (ITDI)

Cargo Training
800 Place Victoria
P.O. Box 113
Montreal, Quebec H4Z 1M1
Canada
Fax: +1 (514) 874 9043
Good Luck with the Course!

Module 1:
Introduction to Supply Chain Management
1.0 Introduction to Supply Chain Management
Module Overview
A supply chain consists of the series of activities and organisations that
materials move through on their journey from initial suppliers to final
Module Learning customers. Supply chain management (SCM) is the integration of these
activities, through improved supply chain relationships, to achieve a
Objectives sustainable competitive advantage.
On completion of this module,
This module will give you an informative overview of SCM, including the
you should be able to:
key and support activities in the supply chain process and the evolution of
• Explain the key concepts SCM from its first introduction as a business term in the 1980s till now.
and terms related to supply
You will learn that a supply chain is a network of facilities and distribution
chain management.
options that perform the functions of procurement of materials, transform-
• Describe the evolution of ation of these materials into intermediate and finished products, and the
supply chain management. distribution of these finished products to customers. We will emphasize the
important role of transportation in SCM in moving production materials and
• Describe supply chain goods to manufacturing plants and physical distribution of finished goods
process activities. to customers.
• Summarize supply chain You will also learn about the three types of SCM strategies (strategy focus,
management functions, value-based focus and performance focus), current trends in SCM and
strategies and trends. how risk is managed within a supply chain.
• Pone: Explain how risk is
managed within a supply
chain.
Key Learning Point

SCM is the integration of key
business processes across the
supply chain.
Module 1: Introduction to Supply Chain Management 13

1.1 What is Supply Chain Management?
1.1.1 Lesson Overview

Supply chain management (SCM) is
the integration of business pro-
Lesson Learning cesses that provides products, ser-
vices and information that add value
Objectives for customers. It comprises all of the
On completion of this lesson, activities associated with the flow
you should be able to: and transformation of goods from
the raw materials stage (extraction),
• Define the terms supply through to the end user, as well as
chain, supply chain the associated information flows.
management and logistics. Materials and information flow both
• List and describe key up and down the supply chain.
activities in the supply chain
process, which include SCM is the management of all key business processes across the supply
transportation. chain. Although SCM represents a relatively new way of approaching
business and different views exist regarding the processes involved, the
• Describe the evolution of key business processes typically would include customer relationship
supply chain management management, customer service management, demand management,
from the 1980s to today. order fulfilment, manufacturing flow management, procurement, and
product development and commercialization.
• List and describe the three
types of supply chain In this lesson we will introduce you to SCM, its importance and the
management strategies. historical developments in SCM.
You will understand how raw material is procured from vendors, trans-
formed into finished goods, and then transported to distribution centres,
and ultimately to customers. We will discuss the key and support supply
chain process activities that make this possible.
Finally, we will cover the three types of supply chain management
strategies—strategy focus, value-based focus and performance
focus—and the four-step process used to develop these strategies.
1.1.2 What is a Supply Chain?

A supply chain comprises all of the activities associated with the flow and
transformation of goods from the raw materials stage (extraction), through
to production and distribution to the end user, as well as the associated
information and cash flows.
Every product has its own unique supply chain. For example, a supply
chain in Cadbury starts with cocoa beans growing on farms and ends when
hungry customers buy bars of chocolate. A supply chain for the jeans starts
with someone growing a field of cotton and ends when you buy them in a
shop.

The supply chain describes the total journey of materials from raw
materials to a finished product delivered to or bought by a customer or
consumer. Along this journey, materials may move through farmers,
miners, processors, raw materials suppliers, agents, component makers,
manufacturers, assemblers, finishers, packers, logistics centres, ware-
houses, third party operators, transport companies, wholesalers and
retailers.
Did You Know?
Taking an organisation's point of view, the activities in front of it (moving
A single firm is generally not raw materials inwards toward the organisation) are called upstream; those
able to control its entire product after the organisation (moving finished goods outwards from the organis-
flow channel from raw material ation) are called downstream. SCM is an integrative approach that
source to customer delivery, considers both the inbound (upstream) and outbound (downstream) flow of
although this is an emerging materials, services and goods to the firm.
opportunity.
Each product has its own supply chain. When you buy a computer, many
upstream activities merge as Intel provides the processor, Matshita the
DVD drive, Agfa the scanner, Hewlett-Packard the printer, Microsoft the
operating system and so on.
After an article is produced, supply chains diverge into different down-
stream sales and distribution channels, with the same product following
different routes to different types of customers. For instance, car compo-
nent makers sell to car assembly plants, wholesalers, garages, retail
shops, car owners, and anyone else interested in buying their products.
A single firm is generally not able to control its entire product flow channel
from raw material source to customer delivery, although this is an emerging
Key Learning Point opportunity. For practical purposes, the business logistics for the individual
The life of a product, from a firm have a narrower scope. Usually, at the maximum, most companies
logistics viewpoint, does not end control their immediate physical supply and distribution channels, as
with delivery to the customer. shown in Figure 1.1.2.
Figure 1.1.2
The physical supply channel is the time and space gap between a firm's
immediate material sources and its manufacturing facilities. Similarly, the
physical distribution channel is the time and space gap between the
firm's manufacturing facilities and its customers. The structure of a physical
supply or distribution channel will be shaped by such factors as product

life-cycle and characteristics, effective communication networks, logistics

systems and company size.
Although it is easy to think of supply/chain logistics as managing the flow of
products from the points of raw material acquisition to end customers, for
many firms there is a reverse logistics channel that must be managed as
well. From a logistics point of view, the life of a product does not end with
delivery to the customer. Products become obsolete, damaged, or non-
functioning and are returned to manufacturers for repair or disposition.
Packaging materials may be returned to manufacturers due to environmen-
tal regulations or because it makes good economic sense to reuse them.
The reverse logistics channel may use all or a portion of the forward
logistics channel or it may require a separate design. The supply chain
terminates with the end of a product's useful life.
Increasingly, logistics is extending beyond the final customer to include the
disposal of products. For example, the European Waste Electrical and
Electronic Equipment (WEEE) Directive, which became law in 2003, sets
collection, recycling and recovery targets for electrical goods. It requires
suppliers to enable consumers of electrical and electronic equipment to
return it free of charge, for the purposes of recycling.
The broad calls to ‘reduce, reuse and recycle’ mean that logistics is
increasingly concerned with the collection and return of materials, as well
as with its original delivery.
1.1.2.1 Example of a Supply Chain: Listerine

To understand the complexity and breadth of supply chains, let's look at an
example.
Listerine® is a popular mouthwash produced by Johnson & Johnson Inc., a
manufacturer of healthcare and beauty care products, which is headquar-
tered in New Jersey. Following is a summary of the links in the supply
chain used to produce Listerine®.
1. Australian farmers grow eucalyptus, harvest the leaves and send them
to a processing company to extract oil.
Key Learning Points 2. The eucalyptus oil is then sold to distributors, who then sell it to one of
Johnson & Johnson manufacturing plants in the United States.
• Key supply chain process
activities are customer 3. Natural gas is drilled in Saudi Arabia.
service, transportation,
inventory management, and 4. Union Carbide buys the liquid gas and processes it into alcohol, which
information flows and order is shipped to the manufacturing plant in the U.S.
processing. 5. Farmers in the U.S. mid-West harvest corn.
• Activities that support the 6. This is processed to make Sorbitol, which both sweetens and adds
key activities include bulk to the mouthwash.
purchasing, warehousing,
materials handling, 7. Sorbitol is sent to manufacturing plant.
production, packaging and 8. The manufacturing plant collects ingredients and does all the oper-
information management. ations needed to produce Listerine.
9. The mouthwash is packed and sent to wholesalers, or directly to retail
pharmacies.

Figure 1.1.2.1—The Supply Chain for Listerine®

Sources: Website at www.listerine.com; Kalakota, R. and Robinson, M. e-Business, roadmap
for success, Addison Wesley, Reading, MA
1.1.2.2 Key Activities

The activities that make up a company's supply chain process vary from
company to company, depending on its size, organizational structure and
the importance of the various activities to its operations. Typical supply
chain activities include customer service, demand forecasting, distribution
communications, inventory control, material handling, order processing,
parts and service support, purchasing, packaging, return goods handling,
salvage and scrap disposal, transportation, and warehousing and storage.
Table 1.1.2.2a lists examples of key supply chain activities. Table 1.1.2.2b
lists examples of activities that are undertaken to supply key activities.
Supply Chain Activity Sub-Activities

1. Customer service (a) Determine customer needs and
wants for logistics customer
service
(b) Determine customer response
to service
(c) Set customer service levels
2. Transportation (a) Select mode and transport
service
(b) Freight consolidation
(c) Carrier routing
(d) Vehicle scheduling
(e) Equipment selection
(f) Claims processing
3. Inventory management (a) Raw materials and finished
goods stocking policies
(b) Short-term sales forecasting
(c) Product mix at stocking points
(d) Decisions re: number, size and
location of inventory stocking
points
(e) Just-in-time, and push and pull
strategies


4. Information flows and order pro- (a) Sales order-inventory interface
cessing procedures
(b) Order information transmittal
methods
(c) Ordering rules
Table 1.1.2.2a—Key Supply Chain Process Activities

1. Purchasing (a) Select suppliers
(b) Purchase timing
(c) Purchase quantities
2. Warehousing (a) Space determination
Key Learning Point
(b) Stock layout and dock design
Transportation is required for
inward transport of materials (c) Warehouse configuration
from suppliers to a
(d) Stock placement
manufacturer's receiving area. It
also required for outward 3. Materials handling (a) Select equipment
transport of finished goods to (b) Equipment replacement policies
customer sites, as well as for
recycling, returns and waste (c) Order-picking procedures
disposal. (d) Stock storage and retrieval
4. Production (a) Specify aggregate quantities
(b) Sequence and time production
output
(c) Schedule supplies for
production/operations
5. Packaging Protective packaging designed for:
(a) Handling
(b) Storage
(c) Protection from loss and
damage
6. Information management (a) Information collection, storage,
and manipulation
(b) Data analysis
(c) Control procedures
Table 1.1.2.2b—Supply Chain Process Support Activities

Let's consider what each of these activities involve in more detail.
Key Supply Chain Process Activities

Customer Service
Customer service is a process for providing significant value-added
benefits to the supply chain in a cost-effective way. Successful organiza-
tions use the following steps to build customer relationships:
Key Learning Point • Determine mutually satisfying goals for the organization and cus-
tomers.
Inventories serve as buffers
between product supply and • Establish and maintain customer rapport.
demand.
• Produce positive feelings in the organization and the customers.
Customer service standards set the level of output and degree of readiness
to which the logistics system must respond. Logistics costs increase in
proportion to the level of customer service provided. Setting customer
service standards affects logistics costs, since logistics must support that
level of service.
Transportation
Transportation is required for several logistics activities. First, it is required
for inward transport of materials from suppliers to a manufacturer's
receiving area. Operations managers choose the transport mode(s), select
the transport operator(s) and design a route. They must also ensure that all
safety and legal requirements are met, deliveries are made on time and
costs are minimized.
Transportation is also required for the physical distribution of products, as
well as to return products and wastes to the company. The importance of
transportation in the supply chain will be described later in this lesson.
Inventory Management
Transportation and inventory management are the highest cost logistics
activities. Transportation adds place value to products and services,
getting them to locations where they can be delivered to or bought by
customers. Inventories maintenance adds time value, enabling products to
be delivered at the time they are needed through supply chain activities.
Inventories are essential to logistics management, because it is usually not
possible or practical to provide instant production to ensure delivery times
to customers. Inventories serve as buffers between product supply and
demand. The product availability customers require is maintained, while
providing the flexibility to implement efficient methods for the manufactur-
ing and distribution of the product.
Inventory management is concerned with specifying the size and place-
ment of stocked goods. Inventory management is required at different
locations within a facility or within multiple locations of a supply network to
protect planned production against the risk of running out of materials or
goods.

Information Flows and Order Processing

Alongside the physical flow of materials is the associated flow of
information. It flows through all parts of the supply chain, passing
information about products, customer demand, materials and their move-
ment, schedules, stock levels, availability, problems, costs, service levels
and so on. Coordinating the information flow is always challenging.
Logistics managers often describe themselves as processing information
rather than moving goods.
Key Learning Point Order processing involves the transmittal of sales order information, as
Transportation adds place value well as procedures for ensuring that sales orders and the inventory
to products and services, available are aligned.
whereas inventories
maintenance adds time value. Supply Chain Process Support Activities
Purchasing or Procurement
The Purchasing or Procurement Department finds suitable suppliers of raw
materials or other goods to be used in production and negotiates terms and
conditions, organises delivery, and arranges insurance and payment.
Procurement can be used as a business tool to find new ways and
opportunities to reduce costs and enhance profitability and cash flow.
In the past, purchasing or procurement was a clerical job involving the
processing of purchase orders. Today, procurement is largely automated
and is the main link to upstream activities. In firms that sell their products
internationally, procurement is managed on a global basis.
Warehousing
Warehousing personnel move production materials and goods from the
receiving area into storage and ensure that they are available when
needed. Warehousing also looks after stored materials, ensuring they have
the right conditions, treatment and packaging to remain in good state. This
is particularly important for such items as frozen food, drugs, alcohol,
chemicals, animals and dangerous goods.
Warehousing activity is an important link between the producer and the
customer. Since it ensures that goods and materials are available when
needed and kept in good condition, it plays a vital role in providing a
desired level of customer service at the lowest possible total cost.
Material Handling
Material handling is the general term used to describe the movement of
materials within an organisation. The aim of material handling is to move
materials safely and efficiently with short journeys, using appropriate
equipment, special packaging and handling where needed.
Production
The production or manufacturing process produces and supplies products
to distribution channels based on forecasts for product demand. To remain
competitive, manufacturers design production processes to be flexible
enough to respond to ongoing market changes and to accommodate mass
customization.

Packaging
Packaging wraps materials to ensure they are properly protected during
shipping, so that damage is kept to a minimum. Logistically, packaging
provides protection during storage, handling and transport. This is es-
pecially important when goods are being shipped long distances or
internationally over multiple transportation modes.
Key Learning Point Information Management
SCM is used to efficiently
Information management (IM) is the collection and management of
integrate suppliers,
information from one or more sources and the distribution of that
manufacturers, warehouses and
information to one or more audiences. It involves organizing, retrieving,
stores, so that merchandise is
acquiring, securing and maintaining information.
produced and distributed at the
right quantities, to the right IT solutions facilitate a broad range of business capabilities, including
locations, and at the right time, strategy development, risk analysis, process improvement, SCM, improved
in order to minimize system- customer service, formation of competitive prices and production capabili-
wide costs while satisfying ties.
service level requirements.
1.1.2.3 The Importance of Transport in the Supply
Chain
Transportation is a vital part of supply chain because all manufacturers
must transport the raw materials they use in production, as well as its
finished products that are delivered to customers. In addition, logistics
activities are usually spread over many locations. For example, stocks of
finished goods can be held at the end of production, moved to nearby
warehouses, sent to regional depots, put into stores near to customers or
passed on to third parties for distribution.
Physical distribution is a general term used to describe the activities
required to deliver finished goods to customers, including outward trans-
port, which transports materials from the departure area and delivers them
to customers. Physical distribution is often aligned with marketing and
forms an important link with a company's downstream supply chain
activities.
After delivery, the next link in the chain is recycling, returns and waste
disposal. Sometimes, the goods delivered to customers are faulty, of the
wrong type or too many are delivered by accident. These goods must be
returned and new goods may need to be delivered.
Associated materials, such as pallets, delivery boxes, cable reels and
containers may be returned to suppliers for reuse. Some materials may be
returned for recycling, such as metals, glass, paper, plastics and oils. Other
materials cannot be recycled, but are returned for safe disposal, such as
dangerous chemicals.
The importance of transportation within a manufacturer's operations is
evident when you consider the financial strain a national railroad strike or
independent truckers' work stoppage due to rate disputes will put on a firm.
Under these circumstances, companies cannot get their products to the
markets they serve. Products may back up in the logistics pipeline, with the
risk that they will deteriorate or, in the case of seasonal products, become
obsolete. Without reliable transportation, upstream and downstream supply
chain activities cease, and the financial losses to a company can be
significant.
Another factor that underlies the importance of freight transport is today's
international marketplace. Companies are designing their products for a
world market and producing them wherever the low-cost raw materials,

components and labour can be found. Alternatively, they may simply

produce locally and sell internationally. In either case, supply chains are
expanded across national boundaries and into other continents.
1.1.3 What is Supply Chain Management?

So far, we have considered the supply chain used to move materials
through on their journey from initial suppliers to final customers. We have
also discussed the various supply chain activities, underlying the import-
ance and cost of transportation. In this section, we will define supply chain
management (SCM) and consider some of the challenges it involves.
Following is an example of detailed definition describing the goals of SCM
in providing a company with a competitive advantage:
“SCM is a set of well-organized processes used to integrate all
parties involved (as suppliers, producers, warehouses, stores etc.) so
production cycle is optimized and final products are distributed at the
right time, to the right customers at the right price. As a final result
SCM have to reduce the cost through the whole chain without
compromising quality of the products and service satisfaction.”
Which means that SCM considers facilities with cost impact and role in
making goods in accordance with customer requirements: accounting
suppliers and manufacturers warehousing and distribution, retailers and
stores?
The target of SCM is to minimize entire costs, including raw materials, work
in process, transportation and distribution of the finished goods. The SCM
is a systems approach to all processes of product life, not focusing on
some sectors as production or distribution costs.
SCM involves logistics, which are responsible for the flow of materials or
product flow through a supply chain. Logistics consist of a series of related
activities. These range from procurement to initiate the flow of materials
into an organisation, through to physical distribution to deliver products to
customers.
The terms logistics and SCM are often used interchangeably. However,
SCM is broader than logistics as it deals not only with a firm's internal
product flow, but also with its marketing, sales, customer service and
production activities. SCM also extends to a manufacturer's suppliers and
other external firms involved in the production and sale of its goods. For
example, a manufacturer operating under just-in-time production schedul-
ing may build a relationship with a supplier aimed at benefiting both
companies by reducing inventories and therefore inventory costs.
SCM encompasses the planning and management of all activities involved
in sourcing, procurement, conversion and logistics management. It also
includes coordination and collaboration with business partners, which may
include suppliers, intermediaries, third-party service providers and cus-
tomers. In essence, SCM integrates supply and demand management
within and across companies.
Did You Know?
Uncertainty and risk exist in
every supply chain due to such
factors as the unpredictability of
customer demand and shipping
times.

1.1.3.1 Evolution of SCM

The term ‘supply chain management’ entered the public domain when
Keith Oliver, a business consultant at Booz Allen Hamilton, used it in an
interview for the Financial Times in 1982. The term gained currency in the
mid-1990s, when a flurry of articles and books were published on the
subject. In the late 1990s, it rose to prominence as a widely used
management term, and operations managers began using it in their titles
with increasing regularity.
Why did SCM rise to prominence during the 1990s? In the 1980s,
companies discovered new manufacturing technologies and strategies that
allowed them to reduce costs and better compete. Such strategies as “just-
in-time” manufacturing or lean manufacturing and total quality manage-
ment became very popular. Vast amounts of resources were invested in
implementing these strategies. However, once these strategies had been
used to reduce manufacturing costs as much as was practically possible,
many companies discovered that effective SCM was the next step they
needed to take to increase their profits and market share.
Faced with huge pressure during the 1990s to reduce costs and increase
profits, industries began to focus on core competencies and adopted a
specialisation model. Companies sold off non-core operations and out-
sourced those functions to other companies. This changed SCM require-
ments by extending the supply chain well beyond company walls and
across specialized supply chain partnerships. The specialisation model
creates manufacturing and distribution networks composed of multiple,
individual supply chains specific to products, suppliers and customers, who
work together to design, manufacture, distribute, market, sell and service a
product.
Supply chain specialisation enables companies to focus on their core
competencies and assemble networks of partners to contribute to the
company's value, thereby increasing overall performance and efficiency.
In the late 1990s, the Internet and related e-business models led to
expectations that many supply chain problems would be solved merely by
using these new technologies and business models. Customers could
Did You Know? order, purchase and even customize products online, reducing the need for
retail space and in person customer service. Companies could build virtual
The term “supply chain storefronts to sell their products online as well as at traditional physical
management” entered the public stores, and the ‘bricks and clicks’ business model was born.
domain when business
consultant Keith Oliver used it in E-business strategies were supposed to reduce costs and increase service
an interview for the Financial levels and flexibility and, of course, boost profits eventually. In reality, these
Times in 1982. expectations frequently were not met, as many e-businesses failed and
went out of business. During the peak dot.com bust years of 2000–2001,
an estimated 7,000 to 10,000 Internet-based businesses went bankrupt on
a worldwide basis. The downfall of some of the highest-profile Internet
businesses can be attributed to their logistics strategies, along with lack of
management expertise and strategic planning.
However, in many cases, the Internet introduced new marketing and sales
channels that required many companies to learn new ways of doing
business and added complexity to existing supply chains. The Internet also
helped to enable the direct-to-consumer business model. In the direct-to-
consumer model, the consumer purchases goods and services directly
from the producer, often through a website or at a retail store.

Presently the managers are focused on reducing manufacturing and

supply chain costs which significantly increasing the risk within supply
chains. Business practices as outsourcing and offshoring are common
practices. To increase its competitive power many companies started
implementation of balanced strategies in cost reduction and risk manage-
ment.
There is variety of approaches that may be used to manage supply chain
risk as:
• Creating surpluses and contingency plans for the different parts of
supply chain so that if something goes wrong, it will not disturb supply
to the customers, for example, a strike or natural disaster.
• Creation of special procedures of collecting data, predicting and
Key Learning Point reacting to disruptive events.
The specialisation model • Preparation of risk analysis of industry trends and suppliers to reduce
creates manufacturing and the vulnerability of the system and fulfill supply and demand.
distribution networks composed
of multiple, individual supply
chains specific to products,
suppliers and customers, who
work together to design,
manufacture, distribute, market,
sell and service a product.
Management of the risks inherent in supply chains and strategies and

technologies used to manage those risks are described in greater detail in
Lesson 1.3 Risk Management of Supply Chain Management.
Key Learning Point

Recent trends in SCM include
minimizing risk by building
redundancy into the supply
chain so that if one part of it fails,
the supply chain can still satisfy
demand.
1.1.3.2 SCM Strategies

Generally in management, a strategy guides managers of an enterprise in
deciding how to set up and use resources and establishes priorities. While
SCM involves managing supply chain operations to reduce costs, supply
chain strategies have a broader definition. They define how a company's
supply chain should operate to compete in the marketplace.
Key Learning Point Supply chain strategies are required to manage the integration of supply
chain activities through improved supply chain relationships, to achieve a
The three main types of SCM
competitive and cooperative advantage. Different strategies require differ-
strategies are strategy focus,
ent activities to be performed. Major business challenges for organisations
value-based focus and
developing supply chain strategies include developing capabilities to
performance focus.
manage the seven V's that customers want: value, volume volatility,
velocity, variety, variability, visibility and virtuality. Table 1.1.3.2 lists the
supply chain strategies that address the seven V's.

From Business Challenges (the To Supply Chain Strategies (the

seven V's that customers want) seven S's that deliver organis-
ational strategies)
Value Sustainability
Volume volatility Service
Velocity Speedy response
Variety Suited to customer requirements
Variability Standards
Visibility Systems focused on customer satis-
faction
Virtuality Structures and relationships
Table 1.1.3.2—Supply Chain Strategies that Achieve Customer Satisfaction and
Competitiveness
Supply chain strategy involves defining means, ways and ends as follows.
Means are a balanced set of appropriate measures for the development
and exploitation of ways—the company's existing logistic competitive
capabilities and potential for logistics improvements. Logistics and supply
chain objectives are the ends that drive development of the strategy and
allocation of resources. The objectives usually cover the target areas of
costs, flexibility, quality, delivery, innovation for the company, as well
collaboration and coordination with external stakeholders (customers,
suppliers, retailers, distributors).
One of the targets of SCM strategies is to develop competitive capabilities
related to logistics that provide the company with a competitive advantage.
Firms spend a great deal of time finding ways to differentiate their product
offerings from those of their competitors. Managers also need to recognize
that logistics and SCM comprise a significant portion of the company's
costs and that decisions made about supply chain processes will yield
different levels of customer service. SCM strategies can be used to
Key Learning Point penetrate new markets, and increase market share and profits. That is,
good SCM can generate sales, not just reduce costs.
The four steps in supply chain
management strategy There are three main types of SCM strategies. They are strategy focus,
development are: value-based focus and performance focus.
• Intelligence—identification Strategy Focus
of problems and
opportunities Strategic SCM emphasises the alignment of SCM with corporate and
business strategies. Consequently, a supply chain strategy should support
• Design of possible corporate and business strategies at both the corporate and business unit
alternative strategies levels and enable the achievement of corporate and business objectives. A
• Choice of strategies supply chain strategy should be the enabler of a business strategy. For
example, if a company's business strategy is to be a low cost provider, the
• Implementation of chosen supply chain strategy should support this.
strategies and performance
review Value-Based Focus
Value in logistics is primarily expressed in terms of time and place.
Products and services have no value unless they are in the possession of
the customers when (time) and where (place) they wish to consume them.
For example, concessions at a sports event have no value to consumers if
they are not available at the time and place that the event is occurring, or if
inadequate inventories do not meet the demands of the sports fans.

Effective SCM views each activity in the supply chain as contributing to the
process of adding value. If little value can be added, it is questionable
whether the activity should exist. However, value is added when customers
are willing to pay more for a product or service than what it costs to place it
in their hands.
A value-based SCM strategy aims to align all SCM activities with the
overall goal of improving the company's value to customers. SCM
influences customer satisfaction. Customer satisfaction, in turn, influences
sales. So the key question that must be addressed is: “How can customer
satisfaction be influenced by SCM?” One possible answer may be “By a
high delivery quality, on which availability of materials, capacities and
information have impact.”
In this case, means on an operational level (e.g., high quality service) can
be connected with objectives on a strategic level (i.e., outcomes, such as
greater sales volume and improved customer satisfaction).
Performance Focus
Performance-based SCM strategies involve controlling and monitoring the
supply chain, as well as benchmarking against competitors and perform-
ance measurement. Performance indicators are widely used for measure-
ment. A balance of financial and non-financial key performance indicators
should be used.
Performance-based SCM strategies can be used to measure the company
competitiveness and business success.
SCM Strategy Development

SCM strategies can be developed, implemented and evaluated using a
four-step process:
1. Intelligence: Problems or opportunities are identified through bench-
marking or performance measurement. The capabilities that exist
within the organisation and its extended supply chain are assessed. At
the same time, costly inefficiencies and redundant activities and other
problems that do not support the company's business strategies may
be targeted for elimination.
2. Design: Possible alternative supply chain strategies are developed.
Input for priorities comes from product and marketing strategies as well
as from corporate strategy.
3. Choice: Alternative strategies are compared and selected based on
alignment with corporate and business strategies and objectives, and
priorities. The feasibility of strategies is evaluated in terms of the
capabilities and resources available, as well the prerequisites that may
be required and the potential risks involved. Where necessary, SCM
strategies are modified by going back to step two.
4. Implementation/Review: An implementation plan is developed with a
defined set of requirements. The plan should include activities, tasks,
roles, responsibilities, a corresponding timeline and performance
metrics. Once the plan has been carried out, performance should be
tracked against performance objectives.

Lesson Summary
In this lesson, we introduced the key terms supply chain, supply chain
management (SCM) and logistics:
• A supply chain consists of the series of activities and organisations that
materials move through on their journey from initial suppliers to final
customers. It is through supply chains that raw materials are procured
from vendors, transformed into finished goods, and then transported to
distribution centres, and ultimately to customers.
• Logistics are responsible for the flow of materials or product flow
through a supply chain.
• Supply chain management (SCM) is the integration of supply chain
process activities, through improved supply chain relationships, to
achieve a sustainable competitive advantage.
We explained that the key supply chain process activities are customer
service, transportation, inventory management, and information flows and
order processing. Transportation is required for inward transport of
materials from suppliers to a manufacturer's receiving area. It also required
for outward transport of finished goods to customer sites, as well as for
recycling, returns and waste disposal.
We also explained that the supply chain activities that support the key
activities include purchasing, warehousing, materials handling, production,
packaging and information management.
Finally we discussed how effective SCM can reduce logistics costs, while
also increasing customer satisfaction and sales, and how SCM strategies
can be used to penetrate new markets, and increase market share and
profits.

Progress Check 1
1. A single firm is generally not able to control its entire product flow
channel from raw material source to customer delivery, although this is
an emerging opportunity.
True or False?
2. What are the key activities in supply chain management?

(a) Purchasing, production, customer service and transportation
(b) Customer service, transportation, inventory management, infor-
mation flows and order processing
(c) Production, transportation, inventory management, information
flows and order processing
(d) Material handling, production, inventory management, information
flows and order processing
3. List some key reasons why safe and reliable transportation is critical
for supply chains.
4. The terms logistics and SCM are used interchangeably and have the
same meaning.
True or False
5. Which of the following statements about SCM is false?

(a) It involves only the physical flow and transformation of goods
through the supply chain.
(b) It considers and includes the activities of external stakeholders,
such as customers, suppliers and distributors.
(c) It requires that an integrated, system-wide approach be taken
manage costs.
(d) It involves a company's strategic, tactical and operational activities.
6. List and briefly describe the three types of SCM strategies.
7. List and briefly describe the four steps used to develop SCM
strategies.

1.2 Supply Chain Management Processes

Supply chain management requires a change from managing individual
functions to integrating activities into key supply chain processes. In
Lesson Learning today's highly competitive markets, companies are required to integrate
their supply chain activities and to engage in strategic partnering with
Objectives customers, suppliers, distributors and others in their extended supply chain
On completion of this, you networks.
should be able to:
In many companies, management has reached the conclusion that
• Describe supply chain optimizing product flows cannot be accomplished without implementing a
business process business process integration approach. In this lesson, we will describe
integration. several of the key processes required to adopt a business process
integration approach to SCM. These processes are:
• Describe critical supply
chain management • Customer relationship management
processes.
• Customer service management
• Summarize the business
• Demand chain management
problems supply chain
management addresses. • Order fulfillment
• Manufacturing flow management
• Transport management systems (TMS)
• Procurement
• Product development and commercialization
1.2.2 Customer Relationship Management

Customer relationship management (CRM) is a widely implemented model
for managing a company's interactions with customers, clients and sales
prospects. CRM is a set of strategies, programs and enabling systems that
focus on identifying and building customer loyalty with the prime objective
of obtaining additional value from higher spenders—the retailer's most
valued customers. It involves using technology to organize, automate and
synchronize sales, marketing, customer service and technical support
activities.
The overall goals of CRM are to:
• Find, attract and win new clients;
• Nurture and retain those the company already has;
• Entice former clients to return; and
• Reduce the costs of marketing and client service.
Key Learning Point
CRM assumes that all employees are engaged in customer service on
The goals of customer some level and are dedicated to meeting customer needs. Measuring and
relationship management valuing customer relationships is critical to implementing this strategy.
include winning new clients,
retaining existing ones and CRM software gathers information about customers and enables a
enticing former clients to return. business to create, assign and manage requests made by customers. An
example would be Call Center software, which helps to direct a customer
to the agent who can best help them with their current problem.
Recognizing that this type of service is an important factor in attracting and
retaining customers, organizations are increasingly turning to technology to
help them improve their clients' experience.

When used for marketing and sales purposes, CRM databases help a
business to identify and target potential clients and generate leads for the
sales team. CRM databases can also be used to identify and reward loyal
customers, which, in turn, will help improve customer retention.
1.2.3 Customer Service Management

In Lesson 1.1 “What is Supply Chain Management”, we discussed the
impact that SCM has on customer satisfaction and ultimately on sales.
Every business achieves its aims by supplying products and services to
customers, and success and profitability ultimately depends on achieving
customer satisfaction. If an organisation does not satisfy its customers, it
will not survive for long, let alone achieve any of its aims.
Key Learning Point
This gives the context for logistics, and allows us to phrase the overriding
Businesses must find the best
aim of logistics in terms of providing customer service. To put it simply,
balance between providing a
managers should organise logistics in the best way possible to achieve
high level of customer service
customer satisfaction. Customer service provides the customer with real-
and managing the costs of
time information on promised shipping dates and product availability
logistics.
through interfaces with the organization's production and distribution
operations. Customer service provides the single source of customer
information.
Any organization can provide outstanding customer service if it allocates
enough resources. But resources cost money, and higher customer service
almost inevitably comes at a higher price. The problem is that customers
will generally only agree to pay a certain price for a particular class of
product, which will be largely influenced by competitors' pricing.
Therefore, a more realistic aim for logistics is to find the best balance
between service and cost. For example, a company might aim to provide a
specific level of customer service for the lowest cost or, alternatively, to
maximise the service provided for a specific cost.
People often summarise the aims of logistics as getting, ‘the right
materials, in the right quantity, at the right place, at the right time, from the
right source, with the right quality, at the right price.’ No one can argue with
this but, of course, it depends on what we mean by ‘right’.
The fact is that, in different circumstances, customers can demand very
different things. For instance, when you post a letter, you sometimes want
it delivered quickly–in which case the ‘right’ delivery is the fastest.
Key Learning Point Sometimes you want it delivered as cheaply as possible, or with high
A company's value chain has security, at a specified time, with a receipt, to a specified person.
two parts—its supply chain and
Logistics must deal with these varying demands and must give a service
its demand chain, which
that customers are prepared to pay for. This is usually phrased in terms of
comprises the marketing, sales
logistics ‘adding value.’ This means that to the customer, the perceived
and customer service
benefits of a product and its associated services are greater than the price
departments.
the customer pays.
1.2.4 Demand Chain Management

The value chain is a concept from business management that was first
described and popularized by Michael Porter in his 1985 best-seller,
Competitive Advantage: Creating and Sustaining Superior Performance.
The value chain categorizes the value-adding activities of an organization.

The value chain has two parts, the supply chain comprising purchasing,
manufacturing and distribution, and the demand chain comprising market-
ing, sales and customer service (see Figure 1.2.4a). Marketing, sales and
customer service are known as the demand chain, because they collec-
tively drive and sustain customer demand. The demand chain begins with
customers, then funnels through any resellers, distributors and other
business partners who help sell the company's products and services.
Did You Know? Demand chain management involves managing the organisation's supply
Advertising is designed to chain processes to deliver the best value according to customer demand.
influence the tastes and
preferences of consumers and
thereby cause a change in
demand.
Figure 1.2.4a—The Value Chain
Demand chain management is the same as supply chain management, but

with emphasis on consumer pull rather than supplier push. It's clear that it
makes good sense to link or integrate the two chains, so that customer
demand is balanced with the firm's supply capabilities. The challenge of
linking demand and supply chains has occupied many supply chain
specialists in recent years. Concepts such as ‘demand-driven supply
chains’ and ‘customer-driven’ supply chains have attracted attention and
become the subject of conferences and seminars.
Demand pull versus demand push systems are distinguished by the way
the company's production is driven. If a firm waits to produce products until
customers demand it, that is a pull system. Customer demand pulls the
inventory. If a company produces to forecast or anticipated sales to
customers, that is a push system. The company is pushing its inventory
into the market into the market in anticipation of sales.
One of the key problems with linking supply and demand chains is the lack
of accurate demand forecasting. Demand forecasting is the activity of
estimating the quantity of a product or service that consumers will
purchase. Demand is the quantity of a good or service consumers are
willing and able to buy at a given price in a given time period. There are
many factors that affect demand for a product or service, including the
following:
• Change in the price of a substitute. Substitutes are goods in
competitive demand and act as replacements for another product. For
example, a decrease in the monthly fees of a telecommunications
company providing Internet, cable and telephone services would result
in increased demand for its services and decreased demand for its
competitors' services.
• Change in the price of a complement. A complement tends to be
bought together with another good. Two complements are said to be in
joint demand. Examples include new computers bundled with optional
software or, DVD players and DVDs.
A rise in the price of a complement to Good X should cause a fall in the
demand for X. For example a decrease in the cost of flights from

London Heathrow Airport to New York would cause an increase in the

demand for hotel rooms in New York and also an increase in the
demand for taxi services both in London and New York.
• Change in the income of consumers. When an individual's income
rises, their ability to purchase goods and services increases, and this
causes an upward shift in demand. When incomes fall, there will be a
decrease in the demand for most goods.
• Change in tastes and preferences. Tastes can often be volatile,
leading to a change in demand. Advertising is designed to influence
the tastes and preferences of consumers and thereby cause a change
in demand.
• Changes in interest rates. Many goods are bought on credit using
borrowed money. Therefore the demand for them may be sensitive to
the rate of interest charged by the lender. Examples of ‘interest
sensitive’ goods include household appliances, electronic goods, new
furniture and automobiles. The demand for new homes is affected by
changes in mortgage interest rates.
Did You Know? As you can see, the factors that affect demand may be difficult, or in some
cases, impossible to predict in advance. The core problem from the supply
Order fulfillment is the complete chain perspective is getting accurate demand plans and forecasts. The aim
process from point of sales is to minimise out-of-stock situations and excessive cost of supply due to
inquiry to delivery of a product to demand that spikes dramatically due to a jump in sales.
the customer.
Much attention has been drawn to the bullwhip effect. This occurs when
demand patterns are extremely volatile, usually as a result of sales
promotions. The bullwhip effect has the unintended consequences of
driving up supply chain costs, due to supply capacity being unable to meet
the sharp and rapid rise in demand and the entire value chain becoming
unstable as a consequence.
Regardless of the challenges, more companies have shifted away from
plant-level production planning to a customer demand production planning.
The demand-driven approach can help companies create a more
customer-focused mindset, without reducing operational efficiency.
Factors to consider when forecasting and planning for customer demand
include new or obsolete products, competitors' products and pricing,
market conditions and the company's projected revenues. To be most
effective, demand planning should involve a company's sales, marketing,
finance and product development developments and its supply chain, so
that input from all interested parties can be considered.
1.2.5 Order Fulfillment

Order fulfillment is the complete process from point of sales inquiry to
delivery of a product to the customer. It refers to the way firms respond to
customer orders.
Performing the order fulfillment process effectively requires integration of
the firm's manufacturing, distribution and transportation plans. The objec-
tive is to create a seamless process.

A company has several strategic options for fulfilling customer orders.

These include:
• Engineer-to-Order—Here, the product is designed and built to cus-
tomer specifications. This approach is most common for large con-
struction projects and one-off products, such as Formula 1 cars.
• Buy-to-Order—The product is unique and designed and built to
customer specifications, usually with a long lead time. Custom built
furniture or cabinetry are some examples.
• Make-to-Order (MTO)—The product is based on a standard design,
but component production and manufacture of the final product is
linked to specifications contained in the customer's order. This strategy
is typical for high-end motor vehicles and aircraft.
• Assemble-to-Order—The product is built to customer specifications
from a stock of existing components. This assumes a modular product
architecture that allows for the final product to be configured in this
Key Learning Points way. A typical example for this approach is Dell's approach to
• Just-in-time strives to customizing its computers.
improve a business's return
• Make-to-Stock—In this case, the product is built against a sales
on investment by reducing
forecast, and sold to the customer from finished goods stock. This
in-process inventory and
approach is common in the grocery and retail sectors.
associated carrying costs.
• Digital Copy—Products are digital assets and inventory is maintained
• Lean manufacturing seeks
with a single digital master. Copies are created on-demand, down-
to eliminate the expenditure
loaded and saved on customers' storage devices.
of resources for any goal
other than customer value The possible steps in the order fulfillment process are:
creation.
1. Product Inquiry—Initial inquiry about product offerings, visit to the
website or catalog request.
2. Sales Quote—Providing the customer with pricing.
3. Order Configuration—In situations where the customer selects op-
tions and customizes the order.
4. Order Booking—The formal order placement or closing of the deal,
issued by the customer through a purchase order.
5. Order Acknowledgment/Confirmation—Confirmation that the order
has been booked and/or received.
6. Invoicing/Billing—Presentation of the commercial invoice to the
customer.
7. Order Sourcing/Planning—Determining the source/location of
item(s) to be shipped.
8. Order Changes—Changes to the order, if needed.
9. Order Processing—Filling, packing and shipping of the order by the
distribution centre or warehouse.
10. Shipment—The shipment and transportation of the goods.
11. Delivery—The delivery of the goods to the consignee/customer.
12. Settlement—The payment of the charges for goods/services/delivery.
13. Returns—In cases where the goods are unacceptable or the wrong or
too many goods were delivered.

1.2.6 Manufacturing Flow Management

Manufacturing flow management is the SCM process that includes all
activities necessary to obtain, implement and manage manufacturing
flexibility in the supply chain and to move products through the manufactur-
ing facilities. Manufacturing flexibility reflects the ability to make a variety of
products in a timely manner at the lowest possible cost and respond to
changes in demand.
Two strategies for achieving manufacturing flexibility are the just-in-time
(JIT) production strategy and lean manufacturing processes developed as
Japanese business processes.
JIT is a production strategy that strives to improve a business's return on
investment by reducing in-process inventory and associated carrying
costs. It is aimed at reducing waste and redundant inventory by delivering
products, components, or materials just when an organization needs them.
JIT represents a tremendous opportunity for the logistics function to
contribute to the organization's success by reducing inventory, while
simultaneously maintaining or improving customer service levels. To meet
JIT objectives, the process relies on signals or Kanban between different
points in the process, which tell production when to make the next part.
Kanban are usually ‘cards,’ but can be simple visual signals, such as the
presence or absence of a part on a shelf. Kanban literally means
‘signboard’ in Japanese. There are two types of Kanban cards: move cards
and production cards.
Implemented correctly, JIT focuses on continuous improvement and can
improve a manufacturing organization's return on investment, quality and
efficiency.
The benefits resulting from implementing JIT may include:
• Diminished raw materials, work in process and finished goods inven-
tory;
• Dramatically improved inventory turnover rates;
• Productivity improvements and greater control between various pro-
duction stages; and
• A reduction in manufacturing cycle times.
Often simply called ‘lean,’ lean manufacturing is a production practice that
considers the expenditure of resources for any goal other than the creation
of value for the customer to be wasteful and thus a target for elimination.
Working from the perspective of the customer who consumes a product or
service, ‘value’ is defined as any action or process for which a customer
would be willing to pay.
Essentially, lean is centred on preserving value with less work. Lean
manufacturing is a management philosophy derived mostly from the
Toyota Production System (TPS). The steady growth of Toyota, from a
small company to the world's largest automaker, has focused attention on
how it has achieved this.
The goals of lean manufacturing include:
• Improve quality: To stay competitive in today's marketplace, a
company must understand its customers' wants and needs and design
processes to meet their expectations and requirements.

• Eliminate waste: Waste is any activity that consumes time, resources,

or space but does not add any value to the product or service. Waste
includes unnecessary or dangerous work due to poor organization.
Examples include production ahead of demand or overproduction,
product defects, waiting time for the next product step, unused
inventory, unnecessary transport of products or movement of workers
that is not required for production and the over processing of goods.
Key Learning Point • Reduce time: Reducing the time it takes to finish an activity from start
Transport management systems to finish is one of the most effective ways to eliminate waste and lower
are used to plan, execute and costs.
follow-up on freight transport
• Reduce total costs: To minimize costs, a company must produce only
trips.
to customer demand. Overproduction increases a company's inventory
costs because of storage needs.
The following steps are implemented to create the ideal lean manufactur-
ing system:
1. Design a simple manufacturing system.
2. Recognize that there is always room for improvement.
3. Continuously improve the lean manufacturing system design.
1.2.7 Transport Management Systems

A transportation management system (TMS) is a subset of SCM concern-
ing transportation operations and may be part of an enterprise resource
planning system.
A shipper would typically use a TMS for both inbound (procurement) and
outbound (shipping) orders. These orders are evaluated by the TMS
planning module, which offers the shipper various suggested routing
solutions. The shipper then evaluates these solutions and, if satisfied, uses
the transportation provider analysis module to select the best mode and
least cost provider.
Once the best provider is selected, the solution typically generates
electronic load tendering and tracking information to execute the shipment
with the selected carrier, and later to support freight audit and payment.
Functionalities
TMS manage four key transportation management processes:
1. Planning and decision making—The TMS defines the most efficient
transport plans according to given parameters, which could include
cost, lead-time or reducing the number of stops or waiting time. TMS
can also provide solutions to optimize vehicle loads and transport
routes.
2. Transportation execution—The TMS supports the execution of the
transportation plan, including carrier rate acceptance, carrier dis-
patching and electronic data interchange (EDI) providing the infor-
mation flow between the shipper and selected carriers.

3. Transportation follow-up—The TMS provides real-time

transportation tracking of shipped goods and has other follow-up
functions relating to customs clearance, invoicing and transport
documents, and the transmission of transport alerts in cases of delay,
accident or non-forecast stops.
4. Measurement—TMS have a logistics key performance indicator (KPI)
reporting function for transport. KPIs that may be used include cost per
Key Learning Point metric (kilometre, weight, pallet), productivity in financial terms (dollars
Procurement is the acquisition of per pound or shipping unit) or productivity in operational terms
goods or services, with the goal (units/order or weight/load). KPIs may also include percentage of on
of meeting the purchaser's time pick up or delivery performance relative to the KPI requested.
needs for quality, quantity, time
and location at the best possible
cost. 1.2.8 Procurement
Procurement is the acquisition of goods or services, with the goal of
meeting the purchaser's needs for quality, quantity, time and location at the
best possible cost. Procurement and purchasing are often used inter-
changeably, although they differ in purpose. Procurement is broader in
scope and includes purchasing, traffic, warehousing and all other activities
related to receiving inbound materials.
A common procurement issue is the timing of purchases. Just-in-time (JIT)
procurement is a system of timing the purchases of consumables to keep
inventory costs low. JIT procurement is commonly used by Japanese
companies and has been widely adopted by many global manufacturers
from the 1990s onwards. Typically, an agreement setting terms and price is
created between a supplier and purchaser, and specific orders are then
executed as required.
Procurement Steps
The procurement life cycle usually consists of eight consecutive steps:
1. Information gathering: If the potential customer does not already
have an established relationship with the sales/marketing functions of
suppliers of needed products and services, it is necessary to search for
suppliers who can satisfy the requirements.
2. Supplier contact: When one or more suitable suppliers have been
identified, requests for quotation, proposals, information or tender may
be advertised, or direct contact may be made with the suppliers.
3. Tender notification: Some companies send out tender notifications
electronically to potential suppliers to encourage competition for the
business opportunity.
4. Background review: Supplier references for product/service quality
are consulted, and any requirements for follow-up services including
installation, maintenance and warranty are investigated. Samples of
the product or service being considered may be examined, or trials
undertaken.
5. Negotiation: Negotiations are undertaken to establish price, avail-
Did You Know? ability and product customization (if applicable). Delivery schedules are
also negotiated, and a contract to acquire the product/service is
Most product designs fall under completed.
one of two categories: demand-
pull innovation or invention-push
innovation.

6. Fulfillment: Supplier preparation, expediting, shipment, delivery and

payment for the products/services are completed, based on contract
terms. Installation and training may also be included.
7. Consumption, maintenance and disposal: During this phase, the
company evaluates the performance of the products/services and any
accompanying service support, as they are consumed.
8. Renewal: When the product/service has been consumed or disposed
of, the contract expires, or the product or service is to be reordered,
company experience with the product or service is reviewed. If the
product/service is to be reordered, the company determines whether to
consider other suppliers or to continue doing business with the same
supplier.
1.2.9 Product Development and

Commercialization
Most product designs fall under one of two categories: demand-pull
innovation or invention-push innovation. Demand-pull occurs when there is
an opportunity in the market to be explored by the design of a product. This
product design attempts to solve a design problem in response to
consumer demand, which creates the pull aspect. The design solution may
be the development of a new product or redeveloping a product that's
already on the market. Demand pull innovations are generally developed in
response to a need that has yet to be satisfactorily met, such as a cure for
a disease (new or improved medicine) or better road safety (airbags and
anti-lock braking systems).
Invention-push innovation happens when there is an advancement in
product design or technology that is considered a new invention. Recent
examples include Apple Inc.'s iPhone, iPad and iPod. In this case, a new
product has been invented and is being pushed out to the marketplace.
This can occur through research or when the product designer comes up
with a unique product design idea that is not currently on the market. In
other words, pull versus push systems are distinguished by the way the
company's production is driven. If a firm waits to produce products until
customers demand it, which is a pull system. Customer demand pulls the
inventory. If a company produces to forecast or anticipated sales to
customers, that is a push system. The company is pushing its inventory
into the market in anticipation of sales.
Product design is not an easy task. The stakeholders involved all demand
something different from the product designer and from the design
process. The manufacturer is concerned with production cost and wants an
economically produced product http://en.wikipedia.org/wiki/Product_
design - cite_note-Norman-8. The customer or consumer is concerned with
price, appearance and prestige value, as well as usability and functionality.
The maintenance and repair department focuses on how well the final
product can be maintained: Is the product easily reassembled, disas-
sembled, diagnosed, and serviced? Stakeholders' needs vary consider-
ably, and it is the product designer's job to incorporate those needs into
their design.

For these reasons, product development and commercialization involves

many internal and external stakeholders. To remain competitive and
reduce time to market and develop the best possible products, companies
will integrate customers, suppliers and other stakeholders into the product
development process. Managers of the product development and commer-
cialization process will:
1. Coordinate with customer relationship management to identify
customer-articulated needs;
2. Select materials and suppliers in conjunction with the procurement
department; and
3. Develop the production technology and systems to manufacture the
product cost-effectively and to integrate it into the optimal supply chain
for the product and its market.

Lesson Summary
In this lesson we introduced you to supply chain business process
integration and how it requires a change from managing individual
functions to integrating activities into key supply chain processes.
We also described key critical supply chain business processes and
addressed the problems of supply chain management. The processes
covered were:
• Customer relationship management
• Customer service management
• Demand chain management
• Order fulfillment
• Manufacturing flow management
• Transport management systems (TMS)
• Procurement
• Product development and commercialization
We also stated that optimizing the product flow cannot be accomplished
without implementing a business process integration approach.

Progress Check 2
1. The aim of customer service is to:

(a) Provide a good or service the customer is willing to pay for.
(b) Provide a good or service that has perceived benefits greater than
they price the customer pays.
(c) Achieve customer satisfaction in order to retain good customers.
(d) All of the above.
2. Which business functions does the demand chain side of a company's

chain comprise?
(a) Purchasing, manufacturing and distribution
(b) Marketing, sales and distribution
(c) Manufacturing, marketing and sales
(d) Marketing, sales and customer service
3. List some of the factors that will affect consumer demand for a product
or service.
4. List some of the goals of lean manufacturing.
5. List the four key processes that transportation management systems

(TMS) manage.
6. Just-in-time (JIT) practices do not have an application in procurement.
True or false?
7. List the steps in the procurement process in the order in which they
generally occur.
8. Which of the following is an example of an invention-push innovation?

(a) A personal computer built with off the shelf components
(b) The microprocessor used in all computers today
(c) The first MP3 player
(d) Both b and c

1.3 Risk Management of SCM

Uncertainty and risk exist in every supply chain. For example, customer
demand can never be forecast exactly, shipping times will never be certain,
Lesson Learning and machines and vehicles will break down. Suppliers may be unable to
produce and deliver materials or goods on time. Outsourcing business
Objectives functions to third parties may not deliver the cost savings, capabilities and
On completion of this lesson, efficiencies initially anticipated.
This lesson will focus on strategies to eliminate or reduce risk in supply
• Explain the nature of risk chains. The strategies are:
and uncertainty in supply
• Demand forecasting
chains.
• Inventory management
• List and describe some
strategies used to manage • Combining lean and agile manufacturing
supply chain risk.
• Supply chain strategies aimed at matching supply and demand
• List and describe major
trends in supply chain • Managing supplier risk
management and the • Managing the risks of outsourcing and offshoring
factors driving them.
As companies increasingly use their supply chains to compete and gain
market share, spending on supply chain activities is increasing. Supply
chain excellence is becoming a more widely accepted key element of
competitive business strategy. The following trends are causing significant
impact and change to supply chain design and performance:
• Outsourcing
• Globalisation
• Increased competition and price pressures
• Shortened and more complex product life cycles
• Closer integration and collaboration with suppliers
This lesson will also discuss these five trends and the factors driving them.
1.3.2 Introduction
There are three key reasons why SCM is challenging and difficult to
execute well. First, SCM strategies cannot be determined in isolation. They
are directly affected by another chain that most organizations have, the
development chain that includes the set of activities associated with
introducing new products to the marketplace. The development chain
includes product design and development, materials sourcing decisions
and product plans. The development and supply chains intersect during
production. It is clear that decisions made in, and the characteristics of, the
development chain will impact the supply chain and vice versa.

Second, it is challenging to design and operate a supply chain in a manner

that reduces total system-wide costs, while maintaining system-wide
service levels. Indeed, it is frequently difficult to operate a single facility so
that costs are minimized and service levels are maintained. The difficulty
increases exponentially when an entire system is being considered.
Finally, uncertainty and risk exist in every supply chain. Recent industry
trends focused on reducing supply chain costs, including outsourcing,
Key Learning Point offshoring and lean manufacturing, increase the level of risk in the supply
Supply chains should be chain. Supply chains should be designed and managed to eliminate as
designed and managed to much uncertainty and risk as possible, as well as deal effectively with the
eliminate as much uncertainty uncertainty and risk that remain.
and risk as possible, as well as
Companies are using such technologies as enterprise resource planning
deal effectively with the
(ERP) systems to improve the responsiveness of their supply chains and
uncertainty and risk that remain.
make them more resilient to failures. ERP systems integrate internal and
external management information across an entire organization, including
finance/accounting, manufacturing, sales and customer service. The
purpose of ERP systems is to facilitate the flow of information among all
business functions within the organization and manage the connections to
outside stakeholders.
Similarly, companies are using advanced inventory planning systems to
better position inventory in the supply chain, and to determine the impact of
product design alternatives on supply chain costs and risks. Following is a
discussion of specific strategies that are widely used by businesses to
manage supply chain risks.
1.3.3 Demand Forecasting

Demand forecasting is the activity of estimating the quantity of a product or
service that consumers will purchase. There are many types of demand
forecasts. Demand forecasting involves quantitative methods, such as the
analysis of historical sales data or current data from test markets. Demand
forecasting may be used in making pricing decisions, in assessing future
capacity requirements or in making decisions on whether to enter a new
market or not.
Demand for a manufacturer's product will likely rise if a competitor
increases their price for the same item or if the manufacturer uses
advertising and promotions to increase sales. Conversely, if a competitor's
price falls and the manufacturer decreases its marketing efforts, demand
for the product will tend to decrease. The resulting increase or decrease in
sales represents a change in demand as a result of consumers responding
to stimuli (changes in price, marketing campaigns). Changes in the
Key Learning Point marketplace and a company's own activities need to be factored into a
demand forecast.
Demand for a manufacturer's
product will tend to increase if a Demand forecast modeling considers the overall size of the market and the
competitor raises their prices company's individual share of the market versus the market share of
and decrease if a competitor competitors. Market share may be measured as the percentage of the
lowers their prices. market a company occupies through its sales. It is a key indicator of how
well it is doing against competitors. Demand forecasting considers the
impact of market share on demand for a company's products over a period
of time. For manufacturers that sell their products through retailers,
promotional events are an important factor in forecasting demand.

One of the problems with demand forecasting is that it has been

traditionally been based on past averages, which do not take future trends
in account. Companies have developed techniques to improve the
accuracy of demand forecasting by basing it on expected future sales. This
allows forecasts to be based on expected short-term sales or consumption
rather than on past averages, providing more accurate data.
Did You Know? Although demand forecasting is an important tool, due to the variety of
complex factors involved, it is generally not possible to predict the precise
It is generally not possible to demand for a specific item, even with the most advanced forecasting
predict the precise demand for a techniques. In many industries, such as aircraft or auto manufacturing,
specific item, even with the most manufacturers must commit to specific production levels months before
advanced forecasting demand is realized. These advance commitments involve signicant
techniques. financial and supply risks.
In addition, demand is not the only source of uncertainty in terms of a
company being able to match supply and demand. Delivery lead times,
manufacturing yields, transportation times, and the availability of materials
and goods from suppliers all affect the supply chain and its ability to meet
customer demand. The supply chain is a dynamic system in which
customer demand and supplier capabilities change over time.
1.3.4 Inventory Management

As discussed in Lesson 1.1 “What is Supply Chain Management”,
inventory management is primarily about specifying the amount and type of
stocked goods. Inventory is required at different locations within a facility or
within many locations of a supply chain to precede the planned production
and stock of materials.
Inventory management has the primary objective of determining and
controlling inventory levels within the physical distribution system. By doing
so, inventory management controls and reduces inventory holding and
handling costs. Inventories represent the largest single investment in
assets for many wholesalers, retailers and manufacturers.
There are three basic reasons for keeping an inventory in any industry:
1. Time–The time lags present in the supply chain, from supplier to user
at every stage, requires that a certain amount of inventory be
maintained to match supply with demand.
2. Uncertainty–Inventories are maintained as buffers to meet uncer-
tainties in the demand, supply and movements of goods.
3. Economies of scale–Bulk buying, movement and storing offer manu-
facturers economies of scale, while also creating inventory.
Companies attempt to balance the need to maintain a certain amount of
inventory with demand-driven inventory management techniques that
minimize the maintenance of unnecessary inventory.
Through JIT manufacturing techniques, inventory storage is limited on a
per-product basis and inventory is kept to a minimum. Replenishment
inventories are scheduled to arrive just in time to replenish products
expected to run out of raw materials. At the same time, the inventory
supply of all products is balanced out to make their inventories proportional
to the production requirements for each product.

1.3.5 Combining Lean and Agile Manufacturing

As discussed in Lesson 1.2 Supply Chain Management Processes, lean
manufacturing is aimed at eliminating all non-value adding processes or
‘waste’ from the production process, thereby reducing costs. Agile manu-
facturing means that the production process is designed to respond quickly
to changes in information from the market or customer demand. The two
Did You Know? approaches are not incompatible, but lean manufacturing is focused on
eliminating waste, while agile manufacturing is focused on achieving
The three main reasons for flexibility to adapt to constant market changes.
keeping an inventory are time
lags in the supply chain, the Agile manufacturing requires the ability, at short notice, to change
uncertainty of demand and production to accommodate a wide variety of products. Therefore, the
supply, and the need to provide ability to rapidly reconfigure the production process is essential.
economies of scale. In lean manufacturing, the ability to change products quickly is also waste,
as any time spent in changing over to production of a new product is
considered wasteful and therefore should be eliminated. However,
although it is highly desirable to have rapid reconfiguration in a lean
manufacturing approach, it is not as essential as it is in agile manufactur-
ing. In addition, in an agile system, there needs to be careful consideration
of stock and capacity requirements to ensure the supply chain is robust
enough to support changes in production to meet customer demand.
To summarise the two approaches, agile manufacturing calls for a high
level of rapid reconfiguration and will eliminate as much waste as possible,
but does not emphasise the elimination of all waste as a prerequisite. Lean
manufacturing states that all non-value adding activities must be elimin-
ated. The supply chain will be as flexible as possible, but flexibility is not a
prerequisite to be lean.
Lean manufacturing reduces the requirement for supply chain robustness
Key Learning Point by stabilizing demand through the use of market knowledge and advance
Lean manufacturing is focused planning. Lean manufacturing tends to reduce demand variation by
on eliminating unnecessary simplifying, optimizing and streamlining the supply chain. However, the
processes or waste from the danger is that if a sudden spike in demand occurs that is beyond the supply
production process, while agile chain's control and resources, production may be insufficient to meet
manufacturing is focused on demand.
achieving flexibility to adapt to
Since both approaches offer benefits in terms of reduced costs and
constant market changes.
increased profitability and competitiveness, the best situation would be a
supply chain that uses both lean and agile manufacturing. Such a supply
chain would have to compromise between reducing wasteful processes
(lean manufacturing) and providing the inventory and capabilities for rapid
reconfiguration of production for agile manufacturing.

1.3.6 Supply Chain Strategies Aimed at Matching

Demand and Supply
In addition to lean and agile approaches, there are five main types of
supply chains, which each use different strategies to match supply and
demand. The type of strategy used will depend on the manufacturer's
operations and the type(s) of products produced.
The five main types of supply chains are:
• Buy-to-order
Key Learning Point
• Make-to-order
The five main supply chain
strategies aimed at matching • Assemble-to-order
supply and demand are: • Make-to-stock
• Buy-to-order • Ship-to-stock
• Make-to-order The buy-to-order strategy is suitable in situations where all products are
• Assemble-to-order unique and not necessarily contain the same raw materials. In addition, the
customer must be prepared to accept long lead times and product demand
• Make-to-stock is highly variable. The advantages of the buy-to-order strategy are that if a
product fails in the marketplace, the supply chain does not risk over-
• Ship-to-stock
stocking inventory. However, if the supply chain held any stock, it would
run the risk of the stock becoming obsolete. In addition, the supply chain is
not agile enough to take advantage of new markets as rapidly as other
types of supply chains.
The make-to-order supply chain can change to accommodate the
production of different products as long as they are produced from the
same raw materials. This type of supply chain can also manage varied
locations, volumes and product mixes. Compared to a buy-to-order supply
chain, lead time is reduced, but customers may still have to accept a
considerable waiting time to get the products they want. Demand for the
product can be variable and a high level of customisation can be provided.
Depending on demand, the supply chain runs the risk of holding raw
materials and production components as stock for longer periods.
With the assemble-to-order supply chain, product customisation is
postponed until as late as possible. The supply chain is able to respond to
a varied product mix, whether customised or not. In this case, the lead time
is reduced considerably from the buy-to-order or make-to-order scenarios.
It will depend on where in the supply chain the final assembly takes place.
This factor increases the risk of either overstocking or understocking
inventory somewhat. But the products being overstocked or understocked
are not of the same value as the complete, fully finished products.
Therefore, the supply chain is protected against the full risks and costs of
obsolescence.
In the make-to-stock and ship-to-stock supply chains, a quantity of a
standard product is produced according to sales forecast and sold to the
customer from finished goods stock. For either one of these supply chains
to be used effectively, it must be possible to forecast demand accurately.
The correct amount of inventory must be held to minimise the risk of
overstocking or understocking.
A make-to-stock supply chain can cope with demands in various markets,
but requires a steady overall demand of a standard product. A ship-to-
stock supply chain is best suited to providing a standard product at fixed
locations.

Let's look at an example of how Hewlett Packard applied a redesigned

assemble-to-order strategy to its supply chain for computer printers.
The company's U.S. factories produce printers for the global market to an
aggregate demand. However the generic printers must then by customised
to meet national specifications and shipped to regional distribution centres.
This was a particular problem in Europe, with its small national markets,
where demand would vary considerably.
In the original supply chain, the stockholding point was at distribution
centres, where the market specific products were held. The problem with
the supply chain was that, even if the aggregate global demand forecast
was accurate, if the national demand forecasts for specific countries were
not, then one country would find itself out of stock and another would be
overstocked.
The solution was to move the manufacturing step of product differentiation
Key Learning Point to the distribution centres. In other words the generic products were sent
Strategies for reducing the risk out to the distribution centres, where they were held as semi-finished
that a supplier may not deliver goods and then differentiated for each national market as they were pulled
production goods on time by consumer demand.
include having emergency plans
The increase in service levels and reduced inventory costs compensated
and sourcing out to more than
for the fact that the new supply chain was more expensive.
one qualified supplier.
1.3.7 Managing Supplier Risk

So far, we have talked about how a company can manage supply chain
risks internally to meet customer demand. But another important factor to
consider is the risk of a key supplier not being able to supply production
goods on time. In this module, we have discussed how JIT manufacturing
systems operate with less inventory, because inventory—in excess of what
is needed—is considered wasteful. Another implication of JIT is reducing
the number of suppliers for each component, which results in significant
economies of scale. Some firms have reduced their numbers of suppliers
to sole-sources of components.
But when a critical supplier is unable to produce material, the entire supply
chain breaks down. For example, several years ago, a fire broke out at the
plant of a supplier that produced more than 99% of Toyota's brake valves.
Most of the 506 machines used to produce the valve were inoperable.
Toyota maintained only a four-hour supply of the valve, so the automaker's
production lines quickly shut down. This resulted in Toyota losing pro-
duction of 70,000 cars. But Toyota quickly liaised with its other suppliers
and contracted them to produce the critical valves. Toyota was able to
survive the crisis.
How can companies plan for and manage this type of a risk? One of the
most crucial issues to address is the elimination of sole-source suppliers,
and developing the capabilities of additional companies. Having one
supplier is probably too few, but having five suppliers may be too many in
terms of achieving economies of scale. One strategy would be to give 80%
of the work to the primary supplier, and 20% to a secondary vendor that is
located in another country. Part of contingency planning should include
provisions for ramping up production of the second supplier, in the event of
a crisis.
Another risk management strategy is to require that critical component
suppliers develop emergency plans. Such plans would include provisions
to move to alternate sites for production, in the event that they are unable
to produce the product at their main plant. Finally, companies can analyse
where suppliers are located, and limit the number of critical component

suppliers that are geographically located in an area considered risky due to

the potential for extreme weather events, such as hurricanes, tsunamis or
tornados.
1.3.8 Managing the Risks of Outsourcing and

Offshoring
Outsourcing is the process of contracting an existing business process
which an organization previously performed internally to an independent
organization, where the process is purchased as a service. An outsourcing
deal may also involve the transfer of employees to the outsourcing
Key Learning Point business partner.
Managing the risks of Outsourcing offers the opportunity for organizations to use the best
outsourcing and offshoring logistics providers available to meet their needs. It may involve a
include competitive procurement partnership relationship or be adhoc, on a transaction to transaction basis.
practices and defining in the Outsourcing may be done either locally or in a foreign country. The term
outsourcing agreement service offshoring refers to a company taking a function out of their business and
levels, dispute resolution relocating it to another country, whether the external country is physically
procedures and requirements offshore or not.
for termination of the contract.
The most common reasons why companies decide to outsource include
cost savings, the ability to focus on core business operations, access to
additional knowledge, talent and experience, and increased profits. By
outsourcing, companies are able to focus their money and resources
towards improving the core aspects of their business.
Many companies decide to outsource because it provides them with
reduced labour costs, regulatory costs and training costs. Companies will
outsource overseas to hire foreign workers who are willing to work for
lower wages, such as workers in China or India. Corporate taxes also tend
to be lower in these countries.
Commonly outsourced business functions include delivery, logistics and
distribution (supply chain) services, as well as IT services, human
resources, sales and marketing, customer call centres, and finance and
accounting.
When services are outsourced to offshore providers, a company faces
increased costs and risks compared to outsourcing to domestic
Did You Know? companies. Although potentially more cost-effective, may involve hidden
costs including:
Commonly outsourced business
functions include delivery, • A more expensive and lengthy step of vendor selection;
logistics and distribution (supply • A long (3–12 month) timeframe to complete work handover to the
chain) services, as well as IT offshore partner;
services, human resources,
sales and marketing, customer • Severance and costs related to layoffs of local employees who will not
call centres, and finance and be relocated; and
accounting. • Costs associated with addressing language and other communications
or cultural differences.
Lastly, managing the actual offshore relationship is also a major additional
and sometimes unforeseen cost. Overall, a company risks paying much
higher front end costs than expected and achieving significantly less cost
savings than anticipated.

Some strategies for mitigating the risks of both outsourcing and offshoring
include:
• Competitive procurement practices. There is always the risk that,
for whatever reason, the outsourcing partner will fail to deliver as
expected. To protect against this risk, companies should establish an
accurate baseline of the processes and functions to be outsourced and
the service levels expected, before entering into negotiations with a
potential outsourcing or offshoring partner. In many industries, it is now
the norm to select outsourcing services providers only after robust
request for proposal processes have been followed. Companies may
pursue substantial negotiations with the top two or three bidders and
make the final selection only once negotiations covering all key issue
have taken place.
• Defining service levels. Service legal agreements (SLAs) are an
important part of an outsourcing agreement. They set agreed on
metrics for service levels between the two contracting parties. Gener-
ally SLAs set terms requiring the customer (company that is outsourc-
ing the business function) to pay 100 percent of an agreed rate for full
service to the supplier and a reasonable amount for less than
100 percent service, up to a defined point where the customer has the
right to terminate the agreement. The SLA should also define the
circumstances in which poor service would give the customer the right
to terminate the agreement ‘with cause,’ meaning that the company is
not obligated to pay a termination fee.
Handling disputes. Outsourcing agreements usually include dispute
resolution provisions, which specify the process through which any
disputes will be resolved and by whom. Typically, representatives of
both parties will attempt to resolve the dispute in an initial phase. If the
dispute cannot be resolved by this method, it may become subject to
either litigation; mediation, which is voluntary process in which the
mediator assists both parties to negotiate a settlement; or arbitration,
which may involve a private judge or one or more arbitrators, by whose
decision to the two parties agree to be bound. Arbitration is often used
to resolve commercial disputes, particularly in the context of inter-
national commercial transactions.
• Planning the transition out. The processes and procedures for
terminating the outsourcing agreement need to be well defined.
Otherwise, the customer risks paying significant, unexpected costs.
Typically, this portion of an outsourcing agreement will set out the
maximum duration of the termination period during which the outsourc-
ing partner is required to provide defined termination services to either
the customer or a new, third party supplier. Provisions for terminating
an outsourcing agreement also usually address the return to the
customer of assets, data and records, and the reassignment of
contracts and licences to the customer. The supplier also agrees to
provide the staff, services and other resources needed to effect an
orderly transition.
• Ensuring compliance with domestic regulatory requirements. This
issue is particularly crucial in the case of offshoring to foreign
countries, where legal and regulatory requirements may be reduced
and/or significantly different than those in force domestically. The onus
is on the customer outsourcing the function to ensure that the selected
offshore company is aware of and will comply with industry-specific
regulatory requirements.

1.3.9 Supply Chain Trends

1.3.9.1 Trend 1–Outsourcing
In this lesson, we have already discussed the advantages and disadvan-
tages of outsourcing and some strategies for mitigating the risks involved.
Here we will revisit this topic and examine why it may be advantageous to
outsource supply chain functions.
As many companies step back and examine their core competencies,
some realize that outsourcing parts or all of a supply chain can be
advantageous. To take advantage of global improvements in information
systems, the cost and quality of manufacturing and distribution, and
product design capabilities, companies are adding value to their busi-
nesses by outsourcing all or parts of their supply chain.
Third-party logistics providers or 3PLs are firms that provide service to
Key Learning Point customers of outsourced (or ‘third party’) logistics services for part, or all of
To take advantage of global their supply chain management functions. Third party logistics providers
improvements in information typically specialise in integrated operation, warehousing and transportation
systems, the cost and quality of services that can be scaled and customized to customers' needs based on
manufacturing and distribution, market conditions and the demands and delivery service requirements for
and product design capabilities, their products and materials. Often, these services go beyond logistics and
companies are adding value to included value-added services related to the production or procurement of
their businesses by outsourcing goods, which are services that integrate parts of the supply chain. In this
all or parts of their supply chain. case, the provider may be called third-party supply chain management
provider (3PSCM).
There can be significant economic benefits from outsourcing all or part of a
supply chain operation. But as discussed previously in this lesson, without
the right systems, processes or organizational management structure,
there is a great risk of failure. In an outsource-heavy environment,
companies need to put more controls and systems in place to compensate
for the fact that their supply chain capabilities no longer reside onsite. In an
outsourced supply chain environment, the need for information, controls
and excellence from ‘information workers’ becomes a high priority.
The optimally outsourced supply chain, either in its entirety or just a
component, relies heavily on:
• Superior supply chain network design;
• Inclusion of the outsourcing partner in the information flow of the
supply chain;
Key Learning Point • Establishment of control mechanisms to proactively monitor the

various components of the supply chain; and
Companies have built global
supply chains to buy, transport, • Information systems to connect and coordinate the supply chain as
store, manufacture, sell and seamlessly as possible.
distribute products in a single A failure to excel at any one of these components can result in breakdowns
worldwide market. affecting the entire supply chain.
1.3.9.2 Trend 2–Globalisation

Largely due to improvements in communications, globalisation is dramati-
cally impacting the way business is managed and transacted, even on the
most local levels. No area of a business is affected more by a global
business environment than the supply chain. Companies have built global
supply chains to buy, transport, store, manufacture, sell and distribute
products in a single worldwide market. Today, virtually all major firms have
a significant and growing presence in business outside their country of

origin. In the U.S., a third of exports are sent by U.S. companies to their
overseas subsidiaries.
The factors that encourage the globalisation of supply chains include:
• Cost differences. Companies can reduce their overall costs by moving
operations to regions where they can be done least expensively. For
example, manufacturing is moved to China and call centres to India.
• Growing demand in new markets. As developing regions become more
prosperous, foreign companies recognise the opportunities in these
Key Learning Point new markets.
Factors that have encouraged • Convergence of market demands. Satellite television, the web and
the globalisation of supply other communication channels have made customers more aware of
chains include: products made in foreign countries. Increasingly, different markets are
accepting the same products or products with minor differences in
• Cost differences in foreign
finishing. This allows companies to sell the same products in virtually
countries
any country.
• Growing demand in
However, barriers to product acceptance in foreign markets still
overseas markets
remain. For example, different regions may still demand different types
• Greater demand from of products, and some product designs may not lend themselves to
customers global operations.
• Removal of trade barriers • Greater demands from customers. As customers become more
demanding, local suppliers may not be able to meet their requirements.
• Improved logistics and In this case, they will look to other countries to find the best products
communication in business and resources.
• Removal of trade barriers. Free trade areas, such as the European
Union and North American Free Trade Agreement (NAFTA), encour-
age international trade.
• Improved logistics. Better logistics are facilitating international trade.
For example, containerisation and multimodal transport make the
movement of goods easier, faster and less expensive.
• Improved communications in business. Today's information and com-
munication systems have greatly facilitated the ability of companies to
do business overseas.
A well thought-out global supply chain can optimize the flow of materials
through the supply chain network. To be cost-effective, supply chains and
their networks should be designed from a total landed cost perspective,
rather than focusing on individual costs or transportation links. Strategic
questions that should be addressed to design a cost-effective and efficient
global supply chain include:
• Where should supply chain facilities (manufacturing plants, ware-
houses, distribution centres, shipping and receiving) be located?
• How many facilities should the company have and what capabilities
should they have?
• What kind of capacity should they have?
• What products and services should they handle?
• What suppliers and distributors should they source?
• Which contract manufacturers should the company use?
There are many pressures on supply chains and logistics. Companies
must respond to these pressures through continual change. To satisfy
more demanding customers, logistics managers must continually monitor
and improve their operations to remain competitive. They must also

respond to changes in the business environment, where there are many

broad trends that affect logistics, such as globalisation, e-business and the
mass production of individually customized goods and services or mass
customization.
Some of the strategies companies are using to respond to changes in the
marketplace with improved logistics include:
• Cross docking. Traditional warehouses move materials into storage,
store then until they are needed and then transport them to meet
customer demand. Cross docking coordinates the supply and delivery
of materials, so that the goods arrive in the receiving area and are
immediately transferred to the loading area and placed on delivery
vehicles. There may be sorting, breaking bulk, merging or consoli-
dation of materials at the warehouse, but no storage.
These activities can be done at a simple transfer point, eliminating the
need for a warehouse for storage purposes. The aim is to remove the
warehouse and its costs from the supply chain entirely and have ‘stock
on wheels’ instead.
• Direct delivery. More customers are buying products and services
through the Internet or finding other ways of buying directly from
manufacturers, such as mail order catalogues. Direct delivery of
products can enable companies to reduce lead times, reduce costs to
customers, improve their relationships with customers and provide
customers with a wider range of products.
• Small deliveries. Direct or just-in-time deliveries require that smaller
deliveries be made more frequently. This requires the movement away
from large trucks to smaller delivery vehicles, which tend to be less
efficient. However, it has spurred the growth of parcel delivery
services, such as FedEx, UPS and DHL. In addition, it has encouraged
carriers to improve efficiency through better planning of deliveries and
higher vehicle use.
• Optimising delivery vehicle use. Due to such factors as unbalanced
demand and characteristics of vehicles and loads, trucks will spend a
portion of their time travelling empty or with partial loads. Methods of
optimising vehicle use include ensuring that delivery vehicles have
loads for their return journeys, which are called backhauls. In addition,
reverse logistics may be incorporated to return goods for repair, reuse
or recycling. Other strategies for optimising vehicle use include freight
consolidation, where loads from several manufacturers are consoli-
dated into one load, and more efficient scheduling of regular routes.
1.3.9.3 Trend 3–Increased Competition and Price

Pressures
Historically, price, product features and brand recognition were enough to
differentiate many products in the marketplace. With the continued
commodification of many products and the related downward price
pressure on products, companies need better ways to distinguish them-
selves. For many companies, product innovation and brand equity are no
longer enough to command a higher price in the market.
Commodification of products and services occurs as they lose differen-
tiation in the marketplace. Other companies acquire the intellectual capital
needed to produce the good or provide the service. They begin producing
the same or a similar product, resulting in increased price competition.
Consumers may be no longer willing to pay a higher price for a certain
brand. Cost reduction may be defined as a decrease in prior purchase

price. There must be cost reduction program to define objectives ad-

equately, so that accomplishments can be measured and performances
evaluated.
An example of commodification is the proliferation of generic brands of
drugs, which occurs when the original producer's patent expires. Another
example is when more and more manufacturers produce the same
consumer electronics, such as cell phones or laptops, driving down the
price of these items and reducing the prominence of stronger brands in the
marketplace.
Companies are looking to their supply chains in two ways to help offset this
trend. First, they are continually striving to reduce supply chain costs and
are creating a more efficient value chain to remain cost competitive.
Companies may use cost reduction programs targeted at reducing the
overall costs of producing and distributing a product, with defined cost
reduction objectives against which performance is measured.
Cost improvements around inventory management, logistics operations
and manufacturing costs, including the procurement of raw materials and
goods used in production, may be found in the following areas:
• Sales and operations planning
• Transportation/distribution management
Did You Know? • Product lifecycle management
The term product • Strategic sourcing and procurement
cannibalisation refers to a Along with driving cost improvement within their supply chains, companies
reduction in sales volume, sales will look for ways to increase their capabilities as a means of staying
revenue or market share of one competitive. Streamlining business processes with better design, better
product due to the introduction collaboration across networks, and new products and services can help
of a new product by the same companies stay competitive and strengthen relationships with their cus-
producer. tomers. Value-added services can be developed to meet the demands of
more sophisticated customers.
1.3.9.4 Trend 4–Shortened and More Complex

Product Life Cycles
Today, companies are under increased pressure to develop innovative
products and bring them to market more rapidly, while minimising
cannibalisation of existing products, which are still in high demand. The
term product cannibalisation refers to a reduction in sales volume, sales
revenue or market share of one product resulting directly from the
introduction of a new product by the same producer.

To meet the needs of both customers and consumers, companies need

more efficient product lifecycle management (PLM) processes. PLM is the
process of managing the entire lifecycle of a product from its conception,
through design and manufacture, to service and disposal (see
Figure 1.3.9.4). PLM integrates people, data, processes and business
systems, and provides a product information backbone for companies and
their extended supply chain networks.
Figure 1.3.9.4—The Typical Product Lifecycle
PLM systems are a collection of software tools and methods integrated

together to address either single stages of the lifecycle, connect different
tasks or manage the whole process. The steps completed through the PLM
process are:
• Conceive
ż Specification
Key Learning Point
ż Concept design
Product lifecycle management
(PLM) is the process of • Design
managing the entire lifecycle of ż Detailed design
a product from its conception,
through design and ż Validation and analysis (simulation)
manufacture, to service and ż Tool design
disposal.
• Realize
ż Plan manufacturing
ż Manufacture

ż Build/Assemble
ż Test (quality check)
• Service
ż Sell and deliver
ż Use
ż Maintain and support
ż Dispose
PLM systems help organizations to cope with the increasing complexity
and engineering challenges of developing new products for the global
competitive markets. Companies use PLM processes and technology to
design products that can share common operations, and components or
materials, thereby reducing the risks of product obsolescence, increasing
cost leverage on the purchasing of key materials and ensuring that
infrastructure investments are optimally used. By focusing product lifecycle
Key Learning Point management efforts in these areas, a company can buffer itself against the
risk of an unplanned cost increase or a poor new product launch. It can
PLM systems are a collection of also enhance the overall customer perception of the company as an
software tools and methods effective innovator.
integrated together to address
either single stages of the PLM systems have helped consumer goods companies to continually drive
lifecycle, connect different tasks demand through packaging and labelling innovation and design. Such
or manage the whole process. companies are able to effectively produce and distribute products that are
targeted for regional promotions or consumer preferences.
1.3.9.5 Trend 5–Closer Integration and

Collaboration with Suppliers
As discussed previously in this module, as supply chains continue to
develop and mature, a move toward more intense collaboration with
customers and suppliers has occurred, as part of overall integration of
supply chain networks.
Key Learning Point Today, strategic partnerships between suppliers and buyers are being
Large corporations like Procter forged to help both parties reduce their costs. These partnerships have
& Gamble, Kimberly-Clark and emerged as an effective SCM strategy. Manufacturers such as Procter &
Wal-Mart have used strategic Gamble and Kimberly-Clark and giant retailers like Wal-Mart have used
partnering to eliminate wasteful strategic partnering as an important element in their business strategies.
and costly practices throughout The approach involves manufacturers and suppliers working closely
their supply chains. together to eliminate wasteful and costly practices throughout the supply
chain.
At the same time, many supply chain partners engage in information
sharing so that manufacturers are able to use retailers' up-to-date sales
data to better predict demand and reduce lead times. This information
sharing also allows manufacturers to reduce inventory and smooth out
production.
The level of collaboration goes beyond linking information systems to fully
integrating business processes and organisation structures across
companies that comprise the full supply chain network. The ultimate goal of
collaboration is to make better management decisions and to ultimately
decrease supply chain costs.

Let's look at few examples of how corporations have used strategic

partnerships successfully. In the late 1980s, Dell Computers decided to
assemble and sell computers built from components produced by other
manufacturers. This relieved the firm of the burdens of owning assets,
doing research and development, and managing a very large workforce. At
the same time, the Dell model of direct sales to consumers and production
to order virtually eliminated the requirement to keep an inventory of
Did You Know? finished goods. These business decisions enabled Dell to grow much
Dell Computers has a business faster than its competition and maintain only eight days of inventory.
model of direct sales to United Technologies Corp. (UTC) is a diversified company that provides a
consumers and production to broad range of high-technology products and services to the global
order. Following a customer's aerospace and building systems industries. Its commercial businesses are
customised order, its computers Otis elevators and escalators and UTC Climate, Controls & Security, which
are built from other provides ventilation, air conditioning, fire and security systems, and
manufacturer's components. building automation and controls. Its aerospace businesses are Sikorsky
These two business decisions aircraft and UTC Propulsion & Aerospace Systems, which includes Pratt &
have allowed Dell to eliminate Whitney aircraft engines and Hamilton Sundstrand aerospace products.
inventories of finished goods
and grow faster than As you can see, UTC has a vast and complex supply chain network to
competitors. manage. One strategy it uses to do is continuous measurement and
evaluation of suppliers' performance using third-party software. The
software uses historical delivery data and financial data on each supplier to
create supplier risk alerts.
UTC complements its supplier performance and risk alert system with
teams that help its most critical suppliers improve their supply chains and
reduce supply chain risks with their own suppliers. According to UTC,
these initiatives have significantly increased the turnover of inventory
(reducing overstocking) and reduced manufacturing activities that do not
add value, such as unplanned production overtime and scrap materials.

Lesson Summary
In this lesson, we introduced the concept of how uncertainty and risk exist
in every supply chain. For example, customer demand can never be
forecast exactly, shipping times will never be certain, and machines and
vehicles will break down. Recent industry trends focused on reducing
supply chain costs, including outsourcing, offshoring and lean manufactur-
ing, increase the level of risk in the supply chain.
We covered some of the strategies designed to eliminate and reduce risk
in supply chains, including:
• Combining lean and agile manufacturing
• Managing supplier risk
• Managing the risks of outsourcing and offshoring
We emphasised that although demand forecasting is an important tool, due
to the variety of complex factors involved, it is generally not possible to
predict the precise demand for a specific item. In addition, demand is not
the only source of uncertainty in terms of a company being able to match
supply and demand. Delivery lead times, manufacturing yields, transpor-
tation times, and the availability of materials and goods from suppliers all
affect the supply chain and its ability to meet customer demand. We
concluded that the supply chain is a dynamic system in which customer
demand and supplier capabilities change over time.
We also covered some of the trends that are currently driving change in
supply chain design and performance. These include:
• Outsourcing
• Globalisation
• Increased competition and price pressures
• Shortened and more complex product life cycles
• Closer integration and collaboration with suppliers

Progress Check 3
1. List some reasons why there is great risk and uncertainty within supply
chains.
2. List some of the strategies companies are using to manage supply

chain risks.
3. Which supply chain works best in in situations where all products are
unique and do not necessarily contain the same raw materials?
(a) Buy-to-order
(b) Make-to-order
(c) Assemble-to-order
(d) Make-to-stock
(e) Ship-to-stock
4. In which supply chain is a standard product sold to the customer from

finished goods stock?
(a) Buy-to-order
(b) Make-to-order
(c) Assemble-to-order
(d) Make-to-stock
(e) Ship-to-stock
(f) Both d and e
5. Reducing the number of suppliers for each production component

results in increased economies of scale.
True or False?
6. Outsourcing enables companies to focus their resources on improving

the core aspects of their business.
True or False?
7. List some of the issues that should be addressed by outsourcing

agreements to reduce supply chain risk.

Module Summary
In this module, we defined the terms supply chain, supply chain manage-
ment and logistics. We explained that the key supply chain process
activities are customer service, transportation, inventory management and
information flows, and order processing. The activities that support the key
activities include purchasing, warehousing, materials handling, production,
packaging and information management.
We also discussed several of the key processes required adopt a business
process integration approach to SCM. These include customer relationship
management, customer service management, demand chain manage-
ment, manufacturing flow management, transport management systems
(TMS), and product development and specialization.
We covered the three types of SCM strategies. Strategic SCM emphasizes
the alignment of SCM with corporate and business strategies. Value-based
SCM is focused on improving the value of logistics expressed in terms of
providing product time and place to customers. Performance-based SCM
strategies involve controlling and monitoring the supply chain, as well as
benchmarking and performance measurement.
We also emphasised how uncertainly and risk exist in every supply chain
and that proactive companies will use a number of strategies to manage
risk. These include demand forecasting, inventory management, lean and
agile manufacturing techniques, and managing supplier risk, and the risks
of outsourcing and offshoring.

Answer Key
Progress Check 1
1. True
2. b
3. Safe and reliable transportation is critical to supply chains because:
• All manufacturers must transport the raw materials they use in
production, as well as its finished products that are delivered to
customers.
• It adds place value to products and services.
• It is used for product returns and recycling and to return waste to a
company.
• Goods must be shipped internationally in today's global market-
place.
4. False
SCM is broader than logistics as it deals not only with a firm's internal
product flow, but also with its marketing, sales, customer service and
production activities. SCM also extends to a manufacturer's suppliers
and other external firms involved in the production and sale of its
goods.
5. a
6. The three types of SCM strategies are:
• Strategy focus, emphasizing the alignment of SCM with corporate
and business strategies.
• Value-based focus, emphasizing the alignment of SCM activities
with the goal of improving the company's value.
• Performance focus, involving supply chain controlling and monitor-
ing, benchmarking and performance measurement.
7. The four steps in the development of SCM strategies are:
(i) Intelligence, where problems are identified.
(ii) Design, where possible strategies are developed.
(iii) Choice, where the best strategies are selected for implementation.
(iv) Implementation/review, where strategies are implemented and
their impact is monitored and evaluated.

Progress Check 2
1. d
2. d
3. Factors that can affect consumer demand for a product or service
include:
• Changing price of a substitute
• Changing price of a complement
• Change in the income of consumers.
• Change in tastes and preferences
• Changes in interest rates
4. The goals of lean manufacturing include:
• Improve the quality of products and services, based on customer
needs.
• Eliminate wasteful manufacturing activities that do not add value.
• Reducing the time it takes to finish an activity from start to finish.
• Reduce total costs by avoiding any overproduction.
5. The four key processes that transportation management systems
(TMS) manage are:
• Planning and decision-making
• Transportation execution
• Transportation follow-up
• Measurement of key performance indicators
6. False
JIT procurement is a system of timing the purchases of consumables
to keep inventory costs low. It is commonly used by Japanese
companies and has been widely adopted by many global manufac-
turers from the 1990s onwards.
7. The steps in the procurement process are:
(i) Supplier contact and tendering
(ii) Background review
(iii) Negotiation
(iv) Fulfillment
(v) Consumption, maintenance and disposal
(vi) Renewal
8. d

Progress Check 3
1. The reasons for risk and uncertainty in supply chains include:
• Lack of accurate customer demand forecasting
• Challenge of matching supply with demand
• Transportation delays
• Unexpected events or emergencies affecting availability of ma-
terials and goods from suppliers
• Overstocking or understocking of inventory
• Hidden costs of partnerships with outsourcing/offshoring partners
• Potential that outsourcing/offshoring may not deliver results and
service levels expected
2. Strategies companies are using to manage supply chain risk include:
• Combining lean and agile manufacturing
• Managing supplier risk
• Managing the risks of outsourcing and offshoring
3. a
4. f
5. True
6. True
7. To reduce risk, outsourcing agreements should include terms specify-
ing:
• Service level metrics and the right to terminate the contract if these
are not met
• Procedures for dispute resolution
• Procedures for terminating the agreement
• Industry legal and regulatory requirements


Module 2:
Introduction to Freight Forwarding
Services
2.0 Introduction to Freight Forwarding

Services
Module Overview
The global freight transportation infrastructure handles large volumes of
Module Learning cargo. In 2008, more than $16 trillion of exported freight was transported
Objectives worldwide. Maritime vessels, aircraft, trucks and trains transported these
goods from production centers to consumption markets.
you should be able to: In this module, we will introduce you to supply chain activities that fall
within the scope of freight forwarding. You will learn about the differences
• Explain the nature of freight in the rights, duties and responsibilities of freight forwarders when they act
forwarding. as either agents or principals on behalf of their customers. We will also
• Describe the services freight describe various activities that fall within the scope of freight forwarding
forwarders and other types services.
of transport service Increased competition, containerisation and the use of multimodal trans-
providers offer. port for international freight have all resulted in freight forwarders taking on
• Describe the various types greater responsibilities that go beyond simply arranging for the carriage of
of documents required for goods. Increasingly, freight forwarders are assuming responsibility for the
international transport. entire transport operation as principal contractors, subcontracting to
carriers and other transport service providers on behalf of the consignor
• Outline the scope of freight (exporter) and consignee (importer). They are also providing additional,
forwarding services. value-added logistics services, and some are specialising in the field of
shipping special cargoes.
The freight forwarder's expanded role has raised legal questions and
uncertainty about his legal rights, responsibilities and liability for transport
operations. In response, the freight forwarding industry associations in
many countries have developed Standard Trading Conditions based on the
International Federation of Freight Forwarders Associations' (FIATA)
Model Rules for Freight Forwarding Services. We will explain how these
Standard Trading Conditions help clarify a freight forwarders legal rights
and liability in situations where errors or omissions are made in transport
operations.
Module 2: Introduction to Freight Forwarding Services 65

2.1 What is Freight Forwarding?

Today, the products we consume travel
long distances along global supply
Lesson Learning chains to reach us. Production, inven-
tory control, transport, distribution, and
Objectives specialized handling and management
• Describe who freight are all part of these supply chains. As
forwarders are and the supply chains become more geographi-
services they offer. cally intricate, their success depends
increasingly on the expertise of com-
• Explain the benefits and petent transport intermediaries, includ-
requirements of the IATA ing freight forwarders. An international
Cargo Agent accreditation freight forwarder is an agent for the
program. exporter in moving cargo to an over-
• Describe who freight seas destination.
integrators are and the
services they offer.
• List the indicators or In this lesson we will introduce you to the international freight market and a
characteristics of freight variety of transport service providers who meet the needs of international
integrators. trading companies that transact business on a worldwide basis. You will
learn about the ways in which shipments of goods are transported
• Explain the functions of the internationally through all modes of transport.
various types of documents
required for international Finally, we will discuss the various types of documentation used in
transport. international freight transport.
2.1.2 What is a Freight Forwarder?

An international freight forwarder is an agent for the exporter/importer in
moving cargo to a domestic or overseas destination. Freight forwarders are
familiar with the import rules and regulations of foreign countries, the
export regulations of their domestic countries, and the methods of shipping
and the documents related to foreign trade.
Freight forwarders assist shippers by preparing price quotations, advising
on freight costs, port charges, consular fees, costs of special documen-
Key Learning Point tation, insurance costs and their own handling fees. They recommend the
An international freight packing methods that will protect the merchandise during transit. Alterna-
forwarder is an agent for the tively, they can arrange to have the merchandise packed at the port or
exporter in moving cargo to an containerised. Freight forwarders also book the necessary space on a
overseas destination. Freight vessel, aircraft, train or truck for transport.
forwarders are familiar with the
Freight forwarders may consolidate small shipments from a number of
import rules and regulations of
shippers into large shipments being shipped to the same region at a lower
foreign countries, the export
rate. Because of consolidation efficiencies, these companies can offer
regulations of their domestic
shippers lower rates than the shippers could obtain directly from the
countries, and the methods of
carrier.
shipping and the documents
related to foreign trade. Often freight forwarders can provide faster and more complete service
because they are able to tender larger volumes of shipped materials to the
carrier. They will generally purchase transport services from various
carriers, although in some instances they own the equipment themselves.

Once the order is ready for shipment, freight forwarders will review all
documents to ensure that everything is in order. This is of particular
importance with letter of credit payment terms. They may also prepare the
bill of lading and any special required documentation. After shipment, they
can route the documents to the seller, the buyer or to a paying bank.
Freight forwarders can also make arrangements with customs brokers
Did You Know? overseas to ensure that the goods comply with customs export documen-
tation regulations. A customs broker is an individual or company that is
Most freight forwarders licensed to transact customs business on behalf of others. Customs
specialise in particular service business involves transactions related to the entry and admissibility of
areas, modes of transport or merchandise, its classification and valuation, the payment of duties, taxes,
markets. or other charges assessed or collected, or the refund, rebate or drawback
of those charges.
Most freight forwarders specialise in particular service areas, modes of
transport or markets. Freight forwarders are often seen as the travel agents
of international trading. If a shipper or consignor has a consignment of
goods he needs to move from country A to country B, a freight forwarder
will identify and book the best routes, modes of transport and specific
carriers for the consignor based on his requirements.
Freight forwarders typically offer a wide range of secondary, trade-related
services as well as their core transport ones. These include:
• Customs clearance—freight forwarders can complete customs paper-
work on a consignor's behalf, and pay any taxes or duties owed;
• Other documentation issues—bills of lading, or any documents re-
quired by banks before payment is released;
• Insurance—many forwarders supply insurance services;
• Inventory management; and
• Logistics and supply chain management of value-added activities,
including warehousing, distribution and packaging.
2.1.3 Case Study - IATA Cargo Agent

Accreditation
In this section, we will consider the aviation industry's recognition and
accreditation of freight forwarders. The freight forwarder which is an IATA
Cargo Agent is registered by IATA to act as agent on behalf of appointing
IATA member airlines. Affording benefits to both airlines and agents, IATA
Key Learning Point Cargo Agent accreditation provides agents with industry recognition of their
financial and professional competence. It also provides airlines with a
IATA Cargo Agent accreditation worldwide distribution network of approved agents to sell their products.
provides agents with industry
recognition of their financial and The handling of goods is a very technical matter. The IATA Cargo Agent
professional competence, and needs a complete commercial knowledge covering product distribution at
airlines with a worldwide every stage from manufacturing to marketing and selling. He must also
distribution network of approved understand the complex, legal and documentary requirements and be
agents to sell their products. aware of the physical conditions prevailing in a multitude of markets, each
of them different. The agent must be knowledgeable about mixed
consignments, dimensions, weight densities (volume), capacity restric-
tions, regulations concerning weight limitations, container loading and
trans-shipment at transfer points.
The IATA Cargo Agent have to be aware of complex regulations
concerning such crucial issues as dangerous goods and live animals and
details of the many miscellaneous charges inherent in cargo handling. The

agent must also have an appreciation of the legal complexities affecting

rights of disposition of goods, damage, insurance and licensing.
Any person involved in international airfreight and complying with appropri-
ate license and legal requirements may apply for registration as an IATA
Cargo Agent.
The relationship between member airlines and their registered cargo
agents is administered under a set of IATA resolutions. These government-
approved rules establish the rights and obligations of the parties, as well as
the procedures and requirements for agents who wish to obtain and to
maintain industry accreditation.
Accreditation procedures and conditions are subject to regional require-
ments.
2.1.3.1 Cargo Accreditation - General

Qualifications and Criteria
Below are general criteria for accreditation. Some regional specific
standards may be requested from the IATA office for the country
concerned.
Staff Qualifications
At all places where cargo is prepared for carriage, applicants must employ
at least two full-time competent and qualified staff that holds certification in:
• Cargo initial qualification in air cargo, such as the IATA Cargo
Introductory Diploma or have completed an equivalent course offered
by an IATA Member or any other course acceptable to the Agency
Administrator offered by an airline, commercial organization, or training
institute; and
Key Learning Point
• Have recently completed a Dangerous Goods Acceptance course of
Upon receipt of a complete IATA
an IATA member airline, or the IATA course, or a course offered by a
Cargo Agent application, an
training establishment which has been appraised and endorsed by
IATA investigator will visit the
IATA as an Accredited Training School (ATS), or a course of formal
applicants' premises to ascertain
instruction offered by a training organization or other establishment
that all the criteria are met,
which has been endorsed by the regulatory authority responsible for
including staff qualifications,
Dangerous Goods in the specified country provided they meet IATA
suitability of premises and cargo
Dangerous Goods Board established criteria. This training must be
handling equipment, and valid
done within the previous two years.
licensing and insurance.
Suitability of Premises and Cargo Handling Equipment
Suitable premises are to be maintained and operated for the promotion or
sale of international air cargo transportation through member airlines and
for the handling of consignments. Applicants should have warehouse
facilities that comply with national security standards and that are equipped
to prepare air freight ready for carriage, or have access to such facilities
through a written agreement.

As a minimum, those premises, staff and equipment should be capable of

performing the following functions:
• Quoting member airlines' rates, charges and related conditions;
• Assisting customers regarding the formalities for transportation of
cargo by air, including reservation services;
Key Learning Point • General acceptance of all consignments for carriage and delivery to a
member airline at an airport ready for carriage, including restricted
“Freight integrators are transport articles according to the applicable dangerous goods regulations; and
service providers who arrange
full load, door-to-door • Collecting charges from customers and remitting monies due to
transportation by selecting and carriers.
combining without prejudice the
most sustainable and efficient License to Trade and other Requirements
mode(s) of transportation.” Where required, an applicant must have a valid license to trade and
comply with any other national legal requirements in the country of
operation. The applicant's insurance must cover its liability for loss of or
damage to shippers' cargo.
2.1.3.2 Processing of IATA Cargo Agent

Applications
Applications, with full supporting documentation and applicable fees,
should be sent directly to the nearest IATA cargo accreditation office. Upon
receipt of a complete application, investigators acting on behalf of IATA will
visit the operational installations indicated by the applicant to ascertain that
all the criteria are met. Particular attention is paid to ensuring that the
premises, cargo handling equipment and staff meet the requirements in
order to prepare air cargo ready for carriage on behalf of IATA member
airlines. The applicant's financial standing is also assessed, based on the
certified accounts and other financial information provided.
2.1.3.3 Approval
When satisfactory investigation and financial reports are received, details
of the applicant are published to all Member Airlines. Provided the
applicant meets all qualifications and has signed the IATA Agreement,
approval is granted.
2.1.4 What are Freight Integrators?

Freight integrators are transport services providers who specialise in the
organisation of multimodal full load transports, involving at least two
transport modes. Following is a definition developed by the Commission of
European Communities:
“Freight integrators are transport service providers who arrange full
load, door-to-door transportation by selecting and combining without
prejudice the most sustainable and efficient mode(s) of transpor-
tation.”

The freight integrator chooses the most efficient and sustainable mode of
transportation or combination of transport modes, whereby efficient means
the best solution of price, quality and sustainability.
The change toward a greater use of freight integration is being driven by
the increased congestion on roads and highways and the longer distances
over which goods are being transported. In addition, multimodal transport
tends to be more cost-effective over longer distance journeys.
According to the Commission, the freight integrator approach helps support
sustainability, because the focus on multimodal transport will lead to a
better workload of alternative transport modes other than roads, such as
rail, short sea-shipping and inland waterways. These modes usually have
less impact on the environment than trucks or aircraft and help to relieve
roads of long distance truck traffic.
2.1.4.1 Tasks and Duties

The freight integrator's tasks include choosing the best combination of
transport modes for the freight journey, preparing the shipment itself with
all necessary documents, and overseeing the shipment and associated
activities while goods are in transit. The freight integrator does not have to
do all of this by himself. He can be seen as a manager, who takes
responsibility for everything in conjunction with the shipment and who sub-
contracts to other transport service providers, as necessary.
Did You Know?
The freight integrator provides an ‘all in one’ service to the customer or
The value-added services that consignor, allowing the consignor to sign one transport services contract
transport service providers offer with him. He serves as the customer's only contact, making arrangements
their customers include and establishing contracts with all transport carriers involved in the
distribution, warehousing, shipment. The full services that the transport integrator provides also
assembling, packaging, include document handling for the entire transport chain. He also arranges
labelling, and order and for the shipment to process through the various stages or routing, keeping
inventory management. track of it, so he can pass tracking information and notification of any
problems or delays onto the consignor at any time.
Today, transport service providers, including freight integrators and for-
warders, offer many more services than pure transportation. To stand out
from competitors, it has become necessary for transport service providers
to position themselves in the market as providers of value-added services.
This means that the additional services today could become the basic
requirements for customers when choosing a transport service provider in
the future. The value-added services include distribution, warehousing,
assembling, packaging, labeling, and order and inventory management.
See Figure 2.1.4.1 for a complete list of value-added services provided by
transport services providers.

Key Learning Point

The 10 indicators of freight
integrators are:
• Specialisation in full loads
• Relevant market
participation in the field of
intermodal transports
• Intermodal transport as a
relevant business field
within the company
• Commitment to intermodal
transport
• Knowledge and experience
• Supporting the idea of
environmental sustainability
• Economic substantiation of
intermodal transport
• Customer relationships
• Cooperation and partners
• Geographic spread as an
EU-wide business
Figure 2.1.4.1—Value-Added Services of Transport Services Providers
2.1.4.2 Characteristics of Freight Integrators

The Commission of European Communities developed 10 indicators that
distinguish freight integrators from other transport service providers. The
10 indicators are:
• Specialisation in full loads
• Relevant market participation in the field of intermodal transports
• Intermodal transport as a relevant business field within the company
• Commitment to intermodal transport
• Knowledge and experience
• Supporting the idea of environmental sustainability
• Economic substantiation of intermodal transport
• Customer relationships
• Cooperation and partners
• Geographic spread as an EU-wide business

In 2003, the Commission published the results of a study whose goal was
to determine how closely Europe-based international transport service
providers matched the 10 indicators and how highly developed their freight
integration capabilities were. The study is based on questionnaires
completed by and interviews with 46 transport services providers in
15 European countries.
In terms of the extent of use of multimodal transport and reliance on the
various transport modes, the study found that there are nine companies
showing a strong focus on multimodal transports, varying from 80 to
100 percent of all transports.
Other companies specialise in either marine overseas and short sea
shipping or rail transport, using multimodal transport for an average of less
than 20 percent of their shipments. Twenty-one companies focus mainly on
road transport, with nine of those companies relying completely on trucking
to serve their customers.
The modes combined also varied significantly. Most of the companies
combine road and rail transport, because most of the journeys within
Key Learning Point Europe can easily be completed inland, often allowing direct routes instead
The majority of companies in the of detours by sea. Road-marine combinations are also used to move
study sample have taken steps freight by truck to and from ports for overseas, short sea or inland
towards becoming freight waterway journeys. Some companies combine two water-based modes
integrators, with six being highly and road.
developed freight intregrators
Based on the 10 criteria, companies were evaluated as belonging to one of
and 19 at a good stage in
four groups
development.
• Highly developed freight integrators—six companies;
• Developing towards being freight integrators—19 companies, the
largest group;
• Little development towards being freight integrators—10 companies;
and
• No development towards being freight integrators—11 companies.
The companies in the second group do not have full points for most of the
indicators, but are in a good stage of development with areas for improving
weaknesses. Based on the study sample size and results, the Commission
estimates that there are approximately 250 European firms that fall into this
category.
The third category contains companies that are not very advanced in the
field, but have introduced a number of elements that would allow them to
eventually become fully qualified freight integrators. For example, these
companies already have a good partner network, are focused on the full
load market and have some experience with one other mode than road.
Finally, in the fourth category, there are companies that have no freight
integration capabilities and little experience outside of road transport.

2.1.5 Documentation Used in International

Freight Transport
Freight forwarders and other transport service providers use a number of
documents to provide their services. These documents fall into three main
categories:
• Transport documents, such as bills of lading and waybills for the
various transport modes;
• Commercial documents, required by customers, banks and transport
carriers; and
• Official documents, required by governments, regulators and Customs.
We will describe the main types of documents used in each category. The
documentation required for the international transport of goods will vary by
country or jurisdiction, as well as by the type of transport mode used and
the type of goods being transported.
2.1.5.1 Bills of Lading

A carrier issues a bill of lading to a shipper to acknowledge that specified
goods have received on board a vehicle for transport to a named place for
delivery to a consignee, who is usually also identified. A through bill of
lading involves the use of at least two different transport modes. The term
derives from the verb ‘to lade,’ which means to load cargo onto a ship or
other form of transportation. A bill of lading may also be referred to with
acronyms BOL or B/L.
A bill of lading serves several functions, including:
• It serves as the legal contract of carriage between carrier and shipper,
spelling out legal responsibilities and liability limits for all parties to the
shipment.
• It is a receipt signed by the carrier confirming whether goods matching
the contract description have been received in good condition.
• It can be used as a document of transfer, which is freely transferrable.
This means that similar to a cheque or other negotiable instrument, it
may be endorsed affecting ownership of the goods being carried.
A bill of lading must provide the following information:
• The shipping company's and shipper's names
• The flag of nationality
• The order and notify party
• A description of the goods
• The gross/net/tare weight of the cargo
• The freight rate and measurements and weight of the goods/total
freight

A clean bill of lading states that the cargo has been loaded on board the
transport vehicle in apparent good order and condition. It reflects the fact
that the carrier received the goods in good condition. The opposite term is
a soiled bill of lading, which indicates that the goods were received by the
carrier in poor condition. A soiled bill of lading will include a clause or
notation declaring a defective condition of goods and/or packaging.
Each carrier will have their own BOL form. The BOL is usually prepared by
Key Learning Point either the freight forwarder or the carrier.
The categories of documents
The main types of bills of lading are the:
used in international freight
transport are: • Order bill of lading;
• Transport documents, such • Bearer bill of lading;
as bills of lading and
waybills for the various • Surrender bill of lading;
transport modes • Multimodal bill of lading or multimodal transport document (this will be
• Official documents, required covered in Module 4. Multimodal Transportation).
by governments, regulators
and Customs Order Bill of Lading
• Commercial documents, This type of bill states explicitly that the bill is negotiable, meaning that the
required by customers, shipper is free to endorse the name of the person to whom the bill of lading
banks and transport carriers and goods will be delivered. For example, it may state that delivery is to be
made to the further order of the consignee, using a phrase such as
“delivery to A Co. Ltd. or to order or assigns.” Consequently, the bill can be
endorsed by A Co. Ltd. or the right to take delivery can be transferred by
physical delivery of the bill, accompanied by adequate evidence of A Co.
Ltd.'s intention to transfer.
Bearer Bill of Lading

This type of bill states that delivery of the cargo is to be made to whoever
holds the bill. The name of the consignee to whom the goods have been
sent, perhaps the buyer, may be stated as “bearer.”
Surrender Bill of Lading

The Surrender Bill of Lading is a form of direct liability in which the seller
‘surrenders’ title to the goods and his power of sale over the goods by
issuing the bill. When the seller issues a surrender bill of lading, the buyer
is not required to pay for delivery of the goods before taking delivery of
them. The seller is not paid until the bill is received and paid by the issuing
bank issuing credit to the Buyer.
Key Learning Point Electronic Bills of Lading: Advantages and Disadvantages

A bill of lading is evidence of a Paper bills of lading have traditionally been used in shipping transactions.
valid contract of carriage of One of the problems with a paper-based system is the slowness of paper
goods. transactions—if the bill is delayed in reaching the buyer, the carrier will
have to deliver the goods in its absence. Such situations may make the
carrier liable for breach of the contract of carriage. Because the speed of
shipping has increased while the processing of paper documentation has
not, the paper bill of lading is failing to perform the functions for which it
was originally developed.
The advantages of using electronic bill of lading systems include cost-
savings, speeding up of settlement of transactions, enhancement of
traditional payment arrangements and enhanced security. In the shipping
industry, electronic data interchange (EDI) systems have been developed
to replace traditional paper shipping documents, particularly bills of lading.

However, legal issues present a number of obstacles to the use of EDI for
electronic bills of lading.
Legal Issues
A major legal issue is whether, in the case of a dispute, a data message
can be treated as a document and accepted as evidence in a court of law.
In many countries, computer records are generally admissible as evidence.
The legal ‘best evidence rule’ requires presentation of the best available
evidence in a court case. In cases where there is an original document, a
data message may not be accepted as the best evidence and may be
considered hearsay evidence. However, in the case where there is no
original paper-based document, a data message or computer print-out may
be considered the best available evidence.
The most common form of authentication required by domestic and
international law is a manual signature. The signature authenticates the
parties to a contract and provides evidence of their intention to be legally
bound by its terms. The courts have traditionally accepted manual
signatures as evidence that two parties have agreed to be bound by the
terms of a contract. It is not certain whether courts will accept an electronic
form of authentication as a ‘signature.’ This uncertainty can only be
resolved by legislation.
With EDI systems, signature or other authentication of documents can be
done in several ways. For example, secret digital codes, public keys
cryptography or a digital signature can be used. These methods of
identification may verify the origin of the messages, but may not meet legal
requirements for signature.
The United Nations Commission on International Trade Law (UNCITRAL)
is attempting to develop uniform international rules that would validate and
encourage the use of EDI. In 1995, UNCITRAL adopted the draft Model
Law on Legal Aspects of Electronic Data Interchange (EDI) and Related
Means of Communication. The Model Law is intended to serve as a model
to countries in order to create uniform law and practice involving the use of
computer systems in international trade.
2.1.5.2 Transport Documents

Bill of Lading
A carrier issues a bill of lading to a shipper to acknowledge that specified
goods have received on board a vehicle for transport to a named place for
delivery to a consignee, who is usually also identified. A through bill of
lading involves the use of at least two different transport modes. The term
derives from the verb ‘to lade,’ which means to load cargo onto a ship or
other form of transportation. A bill of lading may also be referred to with
acronyms BOL or B/L.

A bill of lading serves several functions, including:

• It is evidence of, and serves as, a valid contract of carriage of goods
between the carrier and the shipper, spelling out legal responsibilities
and liability limits for all parties to the shipment.
• It is a receipt signed by the carrier confirming whether goods matching
the contract description have been received in good condition.
Did You Know?
• It is a document of transfer, which is freely transferrable. This means
A pro forma invoice is a price that similar to a cheque or other negotiable instrument, it may be
quote that serves as the basis endorsed to affect ownership of the goods being carried.
for the subsequent commercial
invoice. Each carrier will have their own BOL form. The BOL is usually prepared by
either the freight forwarder or the carrier.
Air Waybill
The air waybill is a non-negotiable BOL. It is used as a receipt for cargo
and a contract for transportation between the shipper and air carrier. The
air carrier must deliver the shipment to the consignee named on the non-
negotiable air waybill. Airlines will use international air waybills or ‘airline air
waybills.’ Each airline has its own air waybill form, but the format and
numbering system have been standardized by the airline industry to allow
computerization. Freight forwarders may use ‘house air waybills’ as
receipts and consolidate them with the airline's international air waybills.
Road Waybills and Rail Waybills

Also called road consignment notes and rail consignment notes, road
waybills and rail waybills serve as a receipt for goods for transport by road
or rail and as evidence of the contract of carriage. But unlike a BOL, a road
or rail waybill is not a document of title to the goods. The consignee can
obtain the goods from the carrier at the destination point without presen-
Did You Know? tation of the road waybill or the rail waybill, as the case may be.
By issuing a letter of credit, the Waybills may also serve as a means of clearing goods through customs.
bank agrees to substitute its To clear the goods for importing to the destination country, the waybill will
own credit for that of the buyer, need to be accompanied by a commercial invoice, a packing list and any
and to pay a stated amount to other documentation required to clear customs.
the seller within a stated time
frame, provided that the buyer Sea or Liner Waybill
complies with all the terms and A sea or liner waybill is a document issued by the shipping line to a
conditions of the letter of credit. shipper, which serves as a receipt for the goods and evidence of the
contract of carriage. As with other waybills, it is not a document of title. It
bears the name of the consignee who has only to identify himself in order
to take delivery of cargo.
The purpose of the liner waybill is to avoid shipping delays that may occur
when bills of lading are late in arriving at the destination port. The
consignee may take delivery of the cargo when it arrives and is issued the
BOL at a later date.

Packing List
This is an itemized list describing the contents of each package in a
shipment. The packing list is used to determine the total weight and volume
of a shipment and to verify the cargo. Customs authorities at destination
use this packing list during clearance and inspection procedures. It is also
invaluable when filing claims for damage or shortage.
Key Learning Point Delivery Instructions
Some foreign governments
Also called delivery orders, these documents provide specific information
require that a consular or
to a carrier regarding delivery to a specific port, pier, terminal, airport or
customs invoice be provided to
freight vessel line. Delivery instructions will include the shipper's name and
identify, control and valuate
contact information, so he may be contacted in case of delivery problems.
imported goods. The buyer's
They will also include delivery deadlines and the consignee's name and
consulate or embassy in the
address.
shipper's country prepares the
document, based on information
contained in the commercial
invoice.
2.1.5.3 Commercial Documents

Pro Forma Invoice
A pro forma invoice is basically a price quote. It is used to document to the
buyer in advance the cost and terms of sale of a proposed export. It
describes the type and quantity of the goods to be shipped, value of the
goods, total cost of the transaction based on the terms of sale and other
Key Learning Points specifications. It serves as the basis for the subsequent commercial
• A pro forma invoice is invoice.
basically a price quote.
The buyer of the shipped goods may use a pro forma invoice to apply for a
• A commercial invoice is the letter of credit from his bank.
bill prepared by the seller to
the buyer/consignee for Commercial Invoice
payment of the goods
A commercial invoice is the bill prepared by the seller to the buyer/
shipped. It must conform to
consignee for payment of the goods shipped. It must conform to any letter
any letter of credit
of credit requirements stipulated by the buyer's bank, as well as to foreign
requirements stipulated by
government, and export and import control requirements. The commercial
the buyer's bank, as well as
invoice is the main document used by foreign Customs for import control,
to foreign government, and
valuation of the goods, pricing, terms of sale, payment and delivery, credit
export and import control
numbers, import licence numbers, shipper and consignee names, and
requirements.
shipping marks and numbers.
Insurance Certificate
The insurance certificate provides proof that cargo (the goods shipped) has
been properly insured. It will specify the amount and type of insurance
purchased for the shipment.
Letter of Credit
A letter of credit is a financial instrument issued by the buyer's/consignee's
bank. By issuing a letter of credit, the bank agrees to substitute its own
credit for that of the buyer, and to pay a stated amount to the seller within a
stated time frame, provided that the buyer complies with all the terms and
conditions of the letter of credit.

2.1.5.4 Official Documents

Certificate of Origin
Some countries require that a certificate of origin by provided for shipped
goods that certifies the originating country of imported goods. A certificate
of origin may be required by a foreign government for control purposes or
by the foreign importer to ensure that he receives goods from the country
of origin.
Consular or Customs Invoice

Some foreign governments require that a consular or customs invoice be
provided to identify, control and valuate imported goods. The buyer's
consulate or embassy in the shipper's country prepares the document,
based on information contained in the commercial invoice.
These documents are usually stamped with the consulate's official seal.
They may be specific forms required by the destination country's govern-
ment or simply stamped copies of the commercial invoice.
Carrier Certificate and Release Order

The carrier certificate and release order is used to advise Customs of the
shipment's details. By means of this document, the carrier certifies that the
firm or individual named in the certificate is the owner or consignee of the
cargo.
Shipper's Declaration for Dangerous Goods

Under the regulations of IATA, the International Maritime Organization
(IMO), as well as a country's national transportation regulations, shippers
and exporters are required to declare dangerous cargos to the air and
ocean carriers they use for shipment. Both the IMO and IATA require
specific documents to report hazardous goods, and these requirements are
published in their respective Codes.
Key Learning Point
There are additional regulations concerned the transport of dangerous
Under the regulations of IATA,
goods by road and rail. Module 5 Transportation of Dangerous Goods will
the International Maritime
cover this important issue in greater detail, including the regulations for
Organization (IMO), as well as a
various transport modes.
country's national transportation
regulations, shippers and
exporters are required to declare
dangerous cargos to the air and
ocean carriers they use for
shipment.

2.1.5.5 Other Transport Documents

A waybill or consignment note is a document issued by a carrier giving
details and instructions relating to the shipment of a consignment of goods.
Typically it will show the names of the consignor and consignee, the point
of origin of the consignment, its destination, route, and method of
shipment, and the amount charged for carriage.
Key Learning Point Unlike bills of lading, which includes much of the same information, a
waybill is not a document of title. It is used as a receipt for cargo and a
Unlike a bill of lading, a waybill is
contract for transportation between the shipper and air carrier.
not a document of title to the
goods. Waybills may also serve as a means of clearing goods through customs.
To clear the goods for importing to the destination country, the waybill will
need to be accompanied by a commercial invoice, a packing list and any
other documentation required to clear customs.
Packing List
This is an itemized list describing the contents of each package in a
shipment. The packing list is used to determine the total weight and volume
of a shipment and to verify the cargo. Customs authorities at destination
use the packing list during clearance and inspection procedures. It is also
invaluable when the consignor/shipper files claims for damaged or lost
goods.
Key Learning Point Delivery Instructions

Customs authorities at Also called delivery orders, these documents provide specific information
destination use the packing list to a carrier regarding delivery to a specific port, pier, terminal, airport or
during clearance and inspection freight vessel line. Delivery instructions will include the shipper's name and
procedures. It is also invaluable contact information, so he may be contacted in case of delivery problems.
when the consignor/shipper files They will also include delivery deadlines and the consignee's name and
claims for damaged or lost address.
goods.

Lesson Summary
In this lesson, we introduced you to freight forwarding services and to the
various transport service providers who provide those services.
We emphasised that an international freight forwarder is an agent for the
exporter in moving cargo to an overseas destination. Freight forwarders
are familiar with the import rules and regulations of foreign countries, the
export regulations of their domestic countries, and the methods of shipping
and the documents related to foreign trade.
We discussed how most freight forwarders specialise in particular service
areas, modes of transport or markets. Export freight forwarders are
licensed by the International Air Transport Association (IATA) to handle air
freight and by the Federal Maritime Commission (FMC) to handle ocean
freight.
We introduced the emerging field of freight integrators, who specialise in
the organisation of multimodal full load transports, involving at least two
transport modes. The freight integrator chooses the most efficient and
sustainable mode of transportation or combination of transport
modes, whereby efficient means the best solution of price, quality and
sustainability.
We fully understood how freight forwarders have become more sophisti-
cated and aware of their customer's needs, as shown by the value-added
services they now provide.
Finally, we discussed the documents used in international transport, which
fall into three main categories:
• Transport documents, such as bills of lading and waybills for the
various transport modes;
• Official documents, required by governments, regulators and Customs;
and
• Commercial documents, required by customers, banks and transport
carriers.

Progress Check 1
1. Which of the following statements about the services freight forwarders

provide is false?
(a) They complete customs paperwork and pay customs duties on a
customer's behalf.
(b) They do not provide freight insurance services, since customers
prefer to arrange for these themselves.
(c) They provide value-added supply chain management services,
including warehousing, distribution and packaging.
(d) They specialise in particular service areas, modes of transport or
markets.
2. The key difference between freight integrators and other types of

transport service providers is that freight integrators specialise in the
transport modes.
True or False?
3. Which of the following is one of the 10 indicators of freight integrators?

(a) Specialisation in full loads
(b) Specialisation in either rail or marine transport
(c) Provision of value-added supply chain management services
(d) Use of road-rail or road-marine transport combinations
4. Accreditation procedures and conditions for the IATA Cargo Agent

program are subject to regional requirements.
True or False?
5. Requirements for IATA Cargo Agent accreditation include:

(a) A valid licence to trade and compliance with any other national
legal requirements in the country of operation.
(b) General acceptance of all consignments for carriage and delivery
to a member airline at an airport ready for carriage.
(c) Basic qualification in air cargo, such as the IATA Cargo Introduc-
tory Training Course.

6. Match the transportation document with its definition.

(i) Pro forma invoice
(ii) Bill of lading
(iii) Customs invoice
(iv) Certificate of origin
(v) Commercial invoice
(a) It is evidence of a valid contract of carriage of goods.
(b) It serves as the price quote.
(c) It is the bill prepared by the seller to the buyer/consignee for
payment of the goods shipped.
(d) It contains specific information for customs clearance and
valuation of imported shipments.
(e) It certifies the originating country of imported goods
7. Which of the following commercial documents must conform to any

letter of credit requirements stipulated by the buyer's bank, as well as
to foreign government, and export and import control requirements?
(a) Pro forma invoice
(b) Commercial invoice
(c) Insurance certificate
(d) Customs invoice

2.2 Scope of Frieght Forwarding Services

In this lesson, we will outline the various activities that fall within the scope
of freight forwarding services and how freight forwarders process the
Lesson Learning movement of goods through the various stages an overseas shipment
involves. We will discuss the various services the freight forwarder
Objectives provides on behalf of the consignor (exporter) and consignee (importer).
On completion of this lesson,
We will also discuss the freight forwarder's legal status and rights, duties
and responsibilities in two different legal systems—common law and civil
• Describe the scope of law.
freight forwarding services.
You will learn about the circumstances in which the freight forwarder is
• Describe the services freight legally considered to be acting as his client's agent or his client's principal
forwarders provide to and how that affects the freight forwarders legal rights and liability. You will
consignors (exporters) and understand that when the freight forwarder acts as a principal, he becomes
consignees (importers). responsible for the satisfactory performance of the entire transport
operation, including the period when the goods are in the custody of the
• Describe the rights, duties carriers and other agencies.
and responsibilities of the
freight forwarder as an We will also discuss, apart from the consignor and consignee, how the
agent and a principal. freight forwarder has to deal with several third parties during the course of
rendering services to his customers.
• Explain the freight
forwarder's freedom of
contract. 2.2.2 Introduction
• List the third parties with The advent of container technology in transport has facilitated the
whom freight forwarders introduction of consolidation. Consolidation involves the assembly of small
deal in the public and private packages of cargo from several consignors at points of origin intended for
sectors. several consignees at points of destination. It has enlarged the scope of
services of the freight forwarder.
Often, the freight forwarder consolidates the cargoes of a number of
consignors into a single container, resulting in cost savings that benefit the
consignors. When a freight forwarder provides consolidation services
he/she assumes the role of a principal and is no longer an agent of the
consignor or carrier.
The most far reaching impact of containerisation on the role of freight
forwarders is their involvement in multimodal transport. Containers have
enabled multimodal transport to be applied to most types of cargo by
means of an international standardised transport unit. Only particularly
large and/or heavy cargoes cannot be containerised.
Today, a freight forwarder plays an important role in international trade and
transport. Full-service freight forwarders will offer a comprehensive pack-
age of services covering the total transportation and distribution process.

2.2.3 Scope of Freight Forwarding Services

When freight is shipped, the consignor or exporter is the person shipping
the goods, and the consignee or importer is the person receiving the
goods. Unless the consignor and/or consignee want to take care of any of
the procedures and documentation required to transport goods, it is usually
the freight forwarder who undertakes on their behalf the responsibilities
required to move goods through the various stages involved.
Key Learning Point
Consolidation involves the 2.2.3.1 Services Provided on behalf of the
assembly of small packages of
cargo from several consignors at Consignor (Exporter)
points of origin intended for When acting on behalf of the consignor (exporter), the freight forwarder
several consignees at points of provides the following services:
destination.
1. Chooses the route, mode of transport(s) and a suitable carrier or
carriers.
2. Books space with the selected carrier(s).
3. Takes delivery of the goods and issues relevant transport documents.
4. Studies the provisions of the letter of credit (if applicable) and all
government regulations applicable to the shipment of goods in the
country of export, the country of import and any transit country. He also
prepares all documents necessary to clear customs, meet regulatory
Did You Know? requirements and deliver the goods to their final destination.
The freight forwarder acts as an 5. Packs the goods (unless the consignor does so before handing them
agent on behalf of both the over to the forwarder), taking into account the route, transport mode,
consignor and consignee to the nature of the goods and applicable regulations related to the goods
process the movement of goods. (if any) in the countries of export and import, and transit countries.
6. Arranges for the warehousing or storage of goods until shipping, if
necessary.
7. Weighs and measures the packed goods.
8. If required by the consignor, arranges with the consignor for the
purchase of insurance for the goods.
9. Transports the goods to the port or air terminal, arranges for customs
clearance and related documentation, and delivers the goods to the
carrier.
10. Attends to foreign exchange transactions, if required.
11. Pays fees and other charges, including freight.
Key Learning Point 12. Obtains the signed bills of lading from the carrier and arranges for their
delivery to the consignor.
Examples of services related to
special cargoes that freight 13. Arranges for trans-shipment of the goods from one transport mode to
forwarders provide include: another, if necessary.
• Transport of construction 14. Monitors the movement of goods all the way to delivery to the
project cargoes consignee, through contact with the carrier and his own agents abroad.
• Garment hanging services 15. Documents any damages to or loss of the goods.
• Transport of overseas 16. Assists the consignor in pursuing any claims against the carrier(s) for
exhibitions the loss of damage to the goods.

2.2.3.2 Services Provided on behalf of the

Consignee (Importer)
When acting on behalf of the consignee (importer), the freight forwarder
provides the following services:
1. Monitors the transport of the goods.
2. Receives and checks all relevant documents related to the transport of
the goods.
3. Takes delivery of the goods from the carrier and, if necessary, pays the
freight costs.
4. Arranges for customs clearance, paying the necessary duties, fees
and other charges.
5. Arranges for transit warehousing, if necessary.
6. Delivers the cleared goods to the consignee.
7. If necessary, assists the consignee in pursuing any claims against the
carrier for the loss of or damage to the goods.
8. Assists the consignee with warehousing and distribution, if needed.
2.2.3.3 Special Cargoes

Freight forwarders usually handle general cargo comprising a large variety
of finished, unfinished or semi-processed goods and other commodities
being transported in international trade. The services listed in sections
2.2.3.1 and 2.2.3.2 generally apply to such cargo.
Freight forwarders may also provide services related to the shipment of
special cargoes. This is the goods that need special attention and care
during acceptance, storage, handling and loading. There is big variety of
such cargo as:
• Dangerous Goods/HAZMAT
• Live Animals
• Perishable Cargo
• Heavy/Outsized Cargo
• Human Remains
• Magnetized Materials
• Valuable Cargo
• Wet Cargo, etc.
Those types of cargo will be considered in more details in Module 3 and
Module 7.
Some freight forwarders specialise in providing services related to other
types of special cargoes include:
• Transport of construction project cargoes
• Garment hanging services
• Transport of overseas exhibitions

Transport of Construction Project Cargoes

This involves the transport of heavy machinery, equipment and materials
for the construction of such large projects as airports, chemical plants,
hydroelectric plants and oil refineries. The transport of such cargoes has to
be carefully planned to ensure timely delivery. It may require the use of
specialised equipment, such as cranes, oversize trucks or special types of
freight vessels.
Garment Hanging Services

Garments are carried in hangers hung on racks in special containers. Once
they reach their final destination, they are transferred directly from the
containers to stores for display. This avoids the need for additional
handling of the garments, which would be necessary if they were stuffed
into shipping containers. It also helps protect the garments from damage
due to weather or dust.
Transport of Overseas Exhibitions

Organisers of overseas art or cultural exhibitions will hire specialised
freight forwarders to transport exhibit items to exhibition sites in other
countries. Such freight forwarders have expertise in the safe and secure
packing, shipping and handling of exhibits. As the contents may be
irreplaceable artwork or artefacts, this is particularly important.
Freight forwarders specialising in this area must comply with the special
instructions of exhibit organisers related to the transport and handling of
exhibits, and the timing of delivery. They must also deal with the
procedures and requirements of the Customs air or port terminal in the
destination country, including providing the documentation required to
clear the exhibit through customs.
2.2.4 Rights, Duties and Responsibilities of

Freight Forwarders
2.2.4.1 Legal Status of a Freight Forwarder
A freight forwarder's legal status varies from country to country, depending
on the country's legal system. The distinction between a freight forwarders
Key Learning Point role as a principal and as an agent is important because it determines the
A freight forwarder's legal status responsibility of the freight forwarder Different legal regimes and rules
varies from country to country, apply in common law countries than in civil law countries. Common law
depending on the country's legal systems place great weight on court decisions, which are considered “law”
system. Different legal regimes with the same force of law as legislation. Through legal decisions, common
and rules apply in common law law courts have the authority to make law where no legislative statute
countries than in civil law exists.
countries. By contrast, in civil law jurisdictions, courts lack authority to act where there
is no statute, and legal precedent is given less interpretive weight. Civil
legal systems hold case law to be secondary and subordinate to statutory
law, and the court system is usually unbound by precedent.
Common law systems trace their history to England, while civil law systems
trace their history to Roman law and the Napoleonic Code. Common law
constitutes the basis of the legal systems of most English-speaking
countries, including England and Wales, Northern Ireland, Ireland, India,
Australia, Canada and the United States.

Various types of civil law systems exist in non-English speaking Western

and Eastern European countries, as well as Japan, South Korea and
Taiwan. China's legal system is a combination of civil law and the socialist
law system that exists in communist and formerly communist states,
except for Hong Kong, which has a purely civil system.
Common Law Countries

Key Learning Point Generally speaking, in common law countries, the freight forwarder's legal
When a freight forwarder acts a status is based on the concept of agency. When the freight forwarder acts
principal for the purposes of the ‘agent of his principal,’ the consignor/consignee, in arranging transport
carrying out a freight shipment, of the principal's goods, he is subject to the traditional rules of agency.
he becomes responsible for the These rules include the duty to provide due care in the performance of his
satisfactory performance of the duties, being loyal to the principal, the duty of obeying reasonable
entire transport operation. instructions and being able to account for all transactions.
When acting as an ‘agent,’ the defences and limitations of liability that are
appropriate to an agent are available to the freight forwarder. In this case,
the freight forwarder's duty is to take care to engage apparently competent
and qualified carriers and other agencies to carry out the principal's
instructions. Provided that he has exercised due care, the freight forwarder
is not responsible should those he engages fail to perform the contracted
work or if their negligence results in the loss of or damage to the goods
being transported.
When the freight forwarder simply undertakes to arrange for the carriage of
goods and contracts out to carriers and other in the transport chain on the
consignor's behalf, he is considered to be acting as an agent. But in cases
where the freight forwarder provides such additional services as ware-
housing, consolidation and packing of goods, or carriage of goods himself,
he is considered to be acting as the principal. Here, the term principal is
defined as “one who has directed another agent to act for his benefit and
Did You Know? subject to his direction and control, under a contract assuming responsi-
In civil law countries, the legal bility in the principal's own name.” In this case, the same limitations on
status and related rights and liability and legal defences that apply to agents do not apply.
obligations of freight forwarders When a freight forwarder acts a principal for the purposes of carrying out a
vary from country to country. freight shipment, he becomes responsible for the satisfactory performance
of the entire transport operation, including the period when the goods are in
the custody of carriers and other agencies whose services he uses.
In actual practice, however, the freight forwarder's legal position will often
vary with the service he provides. For example, when a freight forwarder
provides road transport services and serves as the carrier, he assumes the
role of principal. But if he uses a sub-contractor known to his client to
transport the goods by road, he continues to act as an agent.

Civil Law Countries

In civil law countries, the legal status and related rights and obligations of
freight forwarders vary from country to country. As a general rule, freight
forwarders providing services in such countries transact business in their
own names on behalf of their principals. Freight forwarders are considered
to be agents in relation to their principals (consignors/consignees) and
principals in relation to carriers.
Did You Know? There are, however, variations among civil law countries in terms of the
freight forwarder's legal status and liability. In France, for example, in
Some countries have adopted addition to being liable for freight forwarding activities, freight forwarders
Standard Trading Conditions are also liable for the performance of carriers. In this case, the freight
that spell out the freight forwarder is often virtually considered the carrier, whether he provides
forwarder's contractual carriage services himself or not. French law permits consignors to hold
obligations related to clients, as either the freight forwarder or the carrier legally responsible for cargo loss
well as his rights, responsibilities or damages and to seek related compensation from either party.
and liabilities and the defences
available to him. In Germany, the freight forwarder's legal status is substantially different.
The freight forwarder does not assume liability for the performance of
carriers, unless he provides the carriage services himself.
Standard Trading Conditions

Some countries, including the United Kingdom, Canada and Singapore,
have adopted Standard Trading Conditions that spell out the freight
forwarder's contractual obligations related to clients, as well as his rights,
responsibilities and liabilities and the defences available to him. Standard
Trading Conditions are usually developed according to a country's com-
mercial practices and legal systems. They are usually developed by the
country's national freight forwarders industry association.
In some countries, Standard Trading Conditions are based on the
International Federation of Freight Forwarders Associations' (FIATA)
Model Rules for Freight Forwarding Services. FIATA represents approxi-
mately 40,000 forwarding and logistics firms employing approximately
8–10 million people in 150 countries. It was founded in Vienna, Austria, in
1926. It is recognised as representing the freight forwarding industry by
such organisations as the International Chamber of Commerce (ICC), the
International Air Transport Association (IATA), the International Union of
Railways (UIC), the International Road Transport Union (IRU), the World
Customs Organization (WCO) and the World Trade Organization (WTO).

In countries where Standard Trading Conditions for freight forwarders do

not exist, the terms of the contract between the freight forwarder and his
customer define the rights, duties and responsibilities of both parties.
2.2.4.2 Duties under FIATA Model Rules

Rights, Duties and Responsibilities of the Forwarder as an
Key Learning Points Agent
• Under the FIATA Model Under the FIATA Model Rules, when the freight forwarder acts as agent,
Rules, when acting as an he is liable for damages if he fails to exercise due diligence and take
agent, the freight forwarder reasonable measures in the performance of freight forwarding services. In
is not liable for the this case, he is required to compensate the customer for lost or damaged
performance of third goods, as well as direct financial loss resulting from a breach of his duty of
parties, provided that he care. Examples of errors and omissions that could result in the freight
exercised due diligence in forwarder having to pay damages to the customer include:
selecting, instructing and
supervising the third parties. • Delivery of goods contrary to instructions;
• But when acting as a • Failure to take cargo insurance, despite being instructed to do so;
principal, he is liable for the
• Errors made during customs operations;
errors and omissions of
third parties he engages for • Routing goods to the wrong destination; and
the performance of the
contract. • Delivery of goods without collecting payment from the consignee.
The freight forwarder is also liable for any loss, damage or personal injury
he may cause third parties during the course of his operations.
However, when acting as an agent, the freight forwarder is not liable for
the performance of third parties, including carriers, warehouse workers,
stevedores, port authorities or other freight forwarders, provided that he
exercised due diligence in selecting, instructing and supervising the third
parties.
Rights, Duties and Responsibilities of the Forwarder as a

Principal
As a principal, the freight forwarder is the principal contractor who assumes
responsibility in his own name for providing services to the customer. He
arranges total logistics, including packing and cargo consolidation. He
therefore becomes liable for the errors and omissions of carriers and other
subcontractors he engages for the performance of the contract.
As a principal, his liability to third parties is the same as when he acts as
agent.
The Freight Forwarder's Liability as Carrier

The freight forwarder is subject to liability as principal when:
• He performs the carriage himself by his own mean of transport.
• He assumes carrier liability by issuing his own transport document,
even if he does not perform the carriage himself.
The freight forwarder is generally not subject to liability in situations where
the customer has received a transport document from a carrier other than
the freight forwarder.

The Freight Forwarder's Liability as Principal for other Services

When the freight forwarder provides services other than the carriage of
goods, such as storage, handling, packing or distribution, he is subject to
liability as principal when:
• He performs the services himself using his own facilities and em-
ployees.
• He undertakes to assume liability as principal.
The freight forwarder's liability as a principal is much more extensive than
his liability as an agent. As principal, the freight forwarder is held legally
responsible for the errors and omissions of the third parties to whom he
sub-contracts in the same manner as if the errors and omissions were his
own or those of his employees.
The FIATA Model Rules specify the following three circumstances in which
the freight forwarder cannot be held liable for loss or damages as either
agent or principal:
• Lost or damaged valuables or dangerous goods, unless these are
declared to the freight forwarder when the contract for carriage is being
drawn up;
Key Learning Point • Financial losses resulting from a delay in shipment, unless agreed to in
writing in the contract;
In the absence of applicable
international conventions, • Indirect or consequential financial losses, such as loss of profit or
multimodal transport contracts market share.
are largely governed by the
International Chamber of • The forwarder may also provide, depending upon the requirements of
Commerce (ICC) Uniform Rules his customer, other services arising during transit operations and also
for a Uniform Combined special services such as consolidation or groupage.
Transport Document.
Multimodal Transport Services
When the freight forwarder assumes the role of principal providing
multimodal transport services, the situation becomes more complicated,
and Standard Trading Conditions generally do not apply. In the absence of
applicable international conventions, multimodal transport contracts are
largely governed by the International Chamber of Commerce (ICC)
Uniform Rules for a Uniform Combined Transport Document. This issue
will be covered in greater in Module 4. Introduction to Multimodal
Transport.
Rights, Duties and Responsibilities of the Freight Forwarder's

Customer
The FIATA Model Rules also specify the rights, duties and responsibilities
of freight forwarders' customers. These include providing to the freight
forwarder at the time the goods are taken into his charge accurate
information about the nature of the goods, their marks, number, weight,
volume and quantity. The customer is required to notify the freight
forwarder of the nature of any dangerous goods contained in the shipment.
The customer is also required to pay all monies owed to the freight
forwarder, without any reduction or deferment taken due to any legal claim.
To the extent permitted by law, the freight forwarder is granted a general
lien on the goods for any amount due to him at any time. The freight
forwarder may enforce the lien in a reasonable manner in which he sees fit.

2.2.5 Relationships with Third Parties

Apart from the consignor and consignee of goods, the freight forwarder
deals with several third parties to provide services to customers. The third
parties fall into two main categories—government and other public
authorities, and private parties.
2.2.5.1 Government and other Public Authorities

In the public sector, the forwarder has to deal with the following:
• Customs authorities for customs clearance
• Port authorities for port clearance
• Airport authorities for airport clearance
Key Learning Point
• The central bank for foreign exchange control permission
The third parties the freight
forwarder deals with to provide • Ministries of health to obtain health licences
services to customers fall into • Consular officers to obtain certificates of origin and customs invoices
two main categories—
government and other public • Import/export trade control authorities
authorities, and private parties. • Transport licensing authorities
• Government regulators in the country of import, country of export and
transit countries
2.2.5.2 Private Parties

In the private sector, the forwarder deals with the following parties:
• Carriers and other agencies such as :
ż Trucking companies
ż Air cargo trucking/road feeder services
ż Railways
ż Airports, airport terminals and airlines
ż Inland waterway operators
ż Marine ports, terminals and freight vessels
ż Container shipping services companies
ż Tanker services companies
ż Stevedores, who load and unload cargo from ships
ż Shippers and couriers
ż Livestock and temperature controlled transportation service pro-
viders

Other than transportation service providers, the freight forwarder may deal
with a wide range of other companies and individuals, including:
• Packing, crating and packaging services providers
• Warehouseman for warehousing of the goods
• Cold storage providers, for perishable goods
• Dangerous goods storage companies
• Insurers for insuring cargo
• Customs brokers, who provide customs-related services
• Commercial banks that issue letters of credit on behalf of customers
• Customers' distribution networks, including retail stores
• Customers' supply chain networks and logistics

Lesson Summary
In this lesson, we discussed the extensive range of services the freight
forwarder provides on behalf of the consignor (exporter) and consignee
(importer). You learned about the specialised services that some freight
forwarders provide to transport special types of cargo, such as construction
project cargoes, hanging garments and items being transported for
overseas exhibitions.
We also discussed the freight forwarder's legal status and rights, duties
and responsibilities in two different legal systems—common law and civil
law, as well as the FIATA Model Rules for Freight Forwarding Services.
We concluded that the legal rights and liability of a freight forwarder will
generally vary considerable depending on whether he is acting as an agent
or a principal for his customer. When the freight forwarder simply
undertakes to arrange for the carriage of goods and contracts out to
carriers and others in the transport chain on the consignor's behalf, he is
considered to be acting as an agent. But in cases where the freight
forwarder provides such additional services as warehousing, consolidation
and packing of goods, or carriage of goods himself, he is considered to be
acting as the principal.
We explained that the freight forwarder's liability as a principal is generally
much more extensive than his liability as an agent. For example, he may
be held liable for the errors and omissions of the carriers and other
companies to which he sub-contracts. But how the law is applied will vary
by country, as well as by the terms of the contract between the freight
forwarder and his client.
Finally, we discussed, apart from the consignor and consignee, how the
freight forwarder has to deal with several third parties during the course of
rendering services to his customers. These third parties include customs
authorities, government regulators, import/export trade control officials, the
central bank, consular officers, and carriers and other transport service
providers.

Progress Check 2
1. List some of the services freight forwarders provide on behalf of

consignors (exporters) of goods.
2. List some of the services freight forwarders typically provide on behalf

of consignees (importers) of goods.
3. Which of the following statements about common law legal systems is

true?
(a) They place great weight on court decisions.
(b) They exist in non-English speaking European countries.
(c) They hold case law to be subordinate to statutory law.
(d) Their courts lack authority to act where there is no statute.
4. Under common law, in cases where the freight forwarder provides

such additional services as warehousing, consolidation and packing of
goods, or carriage of goods himself, he is considered to be acting as
the principal.
True or False?
5. List some examples of errors and omissions that could result in the
freight forwarder having to pay damages to the customer.
6. The FIATA Model Rules spell out the circumstances in which the
freight forwarder may be held liable when he acts as an agent on
behalf of a customer. Which of these statements about the freight
forwarder's liability when he acts as an agent is false?
(a) He is liable for damages if he fails to exercise due diligence while
providing freight forwarding services.
(b) He is required to compensate customers for lost or damage goods.
(c) He is not required to compensate customers for direct financial
losses resulting from a failure to exercise due diligence.
(d) He is liable for any loss, damage or personal injury he may cause
third parties.
7. List the four situations in which a freight forwarder would be subject to

liability as a principal under the FIATA Model Rules.

8. Under the FIATA Model Rules, the customer's obligations to the freight
forwarder include:
(a) Providing accurate information about the nature of the goods, their
marks, number, weight, volume and quantity.
(b) Notifying the freight forwarder of any dangerous goods contained
in the shipment.
(c) Paying all monies owed to the freight forwarder, without any
reduction or deferment taken due to any claim.

Module Summary
In this module, we introduced you to supply chain activities that fall within
the scope of freight forwarding. We also introduced the following key terms:
• International freight forwarder—an agent for the exporter in moving
cargo to an overseas destination.
• Freight integrators—transport service providers who specialise in the
transport modes.
• IATA Cargo Agent—an airline cargo agent licensed by IATA to handle
air freight, after meeting all of the required qualifications and having an
investigator acting on behalf of IATA visit the premises.
You also learned about the differences in the rights, duties and responsi-
bilities of freight forwarders when they act as either agents or as principals
on behalf of their customers. The freight forwarder's expanded role has
raised legal questions and uncertainty about his legal rights, responsi-
bilities and liability for transport operations.
In response, the freight forwarding industry associations in many countries
have developed Standard Trading Conditions based on the International
Federation of Freight Forwarders Associations (FIATA) Model Rules for
Freight Forwarding Services. We explained how these Standard Trading
Conditions help clarify a freight forwarder's legal rights and liability in
situations where errors or omissions are made in transport operations.

Answer Key
Progress Check 1
1. b
2. True
3. a
4. True. Please contact the nearest IATA office for country or
regional specific standards.
5. d
6. Answers:
(i) b
(ii) a
(iii) d
(iv) e
(v) c
7. b
Progress Check 2
1. Answers:
• Chooses the route, mode of transport(s) and a suitable carrier or
carriers.
• Books space with the selected carrier(s).
• Takes delivery of the goods and issues relevant transport docu-
ments.
• Studies the provisions of the letter of credit (if applicable) and all
government regulations applicable to the shipment of goods in the
country of export, the country of import and any transit country. He
also prepares all documents necessary to clear customs, meet
regulatory requirements and deliver the goods to their final
destination.
• Packs the goods (unless the consignor does so before handing
them over to the forwarder), taking into account the route,
transport mode, the nature of the goods and applicable regulations
related to the goods (if any) in the countries of export and import,
and transit countries.
• Arranges for the warehousing or storage of goods until shipping, if
necessary.
• Weighs and measures the packed goods.
• If required by the consignor, arranges with the consignor for the
purchase of insurance for the goods.
• Transports the goods to the port or air terminal, arranges for
customs clearance and related documentation, and delivers the
goods to the carrier.
• Attends to foreign exchange transactions, if required.
• Pays fees and other charges, including freight.

• Obtains the signed bills of lading from the carrier and arranges for
their delivery to the consignor.
• Arranges for trans-shipment of the goods from one transport mode
to another, if necessary.
• Monitors the movement of goods all the way to delivery to the
consignee, through contact with the carrier and his own agents
abroad.
• Documents any damages to or loss of the goods.
• Assists the consignor in pursuing any claims against the carrier(s)
for the loss of damage to the goods.
2. Answers:
• Monitors the transport of the goods.
• Receives and checks all relevant documents related to the
transport of the goods.
• Takes delivery of the goods from the carrier and, if necessary,
pays the freight costs.
• Arranges for customs clearance, paying the necessary duties, fees
and other charges.
• Arranges for transit warehousing, if necessary.
• Delivers the cleared goods to the consignee.
• If necessary, assists the consignee in pursuing any claims against
the carrier for the loss of or damage to the goods.
• Assists the consignee with warehousing and distribution, if
needed.
3. a
4. True
5. Answers:
• Delivery of goods contrary to instructions;
• Failure to take cargo insurance, despite being instructed to do so;
• Errors made during customs operations;
• Routing goods to the wrong destination; and
• Delivery of goods without collecting payment from the consignee.
6. c
7. Answers:
• He performs the carriage himself by his own mean of transport.
• He assumes carrier liability by issuing his own transport document,
even if he does not perform the carriage himself.
• He performs the services himself using his own facilities and
employees.
• He undertakes to assume liability as principal.
8. d

Module 3:
Introduction to Transport Management
3.0 Introduction to Transport Management
Module Overview
The global freight transportation infrastructure handles large volumes of
cargo. In 2008, more than $16 trillion of exported freight was transported
Module Learning worldwide. Maritime vessels, aircrafts, trucks and trains transported these
goods from production centres to consumption markets. Despite of
Objectives economic crisis in the end of 2008 and collapse of the world trade in 2009,
On completion of this module, which significantly influenced transportation, in recent years all modes of
you should be able to: transport, had a stable growth and recovery.
• Define the general terms The movement of international freight among nations relies on a complex
used to categorize cargo. array of long-distance transportation services. The process involves many
participants, including shippers/consignors, commercial carriers, third-party
• Explain the different logistics providers and consignees. Global trade depends on seaport and
methods of cargo carriage airport services to move large volumes of merchandise over long distances
used for general, bulk and via a variety of transportation modes. The interaction of these services and
hybrid cargoes. participants is vital to successful global trade.
• Summarise the markets In this module, we will introduce you to the various types of cargoes and
served and services explain how they are stored, packaged or containerised, handled and
provided by the four freight transported. You will also learn about the special handling requirements of
transport modes—air, rail special cargoes, such as perishable goods and live animals.
road and marine.
We will also discuss the following about the four freight transport modes
• Describe the infrastructure, (air, rail, road and marine):
equipment and technologies
of each of the four transport • The markets they serve.
modes.
• The services they provide.
• Describe the regulatory
• The infrastructure, equipment and technologies they use to provide
regimes in which each of the
their services.
four transport modes
operates. • The key transport documents they issue to customers, customers
officials and others.
• The legislation and international conventions that affect their oper-
ations and regulatory requirements.
• Their impact on the environment and current efforts to address those
impacts.
Module 3: Introduction to Transport Management 101

3.1 Transportation of Freight

Cargo or freight varies
in its nature. It may be
Lesson Learning raw materials, goods
or products which are
Objectives transported, generally
On completion of this lesson, for commercial gain,
you should be able to: by ship, aircraft, train
or truck.
• Define the terms general
cargo, bulk cargo and hybrid
cargo.
• Explain the different
methods of cargo carriage
used for general, bulk and Cargoes may be in solid dry form, or they may be liquids or gases. The
hybrid cargoes. physical state of cargo will determine how it must be stored, handled and
• Explain how the various transported. Different forms require different transport modes, means and
types of liquid and dry packaging.
cargoes are stored, In this lesson, you will learn about the various types of cargoes and how
packaged or containerised, they are generally stored, packaged or containerized, handled and
handled and transported. transported. You will also learn about the requirements for handling and
• Explain the special transporting special cargo, such as perishable cargo and live animals.
requirements of handling We will also define the terms general, bulk and hybrid cargo and explain
and transporting special how different methods of cargo carriage are used for these general
cargoes, such as perishable categories of cargo.
cargo and live animals.
3.1.2 Freight Shipment

Cargoes may be in solid dry form, or they may be liquids or gases. The
physical state of cargo will determine how it must be stored, handled and
transported. Different forms require different transport modes, means and
packaging.
Gases and liquids have to be containerized in some form. They may be
Key Learning Point packed into containers or alternatively be moved without packaging in
pipelines and special carriers.
The physical state of cargo will
determine how it must be stored, Dry cargoes are raw materials, and semi-finished or finished goods. They
handled and transported. do not require the same containment as gases and liquids. The number of
dry cargo types is almost endless. The type of dry cargo, level of finishing,
and the transport mode(s) and method(s) will determine the packaging and
storage requirements.

The methods of cargo carriage and packaging should be considered at the

very outset of the shipping process. Storage requirements will tend to
determine the choice of transport method. Some commodities have to be
kept frozen (e.g. meat, frozen foods), while others need refrigeration (e.g.
fruits and vegetables, dairy products). Flowers need to reach customers
quickly, while other cargoes need adequate ventilation to avoid combustion
(e.g. grain, coal). Therefore, the shipper needs to choose a transport
Key Learning Point method that will provide both proper storage while the cargo is in transit
and speed of delivery.
Storage requirements, such as
freezing or refrigeration, will tend In addition, the size and quality of packages must be compatible with the
to determine the choice of transport equipment that will be used, including the containers. The cost-
transport method. effective used of shipping containers depends on positioning packages to
avoid empty space. Wasted space within a container not only causes loss
of revenues, but also poses the danger of goods shifting during transit and
possibly being damaged as a result.
3.1.2.1 Methods of Cargo Carriage

In general, cargoes (commodities) are either moved in bulk or as general
cargo. Bulk and general cargoes are defined relative to their means of
transport and the cargo mix onboard. When cargoes are packed and mixed
onboard a ship, it is referred to as general cargo. Most finished goods are
shipped as general cargo, while raw materials in bigger lots are usually
bulk cargoes.
The term general cargo has traditionally referred to loose cargo that has
Key Learning Point not been consolidated for handling by a mechanical means, such as
The term general cargo refers to unitized or containerized cargo. It may be packaged as bagged or baled
loose cargo that has not been items, cases or crates, or drums or barrels. However, general cargo
consolidated for handling by a moving between developed countries today is usually containerised. We
mechanical means, such as will discuss containerised cargo later in this lesson.
unitised or containerised cargo.
When there are general cargoes that fill up the whole carrier, such as
shiploads of sugar in bags, this is referred to as ‘unit loads of general
cargoes.’ The opposite, where the ship carries different cargoes packed
differently, is referred to as ‘general break bulk cargoes.’ Such cargoes
may consist of pallets, unpacked machinery, drums and crates. Commodi-
ties, dry as well as liquid, may be shipped in unit loads, in break bulk or as
bulk cargo.
Table 3.1.2.1 clarifies how different types of dry and liquid cargoes are
stored and shipped.
There is a third hybrid form of moving cargoes, involving slurry techniques.
Dry bulk cargoes may be transformed into slurries and moved in a form
similar to that of liquid bulk. For example, coal and iron ores are mixed with
water and transported by means of pipelines.

On a worldwide basis, almost all the liquid commodities, measured in

tonnes, are moved in bulk. Dry goods, such as grain, coal, ores and salt
are similarly moved in homogeneous unpackaged lots. Bulk cargoes are
handled in different ways, depending on the type of cargo involved. Liquids
are moved in pipelines, and grain is loaded by conveyors or chutes and
unloaded pneumatically. Ores and coal are moved with conveyors or
grabs.
Did You Know?
Transport usually subjects the
Physical Form Unit Load Break Bulk Bulk Cargo
cargo to mechanical forces
(shocks, vibrations, pressures) Dry Cargoes Whole loads of Machinery parts Loose grain in
and/or climatical forces bagged rice in crates and holds
(temperature, moisture). Cargo boxes
packaging needs to be strong Liquid Cargoes Whole loads of Part loads of Crude oil in tank
enough to withstand the rigours oil in drums wine in cases vessels
of stowage and multiple Table 3.1.2.1—Storage and Shipment of Dry and Liquid Cargoes
handling.
3.1.2.2 Packaging
Transport usually subjects the cargo to mechanical forces (shocks,
vibrations, pressures) and/or climate forces (temperature, moisture). Cargo
packaging needs to be strong enough to withstand the rigours of stowage
and multiple handling. Goods that are not packed properly may be
damaged or damage other goods in the same container or vehicle. In such
cases, the carrier may be liable for the damaged goods.
Packaging of cargo performs three basic functions, which we may call the
three P's of packaging:
• Protection;
• Preservation and;
• Presentation.
A package should protect and preserve the contents during storage and
transit. Protection is required not only to protect cargo against loss,
damage and pilferage, but also, depending on the nature of the contents,
against moisture entering or leaving the package, high or low tempera-
tures, light, gases, insect infestation, contamination and other natural
hazards.

Did You Know?

On a worldwide basis, almost all
the liquid commodities are
moved in bulk.
Packaging will also have to be considered relative to the transport method

chosen. Some raw materials, like mined ores, need not be packaged at all.
If finished goods are moved in containers, the packaging required is much
less than if the goods are transported in individual cases.
In terms of presentation, the shipper has to follow procedures laid down by
public authorities as well as commercial practice with regard to packaging,
marking and declarations of contents. The marking and labeling of
packages should include, but is not limited to:
• Destination: Address of the consignee to whom the package is being
shipped.
• Handling instructions: Especially with fragile commodities, it is import-
ant to mark the package with handling directions to avoid breakage
and other damages. To avoid language difficulties, a set of inter-
nationally recognised symbols are used to mark cargoes that are
fragile and/or require special handling.
• Labelling and marking: Some kinds of goods needs special handling
and transport. Such cargo needs to be properly marked and labelled,
clearly showing nature of the goods and specific handling require-
ments. Examples of common cargo labels used on packaging are
presented in Figure 3.1.2.2.
Figure 3.1.2.2—Examples of Cargo Labeling Symbols

• Dangerous goods: The goods classified as dangerous require special

labeling and marking, as well as special packaging. In general, goods
are regarded as dangerous if they have chemical or physical properties
which can damage other goods, materials or the environment.
Examples include explosives, flammable liquids or gases, and poisons.
Some cargo declared under a general description may contain
hazardous articles that are not apparent. Such articles may also be
Key Learning Point found in baggage. This type of shipment is known as ‘hidden
dangerous goods.’ Typical examples are automobiles, camping equip-
The great advantage of ment and household goods. More detailed information for Dangerous
containerisation to the freight Goods are given in Module 7.
transport industry is that the
cargo is not man handled on and
off the ship or vehicle. Instead, 3.1.3 Types of Cargo
the container is handled with
fast and sophisticated handing
equipment that does not 3.1.3.1 Containerised Cargo
damage the contents. General cargo moving between devel-
oped countries today is usually contai-
nerised. Almost any commodity can be
containerised. The great advantage of
containerisation to the freight transport
industry is that the cargo is not man
handled on and off the ship or vehicle.
Instead, the container is handled with
fast and sophisticated handing equip-
ment that does not damage the con-
tents. Compared with general cargo
carried break bulk, cargo damage in
containers is considerably reduced.
Naturally in developed countries where labour is expensive significant

savings can be realised by containerising cargo. This is the case in
developing countries, but over time as they become developed this will
change.
The containers themselves are owned or leased by the shipping
companies, which are responsible for ensuring that sufficient empty units
are available for shippers at the load ports or other locations where cargo is
loaded into containers.
Multimodal containers can be moved from one mode of transport to
another (from ship, to rail, to truck) without unloading and reloading the
contents of the container. Lengths of containers vary from 8-foot (2.4 m) to
56-foot (17 m) and heights from 8-foot (2.4 m) to 9 feet 6 inches (2.9 m).

There are many specialised or special purpose containers in use. Some of

the more common ones are listed in Table 3.1.3.1.
Type Typical Cargo

Insulated containers Frozen or refrigerated cargo, perishables
Half height units Steel or other heavy items
Did You Know?
Flat racks Timber, vehicles and oddly shaped cargo
Many bulk cargoes have Open top containers Over height items, which would not fit into the
hazardous properties, or can container otherwise
change their properties on Bulk boxes Bulk cargo, such as grain or fertilizer
passage. For example, coal can
emit methane gas and is self- Open sided Cargo that requires ventilation, such as
heating. potatoes, onions, coffee, rice and sugar.
Paper products may also require ventilation.
Tank containers Liquids and chemicals in bulk
Table 3.1.3.1—Common Types of Shipping Containers
Weight Restrictions on Containerised Cargo

Once loaded, the container should not weigh more than the permitted
maximum gross weight (including the payload) that is marked on the
container. A container's maximum gross weight should be taken into
account when preparing to load the container, by accurately weighing the
load. Going beyond this weight poses the risk of damage and unsafe
loading and transport of cargo.
Any limitation along the projected route that may be dictated by regulations
or other circumstances, such as lifting and handling equipment or road
restrictions on height and weight, should be complied with. Such limits may
be considerably less that the permitted gross weight already referred to. In
case of doubt, the container operator should be consulted.
3.1.3.2 Dry Bulk Cargo

The loading, carriage and discharge of dry bulk cargo is not as simple or
straightforward as most people would imagine. Many bulk cargoes have
hazardous properties or can change their properties during passage.
Water damage can also have devastating effect on some bulk cargoes,
such as cement powder. Residues from previous cargoes that have spilled
can seriously affect those currently being transported. All of these factors
have serious implications regarding the methods of operation for the safe
carriage of bulk cargoes.
Large quantities of bulk dry goods are transported by ship and rail. Let's
consider the implications of storing, handling and transporting the following
common types of dry bulk cargo:
• Coal
• Iron ore
• Grain
• Cement
• Woodchips
• Mineral Concentrates

Did You Know?

Many different types of mineral
concentrates are handled and
shipped in various parts of the
world. Examples include copper,
lead and zinc concentrates.
Coal
Coal can emit methane gas and is self-heating. This makes it a potentially
dangerous cargo on any transport mode. It also contains sulphur, which
causes severe corrosion when in contact with the ship's steelwork. In most
ports, coal is loaded wet to reduce dust. Much of the moisture settles
during passage and is pumped out through the ship's hold bilges, which
means that less weight is discharged than is loaded.
Iron Ore
This cargo is loaded very fast. A loading rate of 10,000 tonnes per hour is
not unusual. The loading and unloading of the ship must be meticulously
planned to ensure that the vessel is not overstressed or damaged.
Grain
Key Learning Point Grain is one of the most difficult and dangerous cargoes to carry in bulk
aboard ships. The reason for this is that if the ship rolls at a greater than
Liquid cargo includes dangerous
20° angle, the grain cargo will shift. When this occurs, the ship develops a
chemicals, gasoline, crude oil,
large list, lying on its side and still rolling, which causes a greater shift in the
petroleum and liquefied natural
cargo that will capsize the vessel. Most port authorities therefore require
gas. Edible liquid cargoes
that a ship's master prove that a ship is capable of remaining stable if the
include milk, vegetable oils and
grain cargo shifts.
fruit juices.
Like any foodstuffs, grains are susceptible to contamination from other
cargo and to water damage. Vermin are also a problem. For this reason,
cargo holds or shipping containers must be clean and dry prior to loading
grain cargos.
Cement
Any moisture is going to ruin a cement cargo. Therefore it is essential that
shipments of cement be kept dry. Dust is also produced during the loading
and discharge of cement, which can cause problems if it enters the air
intakes of a ship or vehicle.
Woodchips
Shipments of woodchips may be subject to oxidation, leading to depletion
of oxygen and an increase of carbon dioxide within the container and

adjacent spaces. Woodchips can also easily be ignited by external

sources, are readily combustible and can also ignite by friction. Therefore
considerable care must be taken in the handling and transport of
woodchips.
Mineral Concentrates
Many different types of mineral concentrates are handled and shipped in
various parts of the world. Examples include copper, lead and zinc
concentrates. These cargos tend to be extremely heavy and have a low
transportable temperature limit (TML). This means that if the moisture
content of the cargo becomes greater than the TML, the cargo can liquefy
and turn into a slurry.
Did You Know? When this occurs onboard a ship, the cargo sloshes from side to side as
the ship rolls. The heavy weight of the cargo can capsize the vessel when
Just a few parts per million of a this happens.
previous cargo can contaminate
an entire shipment of a chemical
liquid cargo. 3.1.3.3 Liquid Bulk Cargo
Liquid bulk cargo includes dangerous chemicals, gasoline, crude oil,
petroleum and liquefied natural gas. Edible liquid cargoes include milk,
vegetable oils and fruit juices. Special care must be taken to ensure that
various types of liquid cargoes are stored and transported safely.
Gases and liquids have to be containerised in some forms. They may be
packed into containers or alternatively be moved without packaging in
pipelines and special carriers.
When gas is moved in tanks onboard ships, it is often liquefied by low
temperature. The cooling of gases into liquid form significantly reduces
their mass and therefore the space required to store them during shipping.
This is a highly specialised form of transport requiring expensive, purpose-
built carriers, as well as special port terminals and handling equipment.
There are two forms of gas that are shipped by sea, liquefied natural gas
(LNG) and liquefied petroleum gas (LPG).
Key Learning Point In bigger lots, liquid cargoes are pumped from tanks on shore through
Special cargoes that require pipelines to tanks onboard the ship and vice versa. This is the practice
special packaging, handling, when crude oil and petroleum products are being shipping on board very
containers and transport large crude carriers (VLCC).
include:
Millions of litres of petroleum products are transported along roads,
• Heavy equipment and railways and across the sea. Let's consider some of the potential dangers
machinery of the storage and transport of these products.
• High value goods Petroleum products are classified as either volatile or non-volatile cargoes
for the purposes of storage and transport. In chemistry and physics,
• Perishables and refrigerated volatility is the tendency of a substance to vaporize. The flash point of a
cargo volatile material is the lowest temperature at which it can vaporize to form
• Live animals an ignitable mixture in air.
• Dangerous goods A cargo with a flash point below 60°C is a volatile product, and a cargo with
a flash point above 60°C is a non-volatile product. Different rules apply to
the handling of volatile and non-volatile cargoes.
Oil tankers will often have a common cargo tank ventilation system. The
vapours from one cargo tank can easily enter a different tank in the system.
This can result in cargo contamination and also change the flash point of
the product. For example, diesel oil has a flash point of about 63°C, making
it a non-volatile cargo. But vapours from a volatile cargo can easily change
the flash point of diesel oil to below 60°C, causing it to be reclassified as
volatile cargo.

There is also the danger of various types of chemical liquid cargoes

becoming contaminated during shipment, thereby ruining the shipment. To
help prevent this from occurring, chemical tankers usually have completely
independent cargo systems. Each cargo tank will have an independent
pumping and venting system. However, cargo contamination in chemical
tankers is often caused by poor cleaning of cargo tanks or pipelines.
Unfortunately many chemicals are extremely sensitive to contamination.
Just a few parts per million of a previous cargo can contaminate an entire
shipment.
3.1.3.4 Special Cargoes

Special cargoes that require special packaging, handling, containers and
transport include:
• Dangerous goods
• Live animals
• Valuable cargo
• Perishable cargo
• Wet cargo
• Personal effects (Unaccompanied baggage)
• Outsized or heavy cargo (Machinery, vehicles, etc.)
• Other cargo needing special handling
Dangerous Goods
Dangerous goods are solids, liquids or gases that can pose a risk to
people, property or the environment, due to their chemical or physical
properties. Dangerous goods include materials that are radioactive,
flammable, explosive, combustible, infectious, corrosive, oxidizing and
toxic. They also include compressed gases and liquids.
Dangerous goods require special packing, marking and labelling, for which
the shipper of the goods is responsible. The principles and procedures
concerning the transport of dangerous goods are covered in Module 7.
Transportation of Dangerous Goods.
Live Animals
As previously mentioned, live animals are mainly transported overseas by
air or locally by trucks. The carriage of live animals requires special
arrangements, including providing appropriate cages, an animal handler to
ensure safe transport, and the right type and amount of animal food.
Possible quarantine regulations in the countries of origin and destination
must be taken into consideration when animals are transported. All
persons who ship accept or load animals should be familiar with the
specific handling requirements for the individual species to ensure that
animals always travel in safe, healthy and humane conditions.
For example to ensure the welfare of live animals at all stages of air
transportation, IATA published the IATA Live Animals Regulations (LAR)
which set out the minimum standards required for animal carriage. This
publication regulates the acceptance of live animal shipments transported
by aircraft.

LAR does classify the animals into following five major classes, which are
further subdivided into orders.
• Amphibia (amphibians) - class of vertebrate, large majority of which
live mainly on land but breed in water.
• Aves (birds) - class of vertebrate adapted to flight.
Did You Know? • Crustacea (arthropods) - joint-legged animals often with shell cover,
aquatic, breathe by gills, great size variation.
CITES (the Convention on
International Trade in • Mammalia (mammals) - class of vertebrate characterised by body
Endangered Species of Wild covered with hair or fur, breathing by lungs and suckle their young.
Fauna and Flora) is an • Reptilia (reptiles) - class of vertebrate, air breathing with scaly body.
international agreement aiming
to ensure that international trade The LAR stipulates that the shipper or his authorised agent must complete
in specimens of wild animals a Shipper's Certification for Live Animals for each shipment. In addition to
and plants does not endanger this document and necessary waybill Live Animal shipment have to have a
their survival. CITES document (if the species are included in CITES appendices),
applicable health declarations and permits required by the national
authorities of the countries of export, transhipment and import.
The LAR provides the minimum container requirements per type of animal,
as design, construction and size differs depending on the animal to be
transported.
The shipper is responsible for all
necessary marking and labelling
on each live animal container.
Each container must be of such
size that there is adequate space
to affix all these required markings
and labels. Any labelling, es-
pecially on small containers, must
not occlude or block ventilation
openings! In addition to the “Live
Animals” label, it is mandatory to
place the “This Way Up” or “Pack-
age Orientation” label on all four
sides of the container whenever
possible. Labels may already be
imprinted on the container.
If feeding or watering is required it is the shipper's responsibility to provide
a shipper's instruction for feeding and watering at the time of acceptance.
Live animals will only be accepted for carriage by air in suitable, clean
containers that must be leak-proof and escape-proof. Adequate ventilation
must be provided on at least three sides.
Valuable Goods
Valuable goods, such as gold and platinum, coins, jewellery, legal
banknotes and securities, are currently transported internationally mostly
by air, to help ensure rapid and secure delivery and to provide the level of
security required to transport these items. In fact, any article with a
declared value for carriage of USD 1000.00 (or equivalent) or more, per
gross kilogram (except in the United Kingdom GBP 450.00, or more per
gross kilogram) is regarded as valuable cargo.
They need special care and protection to prevent theft. Direct delivery to
feeder trucks or other transport modes that carry them to their final
destination and direct collection upon arrival at the final destination is

crucial in protecting the security of high value goods. In order if needed to

store valuable cargo securely in the cargo terminal ore warehouse, a
separate preferably video monitored area, with a register of the in- and
outgoing consignments, is used. This flow of in and outgoing consignments
is recorded with the name and the signature of the person removing or
depositing it.
For International transportation arrangements should be made at desti-
nation, in co-operation with the customs authorities, so that the consign-
ment can be cleared and released immediately after arrival. All the
documents necessary for clearance should be available and correctly
filled out.
Perishables and Temperature Sensitive Cargo

Perishable cargo includes all commodities, which by their nature are liable
to deteriorate or perish because of:
• changes in climate, temperature or altitude;
• ordinary exposure; and
• length of time in transit (including delays). Newspapers are also
regarded as perishable cargo for this reason.
Listed below are some of the articles which comprise perishable cargo:
• Fresh flowers
• Fresh meat
• Live plants
• Fresh seafood
• Fresh fruits
• Hatching eggs
• Fresh vegetables
• Vaccines and medical supplies
For the efficient and adequate shipping of all time and temperature
sensitive goods by air IATA publishing annually the Perishable Cargo
Regulations manual. In order to cope with market growth and consumer
needs, airlines and shippers have worked together to develop efficient
handling techniques and packaging methods to ensure the delivery of Time
and Temperature sensitive goods is always in first class condition. The
“Perishable Cargo Regulations manual (PCR)” is a standard specifically
developed for those involved in the bringing to the market of these
commodities and for the benefit of the users of modern transportation
systems. Concepts in terms of time and temperature management, the
movement of goods from the Healthcare sector, quality management
systems, service level agreements etc. as well as other trends have been
further developed.
Dedicated perishable centres are essential in a temperature managed
environment; they provide an alternative sorting, packaging and distri-
bution service to many growers or retailers. These services can shorten the
time to market of the products. On the other hand new packaging
techniques and container developments ensure a safe logistics chain is
available from the shipper's premises to the retail level.
There are many types of perishable goods and they all have different
characteristics. Some deteriorate quickly and easily, others are less
susceptible to the effects of time and temperature. For all products,

however, the standard of packaging and handling will determine success of

transportation ability to deliver the product in good condition. Packaging
must be of a standard that will help maintain the condition of the contents
and minimise the effects of transportation time and environmental change
(temperature, humidity, etc.). Many perishable commodities require both
inner and outer packaging, i.e. containment and insulation of the contents,
to provide adequate protection. A refrigerant is often used in conjunction
with this type of combined packaging method.
All perishable shipments transported by air should be
labelled with the standard IATA “PERISHABLE” label.
Where appropriate, packages and containers of perish-
able goods should also be labelled with the standard
IATA package orientation (“THIS WAY UP” or
“Package Orientation”) label.
To protect consumer health, governments participate in and aim at

improving safety requirements of foods and drugs by laying down food
laws and by imposing more stringent requirements on processes such as
distribution, for example. In fact, consumer health is at the centre of these
safety concerns. Food safety has become omni-present in the food chain
distribution due to current and past food sanitation problems (such as mad
cow disease) and the growing concern consumers have towards safe and
unadulterated food. In the next few years, new trends will change the face
of food safety and the way consumers, as well as governments respond or
react to certain products.
In IATA Perishable Cargo Regulations manual special attention is given to
“TIME AND TEMPERATURE SENSITIVE HEALTHCARE PRODUCTS”.
The Chapter 17 of the manual provides practical guidance for logistics
providers involved in the distribution of temperature–sensitive healthcare
products. The propose of this chapter is to:
1. Describe packaging/systems used to distribute temperature sensitive
products.
2. Identify potential risks to product quality within strictly controlled
temperature ranges;
3. Recommend control points that reduce risk to product quality during
distribution.
4. Describe operating agreements and training programs.
5. Define quality management system requirements.
6. Define labeling requirements for time & temperature sensitive health-
care products.
7. Provide a glossary to explain and standardize language among
logistics providers.
The Time and temperature sensitive healthcare products requiring special
packaging. There are many different types of packaging systems available
in the market designed to keep internal product within a specified
temperature range. They can be further defined as either active or passive
packaging systems. Active packaging systems are shipping containers
with a hard, insulated exterior shell and a mechanical energy distribution
that is activated by means of a thermostat that maintains temperature
within specified limits. Passive packaging systems consist of components

and materials intended to keep the internal contents of the package within
a specified temperature range for a defined period of transport without the
means of mechanical assist.
As of 1st July 2012 “Time and Tempera-
ture Sensitive” label must be affixed to
shipments of healthcare products
booked as temperature controlled
cargo. The lower half of the label must
never be left blank and must indicate
the external transportation temperature
of the shipment. The temperature range
must only be shown in Celsius.
Wet cargo
Shipments containing liquids or shipments which by their nature may
produce liquids but which are not subject to the Dangerous Goods
Regulations shall be designated as wet cargo.
The following types of cargo are considered to be wet cargo:
• shipment of liquids in watertight containers
• shipments of wet materials not packed in watertight containers, e.g.
fish or shellfish
• packed in wet ice, fresh or frozen meat to name a few.
• goods which may produce liquids, e.g. live animals
Wet cargo is vulnerable to spillage or leakage that may corrode or cause
damage to the transport vehicles or to other cargo. To prevent spillage or
leakage, special requirements for shipments containing wet cargo must be
applied. It is important to note that the majority of commodities regarded as
wet cargo can also be considered as perishable cargo. If this is the case
then the requirements for perishable cargo must also be met.
Heavy Equipment and Machinery

Heavy equipment and machinery, locomotives and structures do not
require packing. They do require suitable vessels or vehicles with suitable
handling and lifting equipment. In some cases machinery and special,
outsized or heavy parts for petrol industry can be transported by air, but
then special cargo aircraft are used.
Other Cargo needing Special Handling

Several other types of cargo can be identified which require some form of
special handling. Often because of priority reasons.

The main types are listed below:

• Drugs to save life
• Air mail, newspapers
• Vulnerable cargo
• Human remains
• Personal effects (Unaccompanied baggage)
• Strongly smelling goods
• Arms, ammunition, war material

Lesson Summary
In this lesson, we explained the different methods of cargo carriage used
for general, bulk and hybrid cargoes. We also discussed how various types
of liquid and dry cargoes are stored, packaged or containerised, handled
and transported. Finally, we explained the special requirements of handling
special cargoes, such as perishable cargo and live animals.
The key points we covered included:
• When cargoes are packed and mixed onboard a ship, it is referred to
as general cargo. Most finished goods are shipped as general cargo,
while raw materials in bigger lots are usually shipped as bulk cargoes.
• General cargo moving between developed countries today is usually
containerised. Almost any commodity can be containerised.
• The hybrid form of moving cargoes involves slurry techniques. Dry bulk
cargoes may be transformed into slurries and moved in a form similar
to that of liquid bulk.
• Dry bulk cargoes include coal, iron ore, grain, cement, woodchips and
mineral concentrates.
• Liquid cargo includes dangerous chemicals, gasoline, crude oil,
petroleum and liquefied natural gas. Edible liquid cargoes include milk,
vegetable oils and fruit juices.
• Special cargoes that require special packaging, handling, containers
and transport include heavy equipment and machinery, valuable
goods, perishables and temperature sensitive cargo, live animals and
dangerous goods.

Progress Check 1
1. List the 3Ps of packaging.
2. List some examples of dry bulk cargoes.
3. List some examples of liquid bulk cargoes.
4. Which of the following cargoes is an example of a unit load of cargo

aboard a freighter?
(a) Machinery parts
(b) Loose grain
(c) Whole load of bagged sugar
(d) Part load of oil in drums
5. Which of the following types of cargo would be shipped in an insulated

container?
(a) Fresh fruit
(b) Grains
(c) Rice
(d) Bulk liquids
6. Which of the following types of cargo would be shipped in a tank

container?
(a) Fertilizer
(b) Bulk liquids
(c) Bulk chemicals
(d) Both b and c
7. To be considered volatile for the purposes of storage and shipping, a

petroleum product will have a flash point below:
(a) 65°C
(b) 63°C
(c) 60°C
(d) 55°C

8. Valuable goods, such as gold and platinum, coins, jewellery and live
animals are currently transported mostly by:
(a) Cargo aircraft
(b) Freighters
(c) Trucks
(d) Railways

3.2 Modes of transport

In this lesson, we will outline the niche markets serviced by the four
transport modes and the services they provide to those markets. For
Lesson Learning example:
Objectives • A number of airlines specialise in the air cargo business and have
dedicated aircraft for cargo. Air carriers generally transport high value-
per-tonne commodities.
• Although ocean vessels generally transport low value-per-ton com-
• Summarise the markets
modities, such as crude oil, grains and coal, container vessels
served and services
transport higher value-per-ton manufactured goods of all kinds, such
provided by the four freight
as automobiles, appliances, computer equipment and apparel.
transport modes—air, rail
road and marine. • Modern, heavy-haul rail freight services are well suited for long
distance, high volume shipments of goods.
• Describe the infrastructure,
equipment and technologies • Road transport represents more than 70 percent of the land freight
of each of the four transport service at origin and destination points, connecting businesses to
modes. world markets.
• Summarise the laws and We will discuss the infrastructure, equipment and technologies each
international conventions transport mode relies on to serve customers in these market niches.
applicable to the four
transport modes. Each transport mode must operate within a regulatory regime that is
shaped by various laws and international conventions. We will describe the
• Describe the environmental key laws and conventions affecting air, rail, marine and road transport. We
impacts of air and marine will also discuss how the transport modes impact the environment and the
transport. initiatives being taken to address air and water pollution issues.
• Describe IATA's e-freight Finally, we will discuss the transport documents carriers are required to
program and its potential issue to customers, Customs authorities and others in the course of
benefits for the airline providing their services. These documents include transport documents
industry. that IATA member airlines can issue in electronic format through IATA's
e-freight program. The goal of e-freight is to build a paper free air cargo
supply chain by converting key paper-based transport documents to
electronic format.
3.2.2 Air Freight Transport

3.2.2.1 Introduction
During the past 30 years, air cargo has evolved from a by-product to a
potential profit centre for airlines. A number of airlines now specialise in the
air cargo business, and several, smaller airports now consider air cargo as
Key Learning Point their core business.
During the past 30 years, air According to statistics collected by IATA, although air freight traffic spiked
cargo has evolved from a by- in 2009 and 2010, it reached negative growth by May 2011, partly due to
product to a potential profit the economic crises in Europe (See Figure 3.2.2.1). Like all transport
centre for airlines. A number of modes, air freight is sensitive to changes in economic conditions and may
airlines now specialise in the air decrease dramatically during a global recession. Improvements in con-
cargo business. sumer and business confidence and growth in world trade will tend to
increase the freight-kilometre-tonnes (FTKs) transported by air freight on a
worldwide basis. Decreases in business confidence and world trade will
keep demand for air-freighted products down, particularly in the most
economically affected regions. Air freight returned to modest positive

growth in 2012 in step with equally modest positive worldwide economic

growth of 2%, with slow continued growth expected into 2013.
Figure 3.2.2.1—Growth and Decline of International and Domestic Air Freight
Table 3.2.2.1 lists the most important goods categories transported by air
freight for different geographical markets in 2007. On a worldwide level,
high-tech products represent the largest share at 27 percent, followed by
capital equipment at 19 percent and consumer products at 16 percent.
Product Percentage of Worldwide Air Weight

High-tech products 27%
Capital equipment 19%
Apparel, textiles and footwear 17%
Consumer products 16%
Did You Know? Intermediate materials 12%
On a worldwide basis, high-tech (manufactured products that
products are the top goods require additional processing
shipped by air, representing before they become finished
27 percent of all goods shipped goods)
by air freight. Refrigerated foods 5%
Primary products 3%
Non-refrigerated foods 1%
Table 3.2.2.1—Product Share of Worldwide Air Freight Market in 2007

Air cargo is generally competitive on long-distance hauls with time-

sensitive or valuable products, or where other infrastructure, such as roads
between the origin and destination, do not exist. The three alternative
modes, truck, rail, and ship, are considerably less costly and energy
intensive, though often pose higher risk of delivery for perishables such as
flowers and fresh meat-based products.
All air freight needs road transport to complete the supply chain from the
Key Learning Point airport to the end user. In some markets such as Europe, airlines have
Air cargo is generally been competing by trucking air cargo from user/producer locations to major
competitive on long-distance airports where they are shipped to/from their intercontinental destinations/
hauls with valuable or time- origins.
sensitive products, or where
In terms of continued growth, the air freight industry currently faces several
other infrastructure, such as
challenges, including:
roads between the origin and
destination, do not exist. • High sensitivity to fuel prices, since air transport is the least fuel-
efficient mode of freight transport. This means that the economic
feasibility of shipping by air is affected by the rise and fall of oil prices.
• The high sensitivity of demand to changes in economic growth. During
recessions, there is much less demand for air freight and the reduced
passenger traffic results in reduced scheduled cargo capacity on
passenger aircraft.
• The need for new and improved infrastructure, both on the air side
(runways and cargo facilities) and land side (road access). In de-
veloping countries, lack of infrastructure often hinders the development
of an active air cargo industry.
• Dwell times at airports. The economic justification for the expense of
shipping by air is the monetary value of time. This means that delays at
airports associated with customs services and other trans-border
regulations are a hindrance in an industry that is highly dependent on
speedy delivery.
• Changes in the perception of air transport's current and future role in
climate change, where greenhouse emissions are going to be a
particular challenge to the industry. There is a growing sense of
awareness of the environmental impact of air transport, both in terms
of noise pollution and the emission of greenhouse gases.

3.2.2.2 Infrastructure and Equipment

Airports
Discussion of an airport's general infrastructure is divided into its air-side
and land-side components. Landside areas include parking lots, public
transportation train stations and access roads. Airside areas include all
areas accessible to aircraft, including runways, taxiways, ramps and cargo
warehouses.
Key Learning Point Airport infrastructure includes:
An airport's infrastructure is • Movement surfaces, which are runways, taxiways, and aprons;
divided into its air-side and land-
side components: • Terminal buildings, which are passenger terminals and freight facilities;
• Landside areas include • Navigational aids that allows flying into the airport in reduced visibility
parking lots, public or other hazardous weather conditions;
transportation train stations • Air traffic control facilities;
and access roads.
• Fuel facilities;
• Airside areas include all
areas accessible to aircraft, • Security installations; and
including runways, taxiways • Road access.
and ramps.
Fuel facilities, air traffic control facilities, runways and taxiways are
generally shared with all traffic at the airport. However, dedicated cargo
aprons may be used for cargo flights. This allows for the efficient loading
and unloading of aircraft, with specialised Customs facilities close by for
international cargo.
Nearly all airports handle both cargo and passengers. For cargo oper-
ations, airports can be categorized as hub and feeder airports, especially
for international operations where the hub-and-spoke system is the
dominant operating model for scheduled flights, both passenger and cargo.
Larger aircraft are used on long-haul international routes, while smaller
aircraft serve domestic origins and destinations. This system allows
shipments between origin/destination pairs that could not support direct,
point-to-point, service. It also provides for more frequent services from the
hubs to the various international origins and destinations.
The very large airports with more developed cargo infrastructure (equip-
ment and cargo terminals) are attracting more air freight. Some of them
become cargo hubs, such as Hong Kong International Airport which, in
2011, handled 3.9 million tons of freight.

The hub airport is generally located in or near a major population centre to

have a significant amount of inbound and outbound cargo. It provides a
trans-shipment between separate domestic and international carriers, as
well as between an airline's domestic and international services. A larger
hub airport may also act as regional gateway, for example:
• Hong Kong, which provides European and North American carriers
with air and land access to China, as well as air access to other Asian
Key Learning Point destinations;
The hub and spoke system
• Dubai, which provides connections between European and Asian
allows shipments between
services, and also acts as a regional distribution centre for Africa and
origin/destination pairs that
the Middle East; and
could not support direct, point-
to-point, service. • Miami, Florida and Tocumen airport in Panama, which serve Latin
American carriers connecting with North American and European
carriers.
The hub and spoke system can also be seen as intermodal, providing a
connection for international air-road-domestic air services. These services
involve road transport connections in which international air freight
shipment is combined with road transport between the hub and feeder
airport. The road transport segment is treated as a scheduled air shipment.
The cargo is transported under an airway bill and customs clearance is
performed at the feeder airport's warehouse.
Did You Know?
UPS has been one of the Air Navigation Systems and Air Traffic Control
pioneers in installing an aircraft Today, navigational aids consist of radio trans-
monitoring system called mitters sending homing signals to aircrafts,
ADS-B, using satellite identifying for the aircraft from exactly which
technology. direction it is approaching the sending station
or airport, and helping to determine the proper
angle for landing on the correct spot of the
runway. Elements of these systems are cur-
rently being replaced by newer, satellite-based
technologies. Newer all-cargo aircraft will gen-
erally have the latest navigation and communi-
cations equipment on board. Some old aircraft
may still depend mostly on the older ground-
based technologies.
In the United States, UPS has been one of the pioneers in installing an
aircraft monitoring system called ADS-B, using satellite technology. This
system allows close tracking of aircraft, even on the ground, without radar
technology. It is now generally accepted that ADS-B will be the air traffic
control system of the future, with the U.S. building its next generation of air
traffic control systems around the technology. Its benefits include improved
safety and more fuel efficient operations.

Aircraft
Air cargo can be carried by either passenger or by freighter only aircraft.
Many airlines carry cargo using free space on scheduled passenger flights.
But major airlines will often have their own cargo fleets to offer higher
freight capacity for some important destinations.
Key Learning Point

The three main types of air
cargo aircraft are all-cargo
airplane, mixed passenger/
freighter aircraft (combi) and
special operations aircraft.
Passenger aircraft can be categorized as either:

• Conventional or narrow-body aircraft. These aircraft have a fuselage
width of approximately 3 m (10 ft.), with a single aisle between
passenger seats. The cargo holds in the lower deck carry mostly loose
(bulk) cargo.
• High capacity or wide-body aircraft. These aircraft have an internal
Key Learning Point cabin sufficient for normal passenger seating that is divided into three
axial groups by two aisles or more. The main cargo holds in the lower
Cargo handling operations at
deck are equipped to carry palletized and containerized cargo. Loose
airports involve the preparation
cargo is loaded in the bulk cargo hold.
of cargo shipments, the loading
and unloading of the aircraft,
and the transfer of cargo
between the storage facilities
and land transport.
The cargo aircraft used in the industry globally can be categorized by the
type of air cargo services being provided. The three main types of air
aircraft specialized in freight transport are:
• All-cargo aircraft dedicated to cargo services: These aircraft may be
specially built by Boeing and Airbus as freighters or may be converted
to freighters from passenger aircraft after 15–20 years of service. This
Did You Know? is an effective way to extend economical life of the airplane, but
requires extensive work to straighten the floor and the frame, resize
To accommodate different the door, install rollers to move cargo and many additional modifi-
carriers and freight forwarders, cations.
many airports have established
cargo villages--sites with • Mixed passenger/freighter aircraft (combi): In some cases, carriers use
multiple cargo terminals. passenger aircraft to transport bigger volumes of cargo together with
passengers on chartered flights. Both passengers and cargo are
carried on the main deck, which is divided by a special wall that

separates passengers with seats and the cargo section, where seats
are removed and special equipment for cargo transport is installed.
Cargo and mail are also transported in the lower deck.
• Special operations: These are aircraft designed to transport special
types of large or over-sized cargoes. Airbus, for example, operates an
Airbus A300-600ST ‘Beluga,’ sized specifically to fly aircraft fuselage
sections from one assembly point to another. Heavy-lift aircraft include
the Russian-built Antonov AN-124 and the super-sized AN-225 Mriya,
the world's largest fixed-wing aircraft.
The types of services these airlines offer will be discussed in section
3.2.2.4 Air Cargo Services.
3.2.2.3 Cargo Handling Operations at Airports

Cargo handling operations at air-
ports involve the final preparation of
cargo shipments for loading onto
the aircraft, and the loading and
unloading, and the transfer of cargo
between the storage facilities and
land transport. For outbound cargo,
preparation includes security
checks, consolidation of cargo,
building up the air cargo pallets and
containers, and inspection and
documentation. For inbound cargo,
preparation includes customs and
other regulatory procedures, as well
as deconsolidation of cargo. For
trans-shipment cargo, the operation
is generally limited to unloading,
reconsolidating if needed and re-
loading the cargo. It can even be as
simple as a direct transfer between
aircraft, which is called ‘tail-to-tail
transfer.’
Although air cargo ideally remains in the airport for a relatively short time, it
is necessary to provide storage facilities. Bonded facilities are required for
imports and international trans-shipment of cargo. For special cargo, it is
necessary to provide such special handling facilities as temperature
controlled rooms and secure cages for valuables.
Since most air cargo is low density, most of the cargo is stored on racks, in
large open warehouses. The warehouses are equipped with loading docks
Key Learning Point on the landside to allow for rapid movement of goods to and from trucks.
The three main types of air Most airports also provide offices near the warehouses for the airlines and
cargo service providers are freight forwarders to receive/deliver cargo and prepare shipping docu-
scheduled carriers, all-cargo ments, and for customs to clear import and export cargo.
airlines and integrated express
A major issue in the layout of airports is the extent to which cargo-handling
carriers offering door-to-door
activities take place on the airport versus outside the airport boundaries.
services.
The airlines receive and dispatch cargo at the airport. Inspection is also
generally done at the airport including scanning, which generally implies
that the palettes are built up on the airport.
Beyond that, exporters, importers and forwarders prefer to locate their
activities outside the airport, to avoid space limitations and reduce
operating costs. Where possible, they also prefer to build their own pallets

and unit load device (ULD) containers prior to delivery to airlines,

especially when dealing with temperature-sensitive perishables that must
be kept frozen or refrigerated. However, this requires that pallets/
containers be accepted “as is” without having to be broken down for
inspection and then rebuilt. In order to do this, the airlines and security
officials must certify the freight forwarder's warehouse as well as the freight
forwarder himself.
This process is named ‘Regulated Agent Regime.’ Under this regime, the
Regulated Agent has the responsibility of screening and securing the
cargo. This is a way to distribute responsibility for cargo security across the
entire transport chain. However, air carriers maintain the ultimate responsi-
bility for the safety of their aircraft and therefore must ensure compliance
with all cargo security regulations.
To accommodate different carriers and freight forwarders, many airports
have established cargo villages. These are sites with multiple cargo
terminals. They usually evolve from the existing warehouse facilities, but in
some cases are constructed on a new site. The village is designed to allow
better coordination of operations and improved traffic flow. It also allows for
provision of a common office building to simplify the interaction between
the carriers, freight forwarders and shippers.
National aviation authorities usually determine who can provide cargo
ground handling services, but this varies from country to country. National
carriers are often given exclusive rights to provide these services,
especially in smaller airports. In many cases, airport management may to
decide who is eligible to provide such services.
In some countries, to ensure competitive and better service, two or more
handling providers are required to exist by law. For example, in the EU, the
Directive 96/67/EC stipulates that in member states, in addition to airport
self-service handling, there must be at least three authorized third-party
suppliers of ground handling services at airports with 5 million or more
passengers annually or 100,000 tonnes or more of freight.
3.2.2.4 Air Cargo Services

The three main types of air cargo service providers are:
• Scheduled carriers—passenger airlines offering cargo services at
scheduled flights;
• All-cargo airlines offering chartered and/or scheduled services; and
Key Learning Point • Integrated express carriers offering door-to-door services by combin-
The integrated express carriers ing air and land transport.
have raised the standard of
reliability for air cargo Scheduled Carriers
shipments, taking market share Scheduled carriers may use:
away from competitors.
• Passenger aircraft, which operate normal scheduled business model
and gain additional revenues from the cargo segment;
• Combination aircraft configured with additional freight capacity; and
• Air freighters that operate their own cargo services with dedicated
aircraft.

Typically they are national carriers with a domestic hub-and-spoke system.

They use their hubs as regional/continental gateways that feed into their
international service, as well as the services of international carriers with
whom they have interlining agreements.
Passenger and combination aircraft have the flexibility to shift from belly
capacity or the use of empty cargo space on passenger aircraft to freighter
capacity on routes with strong cargo demand. Some may have a block
Key Learning Point space agreement or guaranteed space agreement with express carriers
The international air transport
network comprises, airports and All-Cargo Airlines
regional, national and
All-cargo airlines operate scheduled services for contract shippers. They
international airlines and their
may also provide charter operations for other airlines. The two largest
hub and spoke systems.
scheduled all-cargo carriers are Cargolux based in Luxembourg, which
operates a fleet of sixteen 747 freighters, and Martinair based in
Amsterdam, which operates a fleet of 747, 767 and A320 freighters.
Carriers such as Cargolux and Martinair (now owned by KLM/Air France)
provide regularly scheduled cargo-only flights. These carriers traditionally
also operate with the participation of freight forwarders. Sheduled carriers
and all-cargo carriers, along with their freight forwarders, together account
for 90 percent of all air freight tonnage.
Other operators are hired for specific delivery (chartered flights) and do not
Did You Know? carry a regular schedule. As such they are considered non-scheduled
carriers. Providers of complex services would be included here, such as
There are close to 4,000 large those with extra-heavy lifting capabilities. These operators are independent
and small airports worldwide. airlines that often fly on a contract basis for other airlines and integrators by
providing aircraft, crew, maintenance and insurance—what is commonly
known in the industry as ACMI.
Integrated Express Carriers

In this market niche, four big players are in strong competition–DHL,
FedEx, TNT and UPS, also known as ‘integrators’. This term refers to the
ability of the companies to offer door-to-door, time-predefined services,
where the company maintains control over the whole transport chain from
pick-up to delivery using different modes of transport.
All four own and operate road transport, but very often rely on third parties
to provide the capacity needed for their global networks. They have unique
possibilities to change the destination and addressee in transit, as well as
tracking at any time.
Typically, these carriers operate out of large regional hubs, which are
interconnected by wide-bodied aircraft. They collect and distribute cargo
through smaller national hubs connecting to their local truck network. Their
networks were initially established in North America and Europe, and then
extended to East Asia and to the Middle East. These carriers have been
more cautious in developing networks in Africa and Latin America, relying
as much as possible on other carriers.
With their origins in express services, the integrated express carriers have
been responsible for raising the standard of reliability for air cargo
shipments. In doing so, they have taken market share away from
competitors.

3.2.2.5 Air Transport Network

Airports, regional, national and international airlines, and their hub and
spoke systems together form the air transport network that has a significant
impact on local, national and international economies. The worldwide air
transport network spans and connects 210 countries. It moves millions of
people everyday and about 700 million passengers fly each year. For
example, U.S. and foreign airlines schedule about 2,700 daily flights out of
Chicago's O'Hare International Airport.
In terms of air freight, an average of 125 billion freight tonne/kilometres
(FTK) is shipped worldwide each year. The largest international trade flows
are east to west, with the most traffic originating out of Southeast Asia and
going to the U.S. and Europe.
Within the international air transport network, there are regional sub-
networks. For example, at the highest aggregate level there are six
networks, one each for Africa, Asia and the Middle East, Europe, Latin
America, North America and Oceania. Each of these regions can be further
subdivided. For example, the Asia and Middle East network is sub-divided
into South Asia, Central Asia, Southeast Asia, Central Asia, Northeast Asia
and the Middle East.
At the level of airports, the network comprises close to 4,000 locales,
villages, towns and cities that have at one airport and establish links
between pairs of locales that are connected by nonstop passenger flights
(see Table 3.2.2.5). There are more than 27,000 city pairs having nonstop
connections.
Did You Know? Region Number of Airports

In terms of frequency of flights, North America 1,064
reliability and diversity of Asia and the Middle East 719
destinations, the most Europe 691
connected country in the air Latin America 523
transport network is the U.S. Oceania 522
Africa 364
Table 3.2.2.5—Number of Airports by Major Geographic Region
Source: IATA
The structure of the air transport network is mostly determined by the

concurrent actions of airlines that try, in principle, to maximise their profits
and reduce costs. The network's structure is also the outcome historical
geographical, political and economic factors that shape and change the
network over time.

To illustrate the second point, we will consider the state of Alaska. Alaska
is a sparsely populated, isolated region with a disproportionately large
number of airports for its population size. Most Alaskan airports have
connections only to other Alaskan airports. This fact makes sense
geographically. However, distance-wise, it also would make sense for
some Alaskan airports to be connected to airports in Canada's Northern
Territories. These connections are, however, absent. Instead, a few
Key Learning Point Alaskan airports in Anchorage are connected to the continental U.S.
Because of the air transport What is the reason for the direct connections to the U.S., but lack of direct
network's hub and spoke connections to Canada? The Alaskan population needs to be connected to
structure, even the most the political centres, which are located in the continental U.S. At the same
connected country (the U.S.) time, there are political constraints making it difficult to have connections to
has a relatively low overall cities in Canada, even to ones that are close geographically.
connectivity score.
This raises the issue of a country's connectivity within the air transport
network, which is an overall measure of the level of the frequency of flights,
reliability and diversity of destinations available to passengers and air
freight customers.
The World Bank's Poverty Reduction and Economic Management Network
International Trade Department recently studied this issue and published
the study results in 2011. It used the air connectivity index (ACI), a
measure that indicates the importance of a country within the global air
transport network. A country is considered to be better connected the
stronger the overall ‘pull’ it exerts on the rest of the network. The ACI is
strongly correlated with the degree of liberalization in air services markets.
Key Learning Points The most connected country with the highest ACI is the U.S. (22 percent),
• The master air waybill followed by Canada (13 percent), and Germany (12 percent). A cluster of
(MAWB) is the carrier's air European countries makes up the top ten, with scores ranging from about
waybill that covers a 10 percent to 12 percent. This positioning is consistent with their role as
consolidated shipment regional hubs, and their close connections with Germany and the United
tendered by a freight Kingdom as major international gateways.
forwarder or freight
Asian countries—including regional hubs such as China, Hong Kong,
consolidator.
Japan, Korea and Thailand—fall into the middle range of connectivity
• A house air waybill (HAWB) scores with scores of 4–6 percent. The same is true for the Middle Eastern
is a document issued by an hubs of the United Arab Emirates, Bahrain and Qatar. The lowest ACI
international air freight scores are held by isolated countries in Oceania, such as the Cook Islands,
forwarder under the terms of French Polynesia, Niue, Kribati and the Marshall islands, as well as African
his own tariff. countries, including Zimbabwe, Mauritius, Madagascar and Angola.
One interesting feature of the ACI is that the most connected country, the
U.S., still receives only a fairly low score (22 percent). The reason is that
although the U.S. is very well connected globally, it still only has direct air
links to 101 out of a possible 210 countries. Some of the links it does have
are very weak, particularly with countries that are themselves poorly
connected. For instance, there are only a few flights per week between the
U.S. and some destinations in Africa, Oceania and even Latin America,
compared with thousands of flights per week to neighbouring Canada and
Mexico. So although the U.S. as an origin provides a wide range of
possible destinations, many other countries can only be reached either
indirectly or using relatively irregular services. Most commonly, passengers
and goods will pass through another regional hub on their way to a poorly
connected destination.
Because of the air transport network's hub and spoke structure, even the
most connected country has a relatively low overall connectivity score. This
is not so surprising, given that the network is comprised of a relatively small
number of well-connected hubs and a very large number of less well-
connected spokes.

3.2.2.6 Air Transport Documents

Various air transport documents must be completed for air cargo ship-
ments, depending on the requirements of governments in both the country
of export and the country of import, or destination country. Following is a
discussion of some of the key documents.
Air Waybills
The air waybill (AWB) is the document made out by/or on behalf of the
shipper that evidences the contract between the shipper and carrier(s) for
carriage of goods over routes of the carrier(s). This is the basic document
accompanying each air cargo shipment. It can be either paper-based or
electronic (e-AWB). A minimum of eight copies of the AWB are required, of
which three are originals.
The AWB combines several purposes:
• It provides documentary evidence of the conclusion of the Contract of
Carriage;
• It provides proof of receipt of the goods for shipment;
• It serves as the freight bill;
• It serves as the Certificate of Insurance (if carriers' insurance is
requested by the shipper); and
• It provides guidance to the carriers' staff in handling, dispatching and
delivering the consignment.
Airline air waybills are issued by individual airlines to freight forwarders
appointed as agents by the airline. When suitably endorsed, the air waybill
can provide acceptable documentary proof that the goods have been
exported.
With the airline's approval, a freight forwarder may also use the IATA
neutral air waybill for international shipments.
The master air waybill (MAWB) is the carrier's air waybill that covers a
consolidated shipment tendered by a freight forwarder or freight consolida-
tor. A house air waybill (HAWB) is a document issued by an international
air freight forwarder under the terms of his own tariff. Freight forwarders will
use ‘house air waybills’ as receipts and consolidate them with the airline's
Key Learning Point master air waybills.
To help improve efficiency and
reduce costs across the air Commercial Invoices
cargo supply chain, IATA has an
For customs clearance and delivery at destination, freight forwarders
e-freight program that converts
should have a commercial invoice detailing the description, quantity and
air cargo documents to
value of the goods being sold. This is attached to the air waybill and
electronic format. The goal of
forwarded to the destination airport.
e-freight is to build a paper free
air cargo supply chain. A minimum of three commercial invoices must accompany a commercial
shipment. The invoices can be typed or handwritten on company letter-
head, if applicable, and each must have an original signature, in ink. It must
contain the following:
• Date;
• The shipper's name, street address and phone number;
• The consignee's (receiver's) name, street address and phone number;
• The weight, description of contents and declared value of the package;
• The country of origin; and

• The shipper's original signature, with the date signed on each invoice
copy.
In addition, the invoice must state either “Intended (or Not Intended) For
Resale.”
Export Documents
An export cargo declaration is information about the goods being shipped
submitted before or on arrival for departure that provides the particulars
required by domestic Customs for goods being exported from the Customs
territory. An export goods declaration is a statement that indicates the
export customs procedures to be applied to the goods, according to the
requirements of the domestic Customs authority. The document also
provides information on the goods required to process them for export.
Once approved for export, the Customs authority will issue a Customs
release for export for the goods.
Import Documents
A commercial invoice and shipping documents, such as an air waybill, are
generally required to import goods into the country of origin. Customs
authorities will also require that forms be completed to declare and give
details of the goods being imported. The nature of the goods as declared
on the form will determine the rate of import duty.
An import cargo declaration provides the particulars required by Customs
for goods being brought into the Customs territory. An import goods
declaration is a statement that indicates the import customs procedures to
be applied to the goods, according to the requirements of the foreign
Customs authority in the destination country.
Once approved for import, the Customs authority will issue a customs
release for export for the goods.
IATA's E-Freight Program

Today, the air cargo industry still largely relies on paper-based documen-
tation supporting the movement of freight. The average shipment gener-
ates more than 30 documents that are used and/or handled by the various
parties involved: shippers, freight forwarders, ground handling agents,
airlines, customs brokers, Customs and other government authorities.
To help improve efficiency and reduce costs across the air cargo supply
chain, IATA has established the e-freight program to convert air cargo
documents to electronic format. The goal of e-freight is to build a paper-
free air cargo supply chain. The paper-free process means that the air
freight supply chain does not transport paper, but there may be a
requirement by exception to produce paper copies of transport documents
from an electronic message or a scanned document.
The e-freight industry business case benefits are based on the following
key criteria:
• Cost Savings: The decrease in document processing costs.
• Speed: The ability to send shipment documentation before the cargo
itself can reduce the industry cycle time by an average of 24 hours.
• Quality and Reliability:
ż Electronic documents auto population–allowing one time electronic
data entry at point of origin reduces delays to shipments due to
inaccurate or inconsistent data entry.

ż Electronic documents cannot be misplaced, so shipments will no

longer be delayed because of missing documentation,
• Visibility: Electronic documentation allows for online track and trace
functionality.
• Simplicity: Since all supply chain stakeholders follow the same
e-freight process and messaging standards, the air cargo process will
be globally uniform and simpler to execute.
• Regulatory advantage: The existence of an e-freight process already
in use will encourage building of any new e-customs requirements
around these standards.
• Environmental benefits: E-freight will eliminate more than 7,800
paper documents, the equivalent of 80 Boeing 747 freighters.
E-freight has the potential to eliminate from $3.1 to $4.9 billion (USD) in
costs across the air cargo supply chain, depending on the level of
adoption. E-freight now operates in 24 countries or territories and at over
100 airports.
Currently there are 20 documents in scope. Not all of these must be in
electronic form in all e-freight transactions. Some of the documents must
be electronic in all cases and are called core documents. Others have
electronic standards defined, or in the process of being defined, but can
still be transported in paper form today. These are called optional
documents.
Figure 3.2.2.6a lists the 12 core air transport documents that are now
available for use in electronic format by the airline industry. It also indicates
when they are used in the air transport process. Figure 3.2.2.6b lists the
eight optional documents.
Figure 3.2.2.6a—Scope of IATA e-Freight Program—Core Documents

Figure 3.2.2.6b—Scope of IATA e-Freight Program—Optional Documents

Source: IATA.
All of the key stakeholders in the air freight supply chain are included in the
scope of the e-freight project. The scope of e-freight includes both general
and special cargo (specifically, dangerous goods, live animals and
perishables). Prior to the implementation of e-freight to ship special cargo
in a particular location and on a particular trade route, industry stake-
holders need to ensure that there is no specific local regulation or practice
preventing the implementation of e-freight.
E-Air Waybill
IATA's new Electronic Air Waybill recommended practice (e-AWB RP1670)
removes the requirement for a paper air waybill, significantly simplifying the
air freight supply chain process.
The electronic air waybill (e-AWB) is also one of the 20 documents planned
for conversion with e-freight. The e-AWB standard has been filed with
governments around the world for approval, including the U.S. Department
of Transportation.
The key benefits of the e-AWB can be summarized as follow:
• Reduction in processing costs due to the removal of paper air waybills;
• Greater accuracy of air waybill data, because it is entered once at the
point of origin;
• Reduction in shipment handling delay, due to missing paper air
waybills;
• Elimination of the requirements to file paper air waybills; they are filed
electronically; and
• Real-time access to air waybill data for all personnel from all locations
where the e-AWB is used.
The scope of e-AWB excludes any shipment type that requires that a
paper air waybill be transported along with the shipment (e.g. human
remains).
An adoption target for 100% e-AWB penetration among freight forwarders
and airlines on all international, feasible trade routes has been set for the
end of 2014.

3.2.2.7 Air Transport and the Environment

Environmental sustainability is one of aviation industry's key priorities,
along with safety and security. Airlines are working constantly to limit their
climate change impact, by reducing emissions and noise. IATA has the
leadership role in these efforts.
The airline industry's impact on the environment is becoming a source of
concern on a worldwide basis, despite the fact that aircraft generate only a
small portion of global man made greenhouse emissions—about 2%. The
reason for the concern is the growth of the aviation sector in last few
decades. Initially, noise was the central issue. In recent years, however,
concerns have focused more on addressing aviation's impact on green-
house gas emissions together with other pollutants.
According to the International Energy Agency (IEA), aviation used
246 million tonnes of oil equivalents (Mtoe) of energy in 2006, which
represented 11 percent of all transport energy used. Aviation's energy
usage is expected to triple to about 750 Mtoe by 2050, according to the
IEA's baseline scenario. As a result, aviation would account for 19 percent
of all energy used in 2050.
Increased energy use along with rising fuel costs is endangering air
transport's optimistic outlook. Traditionally, fuel costs were less than
15 percent of airline operational costs. However, they have risen substan-
tially since 2003. Fuel costs rose to about 33 percent of airline's operational
costs in 2008 and exceeded 40 percent for carriers with lower labour costs.
In this section, we will examine some of the facts surrounding the airline
industry's environmental impact. We will also look at efforts to reduce
emissions from commercial aircraft.
Multilateral Measures to Reduce the Airline Industry's CO2

Emissions
The European Commission prepared the first concrete measures to
address aviation as an emitter of greenhouse gases (GHG). These were
issued in November 2008 through Directive 2008/101/EC, which modified
the existing Emission Trading System (ETS) of the European Union (EU) to
include aviation activities. Under this directive all flights (with some
exceptions made for government and military flights) that arrive at or depart
from airports within the EU will be subject to market-based measures to
Key Learning Point reduce or compensate for GHG emissions.
The pillars in IATA's Four Pillar Carriers will be given allowances, which are based on their past levels of
Strategy are technology, emissions. In 2012, the number of allowances will equal 97 percent of
operations, infrastructure and historical CO2 emissions (the average between 2004 and 2006). In 2013,
economic measures. All four are the number of allowances will be reduced to 95 percent of historical
considered necessary for emissions. Further reductions will be set for each subsequent year.
achieving reductions in CO2
Due to the worldwide economic downturn in recent years, concerns have
emissions.
arisen about the efficacy of using trading approaches to reduce emissions.
The other main issue is that EU's ETS is unilateral, and some countries do
not agree with this approach.
Other countries have taken some important steps in trying to introduce
emissions trading at the national level. For example, Japan has been
conducting emissions trading on a limited and voluntary basis since 2005.
New Zealand was the first country to adopt an economy-wide, regulated
system in 2008. Australia and the U.S. are developing their own cap-and-
trade schemes.

Given these realities, IATA announced at its Annual General Meeting in

June 2009 the industry's commitment to significantly reducing CO2
emissions. IATA has more than 230 member airlines, represents
93 percent of scheduled international air traffic. It includes all of the world's
leading passenger and cargo carriers. IATA plans to implement a three-
step approach to reducing CO2 emissions:
1. A 1.5 percent average annual improvement in fuel efficiency from 2010
to 2020;
2. Carbon-neutral growth after 2020; and
3. A 50 percent absolute reduction in CO2 emissions by 2050, compared
to levels in 2005.
Figure 3.2.2.7—IATA's Four Pillar Strategy

Source: IATA
The aviation sector has committed to these three ambitious targets and will
be using many projects to get there. But the aviation industry can't do it all
on its own. Reaching these goals is contingent on governments playing an
important role–particularly in speeding up some vital infrastructure proj-
ects, such as the next generation or air traffic control systems and the
Single European Sky (SES). The SES is an EU initiative that provides a
legislative framework to meet aviation's future safety, capacity and
efficiency needs at a European rather than at a national level. It also deals
with the industry's environmental impact.
In particular, governments need to prioritise the research and development
of new airframe and engine technologies. They can also assist the airline
industry by providing incentives for start-up alternative fuel suppliers for
aviation.
The declared pathway to reach the three ambitious goals for reducing CO2
emissions is based on IATA's Four Pillar Strategy (See Figure 3.2.2.7):
• First Pillar: Technology. Of the four pillars, technology has by far the
best prospects for reducing aviation emissions. The industry is making
great advances in technology such as revolutionary new aircraft
designs, new composite lightweight materials, radical new engine
advances and the development of sustainable alternative jet fuels that
could reduce CO2 emissions by 80 percent, on a full carbon life-cycle

basis. The sector is primarily focusing on biofuels from second

generation sources, such as algae. These fuels can be produced
sustainably to minimize impacts on food crops and fresh water usage.
• Second Pillar: Operations. Improved operational practices, including
reduced auxiliary power unit usage, more efficient flight procedures
and weight reduction measures, could achieve further reductions in
CO2 emissions.
• Third Pillar: Infrastructure. Infrastructure improvements present a
major opportunity for CO2 reductions in the near term. Full implemen-
tation of more efficient air traffic management systems and airport
infrastructure could provide substantial emissions reductions.
• Fourth Pillar: Economic Measures. Although efforts from the first three
pillars will go a long way to achieving the goal of carbon-neutral growth
from 2020, the aviation sector will need to turn to the fourth
pillar—positive economic measures, such as carbon offset
programs—to close the gap.
It is clear that efficiency has been a priority for the aviation industry for
many years—it is at the heart of the way the industry works. But there is
scope for more improvement. The measures need to be rolled out by all
airlines, airports, manufacturers and across the world's airspace. It is fair to
say that the industry is fully engaged in reducing its emissions.
Aviation is the first industry to achieve a global governmental agreement
for reducing greenhouse gas emissions. The International Civil Aviation
Organization (ICAO) plays an important role in achieving a sectorial
approach to address emissions from international aviation. The main
objective is to avoid the patchwork or duplication of economic measures
and taxation of airlines.
To this end, ICAO plans to develop by 2013 a CO2 Standard for airlines
and new guidelines to facilitate the implementation of environmentally
friendly operational measures. IATA fully supports ICAO activities and
initiatives. Both organizations work in close cooperation on a common
agenda that includes the major challenges of safety, security and the
environment.
3.2.2.8 Applicable Law

International Civil Aviation Organization (ICAO) is the organization which
creates standards and recommended practices in field of the civil aviation.
Those documents are considered in each participating country and are
base of international civil aviation legislation. General propose of ICAO is
to secure international co-operation and highest possible degree of
uniformity in regulations and standards, procedures and organization
regarding civil aviation matters. The aviation legislation is based on
Conventions ratified by Contracting States. The main legislative document
in aviation is the Convention on International Civil Aviation, signed at
Chicago on 7 December 1944. This convention establishing the basic
relationships between contracting states regarding aircraft registrations,
flight rules, air navigation, international standards and practices, aiming the
highest practicable degree of uniformity in national regulations.
Since 1955, various multilateral conventions have been drafted and ratified
by countries to define and limit the air carrier's liability for death or injury to
passengers, as well as for lost, stolen or damaged passenger baggage or
cargo. Following is a summary of some of the key conventions.

The Warsaw Convention

The Warsaw Convention for the Unification of Certain Rules for Inter-
national Carriage by Air is an international convention that regulates
liability for international carriage of persons, luggage or goods performed
by aircraft for reward. Originally signed in 1929 in Warsaw (hence the
name), it was amended in 1955 at The Hague and in 1971 in Guatemala
City.
The Warsaw Convention created a limitation period of two years within
which a claim must be brought. It also set financial limits on a carrier's
liability for personal injuries to passengers and for lost or damaged
passenger baggage and cargo.
To address the problem of multiple foreign currencies used by different
countries, it enables carriers to pay financial penalties through special
drawing rights (SDRs). SDRs are supplementary foreign exchange reserve
assets defined and maintained by the International Monetary Fund (IMF).
Not a currency, SDRs instead represent a claim to currency held by IMF
member countries for which they may be exchanged. They may be
exchanged for euros, Japanese yen, pounds sterling or US dollars.
Key Learning Point
The Guatemala City Protocol of 1971
The Montreal Convention of
1999 is designed to replace the The Guatemala City Protocol of 1971 specifies that the carrier's liability for
Warsaw Convention and all of any damages to or loss of cargo is in force throughout the period in which
its related instruments and to the cargo is in the carrier's charge. This includes the period during which
create a uniform regulatory the cargo is in an airport or on board an aircraft, or, in the case of landing
regime for international carrier outside an airport, in any place whatsoever.
liability.
The Protocol also states that carriers are not liable for damages to cargo
resulting from destruction, loss, damage or delay, if they can prove that
they are their employees had exercised due diligence. In this case, due
diligence involves taking all necessary measures to avoid damage or loss.
The 1975 Montreal Protocol

In 1975, a diplomatic conference was held in Montreal primarily to deal with
air cargo issues. One of the outcomes of the conference was Montreal
Protocol No. 4, which eliminated the Warsaw Convention's outmoded
cargo documentation provisions. For example, it eliminated the need for
consignors of cargo to complete detailed air waybills before consigning
goods to a carrier. Instead of such detailed air waybills, consignors could
use simplified electronic records to facilitate shipments.
The Montreal Convention of 1999

There are currently more than 135 parties to the Warsaw Convention either
in its original form or one of its amended forms. Some states have
separately adopted laws or regulations relating to international carrier
liability. In addition, there are private voluntary agreements among carriers
relating to liability. The result of these many instruments is a patchwork of
liability regimes. The Montreal Convention of 1999 is designed to replace
the Warsaw Convention and all of its related instruments and to eliminate
Key Learning Point the need for the patchwork of regulation and private voluntary agreements.
Modern, heavy-haul freight The most notable features of the new Convention include:
services are well suited for long
• It removes all arbitrary limits on recovery for passenger death or injury;
distance, high volume
shipments of goods. • It imposes strict liability on carriers for the first 100,000 SDR of proven
damages in the event of passenger death or injury;

• It expands the jurisdictions for claims relating to passenger death or

injury to permit suits in the passenger's homeland if certain conditions
are met;
• It clarifies the obligations of carriers engaged in code-sharing oper-
ations; and
• It preserves all key benefits achieved for the air cargo industry by
Montreal protocol no. 4.
The Convention also defines the rights of consignors in cases where a
consignor purchases transportation from an air freight forwarder or freight
consolidator, but the transportation is provided by a third party carrier
according to an agreement between the freight forwarder and the carrier.
Under Article 40, when a claim arises under the Convention, a claimant
may bring suit against the carrier from which the carriage was purchased.
The Convention requires ratification, acceptance, approval or accession by
Key Learning Points 30 states before it enters into force. Upon entry into force, the Convention
• For international shipments, will take precedence over the Warsaw Convention and any of its
rail is often used as part of amendments and related instruments.
an intermodal movement
where cargo is transferred
between trains and other
types of transport.
• Railways may offer
combined rail and road
services to provide door-to-
door inland service from
sea ports.

3.2.3 Rail Freight Transportation

The introduction of railways in 18th century and their advancement in the
19th century revolutionised transportation, both for passengers and freight.
Higher speeds, greater comfort and lower costs allowed railways to
dominate transportation for more than a century. However, the railways
lost much of their market share to automobiles, trucks and airlines. This left
many rail networks in poor condition both financially and physically. To
keep railways viable, government ownership has been required in most
countries. More recently, public support of railroads has been on the rise
for several reasons, including promotion of energy conservation and
providing an alternative to congested highways.
Although rail is no longer the dominate transport mode, there are markets
where rail can compete successfully. High speed passenger services can
compete effectively with both airlines and automobiles in some transport
corridors. Modern, heavy-haul freight services are well suited for long
distance, high volume shipments of goods. Multimodal services including
rail can provide cost-efficient, high quality freight transport, provided there
are efficient terminals for transferring cargo between rail and other
transport modes.
Key Learning Point

The railway system's basic
elements are the track structure,
locomotives, rolling stock and
the control system.
Since rail transport is generally more energy efficient than road or air
transportation, its greater use can reduce energy consumption and
greenhouse gas emissions. Railroads also require less land than highways
for rights-of-way, which is important in urban and environmentally sensitive
areas. For all of these reasons, railways may be viewed as a key element
in achieving sustainable freight and passenger transport today.

3.2.3.2 Shipping Goods by Rail

Rail remains the mode of choice for several important cargo markets.
These include bulk dry cargoes, such as coal, ore, sand, gravel and grain,
and the long-distance movement of multimodal containers carrying non-
bulk freight. Rail is also often used to ship:
• Automotive parts and finished vehicles;
• Consumer products/finished goods;
• Dimensional loads–oversized or overweight;
• Fertilizer;
• Forest products, such as pulp, paper, lumber and panels;
• Hazardous materials or dangerous goods;
• Metals and minerals, such as steel, non-ferrous metals and construc-
tion materials;
• Petroleum products and chemicals; and
• Greener, alternative fuels, such as ethanol, biodiesel and wood pellets.
Generally, exporters use rail when other modes of transport are unsuitable
or relatively expensive. For international shipments, rail is often used as
part of an intermodal movement where cargo is transferred between trains
and other types of transport. Railways may offer combined rail and road
services to provide door-to-door inland service from sea ports.
Rail can be cheaper than other forms of transport, particularly over long
distances, and can offer greater reliability and time savings. However, rail
Key Learning Points services can take time to arrange and are not well suited to small
• Hopper cars are used to consignments.
transport dry bulk cargoes.
The disadvantages of rail also include limited and inflexible routes and
• Flatcars are used to timetables, which can increase costs and slow down the movement of
transport loads that are too goods. Although setting up rail cars for freight transport and cargo loading
large or heavy to fit easily are expensive, shippers can achieve economies by moving many consign-
into other types of rail cars. ments at once. Rail is generally more cost-efficient than road transport for
journeys exceeding 400 kilometres.
3.2.3.3 Railroad Technology and Systems

The railway system's basic elements are the track structure, locomotives,
rolling stock and the control system. With a durable, level surface and the
low rolling resistance of steel wheels on steel rails, it is possible to pull a
train of cars with a minimum expenditure of energy, thereby maximizing the
load pulled.
Train Route Selection

Did You Know?
Train route selection is based on both engineering factors and the railway's
The European Railway Agency marketing strategy. When designing rail routes, engineers will balance
was established by regulation in construction costs related to distance, curvature, grades, tunnels and
2004 to develop and introduce bridges. Marketing issues include the ability to serve current and potential
new, standardised technologies markets (with new routes), as well as location relative to other railways and
and working practices to make other competing transport modes.
rail freight more competitive with
road. Route selection is also dominated by the requirement to maintain a nearly
level route. If grades are too steep, tremendous energy must be used to
pull the train, eliminating the benefits of low rolling resistance. Normally,
the maximum grade for a railway route is 1–2 percent. Railways therefore

tend to follow the natural features of a landscape, using cut and fill, tunnels
and bridges as required to maintain a nearly level route.
Size and Speed Limitations

Train size and speed are limited by engineering factors related to safety
and cost. The main consideration is that the train always stays on the track,
despite the dynamic interaction between the train and the track. Rail and
wheels are designed to minimise lost energy at the wheel/rail surface and
to provide the strength required to resist the forces of the operating
environment.
Such factors as route and track characteristics will determine the size of
the cars or containers that can be carried. Clearances limit the width,
height and shape of equipment. Sharp curves limit the length of vehicles,
as very long vehicles may derail. Bridge characteristics limit the maximum
loading density of a car, which is its gross weight divided by its length.
Clearances, maximum axle loads and maximum loading density are
therefore key design parameters for rail equipment.
Locomotives
Locomotives provide the
power required to move
the train. The typical freight
locomotive has a diesel en-
gine that produces electri-
city to drive traction motors
Key Learning Point that are mounted on and
The key documents required for turn the axles. Diesel-
rail freight transport include the electric units can be
Contract of International coupled together, with
Carriage of Goods by Rail (CIM) three or more units used to
consignment note and freight pull heavy trains.
forwarders' certificates.
Freight Cars
A freight car or wagon is a platform or box designed to carry certain
commodities and equipped with couplers to allow assembly to a train. A
covered hopper car is loaded through hatches at the top and unloaded
through hoppers at the bottom. It is commonly used to transport grain,
fertilizer, plastic pellets or other dry bulk cargoes that need protection. An
open hopper is commonly used to transport coal. It has no top, making it
easy to load and unload.
Other types of rail cars are designed to load and unload special
commodities. Flatcars are used to transport loads that are too large or
heavy to fit easily into other types of rail cars. Auto racks can be attached
to a basic flat car to create a multilevel car that provides one-to-two
additional levels to carry automobiles. Steel panels bridge the gap between
rail cars, so that automobiles can be driven from the first rail car through to
the following cars, allowing for rapid loading and unloading. Auto racks are
usually closed to prevent damage to cars from weather or debris.
The need for expensive lift equipment to load and unload trains tends to
limit multimodal operations to high-density transport corridors. However, a
variety of approaches have been developed to get around this problem.
These include the ‘iron highway,’ which is a long, articulated platform
designed to handle a dozen or more trucks or containers loaded with
cargo. The ends of each unit drop down to serve as ramps, allowing trucks
to be driven onto the units. Since the platform is continuous, it is possible to

handle any length or container, trailer or truck-trailer combination. The iron

highway is used in Europe to shuttle trucks through tunnels in the Alps,
rather them driving them over congested, environmentally sensitive moun-
tain passes.
Rail Technology Innovation in Europe

The European Railway Agency was established by regulation in 2004 to
develop and introduce new, standardised technologies and working
practices to make rail freight more competitive with road. The following
technologies are either being adopted or are under development in the EU
to help overcome infrastructural differences and enhance the quality of
cross-border rail freight services:
Key Learning Points
• Multi-voltage electric locomotives: Several new locomotive designs are
• With the entry into force in
being introduced that allow locomotives to work across international
1985 of the Convention
borders. For example, the Traxx locomotive has modules that allow it
concerning International
to operate on most of the electrified networks across Europe.
Carriage by Rail of 1980
(COTIF), the • Signalling systems: A key component of the European Rail Traffic
Intergovernmental Management System (ERTMS) is a new interoperable signalling
Organisation for system designed to reduce operating costs and enhance rail's com-
International Carriage by petitiveness through the implementation of continent-wide standards
Rail (OTIF) was born. that incorporate modern technology.
• OTIF's mandate is to • Gauge transfer: Pending the full standardisation of track gauge across
promote, improve and the EU, new rapid gauge changing technologies have been developed
facilitate the international to re-gauge wagons, reducing the length of dwell time required at
traffic by rail. borders where track gauges differ on either side.
• Train payloads: Technological solutions allow freight trains to be
longer, larger and/or heavier, thereby benefiting from economies of
scale and reducing the unit cost of rail transport.
• Information technology for consignment tracking: A technical specifi-
cation for interoperability has been developed relating to the adoption
of standardised information and communications technology appli-
cations, which will feed in to the ERTMS.
Some of these initiatives are starting to reduce delays at border-crossings
and improve the performance of international freight services. Full im-
plementation of some measures, such as the ERTMS, is likely to take
several more years.
3.2.3.4 Rail Transport Documents

The key documents required for freight transport include the Contract of
International Carriage of Goods by Rail (CIM) consignment note and freight
forwarders' certificates.
CIM Consignment Note

This document confirms that the rail carrier has received the goods and
that a contract of carriage exists between trader and carrier. Unlike a bill of
Key Learning Point lading, a CIM consignment note isn't a document of title. It doesn't give its
OTIF has 47 member states in holder rights of ownership or possession of the goods.
Europe, North Africa and the
Key details to be provided in the note include:
Middle East applying the uniform
law of COTIF. • A description of the goods;
• The number of packages and their weight; and
• The names and addresses of the sender and recipient.

The shipper or consignor is responsible for the accuracy of CIM consign-

ment notes, and is liable for any loss or damage suffered by the carrier due
to inaccurate information. CIM consignment notes are used to calculate
compensation if goods are lost or damaged.
Freight Forwarders' Certificates

Increasingly, international trade journeys are intermodal, with freight
forwarders playing a crucial coordinating role. Freight forwarders'
documents' have been designed for these kinds of transactions. The
Forwarders' Certificate of Receipt (FCR) provides proof that a forwarder
has accepted the consignor's goods with irrevocable instructions to deliver
them to the consignee indicated on the FCR.
Although a FCR is non-negotiable, another similar document, the For-
warders' Certificate of Transport (FCT), is negotiable. This means that the
forwarder accepts responsibility to deliver to a destination specified by the
consignor, rather than to an unchangeable destination as with the FCR.
3.2.3.5 Applicable Legislation

The first International Convention concerning the Carriage of Goods by
Rail dates from the year 1890. This Convention created an Administrative
Union according to the rules of international law at that time, with a
permanent secretariat, the Central Office for international carriage by rail,
headquartered in Berne, Switzerland.
In 1980, the Convention underwent a fundamental reform, which eventually
led to the creation of an international intergovernmental organisation of a
modern nature and structure. With the entry into force in 1985 of the
Convention concerning International Carriage by Rail of 1980 (COTIF), the
Intergovernmental Organisation for International Carriage by Rail (OTIF)
was born.
OTIF's mandate is to promote, improve and facilitate international traffic by
rail, both passengers and freight. To achieve its mandate, OTIF works to
establish and support the application and development of a uniform system
of law through COTIF. The uniform rules currently applicable to inter-
national carriage by rail are contained in the appendices to COTIF:
• Appendix A: Uniform Rules concerning the Contract of International
Did You Know? Carriage of Passengers by Rail (CIV);
Road transport represents more • Appendix B: Uniform Rules concerning the Contract of International
than 70 percent of the land Carriage of Goods by Rail (CIM);
freight service at origin and • Appendix C: Regulation concerning the International Carriage of
destination points, connecting Dangerous Goods by Rail (RID);
businesses to world markets.
• Appendix D: Uniform Rules concerning Contracts of Use of Vehicles in
International Rail Traffic (CUV);

• Appendix E: Uniform Rules concerning the Contract of Use of

Infrastructure in International Rail Traffic (CUI);
• Appendix F: Uniform Rules concerning the Validation of Technical
Standards and the Adoption of Uniform Technical Prescriptions
applicable to Railway Material intended to be used in International
Traffic (APTU);
Key Learning Point • Appendix G: Uniform Rules concerning the Technical Admission of
Railway Material used in International Traffic (ATMF).
The road freight industry
services four different types of Other activities carried out by OTIF in support of its mandate include
traffic—short distance, long developing provisions related to interoperability and technical harmon-
distance, national and isation in the railway field, and contributing to the facilitation of border
international. crossing in international carriage by rail.
OTIF has 47 member states in Europe, North Africa and the Middle East
applying the uniform law of COTIF.
In the 1990s, international rail transport law faced great challenges from
the formation of the EU, and the liberalisation of the transport policies of
numerous member states and within the railway companies themselves.
International rail transport law needed to be adapted to accommodate the
separation of railways from state administrations and their legal indepen-
dence as companies under private or public law.
To deal with the changing political landscape and railway industry in
Europe, COTIF was amended in 1999. The changes included:
• Liberalisation and modernisation of the laws concerning the inter-
national carriage of goods and passengers by rail. In addition, these
laws were aligned with legislation applicable to other modes;
• Widening the scope for agreements between railway companies and
their customers and among railway companies themselves;
• Regulation of contractual relations, especially liability, in the context of
the use of ‘foreign’ infrastructure by different rail carriers; and
• Widening the legal scope of application of the dangerous goods
regulations.
Key Learning Point
Under COTIF 1999, it is not only individual States that may accede to
The special services offered by COTIF, but also regional economic integration organisations. In 2011, the
trucking companies include EU acceded to uniform legal system of COTIF. In preparation for this
specialty shipments, rush important step, in 2009, Appendices E, F and G of COTIF were amended
deliveries, small parcel service, to make it fully compatible with EU law. The new versions of these
door-to-door services and third Appendices entered into force in 2010.
party logistics.

3.2.4 Road Freight Transportation

Road freight transport, or trucking, brings most goods to their final
destination and is used to move domestic, trans-border and international
cargo. Road transport represents more than 70 percent of the land freight
service at origin and destination points, connecting businesses to world
markets.
The industry is comprised of carriers that transport commodities for
shippers using a commercial motor vehicle. Demand is driven by consumer
spending and manufacturing output. The profitability of individual
companies depends on efficient operations. Large companies have
advantages in account relationships, bulk fuel purchasing, fleet size and
access to drivers. Small operations can compete by providing quick
turnaround, serving a local market, or transporting special goods or goods
of unusual sizes.
Key Learning Point

Over the past decade, the trend
toward larger trucks has
continued, reducing demand for
labor and fuel consumption per
tonne-kilometres driven.
Trucking competes with other forms of cargo transportation, including rail,

air, and sea. However, the shift toward multimodal transportation means
that these modes of delivery are often more complementary than competi-
tive.

3.2.4.2 Service Options

The road freight industry serves different four types of traffic: short
distance, long distance, national and international. Operators will tend to
specialise in one or more of these types of services, depending on their
size and resources. International traffic is more regulated than national
traffic and requires larger vehicles that can carry much more cargo.
Traffic can also be divided by type of cargo supply—complete or partial.
Complete cargo means that a shipper fills at least one entire truck for the
Key Learning Point route required for that one shipment. Partial cargo means that the shipper
The proliferation of information does not fill the cargo capacity. In this case, the operator will consolidate
communication technology (ICT) cargo from different shippers and follow scheduled, predetermined routes.
since the 1990s has helped the
The types of services provided by trucking companies include:
trucking industry improve
customer service, trace • National long-distance transport of dry cargo;
products, reduce empty loading,
meet delivery times, and reduce • Complete cargo load transport, point to point;
processing errors and • Partial cargo load transport (express services);
administrative costs.
• National long distance transport of special products, such as refriger-
ated foods;
• International long-distance transport of dry cargo and special products;
and
• Short distance transport of a complete cargo load, generally associ-
ated with agro-food industry and containerised cargo.
Special Services
In addition, trucking companies will offer a variety of special services.
These include:
• Speciality shipments. Some carrier companies will have special
departments dedicated to the movement of specialized cargo, which is
unusual in size, requires heavy lifting or has other specific handling
Key Learning Point requirements.
The ICT solutions used the • Expedited or rush deliveries. This is a rapid service for urgently
trucking industry include: required cargo or ‘rush’ shipments. Some trucking companies will offer
a 24-hour service. Rates for these services are usually based on
• Vehicle and trailer tracking
weight with fair minimum prices, to enable the trucking company to
systems
compete with air courier services.
• Onboard communication
• Small parcel service: To compete with courier companies, some
systems
trucking companies offer small parcel service. They will use either
• Satellite navigation systems expedited ground freight or a combination of ground and air freight for
small packages and parcels.
• Track and trace systems
• Door-to-door services. The basic concept of door-to-door services is
• Paperless documentation to simplify international multimodal services by using one multimodal
and customs clearance transport operator (MTO), who issues one transport document to the
shipper and takes sole responsibility for loss or damage. The MTO will
subcontract out to transport carriers as necessary to complete the
freight journey. Where possible, one insurance policy is purchased to
cover the entire journey.
For example, door-to-door service providers in China offer customers a
full set of logistics, including the inland trucking and overseas shipment
from China to Asia, Europe or North America. Multimodal transpor-
tation services will be covered in detail in Module 4.

• Third party logistics (3PL). A 3PL firm provides outsourced services

for part or all of a customer's supply chain management function.
These providers typically specialise in integrated operation, ware-
housing and transportation services that can be scaled and custo-
mized based on market conditions, and the demands and delivery
service requirements for products and materials.
3.2.4.3 Road Transport Technology

Technology employed by the road freight transport industry is changing
rapidly. Over the past decade, the trend toward larger trucks has
continued, reducing demand for labour and fuel consumption per tonne-
kilometers driven. Figure 3.2.4.3 shows the various types of tractor-trailer
configurations used in the trucking industry to transport various volumes of
goods.
Tank trucks or tanks are motor vehicles designed to carry liquid bulk, dry
bulk cargo or gases on roads. The largest such vehicles are similar to
railroad tank cars, which are also designed to carry liquefied loads.
Depending on the cargo they are hauling, tank trucks may be insulated or
non-insulated, pressurized or non-pressurized, and designed for single or
multiple loads often by means of internal divisions in their tanks.
Competition within the industry helps ensures that the benefits of techno-
logical developments are passed onto customers. Technological improve-
ments benefit the operator and ultimately customers by raising the general
quality of service, lowering the costs of providing the service, and/or
improving the service offering.
Figure 3.2.4.3—Tracker-Trailer Configurations Used in the Trucking Industry

The proliferation of information communication technology (ICT) since the

1990s—in the form of mobile phones, faxes, computers, the Internet, and
global positioning systems or satellite navigation—has helped the trucking
industry improve customer service, trace products, reduce empty loading,
meet delivery times, and reduce processing errors and administrative
costs. A wide range of ICT solutions are now commonly used in logistics
and road freight transport operations. They have helped to make inter-
national freight operations more efficient, more secure and safer. The ICT
solutions include:
• Vehicle and trailer tracking systems;
• Onboard communication systems;
• Satellite navigation systems;
• Track and trace systems; and
• Paperless documentation and customs clearance.
Vehicle and Trailer Tracking Systems

These can be used to track loads, as well as vehicles and trailers. The
hardware usually involves an on-board computer, a satellite signal receiver
connected to a global positioning system (GPS) and a communications
module. These systems can help to deter and detect vehicle and load theft
and thereby improve driver safety. Typical security applications can
include:
• Panic buttons that allow the driver to raise a security alert in the event
of theft, so that the trucking company can alert the police and the
stolen vehicle/goods can be tracked;
• Remote vehicle immobilisation to prevent theft, which may be ac-
companied by door locking, flashing lights and horn sounding;
• Vehicle tracking bureaus that can detect that a vehicle or trailer has
moved outside a specified location or is operating outside of its normal
operating period.
Onboard Communication Systems

Such systems can range from mobile and satellite telephones, to onboard
text messaging and computing systems. These allow drivers to keep in
touch with their company and customers for which they are collecting and
delivering goods in the course of their operations. Drivers can be alerted of
changes in their schedules and warned of problems in advance. In
addition, drivers can contact supply chain partners, as well as vehicle
recovery services and the police in case of emergency.

Satellite Navigation Systems

Satellite navigation systems are used to provide drivers with instructions
and mapping to reach their intended destination. This can be especially
useful when the driver is making international deliveries in countries and
cities with which they are unfamiliar, saving time spent deciding on a route
or taking the wrong route. However, there can also be problems associated
with using such technology. Such systems are capable of misrouting,
Key Learning Point resulting in a driver being directed to drive a longer route when a shorter
The 1975 Geneva Customs route was available. Drivers of heavy goods vehicles have frequently
Convention on the International reported routeing problems caused by unsuitable routeings, due to the
Transport of Goods under cover mapping software not containing constraints such as bridge heights, road
of TIR Carnets' two main widths and weights restrictions.
objectives are to improve
transport conditions, and to Track and Trace Systems
simplify and harmonise customs
These systems can be used to track products throughout the supply chain
formalities in international
and are widely used to ship parcels worldwide. They help companies to
transport.
ensure safe, reliable and on-time delivery. Such systems are also of great
importance in locating products that have gone missing en route. Track
and trace systems are being increasingly used to track loads moved by
road as part of international freight transport.
Paperless Documentation and Customs Clearance

Paperless documentation systems can be used to load manifest infor-
mation electronically into a driver terminal at the beginning of the working
day or throughout the day for greater working flexibility. Electronic proof of
delivery can reduce delivery time and provide immediate proof of safe
delivery and receipt of goods. The benefits of paperless systems include
reduced paperwork and administration costs, reduced delivery and invoic-
Key Learning Point ing errors, and improved order status information and consignment
The TIR system is based on the tracking. All of these factors can result in lower operating costs and
principle that customs control improved customer service.
measures in the departure
country should be accepted by 3.2.4.4 Road Transport Documents
the countries of transit and
destination. The key transport documents used in road transport include the Contract
for the International Carriage of Goods (CMR) consignment note and
freight forwarder's certificate of receipt.
The CMR is a consignment note or waybill, with a standard set of transport
and liability conditions. It replaces individual businesses' terms and
conditions. It confirms that the carrier (road haulage company) has
received the goods and that a contract of carriage exists between the
shipper and the carrier. Unlike a bill of lading, a CMR is not a document of
title.
A range of information needs to be covered in the CMR note, including:
• The date and place at which the CMR note was completed;
• The name and address of shipper, carrier(s) and consignee (the
person to whom the goods are going);
• A description of the goods and their method of packing;
• The weight of the goods;
• Any charges related to the goods, such as customs duties or carriage
charges; and
• Instructions for customs and any other formalities, such as dangerous
goods information.

Generally, there will be four copies of a CMR note. One will be kept by the
shipper and another by the carrier. The third copy will travel with the goods
all the way to their final destination and become the consignee's copy. The
final copy is the administration copy. There may be additional copies made
if there is more than one carrier.
The copies of the CMR note are colour-coded as follows:
• Red printing for the shipper;
• Blue printing for consignee;
• Green printing for carrier; and
• Black printing for the second carrier (if applicable).
While the carrier is liable for any loss, damage or delay to a consignment
until it is delivered, the shipper is responsible for any loss or damage the
carrier suffers resulting from incorrect details having been provided in the
CMR note.
Freight Forwarder's Certificate of Receipt (FCR)

As with rail transport, a FCR is being used increasingly for international
freight journeys that include road transport. The FCR provides proof that a
freight forwarder has accepted the goods with irrevocable instructions to
deliver them to the consignee indicated on the FCR. It indicates that the
freight forwarder will take responsibility for the goods while they are in
transit and in the hands of different carriers, until they reach their
destination.

Several multilateral conventions aimed at establishing uniform laws gov-
erning international road transport have been developed and adopted
under the auspices of the United Nations (UN) since 1949. The 1949
Geneva Convention on Road Traffic entered into force in 1952. Its
objective was to promote the development of international road traffic by
establishing uniform rules governing it. It requires contracting states to
agree to the use of their roads for international traffic under the Conven-
tion's conditions. Further, contracting states agree to facilitate international
road traffic by simplifying Customs, policing and regulations related to road
transport.
1968 Vienna Convention on Road Traffic

A second convention, the 1968 Vienna Convention on Road Traffic came
into force in 1977. It had a great focus on increasing road safety and
includes rules relating to signs and signals, as well as rules applicable to
drivers such as position of the carriage, overtaking, passing of traffic,
speed and distance between vehicles, change of direction, standing and
parking, and loading and unloading of vehicles.
Did You Know? It also sets out conditions for the admission of motor vehicles and trailers to
international traffic, and rules for obtaining driving permits and for their
Maritime transport remains the suspension or withdrawal.
backbone of international trade,
with over 80 percent of world
merchandise trade by volume
being carried by sea.

1975 Geneva Customs Convention on the International

Transport of Goods under cover of TIR
The 1975 Geneva Customs Convention on the International Transport of
Goods under cover of TIR (Transports internationaux par la route) Carnets
has two main objectives: to improve transport conditions, and to simplify
and harmonise customs formalities in international transport.
Traditionally when goods crossed the territory of one or more states in the
course of an international transport of goods by road, the Customs
authorities in each state applied national controls and procedures. These
varied from state to state, but frequently involved the inspection of the load
at each national frontier and the imposition of national security require-
ments to cover the potential duties and taxes at risk while the goods were
in transit through each territory. Applied in each country of transit, these
measures lead to considerable expenses, delays and interference with
international transport.
The TIR Convention established an international customs transit system
with maximum facility to move goods:
• In sealed vehicles or containers;
• From a Customs office of departure in one country to a Customs office
of destination in another country;
Did You Know? • Without requiring extensive and time-consuming border checks at
intermediate borders; and
Very large crude carriers have a
deadweight tonnage of 200,000 • At a cost-effective price.
or greater and can carry up to At the same time, the Convention provides Customs authorities with the
3.1 million barrels of oil. security and guarantees required for their effective operation.
The TIR system is based on the principle that customs control measures in
the departure country should be accepted by the countries of transit and
destination. Therefore the customs inspection at the office of departure
must be stringent and complete, before the container or load compartment
is sealed. Goods carried under the TIR procedures in sealed road vehicles
are not as a general rule submitted to further examination in Customs
offices en route. But they may be inspected when an irregularity is
suspected.
Through the TIR system, contracting states authorize agreed national
associations to issue TIR carnets, which function as goods manifests. For
the purposes of identification of goods on which duties have to be paid,
details of these goods are entered in the TIR carnet document. Customs
authorities discharge TIR carnets at the end of the transport operations.
Discharge is equivalent to clearance, and Customs authorities cannot
claim taxes and duties after discharge.
The TIR system not only covers customs transit by road, but also
multimodal transport, as long as at least one part of the total transport is
made by road.
The Convention is largely enforced in Europe, the Maghreb, the Middle
East, North America, Chile, and Indonesia. As of January 1, 2011, there
were 68 parties to the Convention. It has also been used as a model for
several sub-regional TIR Conventions. For example, Annex II to Protocol
No. 3 of the Northern Corridor Agreement between Kenya, Rwanda,
Burundi, Uganda and Zaire states that the parties to the Agreement
undertake to accept transport units (containers) approved in accordance
with the Convention.

Convention on the Contract for the International Carriage of

Goods by Road (CMR)
The CMR applies to the European Union and specifies uniform conditions
of contract for international road transport of goods. It originated in the joint
efforts, starting in 1948, of the International Institute for the Unification of
Private Law (UNIDROIT), the International Road Transport Union, the
International Chamber of Commerce and other professional institutions.
Later, the United Nations Economic Commission for Europe became
involved and an international Convention was drafted and first signed by
European countries in 1956.
It is open for signature and accession by country members of the
Economic Commission for Europe and countries admitted to the Com-
mission in a consultative capacity. All EU countries are signatories.
Unlike the conventions relating to international carriage of goods by rail,
which affect only a limited number of national railways, the CMR is used by
thousands of international truck operators. As a result, interpretation of the
Convention by national courts has tended to be uniform, a powerful tool for
Key Learning Point the unification of law.
Sub-types of oil tankers include:
The Convention covers any international carriage of goods by single and
• Naval replenishment ships successive carriers when at least one of the two countries of origin and
destination is party to the Convention. It does not apply to multimodal
• Oil-bulk-ore combination transport if the goods leave the road vehicle.
carriers
The Convention requires that goods travel under a consignment note
• Floating storage and established under a format set by the CMR. The CMR consignment note is
offloading units evidence of the carriage contract.
• Floating production storage The Convention also states the responsibilities and liabilities of the shipper
and offloading units and carrier. The shipper is responsible for specifying the particulars of the
goods to be carried and for a number of statements about the goods,
including documentation for customs purposes. The carrier is responsible
for checking accuracy of statements, whenever possible.
The burden of proof that loss, damage or delay was not caused by his
errors or omissions or those of his employees rests on the carrier. The
shipper is liable for any damage caused by inadequate information given to
the carrier.

3.2.5 Maritime Freight Transportation

In 2007, international seaborne trade was estimated at 8.02 billion tonnes
of goods loaded. Dry cargo and containerized cargo accounted for the
largest share of goods loaded (about 67 percent), while oil made up the
balance. Maritime transport remains the backbone of international trade,
with over 80 percent of world merchandise trade by volume being carried
by sea.
Although maritime transport has generally been associated with the

carriage of high-volume, low-value goods (e.g. iron ore, grain and coal),
over recent years the share of low-volume, high-value manufactured goods
carried by sea has been growing.
Traded manufactured goods include consumption goods as well as
intermediate goods, parts and semi-finished products whose markets have
expanded because of intra-company trade, international outsourcing and
globalization. As much of this trade is carried in containers, world
containerized trade has grown significantly over the last decade or so. The
container shipping sector has invested in larger containerships to capitalize
on the containerized trade market and reduce costs.
Key Learning Point
The categories of bulk carriers 3.2.5.2 Types of Operations
include: In 2009, the global merchant fleet consisted of a total of 53,005 vessels,
• Small/mini-bulkers made up of 31 percent traditional general cargo ships, 27 percent tankers,
15 percent bulk carriers, 13 percent passenger liners, 9 percent container
• Handysize and ships and 5 percent other vessels. Following is a discussion of the various
handymax—medium-sized types of ships and their operational uses.
• Panamax—limited in size by
the Panama canal's lock Crude Oil and Petroleum Products Shipping
chambers Representing some of the world's largest ships, very large crude carriers
• Capesize—large bulk (VLCCs) and ultra large crude carriers (ULCCs) offer the best economies
carriers used to transport of scale for oil transportation where pipelines are non-existing. VLCCs are
iron ore and coal characterized as any oil tanker with a deadweight tonnage (DWT) of
200,000 or greater. ULCCs are vessels with a DWT of 300,000 or more.

Typically, VLCCs carry 2.1 million barrels of oil. The largest VLCC can
carry approximately 3.1 million barrels. VLCCs commonly carry more than
one type or grade of crude oil. Their hulls are separated into up to 10 tanks,
allowing for multiple loads and discharges (see Figure 3.2.5.2a).
There are two more category of tankers:
• Aframax: A tanker of maximum 79,999 tonnes deadweight.
• Malaccamax: The maximum hull form using the maximum draught
permissible to pass through the Strait of Malacca, Malaysia. These
vessels have a maximum length of 400 m (1,312 ft.), beam of 59 m
(193.5 ft.) and draught of 14.5 m (47.5 ft.).
Key Learning Point
Economies of scale and improved technology have created a trend
The liner shipping service towards larger oil tanker sizes, reducing transport costs and ultimately the
transports small parcels of price of crude oil. Equally, environmental disasters of these super-vessels
general cargo, including can be potentially more catastrophic.
manufactured and semi-
manufactured goods, and many Some sub-types of oil tankers have evolved to meet specific military and
small quantities of bulk economic needs. These sub-types include naval replenishment ships, oil-
commodities. bulk-ore (OBO) combination carriers, floating storage and offloading units
(FSOs), and floating production storage and offloading units (FPSOs).
Did You Know?

The average speed of a
merchant ship is about 15 knots
or 28 kilometres per hour, the
equivalent of about Figure 3.2.5.2a—Side View of an Oil Tanker showing Major Features
670 kilometres a day.
Naval Replenishment Ships
Naval replenishment ships, known as oilers in the U.S. and fleet tankers in
Commonwealth countries, are ships that can provide oil products to naval
vessels while they are on the move. This process, known as underway
replenishment, extends the length of time a naval vessel can stay at sea,
as well as its effective range. Prior to underway replenishment, naval
vessels had to enter a port or anchor to take on fuel. In addition to fuel,
replenishment ships may also deliver water, ammunition, rations, stores
and personnel.

Ore-Bulk-Oil Carriers
An ore-bulk-oil carrier, also known as a combination carrier or OBO, is a
ship designed to be capable of carrying both wet and dry bulk cargoes.
This design is intended to provide flexibility in two ways. Firstly, an OBO
can shift between the dry and wet bulk cargoes based on market
conditions. Secondly, an OBO can carry oil on one leg of a voyage and
return carrying dry bulk, reducing the number of unprofitable ballast
Key Learning Point voyages it makes.
Ship design has changed
radically–from timber to steel to Floating Storage Units
vessels built mainly of
Often former oil tankers, floating storage units accumulate oil for tankers to
aluminium and composite
retrieve. Floating storage and offloading units (FSO) are used worldwide by
materials.
the offshore oil industry to receive oil from nearby platforms and store it
until it can be offloaded onto oil tankers. A similar system, the floating
production storage and offloading unit (FPSO), can process the product
while it is onboard. These floating units reduce oil production costs and
offer mobility, large storage capacity and production versatility.
FPSOs and FSOs are often created out of old, stripped-down oil tankers,
but can be constructed from newly-built hulls.
Dry Bulk Shipping

Dry bulk shipping involves carrying single dry bulk cargoes in large
volumes. A bulk carrier or bulk freighter is a merchant ship specially
designed to transport unpackaged bulk cargo, such as grains, coal, ore
and cement in its cargo holds. Since the first specialized bulk carrier was
built in 1852, economic forces have fuelled the development of these ships,
causing them to grow in size and sophistication. Today's bulk carriers are
specially designed to maximize capacity, safety, efficiency and to be able
to withstand the rigours of their work.
Today, bulk carriers make up 40 percent of the world's merchant fleets.
They range in size from single-hold mini-bulk freighters to mammoth ore
ships able to carry 400,000 DWT. A number of specialized designs exist:
Some can unload their own cargo, some depend on port facilities for
unloading, and some even package the cargo as it is loaded.
Categories of Bulk Carriers

Key Learning Point Bulk carriers are segregated into six major size categories: mini-bulkers,
By speeding up cargo handling, handysize, handymax, panamax and capesize.
specialization has been
Mini-bulkers are prevalent in the category of small vessels with a capacity
responsible for reducing the cost
of under 10,000 DWT. Mini-bulkers carry from 500 to 2,500 tonnes, have a
per transported unit.
single hold and are designed for river transport. They are often built to pass
under bridges and have small crews of three to eight people.
Handysize and handymax ships are general purpose in nature. Handymax
ships are typically 150–200 m (492–646 ft.) in length and can carry
52,000–58,000 DWT, having five cargo holds and four cranes.
The size of a panamax vessel is limited by the Panama canal's lock
chambers, which can accommodate ships with a length of up to 294 m
(964.5 ft.).

Capesize bulk carriers are specialized: 93 percent of their cargo is iron ore
and coal. These ships serve deep-water terminals with a draft of approx.
17 m (55.7 ft.). Capesize vessels transit via Cape Horn (South America) or
the Cape of Good Hope (South Africa). They can carry between 100,000
and 180,000 DWT. Very large ore carriers and very large bulk carriers are
a subset of the capesize category. Carriers of this size are almost always
designed to carry iron ore.
Liner Shipping
Liner shipping is the most efficient marine mode of transport for goods. The
liner shipping market represents around a quarter of the total volume of
international cargo transported by sea. Liner services transport small
parcels of general cargo, which include manufactured and semi-
manufactured goods, and many small quantities of bulk commodities.
Because there are so many parcels to handle on each voyage, this is an
organisation-intensive business. In addition, the transport leg forms part of
an integrated production operation in which goods may be needed for just-
in-time production, so speed, reliability and high service levels are
important.
Specialised Shipping Services

Specialised shipping services transport difficult to handle cargoes requiring
specialised handling, storage and transport of which the five most
important are cars, forest products, refrigerated cargoes, chemicals and
liquified gas. Specialised shipping services fall somewhere between bulk
and liner shipping. Shipping operators that provide specialised services will
invest in specialised ships designed to accommodate special types of
Key Learning Point cargoes. They also offer higher service levels than bulk shippers.
The key documents used in
marine transport include the 3.2.5.3 Maritime Freight Transport Technology
marine bill of lading and the sea
or liner waybill. Marine innovations have helped to fuel the growth of maritime freight
traffic. Size, speed, design, specialisation and automation are the five main
factors affecting marine freight transport technology and the design of
ships.
Size
The average size of ships has increased substantially. Larger vessels
reduce the shipping costs per load unit for crew, fuel, insurance, servicing
and ship maintenance. Port authorities must respond to increasing vessel
sizes by expanding port infrastructure and improving port access.
Speed
The average speed of a merchant ship is about 15 knots or 28 kilometres
per hour, the equivalent of about 670 kilometres a day. Newer ships are
capable of 25 to 30 knots (45 to 55 kilometres per hour). Marine propulsion
has improved considerably with the invention of the double propeller, a
development that reached its peak in the 1970s.

Achieving even higher speeds is a challenge that is likely to prove

extremely expensive. Experts are therefore predicting only limited in-
creases to average commercial shipping speeds.
Design
Ship design has changed radically–from timber to steel to vessels built
mainly of aluminum and composite materials. Design innovations have
Key Learning Points been aimed at dramatically reducing fuel consumption and construction
• The International Marine costs, while increasing safety at the same time. Currently research is
Organisation's primary underway to design the green ship of the future by using the low carbon
purpose is to develop and emission strategies:
maintain a comprehensive
• Greater fuel efficiency through improved ship and propulsion system
regulatory framework for
design;
shipping.
• Hydrogen fuel cells; and
• Its mandate includes safety,
environmental concerns, • Fuels based on renewable energy, such as bio-fuels.
legal matters, technical
cooperation, maritime In China, Lloyd's Register Classification Society and Shanghai Bestway
security and the efficiency of Marine Engineering Design are jointly developing a new fuel-efficient bulk
shipping. carrier in response to increasing pressure from shipping companies and
regulators for environmentally friendlier and more cost-effective vessels.
The project's goal is to find energy efficient alternatives for a 35,000 DWT
‘handysize’ bulk carrier. Its two focuses are energy-efficiency research into
the ship's hull and systems, and technical approval and implementation of
the proposed solutions. The research uses the International Marine
Organisation's (IMO) Energy Efficiency Design Index as a benchmark.
Specialisation
Specialization in the shipbuilding industry has brought massive changes to
ocean shipping. Special ships have increasingly been constructed for
different types of freight. These include:
• Tankers for crude oil, petroleum products, chemicals, liquid gas and
fruit juice concentrate;
Key Learning Point
• Bulk carriers for bulk goods, such as ores, coal, grain;
The IMO's technical committees
have been involved in • Bulk carriers for large-volume unit loads, such as motor vehicles and
developing international iron;
conventions to address such • Refrigerated vessels (reefers) for fruit from the Southern Hemisphere;
issues as safety at sea, the
security of vessels and pollution • General cargo ships;
prevention. • Container ships, which are increasingly taking on the tasks of general
cargo ships on long-haul routes;
• Ferries for shipping trucks as well as roll-on/roll-off (RO-RO) ships,
which carry articulated lorries to drive the cargo onto the ship. Ferries
and RO-RO ships are taking over the tasks of general cargo vessels
on short-haul routes.
By speeding up cargo handling, specialisation has been responsible for
reducing the cost per shipping unit. Therefore, when special ships can be
used to capacity, economies of scale have been achieved.

Figure 3.2.5.3a shows the design features of the various types of

specialised freight vessels.
Automation
Various automation technologies have been introduced to shipbuilding and
ship operations, including self-loading/unloading systems, computerized
navigation and global positioning systems (GPS). Automation has mark-
edly reduced the number of crew needed and substantially improved safety
standards.
Figure 3.2.5.3a—Specialisation of Freight Vessels
3.2.5.4 Marine Transport Documents

Marine Bill of Lading
By issuing a marine bill of lading, the carrier or his agent acknowledge that
they have received the goods specified in the bill from the shipper. The
document also serves of evidence of the carrier's contract to transport the
goods under the agreed conditions and deliver them to the specified
Key Learning Point location according to the shipper's instructions, in return for payment. To
UNCLOS defines the rights and summarise, the marine bill of lading serves as both a contract between the
responsibilities of nations in their marine carrier and the shipper for the transportation of goods and as a
use of the world's oceans, receipt issued by a carrier to the shipper.
establishing guidelines for
businesses, the environment, Sea or Liner Waybill
and the management of marine
A sea or liner waybill is a document issued by the carrier to a shipper,
natural resources.
which serves as a receipt for the goods and evidence of the contract of
carriage. As with other waybills, it is not a document of title. It bears the
name of the consignee who has only to identify himself in order to take
delivery of cargo.
A sea waybill is a non-negotiable document issued after receipt of the
goods by the carrier. It is often used in the container trade for normal
shipments in situations where the shipper does not insist on a negotiable
bill of lading. Only one original is issued to the shipper.
The purpose of the liner waybill is to avoid shipping delays that may occur
when bills of lading are late in arriving at the destination port. The
consignee may take delivery of the cargo when it arrives and is issued the
bill of lading at a later date.


Headquartered in London, United Kingdom, the International Maritime
Organisation (IMO) is a specialized agency of the United Nations with 170
Member States and three Associate Members. The IMO's primary purpose
is to develop and maintain a comprehensive regulatory framework for
shipping. Its mandate includes safety, environmental concerns, legal
matters, technical cooperation, maritime security and the efficiency of
shipping.
IMO is a technical organization and most of its work is carried out in a
number of committees and sub-committees, including the Maritime Safety
Committee and the Marine Environment Protection Committee. The IMO
and its committees have been involved in the development of several
international conventions to deal with various sea transport issues. We will
discuss some of these Conventions.
International Convention on Safety of Life at Sea (SOLAS)

The International Convention on Safety of Life at Sea (SOLAS) first came
into force in 1914 in response to the Titanic disaster. It has since been
amended several times, with the most recent version dating to 2011. The
SOLAS Convention covers a wide range of measures designed to improve
the safety of shipping. In particular, it covers the following about ships:
subdivision and stability, machinery and electrical installations, fire protec-
Key Learning Point tion, detection and extinction, lifesaving equipment, navigation safety, and
Annex VI of MARPOL requires carriage of grain and dangerous goods.
shipping companies to meet a
series of progressively more Convention for the Suppression of Unlawful Acts against the
stringent emissions limits from Safety of Maritime Navigation
2010–2016. The Annex targets
the reduction of nitrogen oxide Maritime security issues first came to prominence on the IMO agenda
and sulphur oxide emissions following the hijacking of the Italian cruise ship Achille Lauro, in October
from ships. 1985. In 1988, the Convention for the Suppression of Unlawful Acts against
the Safety of Maritime Navigation (the SUA Convention) was adopted, with
provisions to prevent unlawful acts that threaten the safety of ships and the
security of their passengers and crews.
In the light of terrorist atrocities around the world, several of which have
been aimed at transport infrastructure, IMO adopted a comprehensive set
of maritime security measures in 2002, which came into force in 2004. The
most important and far reaching of these is the International Ship and Port
Facility (ISPS) Code. The Code requires governments to undertake risk
assessments to establish the level of security threat in their ports. It also
requires that both ships and ports appoint dedicated security officers and
Key Learning Point have formal security plans drawn up and approved by their governments.
Two international marine International Convention for the Prevention of Pollution from
transport conventions that are
not yet in force are aimed at the
Ships (MARPOL)
control and treatment of ships' In 1973, the IMO convened a major conference to discuss the problem of
ballast water and sediments, marine pollution from ships. It resulted in the adoption of the first ever
and the recycling of ships. comprehensive anti-pollution convention, the International Convention for
the Prevention of Pollution from Ships (MARPOL).
The MARPOL Convention deals not only with pollution by oil, but also
pollution from chemicals, other harmful substances, garbage and sewage.
It greatly reduces the amount of oil that may be discharged into the sea by
ships, and bans such discharges completely in certain areas.
An Annex adopted in 1997 includes regulations for the prevention of air
pollution from ships. The Annex first entered into force in 2005, and a

revised Annex was adopted in 2008 and entered in force in 2010. The
revised regulations will see a progressive reduction in sulphur oxide from
ships and further reductions in nitrogen oxide emissions from marine
engines.
United Nations Convention on the Law of the Sea (UNCLOS)

The United Nations Convention on the Law of the Sea (UNCLOS) is the
international agreement that resulted from the third United Nations
Conference on the Law of the Sea. UNCLOS defines the rights and
responsibilities of nations in their use of the world's oceans, establishing
guidelines for businesses, the environment, and the management of
marine natural resources. The Convention came into force in 1994. To
date, 162 countries and the European Community have joined in the
Convention.
The Convention's provisions define the marine territories over which states
have jurisdiction. The convention sets the limit of those territories,
measured from a carefully defined baseline where coastal nations' marine
territories or ‘territorial seas’ begin. The areas defined include:
• Internal waters that covers all water and waterways on the landward
side of the baseline. The coastal state is free to set laws respecting,
regulate the use of and use any natural resource within its internal
waters. Foreign vessels have no right of passage within internal
waters.
• Territorial sea, which extends out to 12 nautical miles from the
baseline, over which the coastal state is free to regulate the use of and
use any natural resource. Vessels are given the right of innocent
passage through any territorial waters, with strategic straits allowing
the passage of military craft as transit passage. ‘Innocent passage’ is
defined by the Convention as passing through waters in an expeditious
and continuous manner, which is not “prejudicial to the peace, good
order or the security” of the coastal state. Fishing, polluting, weapons
practice and spying are not ‘innocent,’ and submarines and other
underwater vehicles are required to navigate on the surface and to
show their flag. Nations can also temporarily suspend innocent
passage in specific areas of their territorial seas, if doing so is essential
for the protection of their security.
• Exclusive economic zone (EEZ), which is an area beyond and
adjacent to the territorial sea. It extends from the baseline of the
coastal nation's territorial sea out to 200 nautical miles. Within this
area, the coastal nation has sole exploitation rights over all natural
resources. The EEZs were introduced to halt the increasingly heated
clashes over fishing rights, and potential problem of establishing the
rights to drill oil. Foreign nations have the freedom of navigation
through EEZs, subject to the regulation of the coastal states.
Aside from its provisions defining ocean boundaries, the Convention
established general obligations for safeguarding the marine environment
and protecting freedom of scientific research on the high seas. It also
created an innovative legal regime for controlling mineral resource
exploitation in deep seabed areas beyond national jurisdiction, through an
International Seabed Authority.
3.2.5.6 Maritime Transport and the Environment

Such factors as increases in the cost of marine fuels and continued
globalisation, and increased environmental regulation and stakeholder
expectations have heightened the focus on the environmental impacts of

shipping. In particular, fuel efficiency and exhaust emissions are driving the
interest in alternative fuels and more efficient vessel designs.
Polluting Emissions
The entry into force of the revised Annex VI of MARPOL in 2010 has set
the stage for how nitrogen oxide (NOX) and sulphur oxide (SOX) emissions
controls will be applied on an international level up to and beyond 2020.
The revised Annex VI requires step changes to the limits for NOX and SOX
emissions from ships. NOX requirements apply only to installed diesel
engines with over 130 kW of power. Three tiers of control have been
introduced, based on ship construction date, with progressively more
stringent emissions limits set for the three tiers. Tier 1 applies to ships built
on or after January 1, 2000; Tier 2 applies to ships built on or after
January 1, 2011; and Tier 3 applies to ships built on or after
January 1, 2016. In the case of additional or non-identical replacement
engines, the applicable tier of control is set based on the installation date.
The revised Annex also introduced a number of changes to the maximum
allowable sulphur content of fuel oil. Compliance using alternative means
to fuels with lower sulphur content, such as exhaust gas cleaning systems,
is permitted.
Ships currently subject to the NOX controls have generally been fitted with
engines certified to meet the NOX limits. The ships currently subject to SOX
controls have achieved compliance through the use of fuel oils manufac-
tured to meet the initial 1.5 percent sulphur limit. Further measures will be
required to meet future emissions limit targets.
Ship Ballast Water and Sediments

The International Convention for the Control and Management of Ships'
Ballast Water and Sediments would come into force 12 months after
ratification by 30 states, representing 35% of world merchant shipping
tonnage.
Adopted in 2004, the Convention aims to prevent the spread of harmful
aquatic organisms from one region to another, by establishing standards
and procedures for the management and control of ships' ballast water and
sediments. The Convention would apply to all ships engaged on inter-
national voyages that carry ballast water. Initially ships would be required
to treat or exchange ballast water. But a mandatory requirement to install
and use a ballast water treatment system would gradually be phased in.
The Recycling of Ships

On May 15, 2009, at a diplomatic conference in Hong Kong, the
International Convention for the Safe and Environmentally Sound Recy-
cling of Ships was adopted by 63 member states of the IMO. The
Convention will enter into force when it has been ratified by 15 states,
representing 40% of the world fleet, which the IMO anticipates is likely to
occur between 2012 and 2015. Its lays down legally binding and globally
applicable ship recycling regulations for international shipping and for ship
recycling facilities.
The Convention is a response to the lack of regulation and standards in
ship breaking practice, especially where safety, environmental and quality
standards are concerned. It covers the entire ship life-cycle, from design
and construction, through in-service operation, to dismantling. Its require-
ments include that new ships built exclude certain hazardous materials and
that ship recycling facilities be established that are authorized by national
shipping authorities to recycle specific types of ships.

Lesson Summary
This lesson covered the following about the four main modes of freight
transport:
• The markets they serve.
• The serves they provide.
• The infrastructure, equipment and technologies they use to provide
their services.
• The key transport documents they issue to customers, customers
officials and others.
• The legislation and international conventions that affect their oper-
ations and regulatory requirements.
We also discussed the environmental impacts of the air and marine
transport sectors and current efforts to address those impacts.
We concluded that air cargo is generally competitive on long-distance
hauls with time-sensitive products, where other infrastructure, such as
roads between the origin and destination, do not exist. The aircraft used in
the industry globally can categorized as either all-cargo airlines offering
dedicated air cargo services, carriers offering a combination of passenger
and air cargo services, or special aircraft designed to transport special
types of large cargoes.
We discussed how rail is no longer the dominate transport mode, but there
are markets where rail can compete successfully. Modern, heavy-haul
freight services are well suited for long distance, high volume shipments of
goods.
We also summarized how road transport represents more than 70 percent
of the land freight service at origin and destination points, connecting
businesses to world markets.
Finally, we concluded that maritime transport remains the backbone of
international trade, with over 80 percent of world merchandise trade by
volume being carried by sea. Maritime transport has generally been
associated with the carriage of high-volume low-value goods. But over
recent years, the share of low-volume, high-value, manufactured goods
carried by sea has been growing.

Progress Check 2
1. Match the freight transport mode with its major niche market.
(i) Air
(ii) Sea
(iii) Rail
(iv) Road
(a) Low value-per-ton commodities
(b) Long distance, high volume shipments of bulk cargos
(c) High value-per-tonne commodities
(d) Land freight service at origin and destination points
2. List some current challenges that the air cargo industry is facing in
terms of continued growth.
3. FedEx and UPS are examples of what type of air carrier service?
(a) All-cargo carrier
(b) Scheduled carrier
(c) Integrated express carrier
4. The international air transport network is comprised of a relatively

small number of well-connected hubs and a very large number of less
well-connected spokes.
True or False?
5. Which of the following air transport documents is completed by the

freight forwarder?
(a) Packing list
(b) House air waybill
(c) House manifest
(d) Export goods declaration

6. Which of the following air transport documents is completed by the air

carrier?
(a) Packing list
(b) House air waybill
(c) House manifest
(d) Export goods declaration
7. Name the three factors that drive decisions about on which decisions
about railway selection.
8. List the five special services provided by the trucking industry.
9. Which of the following technologies is used by the trucking industry to

help ensure the security of loads?
(a) Vehicle and trailer tracking systems
(b) Onboard communication systems
(c) Satellite navigation systems
(d) Track and trace systems
10. Which of the following international conventions for road transport has
helpful simply and reduce the costs associated with Customs inspec-
tions and related formalities?
(a) 1968 Vienna Convention on Road Traffic
(b) 1975 Geneva Customs Convention on the International Transport
of Goods under cover of TIR
(c) Convention on the Contract for the International Carriage of Goods
(CMR)
11. Which of the following factors has/have reduced to costs per shipping
unit in marine transport?
(a) Automation
(b) Increased ship size
(c) Specialisation
(d) All of the above
12. Annex VI of the MARPOL Convention is aimed at reducing which type

of pollutant from ships?
(a) Carbon dioxide
(b) Nitrogen oxide
(c) Sulphur oxide
(d) Nitrogen dioxide
(e) Both b and c

Module Summary
In this module, we introduced you to the various types of cargoes and
explained how they are stored, packaged or containerised, handled and
transported. You also learned about the special handling requirements of
special cargoes—heavy equipment and machinery, high value goods,
perishables and refrigerated cargo, live animals and dangerous goods.
We concluded that the physical state of cargo will determine how it must be
stored, handled and transported. For example, perishable goods must be
kept either frozen or refrigerated. Gases and liquids have to be container-
ised in some forms. They may be packed into containers or alternatively be
moved without packaging in pipelines and special carriers. Dry bulk goods
may be stored lose or bagged, bailed or packaged in some other way, and
unitised and containerised.
We also discussed a number of issues about each of the four freight
transport modes (air, rail, road and marine). These included the niche
markets they serve, the services they provide in those markets, and the
infrastructure, equipment and technologies they use to provide those
services. We also discussed the laws and international conventions
applicable to each transport mode. Finally we covered the environmental
impacts of the transport modes and the various initiatives to address them.
We concluded that various modes of transport can expect to be challenged
with increasingly stringent environmental regulations. For example, airlines
are facing increased pressure to reduce both noise and air pollution from
aircraft. Both airlines and marine shipping companies will be required to
meet increasingly tougher polluting emissions standards. The marine
shipping industry is also under pressure to prevent water pollution from the
discharge of ships' ballasts, to design more energy efficient ships and to
recycle ships that have reached the end of their useful life.

Answer Key
Progress Check 1
1. The 3Ps of packaging are protection, preservation and presentation.
2. Dry bulk cargoes include coal, iron ore, grain, cement, woodchips and
mineral concentrates.
3. Liquid bulk cargoes include dangerous chemicals, gasoline, crude oil,
petroleum and liquefied natural gas. They also include Edible liquid
cargoes, such as milk, vegetable oils and fruit juices.
4. c
5. a
6. d
7. c
8. a
Progress Check 2
1. Answers:
(i) c
(ii) a
(iii) b
(iv) d
2. The factors affecting the air cargo industries growth are:
• High sensitivity to fuel prices
• High sensitivity of demand to changes in economic growth.
• The need for new and improved infrastructure on the air and land
sides.
• Dwell times at airports.
• Increased pressure to reduce both noise and air pollution.
3. c
4. True
5. b
6. c
7. The factors that drive railway route selection are:
• Engineering factors—distance, curvature, grades, tunnels and
bridges
• Market considerations
• The need to maintain a nearly level grade

8. The five special services provide by the trucking industry are specialty
shipments, rush deliveries, small parcel service, door-to-door services
and third party logistics.
9. a
10. b
11. d
12. e


Module 4:
Introduction to Multimodal Transport
4.0 Introduction to Multimodal Transport
Module Overview
Multimodal transport involves the international transport of goods by more
than two transport modes under a single contract. This module will give
Module Learning you an informative overview of multimodal transport and the legal,
administrative and commercial challenges its implementation involves.
Objectives
You will learn that when a freight forwarder acts as a multimodal transport
operator (MTO), he assumes responsibility for the execution of the
multimodal transport contract and of the carriers participating in the
• Define the terms multimodal multimodal transport operations. He may enter into separate contracts with
transport and multimodal individual transport operators and provide services, but these subcontracts
transport operator. do not affect his obligations to the consignor for the performance of the
multimodal transport contract and his liability under the contract.
• Summarise the legal,
administrative and You will also learn that multimodal transportation is not a recent invention,
commercial issues since any consignment coming from overseas and destined inland has
multimodal transport always had to travel on multiple modes of transport using sea, rail, air or
involves. road modes. What's new is that a multimodal transport operation can be
completed without breaking bulk, i.e. without taking the cargo it out of the
• Define INCOTERMS and list container, vehicle or trailer in which it was loaded at the place of origin,
some examples of these often under the cover of one transport document.
terms.
This module will provide you with an understanding of multimodal transport
operations and the role of a multimodal transport operator (MTO).
Module 4: Introduction to Multimodal Transport 171

4.1 What is Multimodal Transport?

In this lesson we will introduce you
to the concepts of multimodal trans-
port and multimodal transport oper-
ators (MTOs). You will learn how a
multimodal transport operation is
Lesson Learning carried out using various combi-
Objectives nations of the transport modes and
different technologies and systems.
Upon completion of this lesson, You will also learn about the admin-
you should be able to: istrative, commercial and infrastruc-
ture requirements of multimodal
• Describe how multimodal
transport, as well as the legal chal-
transport is carried out using
lenges caused by the lack of an
the various modes (road,
international regulatory framework
rail, sea, inland waterway
for multimodal transport operations.
and air).
• Describe the MTO's role and We will discuss the MTO's emerging role and responsibilities. When a
responsibilities. freight forwarder acts as a MTO, he assumes responsibility for the
execution of the multimodal transport contract and of the carriers partici-
• Describe the administrative, pating in the multimodal transport operations. This involves a major
commercial and transformation of his role. The carriers for whom he was previously acting
infrastructure requirements as an intermediary become his subcontractors and he becomes the
of multimodal transport. principal.
• Describe the legal issues
multimodal transport has
raised.
4.1.2 What is Multimodal Transport?

4.1.2.1 Definitions
The terms ‘combined transport’, ‘intermodal transport’ and ‘multimodal
transport’ are all used to describe the movement of cargo from its origin to
its destination. These three terms can all be generally defined as the
Key Learning Point transportation of goods by more than one mode of transport and a through
freight rate. However, the United Nations made a distinction between each
The UN has defined multimodal term in their Multimodal Transport Handbook (1995):
transport as an intermodal
transport operation in which the • Combined transport is the transportation of goods in one and the
MTO organising the transport same loading unit or vehicle by a combination of road, rail and/or
takes responsibility and inland waterway modes.
assumes liability for the entire • Intermodal transport is the transportation of goods by several modes
door-to-door transport and of transport, where one carrier organises the whole transportation
issues a multimodal transport process from one point of origin via one or more interface points to a
document. port or point. Depending on how responsibility for the entire transport is
shared, different types of transport documents are used.
• Multimodal transport, where the carrier organising the transport
takes responsibility for the entire door-to-door transport and issues a
multimodal transport document.
The concept of multimodal transport is not new. In the 1930s, the
International Institute for the Unification of Private Law (UNIDROIT) worked
to establish a legal regime for multimodal transport. At that time, these
efforts were largely more theoretical than practical, due to the need for new

technologies and equipment that would eventually make containerised

multimodal transport possible.
First introduced in the 1950s, the marine container enabled transport
service providers to provide door-to-door services to shippers using
multimodal transport and a combination of transport documents with their
own terms and conditions of service and liability. Containers have enabled
multimodal transport to be applied to most types of general cargo by
means of an international standardised transport unit. Only particularly
large or heavy cargoes cannot be containerised. Containers are loaded
Did You Know? with goods at the shipper's premises and sealed. They are then carried
The term ‘multimodal transport’ over to the consignee's premises intact, without the content being taken
was officially introduced in 1980 out or repacked en route.
under the United Nations The term ‘multimodal transport’ was officially introduced in 1980 under the
Multimodal Transport United Nations Multimodal Transport Convention. The term was then
Convention. legally recognized when the 1992 United Nations Conference on Trade
and Development/International Chamber of Commerce (UNCTAD/ICC)
Rules for Multimodal Transport were introduced.
4.1.3 The MTO's Role

The Multimodal Transport Operator (MTO) manages and coordinates the
transportation process from the shipper's door to the consignee's door (see
Table 4.1.3a), ensuring the continuous movement of the goods along the
best route, by the most efficient and cost-effective means (ship, train, truck
or aircraft), to meet the shipper's delivery requirements. The MTO
contracts with the shipper to carry goods by one or more modes of
transport as may be necessary.
Table 4.1.3a—Typical Steps in the Freight Transport Chain
*Pick-up and delivery transport could start at a port (marine or inland

waterway).

When providing multimodal transport services, the MTO acts as both the
sole carrier and principal, assuming responsibility and liability for the entire
transport chain. The MTO issues to the shipper one transport document
that includes an invoice for freight charges and a guarantee for the transit
time. To facilitate the transport process, the MTO will issue under his own
name subcontracts to sub-carriers, and road, rail, shipping lines, port
authorities, terminal operators and others, as required. Only the MTO is
legally permitted to take delivery of goods from each sub-carrier and pass
them to the next sub-carrier in the transportation chain.
The MTO must be able to design and provide cost-effective, efficient
transport arrangements. Transporting goods from the shipper to the
consignee may require up to 10 or 12 distinct transport links. At each
transport point, goods will be unloaded and loaded. The shipment may be
weighed again, checked, recorded and reconsolidated and may need to be
stored for a period of time, which all require time and cost money.
Table 4.1.3b lists the average costs the movement of goods may require
for a trip involving trucking, port handling and sea transport costs.
Significant cost and time savings are possible by improving transport
efficiency through proactive management techniques and effective control
of cargo flow from point to point. The MTO is the only responsible party
capable of coordinating the various modes of transport and organizing
multimodal transport. Shippers and consignees are not capable of doing
so. They don't have the MTO's transport management expertise neither his
ability to forecast and solve problems that might occur while their cargo is
in transit.
Cost Item Percentage of Total

Transport Cost
Feeder trucking cost 14%
Trucker turnaround time 8%
Container handling cost from/to truck at port 5%
Key Learning Point Stacking/unstacking costs 10%
Dwell time costs at inland and port terminals 8%
When providing multimodal
Ship transport costs 34%
transport services, the MTO acts
as both the sole carrier and Ship turnaround time/costs 6%
principal, assuming Container ship loading/unloading costs 15%
responsibility and liability for the Total 100%
entire transport chain.
Table 4.1.3b—Average Transport Costs
Note: Percentages will vary according to the distance involved, especially

in the case of a sea leg.
Source: UNCTAD
4.1.4 Key Elements

To achieve multimodal transport, intensive cooperation and coordination
among transport modes are essential. Table 4.1.4 lists the key elements
required to implement multimodal transport. We will cover these key
elements in greater detail in the next several sections of this lesson.

Multimodal Transport
1. System concept
2. Conteinerisation
3. Management and coordination
4. Control over shipment
5. Close cooperation
6. MTO Network
7. Modal Integration
8. Through rates and billing
9. Information system
10. Logistics support
11. Deregulation
Table 4.1.4—Keys Elements in Multimodal Transport
Various measures are needed to implement multimodal transport. These

include new trade and transport practices, revised and streamlined
commercial regulations, and modern transport infrastructure. Four main
elements are required to implement an efficient multimodal transport
system. These four elements are commercial practices, trade facilitation,
Customs procedures and transport infrastructure.
4.1.4.1 Commercial Practices

To finance the sale of goods that will be transported, banks require bills of
lading and other documentation as proof of shipment. Banking practices
have evolved to accommodate the developments taking place in container-
isation and multimodal transport through the revision of the ICC's Uniform
Customs and Practices for Documentary Credit (UCP). In the 1983 revision
Did You Know? of the rules (UCP 400), banks would accept any transport document that
had been issued by a carrier accepting liability for the entire transport,
Ship transport and turnaround unless the parties had agreed otherwise in the letter of credit. The 1983
time account for 40% of total revision also allowed for a “received for shipment” bill of lading to be
freight costs. accepted.
An update of the rules was released at the end of 1993 (UCP 500) and
again in 2007 (UCP 600). UCP 600 clarifies banking procedures by
indicating that unless the letter of credit stated the contrary, the following
types of transport documents are to be recognised by banks:
• Article 19: Transport document covering at least two different modes of
transport, which may also be called Multimodal or Combined Transport
Documents;
• Article 20: Bill of lading;
• Article 21: Non-negotiable sea waybill;
• Article 22: Bill of lading subject to a charter party (charter party bill of
lading);
• Article 23: Air transport document;
• Article 24: Road, rail or inland waterway transport documents;
• Article 25: Courier or post receipts; or
• Article 26: Transport documents bearing the clauses “shipper's load
and count” or “said by shipper to contain.”
In some countries, however, banks have not kept abreast of the new
developments in multimodal transport and related rules for banking

procedures. As a result, some banks are reluctant to allow the shipper to

negotiate the transport document issued by the MTO and insist on an
ocean bill of lading as proof of shipment. In jurisdictions where there is no
official or legal recognition of the MTO by the government and/or no
regulation of the industry, banks will be reluctant to accept the MTO's
transport document as proof of shipment of goods.
4.1.4.2 Trade Facilitation

Each country has its own rules and procedures concerning the import and
export of goods. A considerable amount of documentation may be required
by the various authorities in a jurisdiction to process goods in transit. At the
same time, the speed of goods traveling from one point to another has
outpaced the speed at which transport documents arrive. This means that
goods often arrive before the required transport documents, causing
delays.
To address these problems, the United Nations Trade Facilitation Pro-
gramme is standardizing and simplifying documentation and trade pro-
cedures through regional and national facilitation organizations. Trade
facilitation is done by streamlining information flow through simplification,
normalisation and harmonisation.
Simplification involves reducing the amount of information required by the
various authorities to an absolute minimum. It also involves simplifying the
procedures required to process goods. Simplification has already been
done in a number of developed countries and some developing countries.
Normalisation mainly concerns transport and trade documents, contracts
and payment conditions. It requires procedures and documentation re-
quirements to be identical in all ports of a country and to be aligned to
Key Learning Point similar procedures and documents in other countries.
Trade facilitation is done by
Harmonisation involves the harmonization of systems used to transmit
streamlining information flow
data using electronic data interchange (EDI). The transition from paper
through simplification,
documents to electronically transmitted information is difficult to carry out,
normalization and
but will greatly facilitate trade. However, because of the many different EDI
harmonization.
systems in use, harmonization of such systems is required.
4.1.4.3 Customs
Customs play a major role in enforcing laws at a country's borders. The
role of a Customs Department is to ensure that all goods entering and
exiting a country do so in compliance with all applicable laws, including
revenue. Customs also facilitates the entry of all legitimate merchandise
into the country.
The globalization of the world economy and growth in world trade is
requiring Customs administrations to provide faster, more standardized
service to merchants. Customs administrations must also produce trade
statistics and enforce laws related to such issues as health and safety, and
intellectual property. In other words, Customs must balance the need to
enforce laws with the need to facilitate the movement of goods across the
border.
The traditional approach to managing a Customs operation, which has
such characteristics as no or limited automation, complex and high duty
rates, and untrained personnel, is ill-equipped to facilitate trade. For this
reason, Customs administrations in the European Union and in NAFTA
countries (Canada, the United States, Mexico) are adopting a modernized
approach to managing customs operations. The new approach includes full
automation, simplified and reduced duties, and highly trained personnel.

Table 4.1.4.3 compares and contrasts the traditional approach to manag-

ing customs with the modern customs operation.
Customs Traditional Modern Customs

Procedure or Practice Customs
International Non-conformance Full conformance with all
Standards of the World or only partial international customs standards for
Custom Organisation conformance classification, value and procedures
(WCO) and World
Trade Organisation
Key Learning Point (WTO)
The new approach to managing Customs automation None or only partial Full automation
a Customs operation includes Measures of Limited output Full measures of compliance and
full automation, simplified and performance measures and facilitation leading to improved
reduced duties, and highly process measures performance
trained personnel. and frequently the
wrong measures
Tariff system Complex and high Simplified and reduced duties
duty rates
Revenue collection Prior to entry of Entry and collection separate Duties
goods paid after entry
Enforcement and Characterised by Minimal inspections and paper
compliance approach manual inspections documentation
nearing 100% and
paper reviews
Information Provided at time of Advance and historical information
entry prior to arrival of goods and
conveyance
Personnel Poorly trained and Highly trained and professional
low skilled
Appeals of customs Limited and Fully defined appeals process
decisions and unknown appeal within and beyond Customs, full
transparency process, limited transparency and cooperation with
notice of rules and trade
practices
RESULTS: Low and unknown High and measured compliance
compliance
Lower costs for government and
High cost for industry
government and
industry Vastly improved facilitation
Poor facilitation Framework for continued

improvement
Table 4.1.4.3—Traditional versus Modern Customs Procedures
Source: Compiled from http://www.wcoomd.org
Various Customs Conventions have been created and signed and ratified
by countries to facilitate international trade and transport. Customs
Conventions are designed to eliminate unnecessary customs procedures
and to harmonize essential procedures among signatory countries.
One of the first such Conventions was the General Agreement on Tariffs
and Trade (GATT), which was first signed by 23 countries in 1947. The
GATT is a multilateral agreement regulating international trade. According
to its preamble, its purpose is the “substantial reduction of tariffs and other
trade barriers and the elimination of preferences, on a reciprocal and
mutually advantageous basis.”
GATT lasted until 1993, when it was replaced by the World Trade
Organization in 1995. The original GATT text (GATT 1947) is still in effect

under the WTO framework, subject to the modifications of GATT 1994.

Amendments made to the GATT in 1994 were aimed at improving market
access for agricultural products, reducing domestic support of agriculture
through subsidies and quotas, and eliminating export subsidies on
agricultural products.
There are currently more than 150 member countries in the WTO.
The Kyoto Convention on the Simplification and Harmonisation of Customs
Procedures entered into force in 1974. The revised Kyoto Convention of
2006 calls for new technologies and a business-friendly approach towards
Customs controls. Chief among the new governing principles is the
commitment by Customs administrations to improve transparency and
predictability, use risk management techniques and adopt appropriate
international standards.
4.1.4.4 Transport Infrastructure

The development and widespread use of multimodal transport requires a
modern infrastructure capable of handling containers across all transpor-
tation modes (ports, roads and railways). Both exporters and importers
benefit from upgraded infrastructure. Exporters benefit by being more
competitive in reaching foreign buyers in less time and less expensively,
with goods delivered in good condition. Importers benefit by receiving
goods at minimum cost and in good condition. Table 4.1.4.4 lists the
infrastructure and equipment required to handle shipping containers.
PORTS Cranes-Ship to Shore

Stacking Areas-Container Yards
Container Handling Equipment
Communications Systems
INLAND TRANSPORT
ROADS Axle Loading
Bridges and Tunnels
RAIL Rolling Stock
Motive Power
Bridges and Tunnels
Cranes and Stacking Areas
INLAND WATERWAYS Lake/River Craft (barges, etc.)
INLAND DESTINATION
INLAND CLEARANCE DEPOT Container Handling Equipment
(ICD) Stacking Areas
Road, Rail and Inland Waterway
access
Table 4.1.4.4—Infrastructure Required to Handle Containers
Source: UNCTAD (1990)
United Nations Agencies, such as the Economic Commission for Europe,

have provided an international framework for the development of inter-
governmental agreements designed to facilitate trade and develop an
integrated transportation system. These agreements are aimed at the
development of a simplified and harmonised European transport system.
They include the following:
• European Agreement on Main International Railway Lines (AGC),
which provides a legal framework for the development of a coherent

international rail network to facilitate and develop international rail

traffic.
• European Agreement on Important International Combined Transport
Lines and Related Installations (AGTC), which provides the legal
framework for the development of international combined transport
infrastructure and services. The AGT focuses specifically on combined
road/rail transport infrastructure and services, and their improved
efficiency.
• European Agreement on Main Inland Waterways of International
Key Learning Point Importance (AGN), which facilitates the development of an inter-
The benefits of multimodal nationally agreed European network of inland waterways and ports, as
transport include reduced well as the uniform infrastructure and operational parameters to which
transportation costs, faster they should conform.
delivery, increased efficient and
In 2008 in Canada, the Canadian Chamber of Commerce and a coalition of
improved safety and security of
22 business associations presented a framework for a National Transpor-
cargo.
tation Strategy based on four key pillars:
• A North American vision for making Canada a gateway into North
America, targeting infrastructure improvements along the Canada-U.S.
border;
• A 10-year, multimodal transportation infrastructure investment strat-
egy, which would include public- private-sector partnerships;
• A competitive regulatory and fiscal environment; and
• An economically, environmentally and socially sustainable plan.
The National Transportation Strategy targets enhancement of both the
movement of goods and the movement of people. In the article Pillar #2:
A Multimodal Transportation Infrastructure Investment Strategy, the
Canadian Chamber of Commerce notes that Canadian trade with Asia-
Pacific and European Union (EU) countries is increasing, making transport
infrastructure investments essential to grow Canada's import base. After
the United States, European countries are Canada's second biggest export
market, providing $86 billion in two-way trade in 2008, while Japan is its
third largest market.
In the realm of public transport, travel and tourism is a key $70.6 billion
business in Canada. This underlies the importance of moving people
efficiently within Canada and between Canada and the rest of the world.
Road traffic congestion must be reduced by investing in public transit and
commuter rail services that keep up with transport demand in growing
neighbourhoods. It is estimated that traffic congestion costs the Canadian
economy billions of dollars in lost productivity and economic activity.
With Canada's freight and public transport requirements both in mind, the
National Transportation Strategy calls for strategic investments in:
• Canada's import- and export-oriented air, inland and marine ports, in
combination with their rail and road infrastructure connections to major
economic hubs and Canada-U.S. border points;
• Public transit systems with their connections to international airports;
and
• An economically viable, high-speed rail network that fits within a
multimodal transportation system.
In the United States, due partly to the North American Free Trade
Agreement (NAFTA), trade between the United States, Canada and
Mexico is on the rise.

In recent years in the U.S., increased volumes of freight, growing

passenger travel and increased security requirements have strained the
efficiency of freight transportation at gateways and along major transpor-
tation corridors. Multimodal transport, improved use of non-road transport
modes and the strategic use of rail transport along corridors where trucking
is heavily used can take pressure off the highway system. Where possible,
larger shipments that need to travel longer distances can be moved from
trucks to rail to reduce congestion on roadways.
Network efficiency is another benefit of multimodal transport. Enhancing
schedules and routing of freight can create a significant decrease in freight
vehicle mileage and increase load factors that will save time and money.
In the U.S., there are several programs in place aimed at reducing reliance
on road transport. These include the Intermodal Freight Technology
Program, which is an ongoing national effort to promote development of a
fully-functional intermodal freight network.
The National Highway System (NHS) provides support for the development
and maintenance of intermodal freight facilities that connect roads with
other types of transport. The system includes the interstate highway
system, rural and urban roads serving major population centers, inter-
national border crossings, highways that provide motor vehicle access
between the NHS and major intermodal transportation facilities, and major
travel destinations.
In addition, the U.S. Transportation Infrastructure Finance and Innovation
Act (TIFIA) established the TIFIA program, which provides credit assist-
ance to national and regional inland transportation projects, including
highway, public transit and rail.
4.1.5 Advantages of Multimodal Transport

Logistics and supply chain management have become strategic manage-
ment tools for companies. For goods manufacturers and suppliers, the
need to reduce costs and improve customer service has resulted in the
integration of all activities in the supply chain, including transportation. The
overall goal is to deliver greater value to customers or create comparable
value at a lower cost or do both.
Multimodal transport is a service by which the MTO assumes contractual
responsibility to move goods from a point of origin (in one country) to a
destination (in another country) under a transport contract, for an agreed
upon time and price. This multimodal service ensures that the goods move
to their destination as quickly and securely as possible, at a cost that is
known and agreed to in advance. The services provided by an MTO
operating under a single-source business model extend from carrier
assignments and logistics, through to final delivery, freight payment
auditing, reporting and performance reconciliation.

Multimodal transport solutions that can centrally manage and assume

responsibility for cargo from the beginning to end of the transportation
process are key to reducing costs, boosting efficiency, and improving the
safety and security of cargo.
The benefits of multimodal transport include using a combination of
transport modes more effectively and getting goods to market more
Did You Know? efficiently. Time loss at trans-shipment points is minimized, because the
MTO maintains communication links and coordinates the onward carriage
Sea-air-aea transport is of goods. The end result is the faster transit of goods.
commonly used for high value
consumer goods, as well as The time and delays required to provide transport documentation is also
goods with high seasonal significantly reduced. Requirements to issue multiple documentations for
demand. each segment of the transportation chair are minimized.
The cost savings resulting from these advantages are usually reflected in
the through freight charges the MTO charges the consignor, as well as the
cost of cargo insurance.
4.1.6 Forms of Multimodal Transport Operations

As discussed earlier, multimodal transport involves the use of a variety of
different transport modes to move freight from its origin to final destination.
By definition, multimodal transport involves the use of two or more
transport modes to complete a freight journey. The transport modes used
will depend partly on the type of commodities being shipped, as well as on
the infrastructure available. Table 4.1.6 summarizes which types of
commodities are best suited to each transportation mode.
Transport Mode Commodity Types

Air Perishables, High Value, Express Cargo
Road Perishables, High Value, Trailer/Container, Dry Bulk,
Liquid Bulk, Hazardous Materials, Other
Rail Trailer/Container, Dry Bulk, Liquid Bulk, Hazardous
Materials, Other
Sea Container, Dry Bulk, Liquid Bulk, Other
Inland Waterway Dry Bulk, Liquid Bulk
Table 4.1.6—Commodity Types per Transport Mode
Source: FHWA Office of Freight Management and Operations, January 2001, Review of
Environmental Factors Affecting Intermodal Freight Transportation Facility Development and
Expansion.

The more commons types of multimodal transport operations are dis-

cussed below.
Land-Sea-Land
A land-sea-land freight journey may involve multiple road transport legs,
one or two rail legs and a marine transport leg. Land-sea-land combi-
nations are generally used to move mass freight shipments weighing
several tonnes to the port of exit and then overseas to the port of entry.
Large container ships designed to hold thousands of containers are used
for overseas shipping.
Did You Know? A rail leg may be used to move goods long distances inland. Trucks are
used to transport goods to and from rail-heads.
A sea train is an ocean going
vessel equipped to transport a The following is a possible scenario for a land-sea-land multimodal
train of loaded railroad cars. transport operation, which begins in Singapore and ends in Chicago (see
Figure 4.1.6):
1. An empty container is picked up in a container yard in Singapore.
2. It is then trucked to the shipper's factory in Johore, Malaysia, to be
packed with the goods to be shipped. It is then trucked back to
Singapore.
3. The container is loaded onto a freighter in Singapore, which brings it to
New York.
4. A truck brings the container from the freighter (ship) to a rail-head in
New York.
5. The container is transported by rail from New York to another rail-head
in Chicago.
6. The container is transported by truck from Chicago to the consignee's
warehouse.
Figure 4.1.6a—Example of a Land-Sea-Land Transport Operation

Road-Air-Road
A combination of air and truck transport is frequently used to provide
multimodal transport services. For this purpose, several European airlines
are building trucking hubs in Europe to serve road-based feeder oper-
ations. Many airlines provide road services to cities that are either not
economical to service by air or to which the airlines do not have landing
rights. Airlines may either provide these road services with their own
vehicles to and from airports, or use other highway carriers.
Sea-Air-Sea
Sea-air-sea transport combines the economy of sea transport with the
speed and efficiency of air transport. This combination is becoming
increasingly popular along international routes spanning great distances
over land and water, such as the Far East/Europe/Eastern Canada/
Western Canada route.
The economics of the sea-air-sea combination favour high value consumer
goods, such as electronics, electrical goods, computers and photographic
equipment. The sea-air-sea combination is also used to transport goods
with high seasonal demand, such as fashion apparel and children's toys.
Rail/Road/Inland Waterways/Sea
Rail/road/inland waterways/sea combination is commonly used when
goods are being moved by rail and/or from an inland centre to the seaport
in the country of origin. It is also used when goods are moved from the
seaport to an inland centre in the country of destination. Inland waterways,
such as larger rivers, are used to move cargo from smaller vessels to
ocean going freighters.
On inland waterways, cargo is carried on barges equipped to handle
containers stacked in the cargo hold and on deck. Such barges are
common on European rivers, such as the Rhine, Elbe and Danube.
Together with inland routes, these rivers carry a great deal of freight traffic
to ocean waterways.
A lighter aboard ship (LASH) is an

ocean ship that carries barges. The LASH
system refers to the practice of loading
barges (lighters) aboard a larger vessel for
transport. It was developed in response to
the need to transport lighters, a type of
unpowered barge, between inland water-
ways separated by open seas. After the
ocean crossing, the barges are off-loaded
and towed to their various destinations.
LASH systems are designed to eliminate
the need for specialized port equipment
and to avoid the additional costs of trans-
shipment.

RO-RO (Roll-on/Roll-off)
This mode combines sea and road modes of transportation. Roll-on/roll-off
(RO-RO) ships are vessels designed to carry wheeled cargo such as
automobiles, trucks, semi-trailer trucks, trailers or railroad cars that are
driven on and off the ship on their own wheels. This is in contrast to lo-lo
(lift-on/lift-off) vessels, which use a crane to load and unload cargo.
RO-RO vessels have built-in ramps that allow cargo to

be efficiently rolled on and rolled off the vessel when in
port. The ramps and doors may be located at only the
stern or at both the bow and stern for quick loading.
Various types of RO-RO vessels include ferries, cruise
ferries, cargo ships and barges.
Piggyback Transport
Piggyback transport involves a combination of road
and rail modes. In the piggyback transport system,
goods are packed in articulated semi-trailers and
hauled by tractors (tractor-trailer trucks) to the railway
station. At the railway station, the trailers are moved
onto railway flat cars. The transport tractors are
disconnected and stay behind. At the destination,
tractors again haul the trailers by road to the con-
signee's warehouse.
Piggyback transport has become popular in Latin American and European

countries, because it combines the speed and reliabilty of rail on long hauls
with the door-to-door flexibility of road transport for collection and delivery.
4.1.7 Legal Challenges

A multimodal operation is made up of a number of single mode stages of
transport, such as sea, road, rail or air. Each of these is subject to a
mandatory international convention or national law.
In the absence of a uniform liability system for multimodal transport, the
liability for each stage of transport is determined by the relevant unimodal
Key Learning Point convention or national laws, which adopt varying approaches to issues
such as the liability. Therefore, the MTO's liability for loss or damage to
The current regulatory regime
goods can differ depending on which stage of transport the loss has
for multimodal transport
occurred. The question becomes even more complicated if the loss or
comprises international
damage cannot be localized, or the loss occurs gradually during the entire
conventions for each transport
transport.
mode and conflicting laws and
regulations at the regional and Despite the continued expansion of multimodal transport internationally,
national levels. there is not yet an uniform liabity regime in force. The current regime
comprises various international conventions that regulate only transport by
one mode (unimodal) and conflicting, non-uniform laws and regulations at
the regional and national levels.
The lack of a widely acceptable international legal framework has resulted
in governments at various levels passing legislation to overcome the
uncertainties and problems that currently exist. International rules govern-
ing a carrier's responsibility and liability for the loss of or damage to goods
occurring in the course of a multimodal transport operation are needed.
Such a uniform liability regime would help protect the interests of shippers,
carriers and all concerned.

Although the 1980 UN Multimodal Transport Convention makes provisions

for creating the MTO as a legal entity that would offer shippers an optional
door-to-door system of liability applying to multimodal transport, the
convention has yet to come into force. It would only become effective if
30 nations ratify it and has yet to receive the necessary international
support.
Although the Convention has not attracted a sufficient number of ratifying
countries to come into force, its provisions have significantly influenced the
legislation passed in several countries and regions. The Convention is
based on the principle of presumed fault or neglect. Under the Convention,
the MTO is held liable for loss, damage or delay, unless the MTO proves
the loss, damage or delay resulted through no fault of his own, or his
employees, agents and subcontractors. The Convention states that the
period of responsibility of the MTO includes the period from the time he
takes the goods in his charge until the time of their delivery.
In response to this situation, the UNCTAD/ICC Rules for Multimodal
Transport Documents were adopted in 1991 and published in 1992. The
Rules are based on the provisions of the Multimodal Transport Convention
and are similarly voluntary and have similar provisions specifying the
MTO's liability. The Rules are of a contractual nature. They have been
incorporated in widely used multimodal transport documents, such as the
Baltic and International Maritime Council's MULTIDOC 95.
Similar to the Convention, the Rules are voluntary. However, once
incorporated into a contract for the carriage of goods, they may be legally
applied. But they can only take effect if they are not contrary to the
mandatory provisions of international conventions or national laws appli-
cable to the multimodal transport contract.
In 1996, the United Nations Commission on International Trade
(UNCITRAL) began an international effort to develop a comprehensive
international convention on multimodal transport that would be ratified and
adopted by a majority of nations worldwide. In 2001, an UNCITRAL
Working Group was established to draft a legislative instrument on issues
related to the international transport of goods. The proposed new law
would deal with such issues as the carrier's period of responsibility for the
transport of goods, as well as the carrier's obligations and liability. It would
also deal with the shipper's obligations and transport documents. The
Working Group has been developing a Draft Instrument on Transport Law
that would govern the sea-carriage of cargo and apply to all multimodal
contracts that include a sea-leg.

Lesson Summary
In this lesson we introduced you to multimodal transport in which goods are
shipped using two or more transportation modes under a single contract.
We also introduced you to some of the common types of multimodal
transport, which include:
• Land-sea-land
• Road-air-road
• Sea-air-sea
• Rail/road/inland waterways/sea
• RO-RO (roll-on/roll-off) ships and vessels that carry vehicles
• Piggyback transport, involving the combined transport of semi-trailers
by road and rail modes
• Sea trains used to transport trains loaded with cargo
We discussed the advantages of multimodal transport. When long-
distance, international transport is planned and coordinated as a single
operation, the results are minimized lost time and the prevention of
pilferage and damage to the cargo at trans-shipment points.
We discussed the administrative, commercial and infrastructure require-
ments of modal transport and the legal challenges raised by the lack of a
uniform, international regulatory regime.
We also discussed the MTO's role and liability in multimodal transport. In
particular, he may enter into separate contracts with individual transport
operators and providers of transport services. But these subcontracts do
not affect his obligations to the consignor for the performance of the
multimodal transport contract and his liability under the contract.

Progress Check 1
1. Multimodal transport involves the transportation of goods:

(a) In one and the same loading unit or vehicle by a combination of
road, rail and/or inland waterway modes.
(b) By two modes or more modes of transport where one carrier
organizes the whole transportation process under one transport
document.
(c) Via standard-sized containers by a combination of road, rail and/or
inland waterway modes.
2. List some of the responsibilities of an MTO.
3. List some of the advantages of multimodal transport.
4. Match the type of multimodal transport with its definition.

(i) Rail/road/inland waterways/sea
(ii) Sea-air-sea transport
(iii) Roll-on/roll-off (RO-RO) ship
(iv) Lighter aboard ship (LASH)
(a) Vessels designed to carry wheeled cargo such as auto-
mobiles, trucks, semi-trailer trucks, trailers or railroad cars that
are driven on and off the ship on their own wheels.
(b) Ocean vessel that carries barges.
(c) Commonly used when goods are being moved by rail and/or
from an inland centre to the seaport in the country of origin.
(d) Commonly used for high value consumer goods, as well as
goods with high seasonal demand.
5. Which of the following statements about the UN Multimodal Transport

Convention is false?
(a) It has been in effect since it was adopted in 1980.
(b) It will only become effective if 30 nations ratify it.
(c) It is a voluntary international agreement.
(d) It makes provisions for creating the MTO as a legal entity.

6. What percentage of total freight costs do ship transport and turnaround

time account for?
(a) 50%
(b) 40%
(c) 25%
(d) 15%
7. Trade facilitation is done by streamlining information flow through:

(a) Standardisation, normalisation and regulation
(b) Simplification, administration and harmonisation
(c) Simplification, normalisation and harmonisation
(d) Normalisation, standardisation and regulation

4.2 What are INCOTERMS and Bills of Lading?

In this lesson, you will learn about terms and rules governing international
commerce, which apply to the sale, transport and delivery of goods.
Lesson Learning International Commercial terms or INCOTERMS are predefined commer-
Objectives cial terms published by the International Chamber of Commerce (ICC) and
widely used in international commercial transactions. The INCOTERMS
rules are accepted by governments, legal authorities and practitioners
worldwide for the interpretation of most commonly used terms in inter-
• Define INCOTERMS and list national trade. They are intended to reduce or remove altogether uncer-
some examples of these tainties arising from different interpretation of the rules in different
terms. countries.
• Describe INCOTERMS We will also discuss the multimodal bill of lading or multimodal transport
rules for any transport mode document, which is issued for containerized door-to-door shipments that
and for marine transport. involve various carriers and transportation modes from origin to desti-
nation. Under a contract of carriage, the principal carrier or MTO takes on
• Explain the changes made full liability for the entire journey by issuing a multimodal transport
to INCOTERMS in 2010. document to the consignor.
4.2.2 What are INCOTERMS?

There are currently no international conventions governing contracts for
the international sale of goods. Disputes often arise between buyers and
sellers, mainly because of different interpretations of the terms used in the
contracts and lack of standardization of those terms.
To avoid contractual disputes that hinder the smooth flow of international
trade, the International Chamber of Commerce (ICC) has introduced
standardised trade terms known as International Commercial terms or
INCOTERMS. The first INCOTERMS were published in 1936. Amend-
ments and additions were later made in 1953, 1967, 1976, 1980, 1990 and
2000 to harmonize the rules with continually changing international
practices. The eighth and latest version—INCOTERMS 2010—was
published on January 1, 2011.
INCOTERMS are three-letter trade terms related to common sales
practices. They are widely used in international commercial contracts for
the sale of goods. INCOTERMS rules are intended to communicate clearly
the tasks, costs and risks associated with the transportation and delivery of
goods. They are also intended to reduce or remove uncertainties arising
from the different interpretation of the rules in different countries.
INCOTERMS rules are accepted by governments, legal authorities and
practitioners worldwide for the interpretation of most commonly used terms
in international trade.

INCOTERMS inform the sales contract by defining the respective obli-

gations involved in the delivery of goods from the Seller to the Buyer.
However, it's important to note that INCOTERMS do not constitute a
contract, nor do they supersede the laws governing a contract.
The terms specify the obligations (control, risk and cost) on both the seller
and buyer of goods, depending on the specific term chosen. Each term
clarifies which party is responsible for:
Key Learning Point
• Inland freight (transportation within the origination country);
There are seven rules defined
by INCOTERMS for any mode • Forwarder selection;
of transportation.
• Export clearance;
• Carrier selection and scheduling;
• International freight;
• Import clearance; and
• On-carriage (transportation within the destination country).
Delivery occurs and risk of loss transfers from the seller to the buyer at the
point designated by the term selected. Transfer of title is not covered by
any of the INCOTERMS 2010 rules and must be separately specified by
the parties.
4.2.2.1 INCOTERMS Rules for any Mode(s) of

Transport
The following terms apply to any transport mode:
EXW–EX-Works (named place of delivery)

One of the simplest shipment arrangements places the minimum responsi-
bility on the seller and greater responsibility on the buyer. In the EX-Works
transaction, the seller delivers goods to the buyer's premises, usually by
releasing them to the buyer's freight forwarder. The seller also pays for
freight up to the buyer's premises. The buyer bears the full costs and risks
of moving the goods to their final destination, making arrangements for
insurance and import or export clearance, as necessary.
FCA–Free Carrier (named place of delivery)

In this type of transaction, the seller delivers the goods, cleared for export,
to the carrier selected by the buyer. The seller is responsible for all risks
and costs up to the delivery point. From that point onward, the buyer bears
the costs and risks of moving the good to their destination, including
customs, insurance and delivery costs.
CPT–Carriage paid to (named place of destination)

In a CPT arrangement, the transfer of risk from seller to buyer occurs once
the goods have been delivered into the custody of the first carrier. The
seller contracts at his own expense for the carriage of the goods and
delivers the goods, cleared for export, to the first carrier.
The seller pays for transporting goods to their destination. Once the goods
are transferred to the first carrier, the buyer bears the risks of loss or
damage. The buyer is also responsible for clearing the goods for import
and paying freight to the named destination point.

CIP–Carriage and Insurance paid to (named place of

destination)
The CIP arrangement is similar to the CPT arrangement and is used
primarily for multimodal transport. However, the seller also buys cargo
insurance against the buyer's risk of loss or damage of goods during
carriage to the named destination. The seller carries all costs and risks
until the goods are delivered to the first carrier.
DAT–Delivered at terminal (named terminal at port or place of

destination)
The seller is deemed to have delivered the goods once, unloaded, they are
placed at the buyer's disposal at a named terminal at the named port or
place of destination. In this case, a ‘terminal’ includes any place, whether
covered or not, such as a quay, warehouse, container yard, or road, rail or
cargo terminal. The seller bears all risks involved in bringing the goods to
and unloading them at the terminal at the named port or other destination.
DAP–Delivered at place (named place of destination)

The seller is deemed to have delivered the goods when they are placed at
the buyer's disposal on the arriving means of transport ready for unloading
at the named place of destination. The seller bears all risks involved in
transporting the goods to the named destination.
DDP–Delivered duty paid (named place of destination)

Under the DDP arrangement, the seller assumes the maximum obligations,
including clearing goods for import. The seller arranges for the transport of
goods at his own expense and completes all customs requirements for
import and export. The seller also carries all risks until the good are
delivered at the named destination. The buyer assumes risks and costs
once the goods reach the delivery point.
4.2.2.2 INCOTERMS Rules for Sea and Inland

Waterway Transport
The four rules defined by INCOTERMS for international trade where
transportation is entirely conducted by sea and inland waterway transport
are:
FAS–Free alongside ship (named port of shipment)

Under the FAS arrangement, the seller's obligations cease when the goods
are delivered alongside the vessel. The seller carries all costs and risks up
to the delivery point and provides the buyer with an estimated delivery
time. The buyer carries the costs and risks for delivery and arranges for
both import and export customs clearance.
Did You Know?
FOB–Free on board (named port of shipment)
The 2010 version of
INCOTERMS reduced the The seller delivers the goods on board the vessel designated by the buyer
number of terms in the 2000 and carries the costs and risks until that point, including completing
version from 13 to 11. customs arrangements for export. The buyer carries all risks once the
goods have passed the ship's rail, pays for shipment from the named port
and makes the arrangements with customs for import.
CFR–Cost and freight (named port of destination)

Similar to FOB, with CFR, risk is transferred from seller to buyer when the
goods pass the ship's rail. However, with CFR, the seller must also pay the

freight costs to the destination port. The seller contracts at his own
expense to load the goods onboard the vessel and ship them to the port of
destination. The seller also completes all customs formalities for export.
The buyer completes all customs formalities for import and pays for the
costs of unloading the cargo.
CIF–Cost, insurance and freight (named port of destination)

Once again, risk is transferred from seller to buyer once the goods pass the
ship's rail. However, the seller pays the freight costs to the destination
point. He must also obtain marine insurance against the buyer's risk of loss
or damage to goods in shipment from delivery on board the vessel until
delivery at the buyer's warehouse.
The seller also completes all customs formalities for export. The buyer
completes all customs formalities for import and pays for the costs of
unloading the cargo.
4.2.2.3 Changes to INCOTERMS from 2000 to 2010

The 2010 version of INCOTERMS reduced the number of terms in the
2000 version from 13 to 11. The following four terms were deleted:
• DAF–Delivered at frontier (named place of delivery)
• DES–Delivered ex ship (named port of delivery)
• DEQ–Delivered ex quay (named port of delivery)
• DDU–Delivered duty unpaid (named place of destination)
DAT replaced the term DEQ. DAP replaced the terms DAF, DES and DDU.
In addition, while INCOTERMS 2000 had four categories, INCOTERMS
2010 has only two categories for any mode of transport, and sea and
inland waterway transport.
Although the new INCOTERMS 2010 rules became available for use as of
January 2011, INCOTERMS 2000 also continue to be used by contracting
parties involved in international trade. Contracting parties may determine
which terms they want to use and may designate the version (either 2000
or 2010) they wish to use to draw up a contract. The terms eliminated in the
2010 version are described below.
DAF–Delivered at frontier (named place of delivery)

This term may be used for any transport mode. In this case, the seller
arranges for the transport of goods to a named place of delivery, which is
usually a border crossing point (the frontier), and clears them for export.
‘Delivery’ occurs at this time. The buyer arranges for the pickup of the
goods after they are cleared for export, and arranges to have them carried
across the border, cleared for import and delivered. In most cases, the
buyer's forwarder handles the task of accepting the goods at the border.
Key Learning Point
DDU–Delivered duty unpaid (named place of destination)
A multimodal transport
document (MTD) is issued for This arrangement may also be used for any transport mode. The Seller
containerized door-to-door bears the risk and expenses of getting the goods transported to a named
shipments that involve various destination. “Delivery” takes place when the seller places the goods at the
carriers and transportation buyer's disposal at the named place of destination. The buyer and seller
modes from origin to destination. can specify delivery of the goods to a warehouse or other destination point.
The seller must arrange for ground transport in the buyer's country. The
buyer bears responsibility for import customs duties.

DES–Delivered ex ship (named port of delivery)

Under this rule, the seller's delivery obligation is satisfied when the goods
are placed at the buyer's disposition on board a vessel at a named port of
delivery, not cleared for import. ‘Delivery’ occurs at this time. Any
destination charges that occur after the ship is docked are the buyer's
responsibility.
DEQ–Delivered ex quay (named port of delivery)

The DEQ INCOTERMS rule is also used for marine transport. The seller
bears all risks and costs to have the goods delivered and unloaded at a
named port of destination. This includes contracting and paying for freight
and transportation costs by sea or inland waterway, unloading fees, export
and import licensing fees, and other taxes (unless specifically excluded in
the contract). The buyer is obligated only to assist in obtaining any import
license or other official authorization necessary to import the goods.
4.2.3 Multimodal Bill of Lading or Multimodal

Transport Document
A multimodal bill of lading or multimodal transport document (MTD) is
issued for containerized door-to-door shipments that involve various
carriers and transportation modes from origin to destination. Under a
contract of carriage, the principal carrier or MTO takes on full liability for the
entire journey by issuing a MTD to the consignor.
One of the MTDs currently in use was developed by the Baltic International
Maritime Council (BIMCO) in conformity with the UNCTAD/ICC Rules.
Multimodal Transport Bill of Lading or MULTIDOC 95 covers such issues
as the consignor's responsibilities, the MTO's responsibilities, contractual
performance and limitation of liability, assessment of compensation for loss
or damage to goods, freight and lien rules, and handling of dangerous
goods. The document also includes the following definitions:
A “Multimodal Transport Contract” is a “single Contract for the carriage of
Goods by at least two different modes of transport.”
A “Multimodal Transport Bill of Lading” (MT Bill of Lading) is a “document
evidencing a Multimodal Transport Contract and which can be replaced by
electronic data interchange messages insofar as permitted by applicable
law and is issued in a negotiable form.”
A “Multimodal Transport Operators” (MTO) is the person named in a
multimodal transport bill of lading “who concludes a Multimodal Transport
Contract and assumes responsibility for the performance thereof as a
Carrier.”

Lesson Summary
In this lesson, you learned about terms and rules governing international
commerce, which apply to the sale, transport and delivery of goods. In
particular, we discussed the purpose of the three-letter trade INCOTERMS
and defined the 11 terms currently in use.
The INCOTERMS rules are accepted by governments, legal authorities
and practitioners worldwide for the interpretation of most commonly used
terms in international trade. They are intended to reduce or remove
altogether uncertainties arising from different interpretation of the rules in
different countries.
We also discussed the multimodal bill of lading or multimodal transport
document (MTD), which is issued for containerized door-to-door shipments
that involve various carriers and transportation modes from origin to
destination. Under a contract of carriage, the principal carrier or MTO takes
on full liability for the entire journey by issuing a MTD to the consignor.

Progress Check 2
1. The latest version of INCOTERMS was published in:

(a) 2010
(b) 2008
(c) 2000
(d) 1998
2. Which of the following statements about INCOTERMS is correct?

(a) They constitute a contract between buyer and seller.
(b) They supersede the laws governing a contract.
(c) They are three-letter trade terms related to common sales prac-
tices.
(d) They have yet to be widely applied in international commerce.
3. Which INCOTERM places minimum responsibility on the seller and

greater responsibility on the buyer?
(a) EXW–EX-Works (named place of delivery)
(b) FCA–Free Carrier (named place of delivery)
(c) CPT–Carriage paid to (named place of destination)
(d) CIP–Carriage and Insurance paid to (named place of destination)
4. Which INCOTERM is used primarily for multimodal transport?

(a) EXW–EX-Works (named place of delivery)
(b) FCA–Free Carrier (named place of delivery)
(c) CPT–Carriage paid to (named place of destination)
(d) CIP–Carriage and Insurance paid to (named place of destination)
5. In which of the following INCOTERMS for marine transport is risk is

transferred from seller to buyer when the goods pass the ship's rail?
(a) FOB–Free on board
(b) CFR–Cost and freight
(c) CIF–Cost, insurance and freight
(d) Both b and c

6. Under which INCOTERM does the seller assume the maximum

obligations, including clearing goods for import?
(a) FCA–Free Carrier (named place of delivery)
(b) CPT–Carriage paid to (named place of destination)
(c) CIP–Carriage and Insurance paid to (named place of destination)
(d) DDP–Delivered duty paid (named place of destination)
7. Which of the following INCOTERMs were eliminated from the 2010

version?
(a) DAF–Delivered at frontier (named place of delivery)
(b) DES–Delivered ex ship (named port of delivery)
(c) DEQ–Delivered ex quay (named port of delivery)
(d) DDU–Delivered duty unpaid (named place of destination)
(e) All of the above
8. INCOTERMS 2010 has:

(a) Four categories for road, rail, sea and air transport.
(b) Two categories for any mode of transport, and sea and inland
waterway transport.
(c) One category for any mode of transport.

Module Summary
In this module, we introduced you to multimodal transport and provided
examples of the mode combinations, systems and technologies used to
carry out multimodal transport operations. We also discussed the advan-
tages of multimodal transport, which include reduced transportation costs,
great efficiency, faster delivery, and improved cargo security and safety.
We identified some of the administrative, legal and commercial challenges
posed by the implementation of multimodal transport—particularly the
need for a uniform, international regulatory regime covering all modes of
transport and the MTO's liability.
We also introduced you to the MTO's role, which includes assuming full
responsibility for the execution of the multimodal transport contract and of
the sub-carriers providing services under the contract. The MTO manages
and coordinates the transportation process from the shipper's door to the
consignee's door, ensuring the continuous movement of the goods along
the best route, by the most efficient and cost-effective means, to meet the
shipper's delivery requirements.
Finally, we described the terms and rules governing international com-
merce, which apply to the sale, transport and delivery of goods. In
particular, we discussed the 11 INCOTERMS contained in version 2010 of
the document and the four additional terms contained in version 2000 that
are still currently in use.
The key topics covered in this module were:
(a) The terms and definitions of multimodal transport
(b) The role, responsibilities and liability of the MTO
(c) Advantages and forms of multimodal transport
(d) Definitions of INCOTERMS
(e) The multimodal transport document (MTD)

Answer Key
Progress Check 1
1. d
2. MTO's Reponsibilities:
• Acts as sole carrier and principal,
• Manages and coordinates transportation process from shipper's
door to the consignee's door.
• Ensures the continuous movement of the goods along the best
route, by the most efficient and cost-effective means.
• Issues to the shipper one transport document covering the entire
shipping process.
• Contracts to sub-carriers and subcontractors under his own name.
3. Advantages of Multimodal Transport:
• Reduced transport and fuel costs
• Greater efficiency
• Improved customer service
• Faster transit and delivery
• Reduced documentation requirements
• Improved cargo safety and security
4. Answers:
(i) c
(ii) d
(iii) a
(iv) b
5. a
6. b
7. c
Progress Check 2
1. a
2. c
3. a
4. d
5. d
6. d
7. e
8. b

Module 5:
Multimodal Transport Corridor Routing
5.0 Multimodal Transport Corridor Routing
Module Overview
In this module, you will be introduced to the concept of integrated transport
networks and the relevant literature related to international trade competi-
Module Learning tiveness and multimodal transport, and competition among freight transport
modes.
Objectives
We will explain how multimodal transport can help build and sustain the
Upon completion of this module
competitiveness of internationally traded products by reducing transit-time,
reducing transport costs, increasing reliability and increasing cargo
• Explain the concepts of security.
integrated transport network
We will also introduce transport corridors, which are comprised of one or
and transport corridor
more routes that connect centres of economic activity and serve both
• Describe the management, passengers and freight traffic. Transport corridors, and multimodal trans-
operation and financing of port corridors in particular, are very important for the economic develop-
transport corridors ment of a country or a region. Multimodal transport corridors facilitate
access to international markets through the use of hubs that interconnect
• Describe the nature of transport services and gateways that allow traffic with origins or desti-
competition among freight nations outside of the corridor to enter or exit.
transport modes
Finally, we will cover best practices in the development, funding, manage-
ment and operation of transport corridors. Effective management is key to
the ongoing development, improvement and upgrading of a transport
corridors infrastructure, facilities and operations.
Module 5: Multimodal Transport Corridor Routing 201

5.1 Lesson Overview

In this lesson, we will discuss
the importance of integrated
transportation networks, which
is well established. Container-
ization of cargo facilitates the
Lesson Learning use of complementary transpor-
Objectives tation modes in a multimodal
shipping operation, by enabling
Upon completion of this lesson, the seamless transfer of cargo
you should be able to: between vehicles and standard-
izing cargo loads. This lesson
• State the meanings of
includes examples of inter-
“corridor,” “hub” and
national projects currently
“gateway” in relation to an
underway to develop and con-
integrated transport system.
struct international, integrated
• Describe the three different transportation networks.
types of transport corridors.
In this lesson we will also introduce you to the transport corridor concept
• State some possible and discuss the three different types of transport corridors. Finally, we will
integrated transport routes discuss the nature of transport corridor management and outline the
linking the ESCAP region strategies used to develop, manage, finance and operate transport
with Europe and North corridors.
America.
• Identify strategies used to
develop, manage, finance 5.1.1 Introduction
and operate transport For propose of this book the integrated transport can be defined as: “The
corridor. planning, assurance, operation and coordination of different modes of
transport in such a way that shipment of goods can be made as efficiently
as possible.”
Integration of a transport network involves the interconnection and
interoperability of transport modes, such as sea transport to land transport
or rail transport to road transport. It also involves the interconnection of
non-physical networks, such as the information flows in logistics systems.
Integration can help improve transportation service delivery and overall
efficiency. It can also provide environmental and social benefits, through
the use of cleaner, less polluting transportation technologies and reducing
road and highway traffic.
Development of integrated freight transport involves multimodal transport,
as well as intermodal transport. Intermodal transport goes a step further
than multimodal transport, because it requires the use of a standardized
loading unit, vehicle or container that can be transferred from one transport
mode to another. With intermodal transport, the same loading unit is
transported through the transportation process in a seamless and inte-
grated matter. There is no need to load or unload cargo.

For the past 20 years, integrated intermodal transport has been a major
policy issue for governments in Europe and North America. More recently,
this approach has been adopted by countries in Asia and the Pacific
Region.
Various organizations around the world are involved in multinational
projects designed to develop and build integrated transport networks that
will facilitate trade. One such organization is the United Nations Economic
Key Learning Points and Social Commission for Asia and the Pacific (ESCAP), which serves as
• Intermodal transport the main economic and social development centre for the United Nations in
requires the use of a Asia and the Pacific.
standardized loading unit,
ESCAP supports governments of the region in consolidating regional
vehicle or container that can
positions and advocates regional approaches to meeting the region's
be transferred from one
unique socio-economic challenges. The ESCAP office is located in
transport mode to another.
Bangkok, Thailand. ESCAP's initiatives in the area of integrated transport
• Integrated freight transport will be discussed later in this lesson.
requires effective
connections, choices in
transportation services, and 5.1.2 Integrated Transport Networks
coordination and Management
cooperation among
transport organizations. The concept of integrated transport networks management has been
developed separately in the freight transport community and the urban
• Integrated passenger transport community. As such, we will deal with them separately here and
transport requires physical, explain the concepts related to each.
operational and
institutional integration.
5.1.2.1 Integrated Freight Transport
The freight industry applies the concept of “intermodalism” to provide
shippers with the most efficient movement of goods for the best value. The
same concepts that provide cost savings and improved efficiency for the
freight industry can be applied to all types of transportation. The concepts
are connections, choices, and coordination and cooperation.
Connections
This concept involves the convenient, rapid and efficient and safe transfer
of cargo from one mode and pick-up point to another during a single transit.
Choices
Fair and healthy competition should exist among transportation options.
Modern and functional infrastructure is needed to facilitate integrated
transport—both for freight and passenger transport.
Coordination and Cooperation

Coordination and cooperation are required among transportation organiza-
tions to improve the quality, safety and economy of transportation services.
The development of an integrated, intermodal transport network requires
that traffic converge at trans-shipment points, such as ports, and airport
and rail terminals. Higher load factors and transport frequency can be
achieved if the transportation system is organized this way.
In terms of both economics and environmental impact, it is generally better
to use rail, inland water and sea transport for long distances. Road
transport should be used for the initial or final legs of transit and these legs
should be as short in distance as possible.

5.1.2.2 Integrated Passenger Transport

In the past, integrated passenger transport services were implemented
locally in urban areas. More recently, strategies and projects have been
developed in an effort to implement integrated public transport much more
broadly on a national and international scale. Such projects involve the
integration of services provided by multiple operators over a wide
geographic area, to provide seamless travel between two points.
Improved public transport services can reduce costs, improve service and
reduce the time required to transfer from one operator to another. Such
services also have the potential to boost ridership, by providing a better
alternative to passenger automobile travel.
An example of integrated passenger transport services is the use of
prepaid smart cards that allow passengers to pay for and access metro,
train and/or bus services by swiping their cards at station turnstiles. Such
smart card systems exist in many large cities around the world.
Integration of public transport services occurs at three levels: physical
integration, operational integration and institutional integration.
Physical Integration
Physical integration involves the joint use of facilities and equipment by
different operators. These facilities include intermodal terminals, joint
transfer points and stations, transit shelters and park-and-ride facilities.
Operational Integration
Operational integration involves the matching of transport modes to service
requirements and the use and reorganization of existing services. An
example of this is the use of high-capacity modes such as subway/metro
and rapid rail for high-density travel corridors. Low capacity modes such as
buses can be used for low density travel corridors and to feed high-
capacity modes.
Operational integration helps eliminate costly duplication of services by
competing services and enables resources to be deployed where they can
be used cost-effectively. It also enables various operators to coordinate
schedules, so that waiting times at transfer points are minimized, and to
establish single fare structures over a geographic area.
Institutional Integration
Did You Know?
Institutional integration involves the cooperative efforts of independent
The 10,000 km Trans-Siberian public transport operators to jointly plan and operate services. Such efforts
Rail Corridor connects Moscow could include joint fares and fare collection, distribution of jointly collected
with the Russian Far East and revenues, and coordinated routes and schedules.
the Sea of Japan. It is the
longest railway in the world. Apart from facilitating trade and mobility of passengers, integrated trans-
portation systems for both freight and passenger traffic can also offer
environmental benefits. Rapid growth in the movement of both goods and
people is stressing unimodal transport infrastructure to the limit, as
evidenced by heavy road traffic in urban centres, air traffic congestion at
airports and congested road access to transportation hubs.
The solution to these problems has largely involved expanding existing
infrastructure, particularly roads and highways. Due to limited land
resources and financial constraints, as well as the health and environmen-
tal impacts of road transport, this solution is not environmentally sustain-
able over the long-term. Such other options as mass transit and commuter

rail transit are being considered to reduce automobile traffic and provide
options to commuters.
5.1.3 ESCAP Initiatives

ESCAP activities in the field of transport include development of a
conceptual plan for an integrated regional transport network for Asia
covering all transport modes, including railway, roads, water transport,
ports, freight terminals and airports. ESCAP also makes recommendations
for the development of intermodal transport facilities at the country, sub-
regional and regional levels.
The ESCAP Secretariat has taken preliminary steps through a series of
sub-regional studies within Asia. The studies are carried out to collect data,
identify bottlenecks and pinpoint potential routes for an Asian integrated
transport network.
There are also proposals being developing to establish integrated transport
routes linking the ESCAP region with Europe and the Middle-East. With the
support and participation of ESCAP, the 2000 Euro-Asian Conference on
Transport identified four main Euro-Asian transport as the backbone of an
integrated network:
• Trans-Siberian Rail Corridor (TSR), which runs west to east
• Transport Corridor Europe-Caucasus-Asia (TRACEA)
• Southern Corridor
• North-South Corridor
Trans-Siberian Railway Corridor

Did You Know? The 10,000 km rail corridor is a double track, fully electrified, railway line.
The Transport Corridor Europe- The west-east network of railways connect Moscow with the Russian Far
Caucasus-Asia (TRACEA) East and the Sea of Japan. The Trans-Siberian is the longest railway in the
project involves 13 countries world. There are branch lines to China through Mongolia and Manchuria,
and will connect Eastern Europe with service continuing to North Korea.
with Central Asia and the The Trans-Siberian is the key link connecting the transportation systems of
borders of China and the Far East and the Asian/Pacific Region with the transportation system of
Afghanistan. Europe. The railway line is undergoing modernization in originating ports
and railway stations on the borders of North-East Asia. Road construction
along the corridor is also underway.
Once the project is completed, a modernized corridor will link the Russian
Federation with Japan, with three branches from the Russian Federation
to: Kazakhstan-China, the Korean Peninsula and Mongolia-China.

Figure 5.1.3a—Map of Trans-Siberian Railway Corridor
Transport Corridor Europe-Caucasus-Asia

(TRACEA)
The European Union began the TRACEA program in 1998, when
12 countries signed a multilateral agreement to take full advantage of its
geopolitical and economic opportunities. TRACEA is the renaissance
of the Great Silk Road, one of the ancient trade routes in the world.
The corridor starts in the Eastern Europe (Bulgaria, Romania, Ukraine) and
also crosses Turkey. There are routes crossing the Black Sea to the ports
of Poti and Batumi in Georgia, and a land connection towards this region
from Turkey. From Azerbaijan by means of the Caspian Sea ferries,
TRACEA routes reach the railway networks of Central Asian states of
Turkmenistan and Kazakhstan. The transport networks of these states are
connected to destinations in Uzbekistan, Kyrgyzstan, Tajikistan, and reach
the borders of China and Afghanistan.
Currently, new roads, railways, bridges and ports are being built along the
TRACEA corridor. New bridges, ports and other transport infrastructure are
also being constructed. New construction is being combined with simul-
taneous rehabilitation of existing roads and railways. Corresponding
unified regulatory basis and tariff rules are being developed for the
13 countries currently participating in the project.
Southern Corridor
The Southern Corridor would connect Southeastern Europe and Turkey
with Iran and would have branches to Central Asia/China and South East
Asia/Southern China. Published in 1999, the ESCAP study entitled
“Development of the Trans-Asian Railway: Trans-Asian Railway in the
Southern Corridor of Asia-Europe Routes” explored the potential of this
corridor.

North-South Corridor
The proposed north-south corridor would link Northern Europe and the
Russian Federation with the Persian Gulf. Three branches would extend
into the Persian Gulf:
• Caucasus Region at the border of Europe and Asia located between
the Black and the Caspian Seas, to the Persian Gulf
• Central Asia to the Persian Gulf
• Across the Caspian Sea, through Iran to the Persian Gulf
The north-south corridor would offer more rapid and less expensive
Key Learning Point transportation than the alternative currently used. This involves shipment of
good from South Asia through the Suez Canal and the Mediterranean Sea,
A transport corridor includes one to the Atlantic Ocean and North Sea, to Baltic ports. It is estimated that
or more routes that connect delivery time using the north-south corridor would be reduced by
centres of economic activity and 10–20 days, depending on the distance and regions involved.
serve both passengers and
freight traffic.
5.1.4 Transport Corridors and Gateways
5.1.4.1 Transport Corridors
A transport corridor includes one or more routes that connect centres of
economic activity and serve both passengers and freight traffic. Most
corridors have multiple routes on which various transport modes travel.
The routes are composed of links over which transport vehicles travel and
hubs that interconnect transport services. The end points are gateways
that allow traffic with origins or destinations outside of the corridor to enter
or exit.
An international corridor connects one or more adjoining countries, with
airports and seaports serving as gateways. It may also connect landlocked
countries with access to ocean transport. For example, there are transport
corridors connecting Bolivia with the Pacific Ocean through Chile and Peru,
and Nepal with the Bay of Bengal and the Arabian Sea.
Most transport corridors are developed to support regional economic
growth. They provide transport and related services that facilitate trade
Key Learning Points among the countries, regions and cities located in the corridor. Most
• A transport gateway is a corridors are not developed as brand new projects. Most have been
point of entrance and exit of developed and upgraded from existing land-based transport networks.
goods in a region, country or
continent. 5.1.4.2 Gateways
• A transport hub is a central A transport gateway is a point of entrance and exit of goods in a region,
point place where country or continent, such as an airport or seaway terminal. Gateways
passengers and cargo are usually involve a change in transport modes, such as from sea to land, or
exchanged between from air to land. Gateways include customs and other facilities at a
vehicles or between country's shipping ports and at its land-based borders.
transport modes.
5.1.4.3 Hubs
A transport hub (also transport interchange) is a central point place where
passengers and cargo are exchanged between vehicles or between
transport modes. Public transport hubs include train stations, rapid transit
stations, bus stops, tram stops, airports and seaports. A hub is a central
location in the transportation system with many inbound and outboard
connections of the same mode.

Freight hubs include classification yards, airport terminals, seaports and

truck terminals, or combinations of these. At freight hubs, goods are
collected, sorted, and shipped to the next carrier or delivery point.
The hub concept comes from terms used in airline transportation for both
passengers and cargo, such as hub and spoke systems. The hub-and-
spoke used by airlines and other transportation systems is a system of
connections arranged like a chariot wheel, in which all traffic moves along
spokes connected to the hub at the centre.
Figure 5.1.4.3a—Example of an Airline Hub and Spoke System
Note: Los Angeles and Denver are the main transport hubs.
Figure 5.1.4.3b—North American Freight Trade Corridor, showing Main Hubs

and Gateways
Source: Gateways, Corridors and Global Freight Distribution: Transpacific Issues, Jean-Paul
Rodrigue Department of Economics & Geography, Hofstra University

5.1.5 Types of Transport Corridors

Transport corridors can be differentiated based on the role they play in
economic development. The three different types of transport corridors and
domestic trade, foreign trade and transit trade.
5.1.5.1 Domestic Trade Corridors

Key Learning Point A domestic trade corridor is a designated route within the national transport
The three types of transport network used to distribute goods within a country. It includes links and
corridors are domestic trade, hubs for the various transport modes. Domestic corridors usually cross
foreign trade and transit trade. over regional borders and are established through national legislation.
Responsibility for the development and management of these corridors is
given jointly to the national and provincial or state governments. Both
provide funding for development of infrastructure. Similarly, both usually
share responsibility for regulation of the activities within the corridors, but
provincial or state governments are generally responsible for enforcement
activities.
The objective of establishing domestic corridors is to promote internal trade
and economic growth along the corridors. The costs for developing and
maintaining the corridors are generally covered through general revenues.
5.1.5.2 Foreign Trade Corridors

Foreign trade corridors are used to transport goods being importing into
and exported from a country. As such, they have an endpoint at either a
border crossing or international gateway. Foreign trade corridors tend to be
located close to large markets where production of exports and consump-
tion of imports are concentrated. Their location is also determined by
national legislation stipulating the locations where foreign trade may enter
and exit the country.
A country's foreign trade corridor is also defined by regulations that allow
the movement of cargo under customs bond between a border crossing/
gateway and an internal facility for clearing cargo.
The national government has jurisdiction over a foreign trade corridor, but
provincial or state governments are responsible for maintaining the
infrastructure along the links. The national government regulates only
international gateways. State agencies control and administer land border
crossings within their jurisdictions.
The objective of establishing foreign trade corridors is to a country's
economic growth through increased trade and competitiveness. The costs
Key Learning Point for the gateways and the border crossings are generally recovered through
The three general goals of user fees. The costs of transportation links and hubs are usually covered
transport corridor management through general revenues.
are:
• Promote the corridor's use. 5.1.5.3 Transit Trade Corridors
• Provide sufficient capacity to Transit trade corridors are used to transport the cargo of other countries.
meet demand. They are bounded by a border crossing at one end and an international
gateway or border crossing at the other. While these routes are determined
• Improve connectivity by national legislation, the legislation governing movement of transit goods
between modes and is often coordinated with adjoining countries through multilateral or bilateral
transport logistic services. agreements or, in a few cases, regional agreements. These agreements
stipulate the procedures to be followed at the borders or international
gateways.

Transit trade corridors are designed to promote regional integration and

economic cooperation between neighboring countries.
The costs of operating transit trade routes are covered in the same way as
for foreign trade routes. But in many cases, there is also a transit fee
collected to cover the marginal costs for maintaining transit these routes.
5.1.6 Corridor Management

Management of a transport corridor is generally done by government
agencies, the private sector or jointly by the public and private sectors.
Management incudes planning and facilitating development, disseminating
information and coordinating the efforts of various stakeholders. The
appropriate structure for corridor management will depend on the type of
corridor (domestic, foreign or transit) and the specific functions to be
management. In this section, we will discuss best practices in transport
corridor management.
5.1.6.1 Corridor Management Goals

The general goals of transport corridor management are:
• To promote the corridor's use.
• To provide sufficient capacity to meet demand.
• To improve transport logistic services and connectivity between
modes.
Specific goals will depend on the type of transport corridor. The goals for
domestic corridors include enforcement of regulations on the safe oper-
ation of transport vehicles and minimizing the conflict between passenger
and freight transport. For example, cities may specify the access points
where trucks can enter the city and restrict the hours during which trucks
are permitted access.
The goals for managing foreign corridors include ensuring the security of
borders and enforcing trade regulations. Management must balance the
need to facilitate trade with the need to provide increased security.
The goals for managing transit corridor include providing efficient and safe
movement of cargo through the country. To achieve this goal, manage-
ment must ensure effective coordination between border crossings and
gateways. Effective procedures are also required to verify that cargo is not
tampered with while in transit across the country.
5.1.6.2 Development and Funding of Infrastructure

and Facilities
Corridor infrastructure is developed and funded primarily by the public
sector, but increasingly constructed and maintained by the private sector or
through public/private sector partnerships. An increasing proportion of the
facilities at hubs and gateways is developed, financed and operated by the
private sector. The main exception is land border crossings, which
continue to be developed and operated by government customs and
border security agencies.

Reasons for the increased involvement of the private sector in infrastruc-

ture projects include:
• A lack of public funds that causes infrastructure bottlenecks and the
erosion of assets.
• Potential gains in efficiency and cost-effective because of the partici-
pation of private firms.
• The trend of outsourcing to the private sector functions previously
performed by government and the general downsizing of government
agencies.
Capital costs of infrastructure are paid for by general revenues, while
maintenance costs of infrastructure are often paid for by user fees. The
capital and maintenance costs for facilities are generally recovered through
user fees. Effective management of corridors helps ensure that infrastruc-
ture and facilities are used efficiently by administering user fees judiciously.
5.1.6.3 Developing and Managing Corridors

The development of both trade and transit corridors has two phases:
1. Organization of a set of routes with services to transport domestic,
foreign and transit traffic competitively.
2. Once, the routes and required infrastructure and facilities are in place,
gradual improvement in the efficiency of the services provided.
The first phase occurs in response to market forces. It depends on the
public sector for both infrastructure funding and the regulatory structure
and procedures for creating a new corridor. Bilateral agreements with other
countries may be required, if the corridor will cross borders. The second
phase involves continuous improvement once the corridor is operating and
traffic is increasing.
Three complementary actions help sustain development through both
phases: a long-term plan, a series of parallel initiatives and a program for
monitoring performance. The long-term plan can set objectives for ad-
dressing problems that impede efficient transport services from one end of
the corridor to the other.
Initiatives undertaken should address the following:
Key Learning Point • Short-term improvements in customs and border crossing procedures
and traffic control.
The three actions that help
sustain transport corridor • Medium-term improvements in infrastructure and interoperability.
development are a long-term
plan, parallel improvement • Long-term improvements in harmonization and trade facilitation.
initiatives and a performance Table 5.1.6.3 lists possible improvement initiatives that could be taken to
monitoring program improve transportation services and efficiency, under the three categories
of asset management, regulation and information. Decisions made on
which initiatives to implement should be based on a cost/benefit analysis,
as well as consideration of the level of stakeholder and government
support likely to be provided.

Asset Management
• Capital investments in to increase capacity and/or improve facilities
• New transport technologies
• Improved maintenance of assets
• Private sector operation and maintenance
• Private sector financing of facilities
• User fees to finance maintenance and improvements
Regulation
• Reduction in the level of regulation of transport and logistics services
• Increased competition in the provision of services
• Reform of customs and transport regulations
• Simplified transit procedures
• Reduction in informal payments
• Increased transparency of border crossings
• Change in incentive structures
Information
• Simplified documents
• Simplified financial transactions
• Information and communications technology for:
ż Data entry and processing
ż Electronic transfers and direct debit arrangements
ż Scheduling and control of transport services
ż Coordination between customs offices
Table 5.1.6.3—Examples of Transport Corridor Improvement Initiatives
Source: Best Practices in Corridor Management, The World Bank
Performance monitoring requires the collection of performance data to

identify physical and operational problems that increase costs and cause
delays. Performance data can be used identify areas where services can
be improved and to justify improvements and additional to infrastructure
and/or facilities. The data collected may include port operating statistics,
customs trade and operating statistics, and entrance/exit data. Surveys of
shippers, transportation services providers and operators can also be
conducted, to gain qualitative information on a corridor's performance.
Benchmarks or comparisons between transportation routes using the
same modes can be used to identify services or activities that can be
improved. Historical data is also useful. Trends in costs (adjusted to
inflation), time and reliability indicate whether a corridor's performance is
improving or deteriorating over time.
5.1.6.4 Managing the Air Transport Corridor: The

IATA Flexible Routings (iFLEX) Program
Airlines and air traffic authorities are being continuously challenged by the
current airspace structure. Traffic levels continue to increase at an average
rate of 4% annually, implying a doubling of traffic every 10–15 years. In
certain parts of the world, legacy route structures have become outdated

and are becoming constraining factors due to their inflexibility. The

International Air Transport Association (IATA) is working with key stake-
holders to help introduce more options for route flexibility, starting with less
dense traffic areas. This global campaign is known as iFLEX (IATA Flexible
routings).
Flight-times in excess of 10 hours coupled with the robust navigational
capabilities of modern-day aircraft offer an ideal opportunity to migrate
away from fixed route structures towards more flexible alternatives that are
sensitive to changing upper wind patterns.
The first iFlex trial was flown between Johannesburg and Atlanta in 2011. It
was a team effort involving IATA, International Civil Aviation Organization
(ICAO), Civil Air Navigation Services Organization (CANSO), Air Navi-
gation Service providers and the airlines.
Early modeling suggests that airlines operating a 10-hour intercontinental
flight can cut flight time by at least six minutes, reduce fuel burn by 2% or
more and save 3,000 plus kilograms of CO2 emissions. These improve-
ments in efficiency will go a long way in helping the industry in meeting its
environmental targets.
A major opportunity to maximize benefits using the iFLEX methodology
applies to long-haul flights. The preliminary analysis presented in the table
below samples CO2 savings that could help meet the environmental goals
set by the industry over. Besides CO2 savings, the commercial impact of
the decreased fuel load is always needed by airlines on flights typically
operating close to their maximum range. For example a 1,000 Kg savings
in fuel burn on an Atlanta to Johannesburg flight will allow weight uplift
approximately equivalent to 10 additional passengers or of cargo while
remaining within the required weight limitations.
The sophisticated flight planning systems used by airlines have the

capability to predict and validate optimum daily routings. Likewise, modern
Air Traffic Management (ATM) systems have significantly improved their
ability to work in a more dynamic environment.
Using what is already available on the aircraft and within ATM systems, the
move from Fixed to Flex routings can be accomplished in a safe,
progressive, orderly and efficient manner. Flexible routes for long haul
flights introduce benefits in several domains. In addition to the evident fuel
efficiencies, there can also be safety benefits. Success requires a positive
collaborative effort from all involved stakeholders.
The iFLEX is an effort to build on the Global Plan Initiatives and transition
into a more dynamic environment that addresses daily flight operations
variables, while remaining responsive to ATM and Operators' needs.
ICAO's Global Air Navigation Plan lays a firm foundation for the coordi-
nation and partnership that will be required between states, Air Navigation
Service Providers (ANSPs) and airlines, as the major group of airspace
users. IATA, ICAO and CANSO are fully committed to work with states and

ANSPs in advancing the establishment of more flexible and dynamic

airspace. iFLEX is considered as a first step in beginning the evolution to
flexible routings on a global basis.
The iFLEX program builds on existing best-practices, current technology
and employs solutions that can be implemented safely across several flight
information regions (FIRs) in day-to-day operating conditions. All flex
routes when generated will be validated against airspace constraints and
en-route weather conditions. The resulting flight plans will employ an
optimized trajectory based on the winds forecast for each flight.
IATA seeks to actively promote and propagate the global approach to
deliver service performance standards that recognize the operator's
business trajectory as the starting point in the value-chain. This approach
should be seen as the next logical step in effective ATM; in moving away
from one of Air Traffic Control to managing flights as collaborative
stakeholders. The environmental, efficiency and safety gains are signifi-
cant and should not be disregarded.
More flexible routings based on airline preferences are possible in today's
operating environment and using current aircraft technology. Coupled with
the appropriate ATM techniques, the opportunity to save over 2% of CO2
exists in today's environment, whether in domestic, remote or oceanic
areas.

Lesson Summary
A current definition of integrated transport used by a local government in
the UK is: “The planning, provision and operation of different modes of
transport in such a way that journeys can be made as efficiently as
possible and minimizing the need to use the private car.” Integration can
help improve transportation service delivery and overall efficiency. It can
also provide environmental and social benefits.
In the freight industry, integration of transport networks is achieved through
the application of three concepts: connections, choices, and coordination
and cooperation. Integration of public transport services occurs at three
levels: physical integration, operational integration and institutional inte-
gration.
A transport corridor includes one or more routes that connect centres of
economic activity and serve both passengers and freight traffic. Most
corridors have multiple routes on which various transport modes travel.
The routes are composed of links over which transport vehicles travel and
hubs that interconnect transport services. Gateways allow traffic with
origins or destinations outside of the corridor to enter or exit.
Transport corridors can be differentiated based on the role they play in
economic development. The three different types of transport corridors and
domestic trade, foreign trade and transit trade.

Progress Check 1
1. Name the three concepts that provide cost savings and improved
efficiency for the freight industry.
2. Name some of the benefits of integrated transport networks that use

multimodal transport effectively.
3. Match the three principles of integrated passenger transport services

with their definition.
(i) Physical integration
(ii) Operational integration
(iii) Institutional integration
(a) The cooperative efforts of independent public transport oper-
ators to jointly plan and operate services.
(b) The matching of transport modes to service requirements and
the use and reorganization of existing services.
(c) The joint use of facilities and equipment by different operators.
4. Which of the following international multimodal transport corridor

projects will connect Eastern Europe with Central Asia and the borders
of China and Afghanistan?
(a) TRACEA
(b) Trans-Siberian Railway Corridor
(c) Southern Corridor
(d) North-South Corridor
5. Match the type of transport corridor with its function.

(i) Transit
(ii) Domestic
(iii) Foreign
(a) Designated route within the national transport network used to
distribute goods within a country.
(b) Used to transport goods being importing into and exported
from a country.
(c) Used to transport the cargo of other countries.

6. List the three general goals of transport corridor management.
7. The three actions that help sustain transport corridor development are
a long-term plan, parallel improvement initiatives and a performance
monitoring program. True or False?
8. Transport corridor management is the sole responsibility of govern-

ment agencies. True or False?

5.2 Transport Competitiveness

In this lesson, we will examine the nature of competition in the freight
industry, looking at both actual (what exists now) and potential competition
Lesson Learning among transport modes. We will also describe the distinct characteristics
of the main transport modes, which have led each mode to become
Objectives strongly focused and specialized in specific markets.
Upon completion of lesson you
The term “modal split” refers to the tendency of certain countries/regions to
should be able to:
rely extensively on one particular mode of transport. We will summarize the
• Describe the connection modal split among countries and regions on a worldwide basis and discuss
between international trade the reasons for the split.
competitiveness and
Although there are significant regional differences, over the last 30 years,
multimodal transport
in most countries around the world, there has been a marked shift from
• Describe the modal split other freight transport modes to road. This shift towards increased reliance
among countries and on trucking versus other modes has significant environmental implications.
regions and the rationale With this in mind, we will discuss how governments are attempting to shift
for it freight traffic away from roads to more sustainable transport modes.
• Identify the characteristics of
the main transport modes 5.2.2 Introduction
• Explain how governments In general, a customer who wishes to ship goods chooses among
are attempting to shift freight transportation modes based on his own criteria in a competitive system.
traffic away from roads to However, in many situations in the freight industry, only one transport
more sustainable transport mode is available—roads and highways. Intercontinental transport is
modes. multimodal by necessity, using maritime or air transport, possibly a rail link
and trucks for final haulage to the delivery point.
Most firms seek to minimize costs and the freight transport sector is no
exception to this rule. Customers will often choose transportation modes
mostly on the basis of cost. However, a growing number of shippers seek
to reduce their overall logistics costs, not just their shipping costs. This
means that the least expensive solution is not necessarily the cheapest in
terms of total costs. In some cases, service quality is the key concern,
requiring customers to select a costlier solution on the basis of speed,
cargo safety and/or flexibility.
Economic and resource constrains, competitive pressures and customer
requirements mandate the firms to make the most efficient and productive
transport choice. The managers have to develop the best possible
mode/carrier selection strategies.
Four separate and distinct decision stages occur during the selection
process:
Key Learning Point 1. Recognition of transportation requirements
Actual competition between 2. Search process—searching for carriers that meet defined require-
transport modes in the freight ments
industry is rare. Modes
specialize in specific areas that 3. Choice of carrier(s)
provide a market advantage and 4. Post-choice—evaluation of carrier performance
are more complementary than
competitive. In many cases, though, road transportation must be selected for long
distance, land-based freight transport, because it is the only available
solution. In this case competition between modes does not exist.

The choice of freight transport modes is also affected by geography,

available infrastructure and public transportation policies. Significant re-
gional differences have been identified in Western and Eastern Europe,
Australia, China, the United States and Japan. We will discuss this issue in
the following section.
5.2.3 Differences in Modal Split Among

Countries
The United States relies primarily on rail freight services, while Japan relies
heavily on road services. China relies heavily on marine transport, followed
by rail. See Figure 5.2.3a Modal Split: Intercontinental Comparisons.
Some Western European countries, including Cyprus, Malta, Greece,
Ireland, Spain and Portugal, rely entirely or mostly on road transportation
for inland freight transportation. Some others use inland waterways
extensively. For example, the Netherlands uses inland waterways to
transport almost one-third of its freight traffic. Eastern European countries
such as Lithuania and Poland rely more heavily on rail, as do Sweden,
Austria, Australia and Switzerland. However the most dominant in EU 27 is
road transport. See Figure 5.2.3a and 5.2.3b Modal Split in Europe.
Over the last 30 years, in many countries around the world, there has been
a shift from other freight transport modes to road. However, when we
consider the entire European continent, rail remains the primary transport
mode across Europe.
Key Learning Point

Over the last 30 years, in most
countries around the world,
there has been a shift from other
freight transport modes to road.
Figure 5.2.3a—Modal Split: Intercontinental Comparisons

Key Learning Point

Freight transport costs comprise
variable costs for mileage and
fixed costs for the various
services provided to ship goods.
Fixed costs are lowest for road
haulage.
Figure 5.2.3b—Modal Split in EU 27 2010

Source: Eurostat (data is in mln ton/km)
5.2.4 Rationale for Modal Split

Why does the modal split among countries exist? To understand the
rationale, we first need to examine the economics of freight transportation.
Freight transport costs will vary according to the distance of haulage or
mileage. There is also a fixed cost, covering such services as packaging,
loading and unloading, preparation of a vehicle for a shipping operation,
and invoicing and other paperwork.
For railways, the fixed cost can be significant, since wagons must be
attached to form a train and loaded with containers and cargo must often
be hauled by truck to and from railways. For full truck load consignments,
there are no such time-consuming and costly additional operations
required.
A company choosing whether to ship cargo by either road or rail will
generally do so according to a threshold distance. Road is generally
cheaper for short distances of up to 500 km to 800 km. Rail is generally
cheaper for longer distances. The choice of road versus rail is the largely
the result of the difference in transport cost, which is reflected in the price.
In the freight industry, the reality is that each mode is less expensive than
its competitors in its specific area of competitive advantage, which
comprises the bulk of its market.

The choice of mode will also depend on the size and weight of the cargo. A
small load requires a light means of transportation, such as a lorry or
aircraft, even for long distance shipments. Large loads that may exceed
several hundred tonnes in weight require a heavy means of transport, such
as a train or river barge. For small consignments, road is commonly
preferred to rail, even for long distances.
Did You Know? Yet another consideration is that in order to use inland waterways, rail or
short sea shipping, or combinations of these with final road haulage cost-
Aircraft carry about 25% of effectively, a shipper must be able to consolidate a sufficient quantity of
worldwide trade in terms of goods in one shipment. In other words, the quantity of goods being shipped
value, but only 0.3% of total justifies the use of these modes and makes them more cost-effective than
freight tonnage. shipping by road. A big shipment allows economies of scale in both
variable shipping costs related to mileage and fixed costs of the shipping
operation.
Finally, in many cases, shippers use trucking companies for long distance
freight transport just because there is no alternative supplier in the market.
In such cases, competition between modes does not exist.
5.2.5 Characteristics of Different Modes

Each transport mode has very distinct characteristics that have caused it to
specialize in a specific market segment. These characteristics include the
types of commodities they ship, the size of shipments they can handle, the
distance of transport within which their services are economical and
competitive, and the geographic coverage they provide.
In the United States, marine or air transport in combination with haulage by
truck is used for transits of almost 2,000 miles. Rail in combination with
road is used for journeys of almost 1,500 miles. Private trucks alone are
used only for journeys of an average length of 64 miles. (See Figure
5.2.5a).
The term value density refers to the value of an item per pound of weight.
Higher value or more expensive items such as computers and consumer
electronics are generally shipped using more expensive options, because
of the faster shipping time and/or greater cargo safety offered.
In terms of the value density of goods being transported, air is about 2,000
times greater than that of goods transported by rail or water. (See Figure
5.2.5b). On a worldwide basis, aircraft carry about 25% of shipped goods in
terms of value, but only 0.3% of total freight tonnage.
As mentioned previously, consolidation of freight and larger shipments are
required to reduce the fixed costs and provide the economies of scale
necessary to use non-road based shipping options.
If we look at the market segmentation of freight transport modes in Europe,
road is the dominant mode for inland shipping for short and medium
distances and small to medium-sized shipments. Rail is used for large
shipments over long distances. For continental long distances, air is use for
only courier traffic. For intercontinental shipments, maritime transport is
dominant in terms of the tonnes carried.

Key Learning Point

In many markets, a viable
alternative to road haulage does
not exist due to either lack of
infrastructure, shortage of
Figure 5.2.5a—Modal Split of Freight Transport in Europe, by Distance and
capacity or long route mileage. Load Size
5.2.6 Actual and Potential Competition

For reasons previously discussed in this lesson, competition in the freight
industry is mainly within modes among operators using the same transport
mode, rather than between modes. Often, an alternative supplier to the
trucking industry does not exist, due to either lack of infrastructure,
shortage of capacity or long route mileage. Roads are more likely to cover
the shortage possible inland distances than rail, because they can be built
for travel over steep slopes. Rail is limited to relatively flat terrain. It is often
Did You Know? unfeasible to use alternative inland modes to road.
In the U.S. railway transport In the transport industry, infrastructure is mainly provided by public
industry, two overlapping authorities. Construction requires large amounts of financing and may take
American networks compete, several years, depending on the scope the infrastructure project.
covering the same territory with
largely parallel tracks. Many modern production and distribution sites where products are loaded
for shipping are accessible by only roads. In the 19th century and first half
In most other countries, each of the 20th century, factories were located along canals and/or accessible
railway carrier controls its own by rail to enable shipping. Today, that is no longer the case.
infrastructure.
However, it's worth noting that in Switzerland, rail is used for about 30% of
total freight transport, more than twice the European Union average. What
has made this possible is public support and funding of railways. Two
additional tunnels were constructed to transport freight under the Alps, to
help alleviate truck traffic on roads.
The choice of modes available to shippers is established by public policy,
often decades in advance. For this reason, facilitating competition between
freight transport modes is a long-term policy issue.
5.2.7 Modal Choice

The general expansion of road freight transport poses the threat of
reducing competition to situations where rail or marine transport offer a
competitive advantage for massive shipments and long distances. Rail has
lost the general coverage function it provided up until the middle of the 20th
century. In some European countries, it has been reduced to a core trunk
line network.
To make competition possible and provide a greater choice of freight
transport modes to shippers, the infrastructure must exist to enable
alternatives. New transport infrastructure requires large investments that
have no guarantee of achieving profitability. These investments may have
to be guaranteed and possibly even provided entirely by public authorities,
who must decide how best to allocate scare resources.

However, due to increased public concerns about energy consumption and

climate change due to the greenhouse effect, governments can be
expected to develop alternative solutions to road freight transport. Govern-
ments can make real competition possible by developing adequate
infrastructure along long transport corridors serving substantial freight
traffic markets.
New freight transport technologies that provide new areas of competitive
advantage could also help reduce reliance on road transport. A good
example of this is the high speed passenger train, based on a large
capacity dedicated railway line. About 50 years ago, traditional passenger
rail travel had reached its peak, and passenger vehicles and aircraft
represented the future. However, high speed train services provided
passenger railways with a new area of advantage and enabled them to
compete effectively with other modes.
Similar technological breakthroughs could improve the viability of non-road
transport modes, as well as improving road transport through cleaner,
lower emission vehicles.

Lesson Summary
Competition in the freight industry is mainly within modes among operators
using the same transport mode, rather than between modes. Often, an
alternative supplier to the trucking industry does not exist, due to either
lack of infrastructure, shortage of capacity or long route mileage.
Each transport mode has very distinct characteristics that have caused it to
specialize in a specific market segment. These characteristics include the
types of commodities they ship, the size of shipments they can handle, the
distance of transport within which their services are economical and
competitive, and the geographic coverage they provide.
When choosing a transport mode, a shipper will consider both the quantity
of goods to be shipped and the distance. For small shipments, road is
generally the most cost-effective, even for long distances. Rail, air and
marine transport offer economies of scale for large shipments of several
tonnes over long distances.

Progress Check 2
1. Match the country with the freight transport mode it primarily relies on.
(i) Western European countries (i.e. Cyprus, Malta, Greece, Ireland,
Spain and Portugal)
(ii) China
(iii) Japan
(iv) United States
(a) Rail
(b) Marine
(c) Road
2. List some of the factors shippers consider when choosing a freight

transport mode.
3. List up to five of the distinct characteristics of freight transport modes.
4. On a worldwide basis, how can the current competitive situation

among freight transport providers be accurately described?
(a) Within modes among operators using the same transport mode
(b) Between road, rail, marine and air transport on the basis of price
and service
(c) Between road and rail modes on the basis of price and service
(d) Between MTOs offering multimodal transport services
5. Which statement best described the use of rail freight transport today?
(a) It is being replaced by faster shipment of goods via aircraft.
(b) It remains the dominant freight transport mode in Europe.
(c) It remains a viable option in countries that invest in new infrastruc-
ture to increase capacity (i.e. Switzerland).
(d) In the United States, there is one railway monopoly that carries all
rail freight traffic.
6. List some reasons why a viable alternative to road haulage does not
exist in many markets today.

Module Summary
In this module, you were introduced to the concept of integrated transport
networks and the relevant literature related to international trade competi-
tiveness and multimodal transport, and competition among freight transport
modes.
You were also introduced to transport corridors, which are comprised of
one or more routes that connect centres of economic activity and serve
both passengers and freight traffic. We discussed the three types of
transport corridors--domestic, foreign and transit—and their functions. We
also discussed best practices in the development, funding, management
and operation of transport corridors.
We concluded that real competition among transport modes is largely non-
existant. Instead, modes provide complementary services and serve the
market niches to which they are best suited, based on pricing and other
factors. Competition exists mostly among providers of the same type of
transportation in the same markets.
Governments can make real competition possible by developing adequate
infrastructure along long transport corridors serving substantial freight
traffic markets.
In this module, we covered the following topics:
(a) Integrated transport networks management
(b) ESCAP initiatives related to building international integrated transpor-
tation networks
(c) Transport corridors, gateways and hubs
(d) Best practices in transport corridor management
(e) Competition among freight transport modes and providers of the same
type of transportation
(f) The modal split among countries and regions
(g) How governments can provide a greater range of environmental
sustainable modal choices

Answer Key
Progress Check 1
1. The concepts are connections, choices, and coordination and cooper-
ation.
2. Reduced transit-time, reduced transport costs, increased reliability,
increased cargo security, seamless transition between transport
modes
3. Answers: i (c); ii (b); iii (a)
4. a
5. Answers: i (c); ii (a); iii (b)
6. Answers:
• To promote the corridor's use.
• To provide sufficient capacity to meet demand.
• To improve transport logistic services and connectivity between
modes.
7. True
8. False. Management of a transport corridor is generally done by
government agencies, the private sector or jointly by the public and
private sectors.
Progress Check 2
1. Answers: i (c); ii (b); iii (c); iv (a)
2. Haulage costs (mileage), fixed costs, quantity and type of goods to be
shipped, required delivery time
3. Types of commodities shipped, shipping capacity, distance of transport
within which services are competitive, geographic coverage
4. a
5. c
6. Lack of infrastructure, shortage of capacity, long route mileage, public
policies that favour road and highway infrastructure development


Module 6:
Unitisation of Cargo
6.0 Unitisation of Cargo
Module Overview
This module will introduce you the two key concepts related to cargo
handling and transport—unitisation and containerisation.
Module Learning Unitisation involves the repackaging of various cargo items of relatively
Objectives small size into larger units of a standard size. Containerisation is a system
of freight transport based on a range of steel intermodal containers, which
have standard dimensions. Both unitisation and containerisation have
significantly improved efficiency and reduced the cost of transporting mass
• Define the terms unitisation cargo. Containerisation allows for mass quantities of goods to be trans-
and containerisation. ported long distances safely, efficiently and at low costs.
• Explain how We will discuss the history of containerisation, the types of containers used
containerisation and other today and how containerisation is used to transport cargo by road, rail and
freight shipping sea. We will also explain how pallets and unit load devices are used to
technologies have move and load cargo, and provide examples of some of the latest modern
enhanced the development technologies used.
of international trade.
• Describe how
containerisation is used in
multimodal transport and
road, rail and marine
modes.
• List and describe different
types of cargo containers.
• Explain how unit load
devices (ULDs) are used in
the aviation industry to
handle and transport cargo.
6.1.1 Introduction
International trade has grown rapidly
through the creation and use of
freight containers. Containerisation
allows for mass quantities of goods
to be transported long distances
safely, efficiently and at low costs.
Initially, containers were introduced
to reduce the cost and time associ-
ated with loading and unloading
cargo from ships. Containers provide
efficient access to raw materials and
reduce manufacturing and labour
costs.
Like containers, the pallet is used as a medium to transfer cargo from one
location to another. Pallets are used to handle and transport assembled
quantities of unitised cargo, usually with a forklift.
In this lesson, we will examine how unitisation and containerisation have
revolutionized the freight transport industry and are used in the road, rail
and sea transport modes. We will also look at how pallets and unit loading
devices (ULDs) are to move and load goods in air transport. The aircraft
ULD's are units that interface directly with an aircraft's loading and cargo
Module 6: Unitisation of Cargo 231

restraint system. Such units therefore become an integral part of the

aircraft.
6.1.2 What is Unitisation?

Unitising is the process of combining individually packaged products into a
larger, stable, unit load convenient for handling, shipping and storage. To
facilitate cargo handling, the unit load is of a standard size. These larger
units can then be moved using specifically designed machines and
accommodated into specifically designed ships, speeding up cargo freight
services.
Key Learning Point
Fully automatic unitising machines are used to unitise cargo into unit loads.
Unitising is the process of
These large machines may handle cargo units on pallets or without a base
combining individually packaged
support. They have programmable controls, box-size and unit-load-size
products into a larger, stable,
changeover capabilities, and can handle a wide variety of stacking patterns
unit load convenient for
and unit-load heights. Cargo handlers then use cranes and vehicles to
handling, shipping and storage.
move and load the unit loads.
One of the key aspects of cargo unitisation is the correlation between
handling capacity and the weight of the standard unit. This is due to the
large amount of time that it takes to manipulate small size packages,
particularly for loading into the vessel's hold. Thus, for a given cargo
volume, the larger the standard unit, the lower the number of units that
must be loaded and the more efficient the cargo handling operation.
Unitising has significant cost benefits. The cost of labour arising from
manual handling is reduced appreciably through the use of mechanical
equipment to handle larger unitised loads. Shipping time and losses by
pilferage are also reduced.
6.1.3 Containerisation
Key Learning Point Containerisation is a system of freight transport based on a range of steel
Containerisation is a system of intermodal containers. Containers are built to standardised dimensions.
freight transport based on a The containers can be loaded and unloaded, stacked, transported
range of steel intermodal efficiently over long distances, and transferred from one mode of transport
containers, built to standardised to another—container ships, rail and semi-trailer trucks—without being
dimensions. opened. The containerisation system was developed after World War II,
and has greatly reduced transport costs and supported a vast increase in
international trade.
For example, prior to the development of equipment that enabled highly
mechanized container transfers, crews of about 20 longshoremen would
pack individual cargo packages into a ship's cargo hold. After containerisa-
tion, large crews were no longer necessary at port facilities. Today, the
largest freighters can carry more than 14,500 20-foot container units.
6.1.3.1 History
Containerisation has its origins in early coal mining regions in England. In
the 1830s, railroads on several continents carried containers that could be
transferred to other modes of transport. The Liverpool and Manchester
Railway in the United Kingdom was one such railroad. Simple rectangular
timber boxes, four to a wagon, were used to move coal from the
Lancashire collieries to Liverpool, where they were transferred to horse
drawn carts by crane. Originally used for moving coal on and off barges,
loose boxes were used to containerise coal from the late 1780s, at places
like the Bridgewater Canal. By the 1840s, iron boxes were also in use. The

early 1900s saw the adoption of closed container boxes designed to

transfer cargo between road and rail modes.
In the United Kingdom, several railway companies were using similar
containers by the beginning of the 20th century. In the 1920s, the Railway
Clearing House (RCH) standardized the RCH container. Five- or ten-foot-
long, wooden and non-stackable, these early standard containers were a
great success, but the standard remained UK-specific.
From 1926 to 1947 in the United States, the Chicago North Shore and
Milwaukee Railway carried motor carrier vehicles and shippers' vehicles
loaded on flatcars between Milwaukee, Wisconsin and Chicago, Illinois.
In the mid-1930s, the Chicago Great Western Railway and the New Haven
Railroad began piggy-back service, transporting highway freight trailers on
flatcars limited to their own railroads. By 1953, the Chicago and Eastern
Illinois and the Southern Pacific railroads had joined the innovation. Most
cars were surplus flatcars equipped with new decks. By 1955, an additional
25 railroads had begun some form of piggy-back trailer service.
Toward the end of World War II, the United States Army used specialized
containers to speed the loading and unloading of transport ships. The army
used the term ‘transporters’ to identify the containers, which were used to
ship the household goods of officers in the field. A ‘transporter’ was a
reusable container, made of rigid steel with a carrying capacity of
9,000 lbs. (4,082 kg). During the Korean War, the transporter was
evaluated for handling sensitive military equipment and, proving effective,
Did You Know? was approved for broader use.
The first container ships were The first truly successful container shipping company dates to April 26,
built in North America in the 1956, when American trucking entrepreneur Malcolm McLean put 58
1950s. containers aboard a refitted tanker ship, the SS Ideal X, and sailed them
The original sea containers were from Newark to Houston. McLean came up with the idea of using large
simple aluminium boxes suitable containers that were never opened in transit between shipper and
for carrying dry goods or general consignee and that were transferable on an intermodal basis, among
purpose cargo. trucks, ships and railroad cars. McLean had initially favoured the construc-
tion of ‘trailerships’—taking trailers from large trucks and stowing them in a
ship's cargo hold. This method of roll-on/roll-off stowage was not adopted
because of the large waste in potential cargo space onboard the vessel,
known as broken stowage. Instead, McLean modified his original concept
into loading just the containers, not the chassis, onto the ships, hence the
designation container ship.
McLean also worked with engineer Keith Tantlinger to develop the modern
intermodal container. The patented design was an 8 ft X 8 ft
(2.4 m X 2.4 m) corrugated steel box, which incorporated a twistlock
mechanism atop each of the four corners. The twistlocks enabled the
container to be easily secured and lifted with cranes.
The original sea containers were simple metal boxes suitable for carrying
dry goods or general purpose cargo. As shippers sought to increase the
types of cargo that could be carried, many specialised containers were
developed. These included the insulated and integrated refrigerated
container for frozen and chilled cargoes, and the open top and platform
containers for oversize and heavy cargoes.
During containerisation's first 20 years, many container sizes and corner
fittings were used. Not surprisingly, there were many incompatible con-
tainer systems in use.
The need for international standards led the International Standards
Organization (ISO) to set up a new Technical Committee to develop
standards for freight containers. During the late 1960s and early 1970s, the

first international standards were developed for freight containers. Inter-

national standards were developed for the dimensions (ISO 668) and the
specification and testing (ISO 1496 series) of containers.
Today, there are five common standard lengths certified by ISO:
• 20-ft (6.1 m);
• 40-ft (12.2 m);
• 45-ft (13.7 m);
• 48-ft (14.6 m); and
Key Learning Point
• 53-ft (16.2 m).
The unit used to measure a
ship's container capacity is the In United States exist domestic standardised containers with dimensions
TEU (20-ft equivalent unit), 48-ft and 53-ft (rail and truck).
which refers to the length of the The unit used to measure container capacity is the TEU (twenty-foot
standard container box. equivalent unit), which refers to the length of the standard container box.
The standard width is 8 ft. The world container census 2010, covering the
total international and regional fleet, estimated the TEU count at
27.5 million, made up of nearly 18 million units.
6.1.3.2 Types of Containers

Cargo containers fall into one of three categories, general, specific and
swap bodies.
General Cargo Containers

A general cargo container is any type of container that is not intended for
use in air transport and not primarily intended for the carriage of a
particular category of cargo, such as cargo requiring temperature control, a
liquid or gas cargo, dry solids in bulk, cars or livestock. The types of
general cargo containers and their characteristics are listed in
Table 6.1.3.2a.
Type of General Cargo Characteristics

Container
General Purpose (GP) • Totally enclosed and weather-proof.
Containers
• Has a rigid roof, rigid side walls, rigid end
Key Learning Points walls–at least one of which is equipped with
• A general cargo container is doors–and a floor.
any type of container not
• Intended for transport of the widest poss-
intended for use in air
ible variety of cargo.
transport and not primarily
intended for the carriage of • A GP container with an opening roof may
a particular category of be used for the same purpose as an open
cargo. top container.
• A specific cargo container is • Type of ISO Container used for the car-
primarily intended for the riage of general cargo without any special
carriage of particular requirements for the transport and/or
categories of cargo. storage conditions of the goods.

Type of General Cargo Characteristics

Container
Specific Purpose • Designed to facilitate packing or emptying
Containers the container other than by means of doors
at one end of the container.
• Design features may include ventilation.
• Types include closed vented or ventilated
containers, open top containers and plat-
form containers.
Closed Vented or • Similar to a general purpose container, but
Ventilated Containers designed to allow air exchange between its
interior and the outside atmosphere.
• Vented containers have passive vents at
the upper part of their cargo space. Most
containers have two or more vents fitted in
the front or side walls.
• Ventilated containers have a ventilating
system designed to accelerate and in-
crease the natural convection of the atmos-
phere within the container as uniformly as
possible, either by non-mechanical vents or
internal or external mechanical means.
Bulk and Bulk-Dry • Consists of a cargo-carrying structure for
Containers the carriage of dry solids in bulk without
packaging.
• Tested against the requirements of
ISO 1496/4.
Open Top Containers • Similar to a general purpose container,
except that it has no permanent rigid roof.
• May have a flexible and moveable or re-
movable cover, e.g. of canvas, plastic or
reinforced plastic material. The cover is
normally supported on movable or remov-
able roof bows.
• In some cases, the removable roof is made
of steel that can be fitted or slid off the top
of the container.
Platform Containers • This is a loadable platform that has no
superstructure whatsoever, but has the
same length and width as a container of the
same series.
• Equipped with top and bottom corner fit-
tings, so that the same securing and lifting
devices can be used.
Table 6.1.3.2a—Characteristics of General Cargo Containers

Specific Cargo Containers

A specific cargo container is primarily intended for the carriage of particular
categories of cargo. The types of specific cargo containers and their
characteristics are listed in Table 6.1.3.2b.
Type of Specific Cargo Characteristics

Container
Thermal Containers • Has insulating walls, doors, floor and roof.
• May be insulated–with no device for cool-
ing and/or heating; refrigerated–using ex-
pendable refrigerants such as ice, “dry ice”
(solid carbon dioxide), or liquefied
gasses–and with no external power or fuel
supply. Thermal containers are often
referred to as insulated containers.
• The most common variant is the integrated
refrigerated container, often referred to as
the “Reefer”. The internal temperature is
controlled by a refrigerating appliance,
such as a mechanical compressor unit or
an absorption unit.
Tank Containers • In the freight container industry, the terms
“tank” or “tank container” usually refer to a
20-ft tank container consisting of a stain-
less steel pressure vessel supported and
protected within a steel frame.
• There are several containment designs that
carry all sorts of bulk liquids, powders,
granules and liquefied gases.
• Tank containers come in various ISO and
European sizes and may be pressurized or
non-pressurized.
Named Cargo • Built in general accordance with ISO stan-
Containers dards, either solely or principally for the
carriage of named cargo such as cars or
livestock.
Table 6.1.3.2b—Characteristics of Specific Cargo Containers
Swap Bodies
A swap body is a standard freight container for road and rail transport.
Swap bodies have a lightweight design that minimizes empty weight,
thereby reducing fuel costs, because less dead weight has to be
transported.
As a consequence, swap bodies are not stackable or liftable, unlike the
heavier and stronger containers that meet ISO standards. This makes
them unsuitable for ship-based overseas transportation. Swap bodies have
a mechanical strength designed only for rail and road vehicle transport.

Swap bodies often have the same external width of corner fittings as other
shipping containers, so that they can be placed on the same kinds of
trucks, trailers and railroad cars. Many swap bodies are fitted with four
fold-up legs under their frame, to make it possible to change or ‘swap’ their
body from one carriage to another, or to leave the swap body at a
destination, without using a crane or hoist.
Special swap bodies may have more doors or sliding panels than ordinary
Key Learning Point hard boxes for trucks, railroad cars or sea containers. The additional entry
Unlike ISO containers, swap points make unloading and loading faster and easier.
bodies are not stackable or
liftable, making them unsuitable
for sea transport.
6.1.3.3 Weight Restrictions

A container's construction will influence maximum allowable gross weights.
A containers tare weight is what the container weighs when empty. To
determine a container's total weight capacity, you need to add the
container's tare weight to the weight of the contents.
According to ISO standard 688, the maximum gross mass for a 20-ft
(6.1 m) cargo container is 24,000 kg (52,910 lbs), and for a 40-ft (12 m)
container, it is 30,480 kg (67,200 lbs). Allowing for the tare mass of the
container, the maximum payload mass is therefore reduced to approxi-
mately 22,000 kg (48,500 lb) for 20 ft. (6.1 m), and 27,000 kg (59,525 lb)
for 40 ft. (12 m) containers.
Depending on the transport mode, there may be additional weight
restrictions. For example, shipping vessel lines may further restrict
container weight. States will also restrict the weight of trucks. For example,
most states in the U.S. have an 80,000 lb. gross highway weight limit, with
the exception of Florida, which has a limitation of 65,000 lb. for a 20 ft.
container and 79,000 lb. for a 40 ft. container. The weights include: the
weight of the truck, container, chassis and cargo. Depending on the type of
truck pulling the container, an empty 40' container and truck averages
around 35,000–36,000 lbs., which leaves 45,000 lbs. for cargo.
Determining allowable container weights is complex, because states
regulate cargo weight individually. Depending on individual state regu-
lations, overweight permits may be needed, even in cases where gross
vehicle weight is less than 80,000 pounds.
6.1.3.4 Multimodal Transport

Did You Know? In a multimodal transport operation, various systems may be used to
According to ISO standard 688, improve the efficiency of cargo handling, loading and unloaded during the
the maximum gross mass for a sea leg. For example, a roll-on–roll-off (RO–RO) system could be used to
standard 20-ft (6.1 m) cargo enable road vehicles, a wagon or an intermodal transport unit to be driven
container is 24,000 kg on and off of a vessel. A lift-on–lift-off (LO–LO) system involves lifting
(52,910 lbs). equipment to load and unload transport units on and off of a vessel.

Individual containers may be handled and transferred by simple equipment

such as a crane at inland intermodal facilities or port terminals. Containers
may be interchanged not only among the different modes, but also among
carriers of the same mode to optimise the cargo handling operation.
Standardised containers enable cargo to be quickly handled and trans-
ferred from ships to trucks and rail wagons with mechanical handling
equipment.
6.1.3.5 Road Transport

Road transport is usually used for two types of journeys: door-to-door,
long-distance haulage or in the first/middle/final legs of multimodal
transport. A variety of vehicles are used to transport freight containers via
roads:
• Flatbed vehicles with full trailers or self-loading capacity for self-
supporting swap bodies;
• Flatbed vehicles with or without twislock connectors;
• Flatbed type vehicles with side-lifting capability;
• Tractor units with flatbed or skeletal semi-trailers; and
• Tractor units with full trailers;
Semi-trailers can come in a variety of formats, such as extendable, multi-
positional and tipping.
6.1.3.6 Rail Transport

Freight trains fall into three categories: trainload (or block trains), wagon-
load and consolidated wagonload.
In a trainload or block train system, a complete train travels from origin to
destination without any re-marshalling along the way. This type of system
is usually used to ship only one type of goods.
In a wagonload system, individual wagons are loaded by different senders
at various points. They are then forwarded either individually or sometimes
in twos to different destinations. Wagons may be shunted two or three
times during the journey. They will also form part of different trains at
various stages of their journey.
A consolidated wagonload involves a combination of both a trainload and a
wagonload. When this type of system is used, wagonload traffic is
Key Learning Point marshalled into a train at as early a stage as possible. The train is then run
Rail transport of containers may as a complete train, until it is split up for final delivery.
involve a complete train,
When it is necessary to remove or add wagons on the way, the railway
individual wagons or a
operator will add or remove a block of wagons according to a pre-arranged
combination of both.
schedule at a point fixed in advance. This enables the principal sections of
the journey to be completed without disruption and having to stop the train
to decouple wagons.

6.1.3.7 Sea Transport

Ports Handling
Ports represent one of the principal control gates in the international
container transport chain. Most cargo being shipped as part of international
trade will require sea transport and therefore pass through ports at both the
origin and destination countries. The area under the control of a single port
authority is typically comprised of a number of dedicated terminals and
cargo handling facilities. In addition, many ports harbour other trade-
related activities such as multimodal transfer centres, warehouses, con-
Did You Know? tainer freight stations and logistics service providers.
The largest ports use unmanned Ports also house some of the trade-related regulatory authorities, such as
automated guided vehicles customs. Although ports are normally associated with a waterfront, tight
(AGVs), whose movements are space constraints have led many ports to develop inland container depots
controlled by the container yard or dry ports. At dry ports, many of the main container handling tasks are
management system under the carried out away from the quayside. These include container stacking and
supervision of a central control staging, and customs processing.
tower facility.
Within port container terminals, physical handling of the container within
the container terminal is carried out by a number of cranes, vehicles and
other machinery. Smaller ports tend to operate individual container-
stacking vehicles to stack or unstack containers. They use manned
delivery vehicles to move containers to the quayside for loading onto the
container ship.
Larger ports usually use larger gantry cranes (either manned or automatic)
that pass over container stacks to pick and place containers onto delivery
vehicles. The largest port operations use unmanned automated guided
vehicles (AGVs), whose movements are controlled by the container yard
management system under the supervision of a central control tower
facility.
Finally, quayside cranes vary in sophistication from simple swing units to
more sophisticated straddle arm units that extend over the entire vessel
bay.
Handling of containers within port terminals may also be done with the
following types of equipment:
• Forklift trucks;
• Container carriers;
• Rubber-tyred or rail-mounted gantries;
Key Learning Point • Rail-mounted gantries;
The majority of container • Yard tractors
vessels are fully cellular ships
designed for the exclusive • Quay cranes;
purpose of transporting • Quayside jib cranes;
containers.
• Ship-mounted derricks.
Documents such as the International Cargo Handling Co-ordination
Association's (ICHCA) International Container Terminal Safety have been
produced to identify the need for deep sea and inland terminals to ensure
they have systems capable of handling all types of containers likely to
transit the port. To handle containers safely, terminal operators need to
understand the design and safety features of each type of container.
Terminal operators must also devise handling methods and storage

procedures that minimize the risk of container-related accidents from

occurring.
Once a container has been sealed, terminals are generally the only
location where its contents may be examined under the supervision of local
customs authorities. Inspections can be made of containers where there is
intelligence or other evidence that the container is carrying contraband or
other illegal materials, or if the container is carrying dangerous goods.
Container Vessels
Container vessels are the most visible link in the international movement
of containers, principally because they concentrate and move so many
containers per voyage.
On a worldwide basis, there are approximately 450 maritime carriers
operating vessels that can accommodate containers. The majority of these
vessels are fully cellular ships, which means they are designed for the
exclusive purpose of transporting containers. Fully cellular vessels can
store containers both above and below deck in a series of racks made to fit
standard container sizes.
Once stored on board a fully cellular vessel, crew members have extremely
limited access to most containers, especially when these are stored below
deck and/or inside full stacks.
Figure 6.1.3.7—Container Vessel Generations
Container ships can be divided into development generations based on

capacity, which is determined by the number of TEU they can carry on
board. Generally, there are six generations, each of which has a distinct
Did You Know? time period and capacity range. (Figure 6.1.3.7). The largest class of
container ship is the Maersk E Class, with a carrying capacity of
The largest class of container 11,000–14,500 TEU.
ship is the Maersk E Class, with
a carrying capacity of Large container ships are some of the largest vessels afloat. The Maersk
11,000–14,500 TEU. E Class has a length of 397 m, a beam of 56 m and a draught of 30 m. The
deadweight of the ship is 156,907 metric tonnes. The hull features a wide
beam and large bow flares in order to carry more containers on deck, while
ensuring that the underwater shape is streamlined to minimize resistance.

6.1.4 Pallets
A pallet is a flat base panel onto which cargo is placed and secured with
shrink film wrap or other packaging materials. Palletising involves the
assembly of one or more packages on a pallet base and securing the load
to the pallet. The importance of pallets to supply chain applications today
has been significant, allowing dramatic efficiencies in the handling and
transport of unit loads.
Many commodities can be economically palletised or unitised to facilitate
their handling, stowage and protection. Often, packing costs can also be
significantly reduced. Pallet and unit loads offer the following additional
advantages:
• Reduced opportunity for pilferage and theft and early detection of
tampering with cargo.
• Faster loading and unloading of transport vehicles.
• Water-proofing protection is provided for the load through the use of
overwrap.
• Reduced incidence of lost items.
• Facilitates checking and inventory of shipment.
Most pallets are made of lumber, but they may also be made of plastic or
steel for special purposes. Plastic pallets are especially suited to particular
applications, such as transportation of food or medicine.
Steel pallets provide maximum durability and load-carrying capacity, with a
minimum of maintenance. Most steel pallets are of welded construction
and are usually protected with baked enamel, zinc plating or hot-dip
galvanizing. These pallets can be steam cleaned quickly and easily and
Key Learning Points are commonly used where scrupulous cleanliness is required.
• Palletising involves the
Pallets are made in a considerable variety of types, styles and sizes. Their
assembly of one or more
principal virtue is that they are stiff, relatively inexpensive platforms that
packages on a pallet base
can support a wide variety of unit loads during handling, shipment, and
and securing the load to the
storage. They are also used increasingly as captive platforms for tempor-
pallet.
ary storage during shipment.
• Most pallets are made of
Pallets are relatively simple in design and fabrication. Several kinds of
lumber, but they may also
pallets exist that can be used for most purposes. The type of pallet used
be made of plastic or steel
will depend on the characteristics of the loads and the handling facilities
for special purposes.
available during shipment.
Classification
Pallets are usually classified by use in three general groups:
• Expendable (also called nonreturnable or shipping);
• General purpose (often called returnable, warehouse or reusable); and
• Special purpose.
Expendable pallets are frequently used only for one or a few trips. General
purpose pallets are suitable for continuous service in warehousing and
shipping for up to four years, depending upon the style, use conditions and
various other factors.
The majority of pallet manufacturers make all three types of pallets. Others
specialise in either expendable or non-expendables pallets, while a few
specialise in producing parts to be assembled into pallets by the user.

Pallets of all three types are made to provide either two-way or four-way
entry. Entry refers to the number of sides with openings for insertion of
material-handling equipment, such as the tines on forklift trucks. Many
expendable wood pallets are four-way entry with nine blocks.
Size and Standardization

Generally, pallet lengths range from 610 mm to 1,829 mm (24 in to 72 in).
Pallet dimensions are often dictated by the interior dimensions of carrier
equipment, intermodal containers, package sizes and special industrial
requirements. No one pallet size is common to all industries, but some
industries have standardized pallet sizes. The use of a relatively small
number of standard panel and unit-load sizes is necessary to promote
reusability and reduce handling and shipping costs.
However, there are many obstacles to standardization. For example, some
vehicles and handling and shipping systems are based on U.S. measure-
ment units, while others are based on metric units. In addition, different
specifications and standards have been developed by such organizations
as the American National Standards Institute (ANSI), the American Society
for Testing and Materials (ASTM) and the National Wooden Pallet and
Container Association (NWPCA). So there are currently no universal
standards for pallet size and design.
Figure 6.1.4a—Examples of Palletised Loads
6.1.5 Unit Load Devices Used in the Aviation

Industry
Unit load devices (ULDs) used in the aviation industry fall into two
categories and three main types:
Two Categories:
1. Certified–containers, pallets and nets
2. Non-certified–certain containers only
Three Types:
1. Aircraft Containers–also known as containers or cans
2. Aircraft Pallets

3. Aircraft Pallets/Nets—Pallets/nets are a flat base panel onto which

cargo is placed and a cargo net that is secured over the loaded pallet.
ULDs–usually containers–can be categorized by usage, either:
• General Purpose, or
• Special Purpose.
How much cargo can an aircraft carry? A typical widebody passenger
aircraft carries 16 containers and six pallets. The total load of cargo for
passenger aircraft is up to 40 tonnes, the equivalent of 20 passenger cars.
A freighter aircraft, carrying only cargo, can carry up to 100 tonnes of
cargo, the equivalent of 50 passenger cars.
Figure 6.1.5a—Types of ULDs Used in the Aviation Industry
Figure 6.1.5b—Example of an Aircraft Pallet Net

Key Learning Point

The three types of ULDs used in
the aviation industry are
containers, pallets and
pallets/nets.
Figure 6.1.5c—Example of an Aircraft ULD Container
6.1.5.1 ULD Containers

ULDs are considered to be part of an aircraft's structure. They are
expensive to purchase, made of lightweight materials, and not as robust as
rail and sea shipping containers
Tracking and Tracing

Did You Know? ULDs are tracked and traced through identification codes. The primary
A freighter aircraft can carry up ULD identifier is the ULD ID Code. Here's is an example:
to 100 tons of cargo, the AKE 12345 SA:
equivalent of 50 passenger cars.
• AKE is the ULD Type Code, indicating the type of ULD.
• 12345 is the serial number, which are five digits allocated by the ULD
owner to distinguish between ULDs belonging to the same owner and
ULDs of the same type.
• SA is the Owner Code, which is two alphanumeric characters
identifying the owner. These codes are allocated by IATA.
Handling, Transport and Storage

Unless the ULD is equipped with forklift pockets, ULDs may not be lifted
using forklifts. ULDs should be loaded onto trucks/trailers equipped with
roller/ball beds and must be securely held onto the truck/trailer to prevent it
from moving.
To avoid damage, ULDs cannot be stacked. For efficient storage and good
organisation, it is recommended to group ULDs of the same owner and
type together.

Repair of damaged ULD can be very expensive, so it is important to avoid

damage through careful handling, transport and storage.
ULD Design, Testing and Standards

To enter service with an airline, a certified ULD must undergo a series of
extreme load tests, supervised by the aviation authorities. Until these tests
are passed, an ULD cannot be placed on an aircraft.
During the testing program, the ULD has to prove it can survive some very
high forces, such as an upwards force of almost three times its maximum
working load, and a forwards and backwards load of 1.5 times its maximum
working load, as well as other tests.
During testing, an ULD undergoes huge loads, beyond anything that
happens during a normal flight, but like every other system on the aircraft,
proving that the ULD can survive the exceptional conditions that may
occur.
Every single item on an aircraft also has to be as light as possible. This
makes the challenge even more difficult for the designer of an ULD, as he
has to use as lightweight structures as possible, while maintaining the
required strength.
Journey of an ULD on an Aircraft

Let's look at the journey of a container-type ULD during air transport, after
it is loaded with cargo at a freight forwarder's facility. The following steps
are then used to handle and transport the container:
1. It is transported by truck to the airport where it is unloaded at the cargo
terminal.
2. It is handled through the cargo terminal and stored awaiting the flight.
3. It is loaded to a dolly and towed to the aircraft.
4. It is moved to the loader and lifted to the door of the aircraft.
5. It is moved into the aircraft and locked in place.
6. It is flown to its destination airport.
7. It is moved out of the aircraft onto the loader.
8. It is lowered to the ground level dolly.
9. It is towed to the cargo terminal.
10. Cargo is unloaded from the ULD and the ULD is returned to storage.
How is the safety of the ULD ensured during a flight? If a ULD is not firmly
secured to the cargo hold floor, it may move around with catastrophic
consequences.
Conditions during flights place very high forces on cargo and baggage,
which will be thrown around unless held securely in place. Occasionally,
extreme flight conditions such as an aborted take-off, severe turbulence,
emergency descent and emergency braking occur. In these conditions, the
ULD would be exposed to extreme loads.
Cargo can be large and heavy like an aircraft engine or comprise many
small packages in a container or on a pallet. Regardless of size, if cargo
breaks loose, it can damage important aircraft systems, such as control
cables, electrical and hydraulic lines and even the aircraft structure. This
can lead to the aircraft becoming unable to fly.

For all of these reasons, it is essential that an ULD be securely locked in

place on the cargo floor. An ULD is fixed to the floor of the aircraft in key
places using locks.
Damaged ULDs
There is only a small gap for the
ULD base to fit under the locks in
the cargo hold. If the base of the
container or pallet is bent or
damaged, it may obstruct the
operation of the locks. If this
Key Learning Point case, the ULD is not safe to fly
Damaged ULDs that cannot be and must be offloaded. The key
properly secured in the cargo is to remember that ULDs that
hold must be offloaded from the cannot be properly secured in
aircraft. the cargo hold must be offloaded
to ensure flight safety.

Progress Check
1. Match the cargo handling system or process with its definition.

(i) Palletising
(ii) Unitisation
(iii) Containerisation
(a) The process of combining individually packaged products into
a larger, stable, unit load convenient for handling, shipping and
storage.
(b) A system of freight transport based on a range of steel
intermodal containers, built to standardised dimensions.
(c) The assembly of one or more packages on a pallet base and
securing the load to the pallet.
2. What is the key different between a swap body and standard ISO
container?
(a) Swap bodies have a lightweight design that minimizes empty
weight.
(b) Swap bodies are stackable or liftable and suitable for all transport
modes.
(c) Swap bodies have different widths of corner fittings.
(d) Swap bodies have greater mechanical strength.
3. Which of the following is an example of a cargo container designed for

general use?
(a) Thermal
(b) Tank
(c) Named cargo
(d) Ventilated
4. What is the maximum gross weight for a 20-ft cargo container,

including the container's tare weight and contents?
(a) 27,000 kg
(b) 24,000 kg
(c) 22,000 kg
(d) 20,000 kg

5. Which type of train system is used to shipped different types of cargo?

(a) Trainload
(b) Wagonload
(c) Consolidated wagonload
(d) Both b and c
6. What is the carrying capacity of the largest container ships?

(a) 5,000–8,000 TEU
(b) 8,000–11,000 TEU
(c) 11,000–14,500 TEU
(d) 12,000–15,500 TEU
7. The most common construction materials for pallets is:

(a) Lumber
(b) Plastic
(c) Steel
(d) Aluminum
8. The majority of maritime vessels are fully cellular ships designed for
the exclusive purpose of transporting containers. True or False?
9. Pallets are used for most air cargo, as they provide more flexibility in
operations. True or False?

Module Summary
Unitisation involves the repackaging various cargo items of relatively small
size into larger units of a standard size. Containerisation is a system of
freight transport based on a range of steel intermodal containers, which
have standard dimensions. Both unitisation and containerisation have
significantly improved efficiency and reduced the cost of transporting mass
cargo.
Cargo containers fall into one of three categories, general, specific and
lighter weight swap bodies that do not meet ISO standards for mechanical
strength. The type of container used to house cargo will depend on the
type of cargo and the vehicles and handling equipment used. The unit used
to measure container capacity is the TEU (twenty-foot equivalent unit),
which refers to the length of the standard container box.
There are three types of unit load devices (ULDs) used in the aviation
industry—containers, pallets and pallets/nets. Containers have an en-
closed body and are generally used for baggage and certain types of cargo
requiring greater security. Pallets/nets are a flat base panel onto which
cargo is placed and a cargo net that is secured over the loaded pallet.
Pallets are used for most air cargo, as they provide more flexibility in
operations.

Answer Key
Progress Check
1. Answers:
(i) c
(ii) a
(iii) b
2. a
3. d
4. b
5. d
6. c
7. a
8. True
9. True

Module 7:
Transportation of Dangerous Goods
7.0 Transportation of Dangerous Goods
Module Overview
Dangerous goods (DGs) are solids, liquids, or gases that can pose a risk to
Module Learning properties. They are usually classified with reference to their risks and
divided into nine classes. Dangerous goods include materials that are
Objectives radioactive, flammable, explosive, combustible, infectious, corrosive, oxi-
On completion of this module dizing, toxic and miscellaneous dangerous substances and articles. They
you should be able to: also include compressed gases and liquids.
• Describe international Dangerous goods are often subject to chemical regulations. The most
regulations related to the widely applied regulatory scheme is that for the transportation of danger-
transport of dangerous ous goods. The United Nations Economic and Social Council issues the
goods, including the UN UN Model Regulations on the Transport of Dangerous Goods, which form
Model Regulations. the basis for most regional and national regulatory schemes.
• State the definition of This module will cover the various regulations governing the safe transpor-
dangerous goods and list tation of dangerous goods by various transport modes—air, rail, road and
the nine classes of marine. It will also discuss regulation of the transportation of dangerous
dangerous goods. goods by multimodal transport.
• Explain the key provisions of
the IATA Dangerous Goods 7.1.1 Introduction
Regulations and the ICAO
Technical Instructions. The United Nations Econ-
omic and Social Council is-
• Explain the regulations sues the UN Model Regu-
respecting the air transport lations on the Transport of
of dangerous goods in Dangerous Goods, which
passenger baggage. form the basis for most re-
• List special requirements for gional and national regulat-
the air transport of infectious ory schemes. The regu-
substances and lithium lations are addressed to
batteries. governments and inter-
national organizations con-
cerned with the regulation of
the transport of dangerous
goods. They do not apply to
the bulk transport of danger-
ous goods in sea-going or
inland navigation bulk car-
riers or tank-vessels. These
are subject to special inter-
national or national regu-
lations.
The UN Subcommittee of Experts on the Transport of Dangerous Goods
(SCoETDG) develops recommended procedures for the transport of all
types of dangerous goods except radioactive materials. Applicable to all
modes of transport, these procedures are published in the Recommen-
dations on the Transport of Dangerous Goods—Model Regulations (16th
revised edition). The International Atomic Energy Agency (IAEA) is the
body that develops recommended procedures for the safe transport of
radioactive materials.
Module 7: Transportation of Dangerous Goods 253

The International Civil Aviation Organization (ICAO) has used these

recommended procedures as the basis for developing the regulations for
the safe transport of dangerous goods by air. The ICAO regulations are
codified in Annex 18 to the Convention on International Civil Aviation and in
its Technical Instructions for the Safe Transport of Dangerous Goods by Air
(Doc 9284-AN/905 as amended) (Technical Instructions).
The IATA Dangerous Goods Regulations (the Regulations) contain all of
Key Learning Point the requirements of the Technical Instructions. IATA has drawn on its
Most regional and national extensive experience to give special attention to the format and wording of
regulatory schemes are based these Regulations. They are available in a readily understandable and
on the UN Model Regulations on easy-to-use manual.
the Transport of Dangerous
Similarly, the International Maritime Organization (IMO) has developed the
Goods.
International Maritime Dangerous Goods Code (IMDG Code) for the
transportation of dangerous goods on the high seas. In addition to this
code EU developed special rules for the transport of dangerous goods by
rivers called the European Agreement concerning the International Car-
riage of Dangerous Goods by Inland Waterways (ADN). The Intergovern-
mental Organisation for International Carriage by Rail has developed the
Regulations concerning the International Carriage of Dangerous Goods by
Rail (RID). Dangerous Goods transported by road are regulated mainly on
a national basis. An example is the European Agreement concerning the
International Carriage of Dangerous Goods by Road (ADR)
Many individual nations have also structured their dangerous goods
transportation regulations to harmonize with the UN Model in organisation
as well as in specific requirements.
Also developed by the UN, the Globally Harmonized System of Classifi-
cation and Labeling of Chemicals (GHS) is an internationally agreed upon
system set to replace the various classification and labelling standards
used in different countries. GHS uses consistent criteria for classification
and labelling on a global level. It includes the following elements:
• Harmonised criteria for classifying substances and mixtures according
to their health, environmental and physical hazards; and
• Harmonised hazard communication, including requirements for label-
ing and safety data sheets.
In the area of transport, the GHS calls for containers of dangerous goods to
be marked with pictograms addressing acute toxicity, and physical and
environmental hazards. It also requires that workers in the transport sector
be trained on the safe handling of dangerous goods, similarly to workers in
other sectors.
The first version of the GHS was published in 2003. Since then, it has been
updated, revised and improved every two years as needs arise and
experience is gained in its implementation. The most recent version is
GHS 2010.

Dangerous goods are divided into nine classes on the basis of their
specific chemical characteristics producing the risk. See Table 7.1.1.
Class Description Examples

1 Explosives Fireworks, Ammunition
2 Gases Flammable Gases: Acetylene,
Hydrogen
Non-Flammable, Non-Toxic Gases:
Nitrogen, Carbon Dioxide, Refrigerant
Gases
Toxic Gases: Chlorine (gas),
Ammonia
3 Flammable Liquids Ethanol, Methanol, Hexane
4 Flammable Solids Sulphur
5 Oxidizing Substances Oxidizing Substances: Sodium
and Organic Peroxides Peroxide, Calcium Hypochlorite
(pool chlorine)
Organic Peroxides: Methyl Ethyl
Ketone Peroxide
6 Toxic and Infectious Toxic Substances: Sodium Cyanide
Substances
Infectious Substances: Clinical or
Medical Waste
7 Radioactive Material Tritium
8 Corrosive Substances Hydrochloric Acid, Sodium Hydroxide
9 Miscellaneous Asbestos, Dry Ice, Lithium Batteries
Dangerous Substances
and Articles
Table 7.1.1—Classification of Dangerous Goods
Source: UN Model Regulations on the Transport of Dangerous Goods
Dangerous goods are assigned UN numbers and proper shipping names

according to their hazard classification and composition.
Dangerous goods are also often indicated by diamond-shaped signage on
their packaging, which may be colour-coded. For example:
• Flammable substances will have a red diamond.
Did You Know? • Explosives will have an orange diamond.
Gases classified as dangerous • Non-flammable, non-toxic gases will have a green diamond.
goods for the purpose of • Oxidizing agents and organic peroxide will have a yellow diamond.
transport may be either
flammable, non-flammable/non-
toxic or toxic.

Figure 7.1.1—Examples of Dangerous Goods Labels
7.1.2 UN Model Regulations on the Transport of

Dangerous Goods
The goal of the UN Model Regulations is to provide a model for uniform
development of national and international regulations on the transport of
dangerous goods by various modes, while remaining sufficiently flexible to
allow special requirements to be met. The Model Regulations lay out
principles for governments and international organizations to follow when
developing regulations, thereby contributing to worldwide harmonisation of
regulations concerning hazardous goods transport.
The following paragraph from the introduction to the Model Regulations
summarises the general principles underlying the regulation of hazardous
goods transport:
“Transport of dangerous goods is regulated in order to prevent, as far as
possible, accidents to persons or property and damage to the environment,
the means of transport employed or to other goods. At the same time,
regulations should be framed so as not to impede the movement of such
goods, other than those too dangerous to be accepted for transport. With
this exception, the aim of regulations is to make transport feasible by
eliminating risks or reducing them to a minimum. It is a matter therefore of
Key Learning Point safety no less than one of facilitating transport.”
Transport of dangerous goods is The Model Regulations cover principles of classification and definition of
regulated to help prevent classes, listing of the principal dangerous goods, general packing require-
accidents to persons or property ments, testing procedures, marking, labelling or placarding, and transport
and damage to the environment, documents. The Model Regulations also include special provisions appli-
the means of transport used or cable to the transport of particular classes of goods, including explosives,
to other goods. gases, toxic and infectious substances, and radioactive materials.
The Model Regulations general provisions concerning transport operations
by all modes of transport include the following:
“Dangerous goods shall not be offered for transport unless:
• Goods have been properly classified, packed, marked, labelled and
described and certified on a dangerous goods transport document; and

• Goods are in a fit condition for transport as required by these

Regulations, and no dangerous residue of the dangerous goods
adheres to the outside of the package.
Dangerous goods shall not be transported unless:
• Cargo transport units have been appropriately marked, labelled and
placarded; and
• Cargo transport units are otherwise in a condition for transport as
required by these Regulations.”
Chapter 7 of the Model Regulations contains more specific provisions for
the transport of dangerous goods by road, rail, air and marine transport.
7.1.3 Transport of Dangerous Goods by Air

The IATA Dangerous Goods Regulations (IATA DGR) are based on the
requirements of Annexe 18 of the Chicago Convention and the ICAO
Key Learning Points Technical Instructions for the Safe Transport of Dangerous Goods by Air
• The IATA DGR contain all of (ICAO TI). The IATA DGR contains all of the requirements of the ICAO TI,
the requirements of the with additional requirements that are more restrictive and reflect industry
ICAO TI, with additional standards or operational requirements of IATA members. The ICAO TI
requirements that are more concerns ICAO member states and consequently includes state variations.
restrictive and reflect The IATA Dangerous Goods Regulations are published by the IATA
industry standards or Dangerous Goods Board pursuant to IATA Resolutions 618 and 619 and
operational requirements of constitute a manual of industry carrier regulations to be followed by all
IATA members. IATA Member airlines. The Civil Aviation Authority (CAA), which is the
• The ICAO TI concerns ICAO aviation national regulatory body, enforces these regulations within airlines
member states and and airports.
consequently includes state As with all potentially hazardous activities, awareness of the dangers and
variations. regulations related to the handling and transport of dangerous goods is key
to maintaining safety and preventing accidents. In May 1996, insufficient
safety awareness was a contributing factor in the crash of a DC-9 ValueJet
aircraft in the Florida Everglades, after hazardous materials caused a
severe fire onboard. Generally, regulations require that all staff who
processing cargo may encounter dangerous goods, whether ground-based
or airborne, be trained every two years.
Following is a discussion of some of the key safety regulations in IATA
DGR and ICAO TI.
7.1.3.1 Dangerous Goods Accepted and Forbidden

on Aircraft
When discussing dangerous goods being transported on aircraft, we
Did You Know? generally mean cargo. Dangerous goods are prohibited in passenger
Dangerous goods are prohibited baggage, with a few exceptions. The issue of dangerous goods in
in passenger baggage, with a passenger baggage will be discussed later in this lesson.
few exceptions. Articles and substances classified as dangerous goods have various
limitations imposed on them, depending on how dangerous they are. Some
goods are considered too hazardous to transport by air, while others may
be limited to transport on only cargo aircraft. Some goods may be
acceptable on both cargo and passenger aircraft. Certain dangerous goods
normally not acceptable for air transport may be transported under
exemption by the state of origin, the state of destination and all states to be
over-flown.

Dangerous goods forbidden on aircraft under any circumstances include:

• Explosives that ignite or decompose when subjected to a temperature
of 75°C (167°F) for 48 hours.
• Explosives containing both chlorates and ammonium salts.
• Explosives containing mixtures of chlorates with phosphorous.
• Solid explosives that are extremely to moderately sensitive to mechan-
ical shock.
• Any article or substance that is liable to produce dangerous heat or gas
under the conditions normally encountered in air transport.
• Flammable solids and organic peroxides having explosive properties
that would require the use of an explosives label as a subsidiary risk
label.
It must be noted that it is impossible to list all dangerous goods which are
forbidden in aircraft under any circumstances. It is therefore essential that
appropriate care be exercised to ensure that no such goods are offered for
transport.
The following dangerous goods are also forbidden, unless exempted as
described below:
1. A radioactive material which is in:
• Vented type B(M) packages;
• Packages that require external cooling by an ancillary cooling
system; or
• Packages subject to operational controls during transport;
2. Explosives;
3. A pyrophoric liquid;
4. Unless otherwise provided, articles and substances (including those
described as “not otherwise specified”) with a UN number, which are
identified in the List of Dangerous Goods as being forbidden;
5. Infected live animals;
6. Liquids having a vapour inhalation toxicity that requires Packing Group
I packaging;
7. Substances that are offered for transport in a liquid state at tempera-
tures equal to or exceeding 100°C (212°F), or in a solid state at
temperatures equal to or exceeding 240°C (464°F); or
8. Any other articles or substance as specified by the appropriate national
authority.
Airlines require a permanent approval to transport dangerous goods on
aircraft, with the exception of the following four cases:
• Articles and substances required for the aircraft's airworthiness, such
as oxygen and fire extinguishers.
• Catering or cabin service supplies, such as dry ice and alcohol.
• Veterinary aids or humane killers for animals.
• Medical aids for passengers, such as oxygen or electric wheel chairs.

The Universal Postal Union prohibits all dangerous goods in airmail with
two exceptions:
• Infectious substances may be accepted, provided the consignment is
accompanied by a Shippers Declaration, and it may be refrigerated
with dry ice.
• Radioactive material may also be accepted if it has very low activity.
Did You Know?
Very small quantities of some dangerous goods may be transported in
Most dangerous goods are such a manner that they are excepted from marking, labelling and
prohibited in airmail, with the documentation requirements. This is known as ‘Dangerous goods in
exception of infectious Excepted Quantities’ and is only applicable to goods acceptable on
substances and low activity passenger aircraft. It also does not apply to passenger baggage or airmail.
radioactive material.
How can we quantity what is meant my very small quantities? Some
examples of the very small quantities of dangerous goods permitted are as
little as 1g or 1mL for solids or liquids of some toxic substances. Non-
flammable/non-toxic gases are limited to containers with a water capacity
of 30mL. For more specific information about the very small quantities
permitted, check the Regulations. The combination of packages in an outer
package allows with a few exceptions:
• For substances in Packing Group (PG) I, a limit of 300g or 300ml.
• For substances in PG II, a limit of 500g or 500ml.
• For substances in PG III, a limit of 1L or 1Kg.
Always refer to the ICAO TI or IATA DGR for details.
Hidden Dangerous Goods

General cargo may contain hazardous articles that are not apparent.
Such articles may also be found in baggage. With the aim of preventing
undeclared dangerous goods from being loaded on an aircraft and
passengers from taking on board those dangerous goods, cargo and
passenger acceptance staff should seek confirmation from shippers
and passengers about the contents of any item of cargo or baggage
where there are suspicions that it may contain dangerous goods.
Some examples of such goods are:
• Automobiles and automobile parts;
• Breathing apparatus;
• Camping equipment;
• Diagnostic specimens;
• Electrical equipment;
• Frozen fruits, vegetables and other frozen foods;
• Household goods;
• Medical supplies;
Key Learning Point
• Promotional material;
Most dangerous goods must
always be transported in • Show, motion picture, stage and special effects equipment;
approved packages, recognized • Media equipment; and
by the UN mark.
• Unaccompanied passenger baggage/personal effects.

7.1.3.2 Packaging, Marking, Labelling and

Documentation of Dangerous Goods
The shipper is responsible for packing and all necessary marking and
labelling of each package of dangerous goods and each overpack
containing dangerous goods, Each package must be of such a size that
there is adequate space to affix all required markings and labels.
Classification criteria for each class and division of dangerous good are
stipulated in Section 3 of the IATA DGR. Advice on the correct classifi-
cation of a substance should be sought from the manufacturer or distributor
of the substance. In addition, classification may be performed by an
accredited testing laboratory or advice can be sought from the competent
authority.
Packing Groups
There are three packing groups indicating the degree of hazard a
substance or article may present. They are:
• Packing Group I–great danger
• Packing Group II–medium danger
• Packing Group III–minor danger
Most substances have been assigned to a packing group based on
technical criteria, but some have been assigned based on experience. It is
the shipper's responsibility to ensure that an article or substance is
identified and classified correctly and that it is packed in compliance with
the relevant regulations. The airline must comply with the requirements for
acceptance, storage, loading, inspection, providing the necessary infor-
mation for transport, emergency response, retention of records and
training. Crew must use the checklist issued by IATA to carry out an
acceptance check on dangerous goods.
Packaging
Dangerous goods must always be transported in approved packages,
unless they are acceptable in ‘Excepted quantities’ or ‘Limited quantities,’
or if they are not restricted. Approved packages are recognised by the UN
Packaging Symbol.
The mark implies that the package's construction has been tested
according to specifications set out in the Regulations. The tests are
definitely not kind to the packages. They are required to survive drops,
heating, drowning, punctures and many other forms of harsh testing.
The UN mark is always followed by a number of codes providing such
information as the type code of packagings, and its packing group,
limitations and year of manufacture.

Marking and Labelling

The correct marking and labelling of packages containing dangerous
goods is extremely important.
For each package and overpack requiring marking, the shipper must:
(a) Check that any relevant marking on the package or overpack already
on the package is in the correct location and meets the quality and
specification requirements;
(b) Remove or obliterate any irrelevant marking already on the package or
overpack;
(c) Ensure that each outer or single packaging used for dangerous goods,
for which specification packaging is required, bears the specification
markings as specified;
(d) Apply any appropriate new marking in the correct location, and ensure
that it is of durable quality and correct specification;
(e) Ensure that his responsibilities for marking are completely fulfilled
when the package or overpack is presented to the operator for
shipment.
The label will identify the package and its contents, which is especially
important if the package has been damaged and there is a risk of
contamination.
For each package and overpack requiring labelling, the shipper must:
(a) Remove or obliterate any irrelevant labelling already on the package or
overpack;
(b) Use only labels of durable quality and correct specification;
(c) Inscribe on each label, in a durable manner, any required additional
information;
(d) Affix the appropriate label(s) in the correct location(s) and in a secure
manner;
(e) Ensure that the responsibilities for labelling are completely fulfilled
when the package or overpack is presented to the operator for
shipment.
No dangerous good may be loaded on an aircraft with a damaged or
missing label. The reason for this is that if a package is damaged in flight
and contains an infectious substance or a toxin with an inhalation hazard,
the person opening the cargo hatch will be in close proximity to it before he
sees the danger involved. However, damaged packages containing most
other forms of dangerous goods can be found without causing significant
personal danger.

Documentation
There are three documents that must accompany all forms of dangerous
goods shipped as air cargo, except those shipped in Excepted Quantities.
They are the:
• Air waybill;
• Shippers Declaration for Dangerous Goods; and
Key Learning Point • Special load—Notification to Captain (NOTOC). This document is

completed by the operator, signed by the person responsible for
The three documents that must loading the aircraft and given to the captain.
accompany all forms of
dangerous goods shipped via air An air waybill must be completed for all air cargo. If the cargo contains
are the: dangerous goods, the Air Waybill must include all relevant hazard
information. A detailed explanation of the air waybill is provided in
• Air waybill Module 3. Transport Management.
• Shippers Declaration for The Shippers Declaration for Dangerous Goods must include the following
Dangerous Goods information:
• Special load—Notificiation • Shipper
to Captain
• Consignee
• Air waybill number
• Numbers of pages
• Aircraft limitations: ‘Passenger and cargo aircraft’ or ‘Cargo aircraft
only’
• Airport of departure
• Airport of destination
• Shipment type: ‘Radioactive’ or ‘Non-radioactive’
• Nature and quantity of dangerous goods
• Additional handling information (special handling requirements)
• Name and title of signatory
• Place and date
• Signature
The lower half of the Shippers Declaration for Dangerous Goods serves as
the ‘Nature and Quantity of Dangerous Goods’ statement. The shipper or
handling agent completes this document. The declaration form must be
signed and dated by the shipper or a designated representative and
included in documentation accompanying the shipment.
The NOTOC is a special form prepared by the operator of the aircraft
carrying DG. It is given to the pilot-in-comand as soon as practicable prior
to departure of the aircraft. This document must include information about
nature of DG, the number of packages, category of danger and loading
position. It must also confirm that packages are not damaged or leaking.

7.1.3.3 Handling Dangerous Goods Spills and

Emergencies
If a package of dangerous goods has been damaged to the extent that it
spills its contents, cargo handlers must deal with the situation promptly and
correctly. In all cases, everyone not immediately required in the vicinity
must be kept well away. Anyone who may have been affected by the spill
(harmed or contaminated) must be taken care of and their names and
addresses noted.
The person supervising the situation must consult a suitable Dangerous
Goods Emergency Chart (ICAO Doc. 9481) to see what immediate
remedial action may be required.
Expert help should be sought as soon as possible. The local telephone
directory is usually the best way of identifying expert help. In the case of
leaking toxins, for example, you could call the nearest hospital or poison
control centre and get help from their toxicologists.
In case of a contamination incident, all agents handling cargo should have
readily available a Dangerous Goods Emergency Chart listing the hazards
posed by the various types of dangerous goods and the immediate actions
to take. Cargo handlers should also have at hand the procedures and kits
required to handle this type of emergency.
Table 7.1.3.3—Sample Dangerous Goods Emergency Chart

Source: IATA Dangerous Goods Training Program, Workbook 1

7.1.3.4 Dangerous Goods in Passenger Baggage

As mentioned previously, dangerous goods are not permitted in passenger
baggage. Passengers do, however, often pack hazardous articles and
substances without knowing that it is dangerous and jeopardising their life.
The problem is that hazardous substances in passenger baggage can
pose a greater threat to air safety than cargo, as they may easily find their
way onto an aircraft unnoticed. The travelling public cannot be expected to
have the knowledge of the characteristics of air transport that airline
Key Learning Points professionals have, or even of the potential dangers of articles they carry in
• Hazardous substances in their baggage. Therefore, it is the responsibility of all staff involved in
passenger baggage can passenger and luggage handling, as well as air crews, to be vigilant to
pose a greater threat to air signs of potential hazards. The airline has the final responsibility to ensure
safety than cargo, as they that passengers are informed and aware of regulations and technical
may easily find their way instructions regarding which items are not permitted in passenger bag-
onto an aircraft unnoticed. gage.
• A list of items not permitted According to the IATA DGR: “Dangerous goods must not be carried in or
in checked or carry on as passengers or crew, checked or carry-on baggage, except as otherwise
baggage must be provided provided below” (See Figures 7.1.3.4a and 7.1.3.4b)
to passengers at check-in
counters, as provided when
tickets are issued.
Figure 7.1.3.4a—IATA Checklist for Determining whether Dangerous Goods

are Permitted in Baggage or one One's Person

Figure 7.1.3.4b—IATA Checklist for Determining whether Dangerous Goods

are Permitted in Baggage or one One's Person (continued)
Information about dangerous goods in baggage must be provided to

passengers. At a minimum, this must consist of placards at check-in
counters listing items that are not permitted. The same information must be
provided to passengers on airline websites or through another means at
flight booking. Though it might prove difficult or impractical if there are long
lineups at check in counters, it is good practice for all check-in staff to ask
each passenger if they are carrying any of the articles listed on placards.
Key Learning Point
Airlines must provide airline 7.1.3.5 Dangerous Goods Training
employees with dangerous Dangerous Goods training are mandated by ICAO in its Technical
goods refresher training within Instructions for the Safe Transport of Dangerous Goods by Air. This
24 months of previous training, dangerous goods training requirement is implemented by the national
unless a competent authority competent authority of each member state.
has defined a shorter period.
Recurrent (refresher) training must take place within 24 months of previous
training to ensure that knowledge is current, unless a competent authority
has defined a shorter period.

The primary objective of dangerous goods training is safety. The training

must include the following:
• General familiarisation training—to provide the student with an under-
standing of the general philosophy and main provisions of the
regulations.
• Function specific training—to provide the student with detailed training
on the requirements applicable to the job function for which the student
will be responsible.
• Safety training—to provide the student with an understanding of the
hazards presented by dangerous goods, as well as safe handling and
emergency response procedures to be followed.
Depending on the job-function, this may entail only familiarisation training
or it may also include more detailed training on the intricacies of the IATA
DGR. All categories of personnel involved directly or indirectly in the
movement of DG by air must be trained according to their responsibilities.
DGR table 1.5.A (Figure 7.1.3.5) indicates the subject matter to be covered
for each of the categories of staff. A test must be provided after DG
Training, and the passing mark is at least 80%. The test should be
designed to enable the participants to demonstrate an understanding of all
the subjects covered. The difficulty level should be such that the final test
challenges the ability of the participants to perform their specific job
functions in compliance with the DGR.
Figure 7.1.3.5—Dangerous Goods Training Requirements - IATA DGR

Even Operators that do not carry dangerous goods as cargo, mail or stores
must ensure that personnel must receive training in the requirements
commensurate with their responsibilities.
The training records must be retained by the employer for a minimum
period of thirty-six months from the most recent training completion date
and must be made available upon request to the employee or appropriate
national authority.
7.1.4 Air Transport of Infectious Substances

Did You Know?
Infectious substances contain 7.1.4.1 Definition
pathogens or microorganisms
The IATA Document Infectious Substances
that can cause disease in
Shipping Guidelines provides guidance on com-
humans and animals if exposure
plying with the provisions for the air transport of
occurs.
infectious substances in the IATA DGR and
Pathogens may be contained in ICAO TI. The Guidance Document defines in-
cultures, patient specimens, and fectious substances as substances that are
medical or clinical wastes classified in Division 6.2 according to the classi-
shipped via air transport. fication criteria in the UN Model Regulations.
Division 6.2 includes substances that are infec-
tious to humans and/or animals, genetically
modified micro-organisms and organisms
(pathogens), biological products, patient speci-
mens and clinical and medical waste.
Pathogens may be contained in cultures, patient specimens, and medical
or clinical wastes. Cultures result from a process in which pathogens are
intentionally propagated. Patient specimens are collected directly from
humans and animals. They include blood and its components, tissue and
tissue fluid swabs, excrement and urine. They also include body parts
being transported for such purposes as medical research, diagnosis, or
disease treatment and prevention. Medical or clinical wastes are derived
from the medical treatment of humans or animals, or from bio-research.
The IATA Infectious Substances Shipping Guidelines give information
applicable to the transport of infectious substances by other modes of
transport including sea, road, rail, and through mail and courier systems. In
general, the requirements for the transport of dangerous goods by air are
more restrictive than the surface modes of sea, road or rail. Therefore,
compliance with the air regulations will, with some exceptions, be sufficient
to meet other modal requirements.
7.1.4.2 Classification
Infectious substances must be classified in Division 6.2 and assigned to
either UN 2814, UN 2900, UN 3291 or UN 3373, as appropriate.
Infectious substances are classified according to the level of health and
safety risk they pose, as either Category A or Category B. Category A
Infectious Substances are capable of causing permanent disability, or life-
threatening or fatal disease in otherwise healthy humans or animals, if
exposure occurs. They are assigned the following UN numbers and proper
shipping names:

• UN 2814–Infectious Substance, affecting humans; or

• UN 2900–Infectious Substance, affecting animals only.
Assignment to UN 2814 or UN 2900 is based on the known medical history
and symptoms of the source human or animal, or professional medical
judgment concerning the source human or animal. Medical or clinical
wastes containing Category A infectious substances must be assigned to
Key Learning Points UN 2814 or UN 2900, as appropriate. If there is any doubt as to whether or
not a pathogen falls within this category, it must be transported as a
• Category A Infectious
Category A Infectious Substance.
Substances may cause
permanent disability, or life- Category B Biological Substances are infectious substances that do not
threatening or fatal disease meet the criteria for inclusion in Category A. They are assigned the
in otherwise healthy humans following UN numbers and proper shipping names:
or animals, if exposure
occurs. • UN 3373–Biological Substance, Category B; or
• Less potentially harmful • UN 3291–Medical or Clinical Waste, Category B.

infectious substances are Biological substances and medical or clinical wastes containing infectious
classified as Category B substances must be assigned to either UN 3373 or UN 3291, as
Biological Substances. appropriate.
7.1.4.3 Packing, Labelling and Marking

Infectious substances (Cate-
gory A and B) and patient
specimens must be packaged
in a three-part system. Pack-
agings used for infectious
substances in Category A,
UN 2814 and UN 2900, must
pass the performance test
standard. The packaging sys-
tem comprises a primary re-
ceptacle, secondary packag-
ing and an outer packaging.
Labels and markings on the package are an essential source of information

to communicate to everyone involved in the transportation process the
contents of the package, the nature of the hazard and the applied
packaging standards.
All markings must be:
• Durable and printed or otherwise marked on, or affixed to, the external
Key Learning Point surface of the package or overpack;
Infectious substances (Category • Readily visible and legible; and
A and B) and patient specimens
must be packaged in a three- • Able to withstand open weather exposure.
part system. For each such package and overpack requiring labelling, the shipper must
remove or obliterate any irrelevant labelling already on the package or
overpack. He must use only labels of durable quality and correct
specification, The appropriate label must be affixed in the correct location
and in a secure manner.

Figure 7.1.4.3—Sample Packaging, Marking and Labelling of an Infectious

Substance
7.1.4.4 Employee Training

Effective employee training and appropriate emergency response pro-
cedures are required to significantly minimize the risk of exposure and
subsequent transmission of infection or disease. For that reason, IATA and
ICAO mandate that all persons involved in the transportation of dangerous
goods must undertake dangerous goods training. This training consists of:
Key Learning Points • General familiarisation training—an awareness of the nature of all
classes of dangerous goods and the general requirements;
• In the event that a spill of an
infectious substance occurs, • Job specific training—providing detailed training in the requirements
you should isolate the spill applicable to the job function for which the person is responsible; and
area immediately and keep
unauthorized personnel • Safety training—which must cover the hazards presented by danger-
away. ous goods, safe handling and emergency procedures.
• Avoid any direct contact with Shippers of infectious substances and biological products must undergo
the spilled material and relevant function specific training. The details of this training will depend on
report the spill to the the work done in relation to the movement of the dangerous goods.
appropriate authorities.
7.1.4.5 Emergency Response Procedures
Should a spill or leak occur from a damaged package containing an
infectious substance, do not attempt to clean-up or dispose of it yourself.
Do not touch, walk through or have any direct contact with spilled material.
Clean up and disposal should be done only under the supervision of a
specialist.
You should also take the following steps to ensure the health and safety of
passengers and other personnel, as well as yourself:
• Isolate the spill or leak area immediately.
• Keep unauthorized personnel away from the affected area.
• If possible, determine the type of substance involved and report the
spill to the appropriate authorities.
• Wear appropriate protective clothing and gear during clean up.

• Be particularly careful to avoid contact with broken glass or sharp

objects that may cause cuts or abrasions that could significantly
increase the risk of exposure.
• Cover the damaged package or spilled material with a damp towel or
rag and keep wet with liquid bleach or other disinfectant. Liquid bleach
will generally effectively inactivate the released substance.
If any person is exposed to the infectious substance/spill through inha-
lation, ingestion or skin contact, move them to a safe isolated area. Be
aware that exposed person(s) may be a source of contamination. Persons
administering first aid should take precautions to avoid personal exposure
or secondary contamination of others.
Take the following steps to provide first aid to exposed persons:
• Call emergency medical services.
• If clothing and/or shoes are significantly contaminated, remove and
isolate them. However, do not allow this to delay other first aid
interventions.
• In case of contact of the substance to skin, eyes, nose or mouth,
immediately flush the exposed area with copious amounts of running
water. Continue this until emergency medical services arrive. Follow
their advice for further decontamination.
You should also ensure that medical personnel are aware of the
substances involved, so they can take precautions to protect themselves.
For further assistance, contact the appropriate public health authority.
7.1.5 Transport of Dangerous Goods by Land

and Sea
This section will cover the regulations concerning the transport of danger-
ous goods for other modes—road, rail, sea—as well as by multimodal
transport.
7.1.5.1 Transport of Dangerous Goods by Road

Applicable to European Union countries, the European Agreement con-
cerning the International Carriage of Dangerous Goods by Road (ADR)
allows dangerous goods travelling by road through more than one country
to be exempt from domestic laws in those countries, provided that the
requirements spelled out in the ADR are fully met. However, the ADR has
no provisions for enforcement. Therefore, in cases where a vehicle
Key Learning Point travelling under the ADR does not comply in full, the vehicle becomes
The ADR allows dangerous subject to all domestic requirements. In such cases, any enforcement
goods travelling by road through action taken would be determined by the relevant domestic laws and
more than one European regulations.
country to be exempt from
ADR is comprised of two parts or annexes:
domestic laws in those
countries, provided that its • Annex A: General provisions and provisions concerning dangerous
requirements are fully met. articles and substances, including:
ż A dangerous goods list, based on the nine classifications listed in
Table 5.1.1;
ż Packing and tank provisions;
ż Consignment procedures;

ż Requirements for the construction and testing of packagings,

intermediate bulk containers (IBCs), large packagings and tanks;
and
ż Provisions concerning the conditions of carriage, loading, un-
loading and handling.
• Annex B: Provisions concerning transport equipment and transport
operations, covering requirements for:
ż Vehicle crews, equipment, operation and documentation; and
ż The construction and approval of vehicles.
The ADR has been developed and is updated under the auspices of the
UN Economic Commission for Europe. The UN Working Party on the
Transport of Dangerous Goods of the Committee on Inland Transport is
mandated to propose amendments to the ADR as required to keep it
up-to-date with changes in the inland transport of dangerous goods.
Annexes A and B have been regularly amended and updated since the
ADR became effective in 1968. The latest 2011 edition was published as
document ECE/TRANS/215, Vol. I and II (ADR 2011).
The ADR's current structure is consistent with that of the UN Model
Regulations, the IMDG Code, the ICAO TI and the Regulations concerning
the International Carriage of Dangerous Goods by Rail (RID of the
Intergovernmental Organisation for International Carriage by Rail).
The ADR includes security provisions aimed at ensuring measures and
precautions are taken to minimize theft or misuse of dangerous goods that
may endanger persons, property or the environment. These provisions
include the requirement that all persons engaged in the carriage of
dangerous goods incorporate the ADR's security requirements when
carrying out their duties. This includes being aware of the potential for
dangerous goods to be misused and carrying photo identification during
the carriage of dangerous goods.
Personnel engaged in the transport of dangerous goods also require
security awareness training. Such training should include how to recognize
security risks, methods to address and reduce the risks and actions to take
should a security breach occur.
The ADR makes provisions for high consequence dangerous goods that
have the potential for misuse in terrorist incidents, where they could
produce serious consequences, such as mass casualties and/or mass
destruction. They include explosives, flammable and toxic gases, flam-
mable liquids, infectious substances, radioactive materials and corrosive
substances.
Carriers, consignors and others who transport high consequence danger-
Key Learning Point ous goods are required to develop and implement security plans. A
The RID applies to OTIF's Security Coordinator must be appointed to take full responsibility for the
45 European, Middle-Eastern entire security planning process and manage security threats. The Security
and Maghred (Northwest Coordinator should also be involved in the planning and design of the site's
African) Member States. exterior security and security access points.
7.1.5.2 Transport of Dangerous Goods by Rail

The Regulations concerning the International Carriage of Dangerous
Goods by Rail (RID) are developed by the Intergovernmental Organization
for International Carriage by Rail/Organisation intergouvernementale pour
les transports internationaux ferroviaires (OTIF). The RID applies to OTIF's
45 European, Middle-Eastern and Maghred (Northwest African) Member

States. The regulations are Appendix C of the Convention concerning

International Carriage by Rail (COTIF).
The RID apply to the international carriage of dangerous goods by rail in
the territories of Member States. However, member states retain the right
to regulate or prohibit for reasons other than safety the international
carriage of dangerous goods within state boundaries.
The RID specifies the:
• Dangerous goods that are barred from international carriage;
• Dangerous goods that are authorized for international carriage and the
conditions attaching to them, including:
ż Classification of goods, including classification criteria and relevant
Key Learning Point test methods;
The IMDG Code contains ż Use of packagings, including mixed packing;

internationally agreed guidance ż Use of tanks, including the filling of tanks;
on the safe transport of
dangerous goods by sea, ż Consignment procedures, including the marking and labelling of
particularly regarding the packages, means of transport, and the documentation and infor-
carriage of dangerous goods in mation required;
freight and tank containers. ż Requirements concerning the construction, testing and approval of
packagings and tanks;
ż Use of means of transport, including loading, mixed loading and
unloading.
Dangerous goods that are not accepted for rail carriage under the RID
include explosive substances that are liable to spontaneous reaction or are
deemed unduly sensitive according to the Manual of Tests and Criteria in
the Regulations.
The latest 2011 edition ensures harmonisation with the provisions of the
most current 2007 edition of the UN Model Regulations. The 2011 edition
also simplified the marking provisions for piggyback transport, and
amended the provisions on the carriage of dangerous goods as hand and
registered luggage. It also introduced the requirements to provide written
instructions on handling emergencies involving dangerous goods to
locomotive drivers, based on the dangerous goods provisions for road
transport (ADR).
“Against the background of the increasing cross-border deployment of
locomotive drivers, particularly in the EU, the introduction of a standard set
of written instructions for locomotive drivers on what to do in the event of
an emergency is long overdue,” Stefan Schimming, OTIF's Secretary
General said when the amended regulations were released for comment
by member states in July 2010.
Key Learning Point

7.1.6 Transport of Dangerous Goods by Sea
The Standard Conditions (1992)
Governing the FIATA The International Maritime Dangerous Goods (IMDG) Code is published by
Multimodal Transport Bill of International Maritime Organization and contains internationally agreed
Lading specify the guidance on the safe transport of dangerous goods by sea, particularly
responsibilities and liability of regarding the carriage of dangerous goods in freight and tank containers.
the seller of the dangerous The Code is used primarily by marine shipping operators and applies to the
goods, the consignor of the IMO's 170 member states. But it is relevant to any carrier transporting
shipment and the freight dangerous goods on journeys involving a sea leg.
forwarder or MTO. Individual countries are responsible for implementing the Code under their
own legislation.

The Code sets out basic principles, a dangerous goods classification

scheme, and detailed recommendations for the transport of dangerous
goods containers, as well as materials and articles containing dangerous
substances. It also makes recommendations for good operational practice
in such areas as use of terms, the packing, labelling, stowage, segregation
and handling of dangerous goods, and emergency response actions.
The IMDG Code was adopted at fourth IMO Assembly in 1965. In following
years it was regularly updated and amended in accordance with industry
requirements.
Those amendments originate from two sources:
• Proposals submitted to IMO by member states and;
• Amendments due to changes to the UN Model Regulations on the
Transport of Dangerous Goods.
The IMDG Code is published every two years. For example, the 2008
edition requires, as of January 2010, that shore-based personnel involved
in the sea transport of dangerous goods for sea transport be provided with
appropriate training. The mandatory training requirement was added to the
Code because the IMO recognized that successful application of the Code
depends on shore-based personal having a good knowledge of the risks of
the sea transport of dangerous goods and related regulations.
The IMDG Code have two Volumes:
1. Volume 1 contains seven parts with following sections:
• general provisions, definitions, training
• classification
• packing and tank provisions
• consignment procedures
• construction and testing of packagings, IBCs, large packagings,
portable tanks, MEGCs and road tank vehicles
• transport operations.
2. The Volume 2 includes:
• part 3 (Dangerous Goods List, special provisions and exceptions),
• appendix A (generic and N.O.S. Proper Shipping Names),
• appendix B (Glossary of terms) and an index.
In addition to IMDG Code IMO had published in 2007 special recommen-
dations for safe transport of dangerous goods in port areas. The document
named MSC.1/Circ.1216 is coordinated with IMDG Code and considering
the rules within the port area with the ship targeting smooth operations and
avoidance of misunderstandings between ship and shore.
The Recommendation on Safe Practice on Dangerous Goods in Ports and
Harbours was developed from IMO in 1973 and regularly updated till now.

7.1.7 Multimodal Transport of Dangerous Goods

The regulations previously introduced in this lesson apply to the various
legs (road, road, sea, air) of a multimodal transport operation. The
Standard Conditions (1992) governing the International Federation of
Freight Forwarders Associations' (FIATA) Multimodal Transport Bill of
Lading provide additional guidance on the multimodal transport of danger-
ous goods. The Standard Conditions specify the responsibilities and
liability of the seller of the dangerous goods, the consignor of the shipment
and the freight forwarder or MTO.
The seller is required to comply with national laws and international
conventions respecting the transport of dangerous goods. Before ship-
ment, the seller must also inform the freight forwarder in writing of the
nature of the dangerous goods and the safety precautions to be taken. If
the seller fails to provide such written notification to the MTO, and the
goods are deemed to be a hazard to life or property during transit, the
freight forwarder can have the dangerous goods unloaded, destroyed or
rendered harmless as circumstances require, without having to provide
compensation to the seller.
The seller is also required to indemnify the freight forwarder against any
loss, damage or expense arising from the carriage of the dangerous goods.
If seeking compensation, the Seller must prove that the freight forwarder
knew the exact nature of the danger involved in transporting the dangerous
goods.
The consignor arranging for shipment is responsible for providing the
freight forwarder with the following information about the dangerous goods
before shipment:
• Particulars about their dangerous character;
• Their marks;
• Their number; and
• Their weight and volume.
The consignor is also required to indemnify the freight forwarder against
any loss, damage or expense resulting from any inaccurate or inadequate
information being provided about the shipment.

Progress Check
1. Match the type of dangerous goods with its category.

(i) Toxic Gas
(ii) Flammable Liquid
(iii) Flammable Solid
(iv) Infectious Substances
(v) Miscellaneous Dangerous Substances and Articles
(vi) Corrosive Substances
(vii) Toxic Substances
(viii) Oxidizing Substances
(a) Sodium Peroxide
(b) Sulphur
(c) Medical Waste
(d) Hydrochloric Acid
(e) Sodium Cyanide
(f) Ammonia
(g) Methanol
(h) Lithium Batteries
2. Which organization enforces the IATA Dangerous Goods Regulations

(DGR)?
(a) IATA
(b) United Nations
(c) CAA
(d) ICAO
3. Which of the following statements about the air transport of dangerous

goods is correct?
(a) Some dangerous goods are considered too hazardous to transport
by air.
(b) Some dangerous goods are limited to transport on only cargo
aircraft.
(c) Some dangerous goods are acceptable on both cargo and
passenger aircraft.
(d) All of the above statements are correct.

4. Which of the following materials are forbidden on aircraft under any

circumstances?
(a) Explosives containing mixtures of chlorates with phosphorous
(b) Radioactive material
(c) Infected live animals
(d) Pyrophoric liquids
5. With some exceptions, airlines require a permanent approval to

transport dangerous goods on aircraft.
True or False?
6. The ‘Dangerous Goods in Excepted Quantities’ rule allows very small

quantities of certain dangerous goods to be shipped via air without
meeting the general marking, labelling and documentation require-
ments. Where does the rule apply?
(a) Passenger aircraft
(b) Cargo aircraft
(c) Passenger and cargo aircraft
(d) Airmail
7. Which packing group is associated with dangerous goods that present

minor danger to life and property?
(a) Packing group I
(b) Packing group II
(c) Packing group III
8. Which UN number would be assigned to an infectious substance that

falls under Category B?
(a) UN 2814
(b) UN 2900
(c) UN 3373
9. Which of the following statements about the European Agreement

concerning the International Carriage of Dangerous Goods by Road
(ADR) is correct?
(a) It includes provisions for enforcement in European countries.
(b) It has two annexes that are consistent with the UN Model
Regulations, IMDG Code, ICAO TI and RID.
(c) It is a multinational agreement that does not supersede domestic
laws in European countries.
(d) It was last updated by the UN Economic Commission for Europe in
2008.

Module Summary
Dangerous goods are solids, liquids, or gases that can pose a risk to
properties. They are usually classified with reference to their risks and
divided into nine classes. Dangerous goods include materials that are
radioactive, flammable, explosive, combustible, infectious, corrosive, oxi-
dizing and toxic. They also include compressed gases and liquids.
The United Nations Economic and Social Council issues the UN Model
Regulations on the Transport of Dangerous Goods, which form the basis
for most regional and national regulatory schemes respecting the transport
of dangerous goods.
Also developed by the UN, the Globally Harmonized System of Classifi-
cation and Labeling of Chemicals (GHS) is an internationally agreed upon
system set to replace the various classification and labeling standards
used in different countries. GHS uses consistent criteria for classification
and labeling on a global level.
The IATA Dangerous Goods Regulations (IATA DGR) are based on the
requirements of Annexe 18 of the Chicago Convention and the ICAO
Technical Instructions for the Safe Transport of Dangerous Goods by Air
(ICAO TI). The IATA DGR contain all of the requirements of the ICAO TI,
with additional requirements that are more restrictive and reflect industry
standards or operational requirements of IATA members. The ICAO TI
concerns ICAO member states and consequently includes state variations.
The International Maritime Organization has developed the International
Maritime Dangerous Goods Code (IMDG Code) for transportation on the
high seas. The Code is used primarily by marine shipping operators.
The Intergovernmental Organisation for International Carriage by Rail
(OTIF) has developed the Regulations concerning the International Car-
riage of Dangerous Goods by Rail (RID). The RID applies to OTIF's
45 European, Middle-Eastern and Maghred (Northwest African)
Member States.
European Union countries are signatories to the European Agreement
concerning the International Carriage of Dangerous Goods by Road
(ADR). The ADR is an initiative of the UN Economic Commission for
Europe.

Answer Key
Progress Check
1. Answers:
(i) f
(ii) g
(iii) b
(iv) c
(v) h
(vi) d
(vii) e
(viii) a
2. c
3. d
4. a
5. True
6. a
7. c
8. c
9. b

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IATA Supply Chain & Transport Modes Course eTextbook

Introduction to IATA Supply Chain and Transport Modes Textbook ................................1

Course Guide ......................................................................................................................... 5

Module 1: Introduction to Supply Chain Management .....................................................11

Module 2: Introduction to Freight Forwarding Services...................................................63

Module 3: Introduction to Transport Management............................................................99

Module 5: Multimodal Transport Corridor Routing .........................................................199

Module 7: Transportation of Dangerous Goods..............................................................251

Introduction to IATA Supply Chain and Transport Modes Textbook 3

4 Supply Chain and Transport Modes

How Does the Course Work?

A MINIMUM OF 100 HOURS OF THOROUGH STUDY ARE

It is strongly recommended that you start studying the training

You should aim to write your exam within 12 months!

Registering for the Examination

Day of the Examination

8 Supply Chain and Transport Modes

NAME MARCH 201Y JUNE 201Y SEPTEMBER 201Z

Passing the Examination

Re-Evaluation of Exam Paper

For payment information, please contact examstraining@iata.org or call

IATA Training and Development Institute (ITDI)

IATA Training and Development Institute (ITDI)

Good Luck with the Course!

10 Supply Chain and Transport Modes

1.0 Introduction to Supply Chain Management

Key Learning Point

Module 1: Introduction to Supply Chain Management 13

1.1 What is Supply Chain Management?

1.1.1 Lesson Overview

1.1.2 What is a Supply Chain?

14 Supply Chain and Transport Modes

Module 1: Introduction to Supply Chain Management 15

life-cycle and characteristics, effective communication networks, logistics

1.1.2.1 Example of a Supply Chain: Listerine

16 Supply Chain and Transport Modes

Figure 1.1.2.1—The Supply Chain for Listerine®

1.1.2.2 Key Activities

Supply Chain Activity Sub-Activities

Module 1: Introduction to Supply Chain Management 17

Supply Chain Activity Sub-Activities

Supply Chain Activity Sub-Activities

18 Supply Chain and Transport Modes

Let's consider what each of these activities involve in more detail.

Key Supply Chain Process Activities

Module 1: Introduction to Supply Chain Management 19

Information Flows and Order Processing

20 Supply Chain and Transport Modes

Module 1: Introduction to Supply Chain Management 21

components and labour can be found. Alternatively, they may simply

1.1.3 What is Supply Chain Management?

22 Supply Chain and Transport Modes

1.1.3.1 Evolution of SCM

Module 1: Introduction to Supply Chain Management 23