Chapter 5.

Intermodal Transport and Logistics Service Provider

CHAPTER 5. INTERMODAL TRANSPORT AND LOGISTICS SERVICE PROVIDER

Key questions for the supply chain management professionals:

• How can I arrange international freight transportation across different modes of transport?
• Do I need a freight forwarder’s service?
• Now that the Panama Canal is expanded, should I change the shipping routes?
• Is carrier liability enough, or do I need a cargo insurance for my goods?
• Who between the buyer and seller, should buy cargo insurance?
• Does my company need a third-party logistics provider’s service?

Opening Vignette: Alliance network providing end-to-end logistics service

The International Freight Logistics Network (IFLN) is an alliance network of more than 285 specialist freight
companies in 100 countries, offering freight transport and logistics management services around the globe.
Established in 2000 and headquartered in Houston, TX USA, IFLN members cooperate with other member
companies to provide end-to-end logistics services including air and ocean freight forwarding, ground
transport, inter-modal services, freight forwarding, customs clearance, and freight consolidation.

When General Electronic built its Algeria plant in Africa, it needed supply of a wide variety of
construction and other material from Italy and many other origins. The International Freight Logistics
Network (IFLN) Group handled GE’s shipments from the purchase order stage and dealt with all of its
suppliers. The network had daily contact with the company’s purchasing and project teams with respect to
establishing shipment dates from suppliers and manages all the logistics activities into Algeria. GE relied on
the IFLN IT system to track its shipments.

Another customer of IFLN is TomKins Group, a UK-based industrial automotive and building products
manufacturer. The Tomkins Group has a total of 88 facilities in 22 countries, and air and ocean freight
business. Its ocean freight embraced 7,000 TEUs (twenty-foot equivalent units) and a large number of
overseas shipments, covering multiple trade lanes. Four service providers, including IFLN, were selected to
handle the contract globally. The IFLN, along with other service providers, managed shipments to and from
the US, Belgium, Germany, France, UK, Spain, and Eastern Europe.

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INTERMODAL CONTAINER

An intermodal container is a large standardized shipping container, designed and built for intermodal
freight transport. It can be used across different modes of transport – from ship to rail to truck – without
unloading and reloading their cargo. They are also called container, cargo container, freight container,
shipping container, or ISO container.
Global seaborne trade was revolutionized in the 1950s, when the intermodal container was invented.
Prior to the introduction of standard containers, cargo shipping used to be a lot more expensive, as well as
time-consuming. In the early 1970s, the International Organization for Standardization (ISO) defined the
capacity of intermodal containers. Dimensions and permissible gross weights of intermodal containers are
now largely determined by two ISO standards: ISO 668:2013 and ISO 1496-1:2013. The dimensions of the
most common standardized types of containers are given below.

Table 5.1 Dimensions of commonly used cargo containers

20′ container 40′ container 40′ high-cube container 45′ high-cube container
imperial metric imperial metric imperial metric imperial metric
length 19′ 10.5″ 6.058 m 40′ 0″ 12.192 m 40′ 0″ 12.192 m 45′ 0″ 13.716 m
External
width 8′ 0″ 2.438 m 8′ 0″ 2.438 m 8′ 0″ 2.438 m 8′ 0″ 2.438 m
dimensions
height 8′ 6″ 2.591 m 8′ 6″ 2.591 m 9′ 6″ 2.896 m 9′ 6″ 2.896 m

length 19′ 3″ 5.867 m 39′ 545⁄64″ 12.032 m 39′ 4″ 12.000 m 44′ 4″ 13.556 m

Interior
dimensions width 7′ 819⁄32″ 2.352 m 7′ 819⁄32″ 2.352 m 7′ 7″ 2.311 m 7′ 819⁄32″ 2.352 m
57 57
height 7′ 9 ⁄64″ 2.385 m 7′ 9 ⁄64″ 2.385 m 8′ 9″ 2.650 m 8′ 915⁄16″ 2.698 m
width 7′ 8⅛″ 2.343 m 7′ 8⅛″ 2.343 m 7′ 6" 2.280 m 7′ 8⅛″ 2.343 m
Door aperture
height 7′ 5 ¾″ 2.280 m 7′ 5¾″ 2.280 m 8′ 5″ 2.560 m 8′ 549⁄64″ 2.585 m
Internal volume 1,169 ft³ 33.1 m³ 2,385 ft³ 67.5 m³ 2,660 ft³ 75.3 m³ 3,040 ft³ 86.1 m³

Maximum
66,139 lb 30,400 kg 66,139 lb 30,400 kg 68,008 lb 30,848 kg 66,139 lb 30,400 kg
gross weight

Empty weight 4,850 lb 2,200 kg 8,380 lb 3,800 kg 8,598 lb 3,900 kg 10,580 lb 4,800 kg

Net load 61,289 lb 28,200 kg 57,759 lb 26,200 kg 58,598 lb 26,580 kg 55,559 lb 25,600 kg

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Note that the widths are consistently 8 ft wide. As to length, about 80-90% of the world's containers
are either 40’ or 20’ standard length containers. A standard height is 8ft 6 inch high, but the taller ‘high
cube’ units measuring 9 feet 6 inches have become very common in recent years. In 2014, 40-foot high
cube containers accounted for the majority of the world's maritime container fleet. The forty-foot
containers have found wider acceptance, as they can be pulled by semi-trailer truck. The length is within
the limits of national road regulations in many countries.

Figure 5.1 Load bearing of container stacking is at the 40 ft coupling.

Cargo containers, made of steel with reinforced corner posts, are designed for secure and efficient
stacking. The location of load bearing is at the 40 ft coupling width, as seen in Figure 5.1. 20 ft units can
not be stacked on top of 40 ft units, or any other larger container. The coupling holes require a double
male twist lock to securely mate stacked containers together.

Figure 5.2 20-foot containers have forklift pockets, accessible from the sides.
Figure 5.2 shows forklift pockets, accessible from the sides, underneath the 20-foot containers, allowing
forklifts lifting the units. Side-lifting is not allowed for a longer 45-foot container though, because of the
structure and strength of it, according to ISO 3874 (1997). ISO-standard containers can be handled and
lifted by their corner fixtures, using container cranes and straddle carriers.
Handling of containers is completely mechanized. A fully-loaded megaship nowadays can be manned
by as few as 15 crew members and yet can be loaded or unloaded within one 8-hour work shift. Figure 5.3
shows how import containers are picked up by a ‘rubber tyred gantry crane’ to load onto a truck at a

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container yard. A rubber tyred gantry crane (RTG crane) is a mobile gantry crane used to stack or move
containers.

Figure 5.3 Truck driver picking up an import container at a container yard

All containers are numbered and tracked using computerized systems. Manufacturing prices for
regular, dry freight containers are typically in the range of $1750-$2000 U.S. per container, and about 90%
of the world's containers are made in China. The average age of the global container fleet is a little over 5
years.
Cargo capacity is often expressed in twenty-foot equivalent units. A twenty-foot equivalent unit (TEU)
is equivalent to the cargo capacity of one standard 20-foot long container. This is an approximate measure,
wherein the height of the box is not considered. For example, the 9’6’’ tall high-cube, as well as 4’3’’ half-
height 20’ containers are equally counted as one TEU. A 45-foot long container may be designated as 2.25
TEU or sometimes roughly 2 TEU. The containers in Figure 5.1 represent 11.3 TEU (=2x1+2+2.25+2.4+2.65
TEU). In 2014, the global container fleet grew to a volume of 36.6 million TEU.
Container ship capacity is measured in twenty-foot equivalent units (TEU). Modern container ships built
in 2017 can carry 20,000 TEU. The size categories for container ships are: ultra large (over 14,000 TEU), New
Panamax (under 13,000 TEU), Panamax (under 5,000 TEU), and feeder (under 3,000 TEU). The Panamax
refers to the largest size of container ship able to traverse the ‘original’ Panama Canal, which was around
5,000 TEU. The Panama Canal expansion project, completed in June 2016, added a new lane of traffic with
wider and deeper locks. New Panamax is now up to 13,000 TEU.
Figure 5.4 shows a container ship passing through the expanded Panama Canal, pulled by tug boats.
The original Panama Canal lanes are seen in the right side of the picture as well.

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Figure 5.4 Transit through expanded Panama Canal (Picture taken in September 2016)
https://www.youtube.com/watch?v=93qtCpfckPE https://www.youtube.com/watch?v=K5ykS4cEfYk 2016.9

INTERMODAL FREIGHT TRANSPORT

Using standard-sized intermodal containers allowed the development of intermodal freight transport in
global logistics industry. Intermodal freight transport refers to the transportation of freight in an
intermodal container, using two or more modes of transportation (rail, ship, and truck). For long distance
main carriage, ocean and rail transportation is used to reduce the costs of transportation. Linehaul is
defined as movement of cargo between two major cities or ports, especially those more than about 1,500
kilometers or 1,000 miles apart. Trucking is frequently used to run between ocean ports, rail terminals, and
inland shipping docks. This short distance haulage is called drayage, and is typically provided by dedicated
drayage companies or by the railroads.
When carried by rail, containers can be loaded on flatcars or in ‘container well cars.’ Container well
cars resemble flatcars but the newer ones have a container-sized depression, or ‘well.’ Indian Railways runs
double-stacked containers on flatcars under overhead electrical wires. China Railway also runs double-
stacked containers under overhead wires, but must use well cars to do so, since the wires are only 6.6
meters (21 ft 8 in) above the track. Some sections of European railroads only accommodate single-stacked
containers. In some countries, such as the United Kingdom, there are sections of the rail network through
which high-cube containers cannot pass, or can pass through only on well cars.
Intermodal freight transportation made possible the ‘land bridge’ concept. Land bridge moves
containers by a combination of sea and rail (Figure 5.5). For example, a container shipment from China to
Germany, is loaded onto a ship in China, unloads at a Los Angeles (California) port and travels via rail
transport to a New York/New Jersey port, and loads on a ship for Hamburg. Shippers moving goods
between Pacific Rims to Europe benefit from the sea-rail-sea movement by reducing transit times and
expensive passage through the Panama Canal.

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Figure 5.5 Land bridge can reduce the transit time and avoid the expensive passage through the Panama Canal

CASE. Panama expansion and its implication to shipping routes

More than 14,000 trips took place through Panama Canal in 2014. The canal handled over 5% of all
maritime trade. The U.S. and China are the most vigilant users. Over two-thirds of cargo passing through
the canal in 2013 was either destined to or originating from America. About 40% of flows through the
Panama Canal are for the routes between U.S. and East Asia. The U.S. supplies soybeans and corn to meet
China’s growing population needs, and in return, China sends an even greater value of finished electronics,
clothing and other exports to the U.S.
The relationship between vessel sizes and shipping costs is straightforward: costs per unit decrease the
larger the size of the vessel. As such, standard ship sizes have grown considerably, while Panamax was only
up to 5,000 TEU before the expansion of the canal. Consequently, the canal was losing market share, as
more than a third of all container vessels, bulk carriers and tankers were simply too large to fit through its
lanes. Moreover, it took an average of 9 hours for a ship to pass through the canal, and wait times
sometimes exceeded 24 hours.
The $5.2 billion expansion project took 10 years to complete in June 2016. With the doubling of cargo
capacity and the new ability to transit post-Panamax ships, it intended to recapture its place as the pre-
eminent choice for shippers moving cargo between Shanghai and New York. However, international trade
dynamics are affected by numerous forces including recurring labor issues and congestion at U.S. West
Coast ports, sustained low energy prices in North America, higher labor costs shifting manufacturing away
from East Asia, and logistics costs related to the canal’s new expansion program.
When selecting which ships to deploy on a particular trade route, ship operators consider cost, time
and capacity. Their objective is to find the optimal mix of the key economic drivers – the least costly route,
the shortest distance and the maximum amount of goods that can be transported at any given time. Figure
5.5 shows three alternatives for a shipping route between East Asia and U.S.

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Figure 5.6 Trade routes from East Asia to U.S. East Coast. Source: Webster(2015) “Redrawing global shipping routes”
The fastest way to get cargo from China to the U.S. East Coast is via land bridge - first by ship (15
days from China to the West Coast) and then by rail (six days from the West Coast to the East Coast), for
roughly 21 days. More than 75% of U.S. imports from Asia reached the country via this intermodal means.
Despite intermodal’s five-day advantage, with total expenses factored in, it costs $600 more per TEU to ship
through intermodal vs. the canal. Rail does not carry nearly as many goods as the post-Panamax ships,
which carry as much cargo as 16 trains. The capacity of a New Panamax ship is about 16 times that of a
train. Furthermore, as the U.S. intermodal system has grown quickly and become increasingly overloaded, a
series of issues have affected the economics of shipping via this method, including labor strikes, chassis
shortages and congestion at the key West Coast ports of Los Angeles and Long Beach, California.
The second alternative is to send cargo from East Asia to the U.S. East Coast via the Suez Canal, a sea-
level canal in Egypt with no locks or pinch points that can take vessels up to 18,000 TEU. The Suez saw its
share of traffic representing trade between Asia (including Southeast Asia) and the U.S. East Coast rise from
30% in 2010 to 42% by October 2013. However, shipping cargo from Shanghai to New York this way takes
nearly 28 days.
The third alternative is through Panama Canal, which takes 26 days. Before the completion of
expansion, 19% of U.S. imports from Asia took this route. This route would cost less by $600 per TEU when
compared to the intermodal alternative. The Panama route would costs 23% less on total transportation
costs when compared to the Suez Canal route, although the cost saving would depend on fuel prices.
However, if manufacturing continues to move from China to Southeast Asian countries, whose ports are
closer to the Suez, the route’s relevance will likely grow as global sourcing patterns change.
In the medium term, it seems to be cost-advantageous and shorter to route East Asian cargo through
the Panama Canal. Now that larger ships are passing through the Panama Canal, analysts estimated that
10-20% of container ships originating in Asia will shift from landing on the US West Coast to landing on
the US East Coast.

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SHIPPING LINERS, FREIGHT FORWARDERS, AND MULTIMODAL TRANSPORT OPERATOR

Ocean carriers
A carrier means a company that transports goods and/or people by air, land, or sea, in its own or
chartered vessels or equipment, in the contract of carriage. The legal term, carrier refers only to the person
that enters into a contract of carriage with the shipper, and bears the responsibility to get the goods to the
agreed destination within the agreed time. The carrier does not necessarily have to own a means of
transport. The carrier may use whatever means of transport approved in its operating authority, as long as
it is the most favorable from the cargo interests' point of view.
A common carrier is a person or company that transports goods or people for any person or
company, and is responsible for any possible loss of the goods during transport. A common carrier offers
its services to the general public under license or authority provided by a regulatory body. Public airlines,
railroads, bus lines, taxicab companies, phone companies, internet service providers, cruise ships, motor
carriers (trucking companies), and other freight companies generally operate as common carriers. The term
common carrier is a common law term, seldom used in civil-law systems. In continental Europe, the
functional equivalent of a common carrier is referred to as a public carrier.
Common law means the law developed from the judgments and decrees of the courts recognizing,
affirming and enforcing the usages and customs of society over the years, particularly the unwritten law of
England. The law imposes a high standard of liability on a common carrier.
Around 85-90% of world trade is carried by sea, more precisely, by international shipping companies.
Modern ocean shipping business can be divided into two classes: (1) liner business operating as ‘common
carriers,’ calling a regularly published schedule of ports; and (2) private tanker business arranged between
the shipper and receiver and facilitated by the vessel owners who offer their vessels for hire to carry bulk or
break bulk (cargoes with individually handled pieces) according to a specifically drawn contract. Such
contract is called a charter party - the contract between the owner of a vessel and the charterer for the use
of a vessel.
Figure 5.7 lists top 10 container shipping companies based on number of ships (the number of owned
and chartered ships) as of November 2017. The world’s largest container ship operator, APM Maersk, has
the capacity to transport around 4.16 million TEU containers on its ships. The Danish shipper has 779 ships
in its fleet, about 478 of which are chartered ships. As of January 2016, there were 5,239 container ships in
the world’s merchant fleet.
These companies in Figure 5.7 provide liner shipping, which is the service of transporting goods by
means of high-capacity, ocean-going ships that transit regular routes on fixed schedules. There are
approximately 400 liner services in operation worldwide, most providing weekly departures from all the
ports that each service calls. Liner vessels, primarily in the form of container ships and roll-on/roll-off ships,
carry about 60 percent of the goods by value moved internationally by sea each year.

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Figure 5.7 Container shipping companies worldwide based on number of ships as of November 2017
Figure 5.8 portrays the dramatic growth of the container shipping both in actual trade volume and
capacity, from 1980 through 2016. Deadweight tonnage (also known as deadweight; abbreviated to DWT
or d.w.t) is a measure of how much weight a ship is carrying or can safely carry. Deadweight tonnage is the
sum of the weights of cargo, fuel, fresh water, ballast water, provisions, passengers, and crew. It does not
include the weight of the ship itself.

Figure 5.8 World container ship fleet: Total capacity and actual trade carried by them

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Freight forwarders
A freight forwarder, or forwarding agent, is a person or company that organizes shipments for individuals
or corporations to get goods from the manufacturer to final point of distribution. A freight forwarder is a
transportation intermediary acting as an agent for the senders. A forwarder’s activities may include:
• Organizing movement of cargo from Point A to B using multiple modes of transport – sea/rail/road.
• Negotiating contract rates with carriers on behalf of the customer
• Booking cargo with the carriers under their own freight/service contract or using the customers
freight/service contract
• Processing all relevant shipping documents such as customs and port documentation, bills of lading,
Certificate of Origin, etc.
• Issuing their own approved ‘house’ bill of lading
Apart from the above, a freight forwarder may have other functions such as:
• Providing expert advice to customers relating to the usage of the correct Incoterms, letter of credit,
licenses, permits, relevant to the safe movement of the cargo.
• Arrange storage of the cargo whether it is before shipment from port of loading or after receipt of cargo
at port of discharge as per client requirement. Most big freight forwarders have their own warehouses.
• Arrange inland haulage of the cargo from/to the customers’ premises and port as required
• Arrange customs clearance
A freight forwarder is sometimes referred as a Non-Vessel Operating Common Carriers (NVOC) in
common law countries (especially the United States). The term non-vessel-operating common carrier is
defined as a common carrier that (a) does not operate the vessels by which the ocean transportation is
provided; and (b) is a shipper in its relationship with an ocean common carrier.

Multimodal transport operators

When intermodal freight transportation is offered by one carrier, it is called multimodal transport, and the
carrier is liable (in a legal sense) for the entire carriage, even though it is performed by several different
modes of transport (by rail, sea and road, for example). Multimodal transport is defined as the
transportation of goods under a single contract, but performed with at least two different means of
transport. The carrier does not have to possess all the means of transport and in practice usually does not;
the carriage is often performed by sub-carriers (referred to in legal language as "actual carriers"). The
carrier responsible for the entire carriage is referred to as a multimodal transport operator.
Freight forwarders have become important multimodal transport operators (MTO); they have moved
away from their traditional role as agents for the sender, accepting a greater liability as carriers. A freight
forwarder offers his own tariff for the service he buys from the shipping line at a box rate. Freight forwarder
also offers consolidation service using a nominated shipping line and infrastructure.
Large sea carriers have also evolved into multimodal transport operators; they provide customers with
so-called door-to-door service. The sea carrier offers transport from the sender's premises (usually located

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inland) to the receiver's premises (also usually situated inland), rather than offering traditional tackle-to-
tackle or pier-to-pier service.
Although logistics service providers can claim dominance in certain methods, be they air, ocean, rail or
road, no one company -regardless of its size- can provide every solution on every continent. This is where a
team approach is most successful. The opening vignette about IFLN Network illustrates how alliances and
networks are so instrumental when having to connect numerous points across continents via various mode
of transportation in order to provide end-to-end logistics connections for any customers in the world. The
IFLN network consists of 285 specialist freight companies in more than 100 countries, which allows a strong
market presence on every continent, supported by a total warehouse capacity of more than 5.6 million
square meters. IFLN members have access to ‘freight forwarding quote system’ that provides an automated,
online quotation capability for domestic/international trucking LTL/FTL and air and ocean shipments. The
book-cargo platform’s pricing tool streamlines and automates the work of seeking and analyzing prices as
well as provides the standardization of quotes between IFLN members.
A multimodal bill of lading is a bill of lading issued for containerized door-to-door shipments that
have to use different ships and/or different means of transportation (aircraft, railcars, ships, trucks, etc.)
from origin to destination. The principal carrier or the freight forwarder (who issued the multimodal B/L)
takes on full liability under a contract of carriage for the entire journey and over all modes of
transportation. A multimodal bill of lading is also called combined bill of lading, combined transport bill of
lading, intermodal bill of lading, or multimodal transport bill of lading.

CARRIER LIABILITY VS. CARGO INSURANCE

Carrier liability
In the U.S. a regulated motor carrier operating in interstate commerce is liable for freight loss, damage and
delay pursuant to the Carmack Amendment. The Carmack Amendment was adopted in order to establish a
uniform nationwide standard of liability for freight loss and damage, in 1935. A shipper only need to show
three elements: 1) delivery of the shipment to the carrier in good condition; 2) delivery of the shipment to
the consignee short, in damaged condition, or unreasonably late; and 3) the amount of damages incurred.
Once the shipper establishes above three, the burden is on the carrier to establish that 1) it was not
negligent to any extent; and that 2) the loss was due to one of the five recognized carrier defenses; (a) an
act of God, (b) an act of the public enemy, (c) an act of the shipper, (d) an act of the public authority, or (e)
the inherent nature or vice of the goods themselves. If the carrier fails to meet its burden, the shipper is
entitled to recover the ”actual loss or injury” to the shipment.
A number of international conventions have been devised to regulate the carriage of goods and limit
the liability of the carriers. For instance, Warsaw convention for air transport, Hague-Visby Rules for sea
transport, and COTIF convention for rail transport. Each convention deals with the responsibility of carriers,
the basis of carriers’ liability, the limits of financial liability, the carriers’ responsibility for subcontractors, the
documentary requirements, the consignors’ liabilities, the special provisions concerning dangerous goods,
and the time limits for claims

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Limits of carrier liability

What is the maximum liability that carriers will reimburse in the event of damage or loss? The answer
depends on the mode of transportation and the country.
For road transport in Canada, the maximum liability is fixed at $2/lb (or $4.41/kilo). In the US, the
Carmack amendment makes truckers liable for the full cargo value.
For rail, there is no uniform rule and the carrier’s limits of liability are established in the individual
customer contracts.
For air, the liability of airlines is defined by international convention - the Warsaw Convention from
1929 adopted by 152 countries or its replacement the Montréal Convention in 2003 adopted by only 110
countries. So, 40 countries still apply the latter. This is why most air waybills refer to both Conventions in
their fine print. Which one will apply depends on the airline’s nationality and the country where the loss
occurs.
The airlines limits of liability are: 17 SDRs (around $30/kilo) under the Warsaw Convention and 19
SDR’s ($34/kilo) under the Montréal Convention. SDR stands for Special Drawing Rights, the currency
created by the International Monetary Fund for international agreements, based on the US$, Euro,
Renminbi, Yen and Pound Sterling. It follows the fluctuations of these currencies.
Ocean freight is more complex, as five conventions can apply, depending on the nationality of the
shipping line and the country involved. They are: the Hague Rules, the Hague-Visby Rules, the Hamburg
Rules and the Rotterdam Rules, governing outbound ocean freight. The Hague-Visby rules are applicable in
Canada. The US has a rule called the Carriage of Goods by Sea Act (COGSA), inspired by the Hague-Visby
Rules.
Goods transported by ocean must be inspected at the earliest possible time upon delivery, if not
immediately upon delivery, to identify possible damage and begin the claims’ process. The COGSA only
allows three days from delivery, while buyers have up to nine months under Carmack. If the claim is valid,
COGSA only allows for one year to file a legal suit for damages, unlike two years allotted under Carmack.
An ocean carrier has up to 17 possible defenses. Furthermore, the COGSA limits liability to $500 per
package, which is interpreted as a container.
Depending on the applicable convention, the ocean carriers will reimburse a maximum of 100 GBP,
US$500 or SDR667 (around CA$1,200) per “customary shipping unit”. If a shipment has 200 boxes of
electronics in a container and it falls overboard during the voyage, the ocean carrier may compensate 1 x
US$500 and not 200(boxes) x US$500.
The imbalance between $500 per container and the true value of a shipment has led to countless
lawsuits and judicial opinions over the "package limitation" problem. Many countries, seeing this as an
attempt by ship-owners to free themselves from responsibility for protecting cargo, amended the Hague
Rules in 1968 with the Visby Amendments which eliminated the "per package" limitation and substituted a
limitation per kilogram. In so doing, litigation concerning limitations on liability became virtually non-
existent outside the United States. U.S. Congress did not pass the Visby Amendments, however.

Cargo insurance

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When carrier liability is not sufficient, cargo insurance may be procured. Cargo insurance provides
protection against the risks of physical loss or damage to freight from any external cause during shipping,
whether by land, sea or air. Cargo insurance is also called freight insurance or goods-in-transit insurance.
Cargo insurance might be bought against some of the areas common carriers are not liable for, such as:
“Acts of God” (weather related), terrorism, strikes, riots, and civil commotion risks.
The price of cargo insurance, i.e. insurance premium is typically certain percentage of the value of the
goods being shipped. 
There are differences in the claims process between cargo insurance and carrier liability. With carrier
liability, the insured must prove carrier negligence. For a carrier to be liable for losses or damages, a
shipper/buyer must prove that the freight was in good condition when given to the carrier, but was
delivered damaged, or not delivered at all, as well as the amount of the damage claimed. The carrier has 30
days to acknowledge the claim and must respond within 120 days. With cargo insurance, shippers are not
required to prove carrier negligence. Claims are usually paid within 30 days.
The standard clause choices are the “Institute Cargo Clauses” A, B and C. A is the most comprehensive,
most expensive coverage. B provides less coverage while C, covering against total loss only, is the cheapest.
Whether A, B or C, the coverage is ‘warehouse to warehouse’, meaning from the point of origin until
delivered to the warehouse or ‘door’ at destination.
The price of insurance depends on the customer’s prior claim experience, the nature of the cargo and
packaging, values, modes of transport and origins/destinations. Having an open cargo insurance policy is a
good way to enjoy favorable rates and the peace of mind of continuous coverage, as the inadvertent failure
to report a shipment does not usually void coverage, such shipments being held covered, subject to the
policy conditions.
Like auto or home insurance, cargo insurance works with deductibles: the higher the deductible, the
lower the rate. Limits apply as well on the maximum insurable value per conveyance.
What cannot be covered with cargo insurance is consequential damages, loss of pro fit caused by
shipment delays, inherent improper packaging.
Insured value is determined by adding the costs of packaging, freight and the insurance premium to
the transactional value of the goods, then add 10 percent to cover administrative costs. This is expressed as
110 percent of the CIF/CIP value. We can insure more than 110 percent with the consent of underwriter.

Do I need a cargo insurance?

Whether insurance is purchased and who pays for the insurance are indicated in the sales contract. The
seller is responsible for cargo insurance under the CIF and CIP Incoterms (but the insurance must be in the
buyer’s name, as the goods travel at his risk). So in these two instances, the seller pays both freight and
insurance premium. With the other Incoterms (EXW, FCA, FAS, FOB, CFR, CPT, DAT, DAP and DDP)
insurance is left open and neither the seller, nor the buyer, has insurance obligations.
Who, between the shipper and the consignee, should buy insurance? First, the insured party must have
an insurable interest in the cargo, i.e., someone who will suffer a loss if it is damaged or destroyed or who
will benefit from the safe arrival of the cargo. For example, a Canadian shipper selling under the ExWorks

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Incoterms makes the merchandise available at his loading dock and has no responsibility beyond. He
therefore would not want to pay for cargo insurance, only the buyer would. A prudent trader should
consider when the risks are on his shoulders, according to the Incoterm.
Another consideration is terms of payment: if a seller gets paid in advance, he may not worry about
cargo loss but he may worry if he gets paid after delivery, even if goods travel at the buyer’s risk. These
decisions require careful analysis, based on commodity, transport mode and country of destination. From
the buyer’s point of view, the same factors come into play, in reverse.

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THIRD PARTY LOGISTICS, 3PL

Third-party logistics (abbreviated 3PL) refers to a company's use of third-party businesses to outsource
elements of the company's distribution and fulfillment services. It is also called contract logistics. Eighty
percent of all Fortune 500 companies and 96 of the Fortune 100 used some form of 3PL services. Third-
party logistics providers typically specialize in integrated operation, warehousing and transportation services
which can be scaled and customized to customers' needs.
Second-party logistics (2PL) are specialized logistics services offered at a national geographical area,
such as services by courier, express and parcel services, ocean carriers, freight forwarders, and
transshipment providers. 2PL’s provide own and external logistics resources like trucks, forklifts, warehouses
etc. for transport, handling of cargo or warehouse management activities. Contracts between the 2PL and
the customer are short-term and transaction-based.
Third-party logistics (3PL) is distinguished from 2PL in that a 3PL provider is always integrated in the
customer’s system, providing highly customized services. A 2PL works often on call (e.g. express parcel
services) providing standardized services. With 3PL, long term contracts are used for customized logistics
services for the customer company.
The term ‘4PL’ (fourth party logistics provider) was coined by Accenture in 1996. 4PL was defined as “a
supply chain integrator that assembles and manages the resources, capabilities, technology of its own
organization, with those of complementary service providers to deliver a comprehensive supply chain
solution.” Since then, there had been a lot of speculation as to how this concept could really be put into
practice and whether potential 4PL providers would ever live up to its original definition. 4PL was
conceptualized as being a single point of contact for the shipper, and being non-asset based in order to be
‘neutral’ in selecting the partners for the shipper. Over twenty years, the term has almost fizzled away, while
a similar concept is still being tossed around by the name of ‘integrated logistics service provider.’
The global market size of third-party logistics business is as big as $802 billion in 2016. The Asia Pacific
region is the largest logistics market accounting for 39% of total global logistics costs and 38% of total
global 3PL revenues. More than 84% of companies operating in the Asia-Pacific region rely on 3PL services.
China and India in particular have increasingly attracted global 3PLs to operate in these developing
countries.

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CASE. 3PL provider, Dachser carrying out global logistics operations for Otis
Otis is the biggest manufacturer of elevators, escalators, and moving sidewalks, employing 60,000 personnel
to develop, manufacture, install and maintain the equipment. Otis commissioned Dachser to carry out the
majority of Otis’s in-house logistics activities. Dachser had its own staff working on the customer’s premises,
continuously on call to answer to Otis’s needs.
Dachser organized the global procurement of supplied parts, components and spares for escalators
and elevators, and for on-time delivery right through to the production lines. It stored supplied
components and semi-finished goods. It took care of short-term intermediate storage of complete
escalators or components, and consolidated goods picked from the warehouse inventories for customers
on a contract specific basis.
Dachser carried out the global distribution – via land, sea or air – of accessories and spare parts, of
complete escalators and elevators, and of supplied parts in assembly. It delivered items to Otis engineers
throughout Europe in accordance with fixed schedules, organized special transport services, and handled all
the administrative tasks for the Otis dispatch department. Dachser’s service included ramp handling,
packaging, and labeling.
Another Dachser client is Chamberlain, a US-based manufacturer of garage door openers. It requested
Dachser to set up and run a logistics into China, including establishing a significant amount of stock in
China, a warehouse solution, and development of a competitive distribution network, and bonded service.
Dachser Group SE & Co. KG is a German logistics company. Dachser employed 24,988 people at 437
locations and generated a revenue of EUR 5.3 billion, in 2014. Dachser’s service portfolio includes:
• Air freight: Customers may choose from various airfreight options: express, economy, door-to-door,
sea/air transport, European-wide distribution, charter, in- and outbound consolidation services.
Airfreight partners include Air France, Cathay Pacific, Eva Air, Lufthansa, Martin Air
• Sea freight: independent choice of carrier, consolidation of buyers, own weekly consolidation services
to several destinations, worldwide full and consolidation container services (FCL/LCL). Sea freight
partners include APL, China Shipping, COCSO, Evergreen, Hanjin, Maersk, MOL, MSC, Senator Lines.
• Domestic freight: by train, truck, air, and sea. Customers may choose express, time definite, or
economy services. Cash on delivery services are also arranged.
• Warehousing and logistics: several modern facilities with state-of-the-art security and fire protection
systems offering services for all types of cargo including general cargoes, import-bonded storage
(inside and outside the FTZ), export-customs-approved, and dangerous goods.

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References
• International Freight Logistics Network. Retrieved from http://www.ifln.net/network.html#about
• Webster, M. (2015). Redrawing global shipping routes: the Panama Canal gets an upgrade. Commodity
Markets Update, December 2015.
• A Study of the Impacts of the Panama Canal Expansion on the U.S. Northeast Ports and Strategy of the
Port of Boston. International Journal of Business, Humanities, and Technology .
• Leading container shipping companies worldwide based on number of ships as of November 30, 2017.
Statista. Retrieved from https://www.statista.com/statistics/263291/container-shipping-companies-
worldwide-number-of-ships/
• Sivière, C. (2017). Cargo insurance: Why we need it. Materials Management & Distribution, February 28,
2017
• Armstrong & Associates, Inc. Retrieved from http://www.3plogistics.com/product-category/guides-
market-research-reports/market-research-reports/
• Branch, A. E. (2009). Global Supply Chain Management and International Logistics : Routledge.

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Author Yunsook Hong
[Education]
Ph.D., Supply Chain Management, Arizona State University, Tempe, AZ, Aug 2007
M.B.A., Supply Chain Management, Bowling Green State University, Bowling Green, OH, Dec 2000
B.S. in Engineering, Chemical Engineering, Seoul National University, Seoul, Korea, Feb 1998

[Academic and Professional Experiences]

Assistant Professor of Supply Chain Management at the University of Ulsan, 2011-Present
Assistant Professor of Supply Chain Management at the Bowling Green State University, 2007-2011
Instructor at the Arizona State University, 2005 - 2006
Independent consultant for Mack Iron Works, Sandusky, OH, 2000
Junior Associate at Chase Manhattan Bank, Seoul, 1998
Business Analyst at IBS Consulting Group, Seoul, 1997-1998

Global Supply Chain Management: Managing the Total Costs in Global Supply Chains
Date of publication: January 8, 2018
Author: Yunsook Hong
Publisher (person): In-Gyu Lee
Publisher (company): Hak-Yeon Inc.
Address: 18, Hoam-ro 18ga-gil, Third floor, Gwanak-gu, Seoul, Rep of Korea 08821
Phone: +82-2-887-4203 Fax: +82-2-6008-1800
Publisher registration number: 2012-13 registered on February 6, 2012

Publisher’s web: www.baracademy.co.kr / Publisher’s e-mail: rokpresident@naver.com

All rights reserved. No part of this publication may be reproduced or distributed in any form, or stored in
a retrieval system without the permission of the author or publisher.

Price: 25,000 Won ISBN 979-11-5824-237-4 93320

This book can be found by the Cataloging In Publication (CIP) number: CIP2018000616. It is accessible in
the website of the National Library of Korea at http://seoji.nl.go.kr and http//www.nl.go.kr/kolisnet.