International Payments part 1

Intro
Four payment types, Open account, Advanced Payment, Documentary Collections and Documentary
Credit.

Risks to the importer and exporter for each method of international payment.

Process of settlement on open account

Process of advance payment

Two methods of documentary collection

Basic procedure in a typical direct documentary collection from perspective of freight forwarder

Parties involved in documentary collection

Documents used under the various methods of international payment

Role of Freight Forwarder in International Payment

Role
Always recommend consultation with the exporters bank

Service his customers

Explain to exporters the risks associated with each method of payment

Assist customers (exporters) to get paid

Advice exporters on appropriate method

Know the Ins and Outs of various payment options

Make sure the customer’s documentation is in order

Risks
Foreign Exchange Risk
Risks can be reduced by agreeing to a fixed exchange rate on the outset.

Losses may be incurred due to fluctuation in Foreign Exchange rates

Risk of financial loss resulting from failure of the buyer (‘s credit) to honour fully his contractual
obligations as they fall due.

Losses may occur because of parties to the transaction not fulfilling their obligation due to a Dispute in
the underlying transaction, eg. Date of cargo readiness agreed incoterms.

The risk of loss due to economic, social, legal and political conditions of a Foreign Country adversely
affecting the buyer’s ability to meet his obligations.

Risk of loss or damage to goods in transit (packing, insurance coverage, proper incoterms).
OPEN ACCOUNT
Intro

Possible to mitigate the risk of non payment by insuring the account through a private company such as
Euler Hermes Group (EHG) or Export Development Canada (EDC)

How it works
The exporter after shipping the goods will symbol the documents with relevant terms of sale and ensure
all docs are in order for custom clearance. It is advisable to fax invoice and bill of lading to the importer
to avoid delay to avoid slow issuance for onboard bill of lading. The role of the bank is to clear the funds
as required.

Advantages
Most advantageous for the importer:

Allows to receive and inspect the goods before making any payments.

Allows to delay the use of company’s cash resources.

Possible discount if payment is made within predefined period.

Helps establish and maintain a successful trade relationship.

No advantage for exporter except it boosts competitiveness in global market.

Risks and Disadvantages

Significant risk for the exporter because the importer may default on his payment obligations after
shipment of goods.

Additional costs associated with risk mitigation measures

No risks of disadvantages for importer.

When is Open account not advisable?

Payment on an open account is only possible when a foreign currency may be freely bought or trader in
the importer’s country and there are no restrictions of any kind remitting the foreign exchange freely
from the importer’s country

When quotas or import permits are required in a country

Some countries do not permit open account transactions

Unstable political and economic situation

Advanced Payment
Advance payment is also characterized by trust. The exporter is trusted to ship the goods after
receibving payments from the importer. This type of payment be used:

When the exporter does not now the importer and is shipping to him for the first time

When the buyer’s credit is doubtful

Where there is unstable political or economic environment In the country of destination.

How it works
The importer sends payment directly to the exporter and waits for the exporter to send the goods and
documents

Advantages
The exporter assumes no risk, the importer could possible secure low cost

Disadvantages
The Importer assumes all risks

Costs for importer for using company cash resources until goods are received.

Payment against proof of shipment

This is alternative of the advanced payment method.

The exporter makes shipment before payment. However the imported agrees to pay for goods upon
receipt of a proof of shipment by fax or email, usually bill of lading.

The freight forwarder instructed by the exporter in writing will email or fax the doc. as soon as the
goods are on board a ship. The freight forwarder will hold the original bill of lading and other
documents until further written instructions by the exporter (after payment confirmation by his bank to
courier them to the importer. Huge risk for Freight Forwarder who holds the original bills of lading.

Document Collections
A mutual trust must be established between the exporter and importer, backed up by credit information
on the importer.

It is essential that there are no restrictions in the country of importer to remit foreign exchange abroad.

It is advisable to check if there are import permits or quotas required in the country of destination.

The exporter is prepared to ship the goods to the importer but still wishes to retain some control over
the cargo until the importer pays or agrees to pay.

This control is achieved by presenting shipping documents containing the documents of the title to the
collecting bank. The document of title must be a bill of lading to bank order.

The collecting bank undertakes the responsibility not to release the importer without payment or
acceptance to pay (term bill of exchange.)

Banks involved do not provide any guarantee of payment

Your role as the freight forwarder is to explain the system and prepare all necessary documentations.

This method can be used in air freight even though an air way bill is not negotiable. To achieve control
over the release of cargo at destination u can consign the MAWB to your agent at destination with your
instructions not to release the shipment unless your agent has a written release order to do so from the
collecting bank or you can consign the MAWB to the collecting bank. In the latter case, the airline at the
destination will seek release from the collecting bank.
To speed up the release procedure after payment by the importer at the collecting bank, you should
include a form letter addressed to the collecting bank with a request to notify the airline at destination
in writing to release the shipment and send a copy of the same to the importer.

A faster option may be to attach the envelope for the collecting bank to MAWB so that your agent at
destination can deliver the envelope to the collecting bank, however that also may not be fast enough.
Therefore this type of collections is not required for air freight. An alternative would be for an agent of
the freight forwarder at the country of destination to collect a bank draft. Collections are subject to the
uniform rules for collections published by the international Chamber of Commerce. The Last revision of
these rules came into effect on Jan 1 1996. And is referred to as URC.

Drawer – The party requesting payment or issuing the bill of exchange – exporter

Drawee – the party specified in the bill of exchange from whom payment is demanded – importer

Bill of Exchange – Formal written order addressed by one person (drawer) to another (party that has to
pay - drawee) signed by the drawer and the directing drawee to pay on demand or at a fixed or
determinable future time, a certain sum in money (usually at the amount of commercial invoice) to the
order of specified person (payee) unconditional

Sight Bill of exchange – a bill of exchange requiring payment immediately on sign upon presentation to
the importer/drawee. Canadian bills of exchange act say one can get 3 days when bill is not payable on
demand

Term Bill of exchange – a bill of exchange requiring payment at a fixed or determinable future time from
the importer/drawee. Usually 60 days after sight

First and Second exchange – when bill of exchange is issued in two copies.

Bank Draft – A cheque drawn by a bank on another bank payable to the exporter/drawer at the request
of the importer/drawee. The cheque may be denominated in US dollars or most Foreign currencies.

Collecting/Presenting Bank – Bank that acts as an agent for remitting bank that wishes to have its
collections handled. The collecting bank demands payment from the importer/drawee and handles the
funds received as instructed. Usually collected bank is selected by the drawee/importer. Generally, the
funds are sent bank to remitting bank. Collection bank and presenting bank does not have to be the
same.

Remitting Bank – the bank acting on behalf both e exporter/drawer, even if a direct collection forms is
used and sent directly by the freight forwarder to the collecting bank. Exporter’s bank and remitting
bank does not have to be the same.

Presentation – presentation for acceptance or payment.

Documents Against Payment

The presenting bank the drawee’s bank is authorized to release doc to the drawee only against
immediate payment. There are two possible variations under the term immediate payment.

At the latest on arrival of the goods or payment upon first presentation. However, in this case the sales
contract and the invoice must contain a clause stating that the documents are presented to the drawee
at the collecting bank immediately on receipt. The uniform rules for collection call for a precise deadline
for the collection of documents or meeting any other conditions.

Advantages
EXPORTER

 Documents are not released to the importer until payment has been effected
 Less costly than letter of credit

IMPORTER

 Ability to examine documents before authorizing payment

 A line of credit is not required (unlike in case of letters of credit)

Fees are minimal

Disadvantages
EXPORTER

 Risk of refusal of payment

 Commercial and country risk not hedged

IMPORTER

 In the case that transport documents carry title, the importer cannot access goods until
payment has been made

Documents against acceptance

Documents are release to the importer/drawee only against acceptance of a term bill of exchange (eg 60
days after sight) this is known as term collection. This means that the importer gains controls over the
merchandise without making any payment up front. The drawer fully bears the risk of non payment at
date of maturity of term of bill exchange

Advantages
EXPORTER

 Less costly than a letter of credit

 May provide forma/legal means to collect unpaid obligations

IMPORTER

 The importer will receive goods before having to make payments

Disadvantages
EXPORTER

 Risk of non acceptance of documents

 Commercial and country risks not hedged
 Although bill of exchange/draft is accepted by the importer there is no guargantee of payment
by the banks involved
 Legal enforcement of unpaid obligation costly and time consuming
IMPORTER

 Dishonouring an accepted bill of exchange draft is legal liability and may ruin business rep.

Process of Documentary collection

Step 1

Exporter and importer agree on a documentary collection as the method of payment, specifies terms
and conditions for transaction. Exporter manufactures and packs the goods and ships them to
importer.

Step 2

After shipment of goods, the documents originating with exporter are delivered to Remitting Bank.

Step 3

Role of Remitting bank is to send document to a bank in importers country to give precise collection
instructions.

Step 4
Collecting/presenting bank acts in accordance with instruction and releases the documents to importer
against acceptance or payment. This bank keeps remitting bank and exporter informed of progress.
Exporter informs the bank what steps to finalize transaction.

Step 5

Upon payment. Collecting bank will remit the proceeds of collection (accepting bill of exchange) and
send an advice of acceptance to remitting bank

Step 6

The remitting bank pays the proceeds of collection or advises acceptance of bill of exchange to the
exporter. In case of acceptance, the proceeds become available on maturity of bill of exchange.

Quick Review

Advance payment used when the buyer’s credit report is doubtful

Exporter may choose documents against payment because Documents

are not released to the importer until payment has been effected and if
the transport documents is a document of tittle the importer cannot
access the goods until payment has been made.

The risk for the seller is very little when documentary collection is agreed method of payment.

In order for the importer/drawee to clear the goods through customs the following documents must be
dispatched by the exporter/drawer.

Direct collection form

Bill of exchange

Commercial invoice

Bill of lading to blank order, endorsed by the shipper or MAWB – non negotiable can be consigned to an
agent at destination with instructions not to release the shipment unless your agent has a written
release order

Insurance policy or certificate

All other documents such as certificate of origin packing list inspection reports etc.

In documentary collection the seller has a risk of the buyer not buying and having to ship product back
or sell to another client on destination.

When using documentary collection as a method of payment settlement, consign bill of lading to order
blank.

Tenor – time allowed to the importer for payment of an accepted bill of exchange

International payment part 2 – Letters of Credit

Objective
Define letters of credit

Describe the role of the parties involved in a successful execution of a letter of credit, highlighting the
role of the freight forwarder

Identify types of letter of credit and their use

Describe the advantages of a letter of credit

List the risks involved in a letter of credit

Describe the steps in a simple letter of credit transaction

Identiyfy the documents used under letters of credit

Interpret shipper’s documents under a letter of credit transaction

Interpret the conditions on a letter of credit

Interpret terminology and definitions in UCP 600

Letter of credit – Before contract signed

For an exporter it is important to remember the two golden rules of international trade finance:

 To know his partner (vendor, customer, etc.),

 To pick his team (his banker, his forwarder) carefully

So that all the risks he is facing and the freight forwarder must be aware of when deciding on the
method of payment.

The Details
Exporters should remember and negotiate the following before signing the contract:

 Which bank will issue the letter of credit

 Whether the letter of credit should be confirmed (political risks in the country where payment
originates)
 Which bank will confirm the letter of credit
 Exporters should be wary when Canadian/US branch of an overseas bank is the confirming bank
because this does not really constitute a full confirmation
 Whether the letter of credit requires any documents to be presented signed by all parties and
applicants or an independent third party not clearly known to exporter. (such as issuer of
inspection certificates)
 Whether the letter of credit terms are feasible for the exporter to meet (especially in terms of
timing of shipment and expiration).

Negotiating a Contract
Payment terms are the bottom line, however, coincidently the last item on the agenda in a contract
negotiation. Too often trading parties are exhausted by the details of contract negotiation that a
superficial clause, such as “payment by letter of credit” seems to be a clear enough item in the contract.
That is a mistake. The payment term should be thought of as an opportunity to negotiate favourable
terms.
Of course all sellers insist on payment in advance and all buyers will insist on open account terms to
begin with but as in all other forms of business, everything is subject to negotiation.

Credit Risk
 Can the sale be made without offering a credit
 Does the importer have a good credit history?
 What are the conditions in the importer’s country (political, market, etc.)
 What is the company’s policy on extending credit
 Can the exporter offer credit and still make a profit
 Can the business survive if it does not get paid

Foreign Exchange Risk

 Currency devaluation
 Inflation
 Exchange rate fluctuations

Country Risks
 Political Turmoil
 Legal
 Overthrow of government
 Instability

Parties involved in Letters of Credit

Documentary credit (letter of credit is the most complicated of the four method of payment settlement.
Mostly chosen when other methods of payment cannot be agreed upon or are not satisfactory to either
party and to avoid some of the risks associated with those methods. Payment by letter of credit is a fair
method of sharing risk and cost between importer and exporter if all terms outlined in the letter of
credit are met.

LoC is defined as a written undertaking issued by the importer’s bank (issuing bank) on behalf and at the
request of its customer, the importer/applicant, promising to effect payment in favour of the
exporter/beneficiary for goods and services provided that the exporter/beneficiary presents all
documents required, exactly as stipulated in the letter of credit and meets all other terms and
conditions set out in the letter of credit. The terms and conditions of a documentary credit revolve
around the two issues:

The presentation of documents that evidence title to goods shipped by the seller

Payment. Banks act as intermediaries to collect payment from the buyer in exchange for the transfer of
documents that enabled the holder to take possession of the goods

A key principle underlying letters of credit is the banks deal only in document and not in goods (article 5
of the UCP 600) meaning that the decision to pay under a letter of credit will be based entirely on
whether the documents presented to the bank appear on their face to be in accordance with the terms
and conditions of the letter of credit. It would be prohibitive for the banks to physically check whether
all merchandise has been shipped exactly as per each letter of credit. Therefore, banks are not
concerned if a shipment is in conformity with the documents only that the documents are in conformity
with the wording of the credit.

International Chamber of Commerce (ICC) publishes internationally agreed-upon rules, definitions and
practices governing letters of credit.

Uniform Customs and Practice for documentary Credits (UCP) rules are updated regularly, the last
revised UCP is referred to as UCP 600. eUCP is electronic presentation of UCP.

Applicant – The party (most cases the importer/buyer) instructing the bank (issuing bank) to open a
letter of credit and on whose behalf the bank agrees to make payment. Applicant, also called the
account party, causes a contract to be created between the issuing bank and its customer.

Beneficiary – the party who receives payment as stipulated in a letter of credit (usually the
exporter/seller), and in whose favour a letter of credit is opened

Issuing Bank – The buyer’s bank which establishes a letter of credit at the request of the buyer, in favour
of the beneficiary (seller/exporter). Also called the opening bank.

Advising bank – The bank also referred to as the seller’s or exporter’s bank, which receives a letter of
credit or amendment to a letter of credit from the issuing bank and forwards it to the
beneficiary/exporter/seller of the credit.

Confirming Bank – the bank that assumes responsibility to the seller (usually exporter) for payment from
the issuing bank (buyer’s bank) so long as the terms and conditions of the letter of credit have been met
by the seller/exporter.

Negotiating bank – The bank which Receives and examines the seller’s document for adherence to the
terms and conditions of the letter of credit, Gives value to the seller, so long as the terms of the credit
have been met, Forwards them to the issuing bank (the buyer’s or importer’s bank). Depending upon
the type of credit, the negotiating bank will either credit or pay the seller/exporter immediately under
the terms of the letter of credit or credit or pay the exporter once it has received payment from the
issuing bank.

Paying Bank – The bank that effects payment of documents negotiated under a letter of credit,
customarily the importer’s/applicants bank it is usually also the negotiating bank unless letter of credit
allows another bank to negotiate or paying bank is unable to negotiate.

Reimbursing Bank – The bank named in the LoC from which the paying accepting or negotiating bank
may request cover after receipt of the documents in compliance with the documentary credit. This bank
is often the issuing bank but not always. If the reimbursing bank is not the issuing bank, it does not have
the commitment to pay unless it has confirmed the reimbursement instruction. The issuing bank is not
released from its commitment to pay through the nomination of a reimbursing bank. If cover from the
reimbursing bank should not arrive in time, the issuing bank is obliged to pay (also any accruing interest)

Draft – a formal demand for payment. It is unconditional order in writing, addressed by one party
(beneficiary) to another party (applicant) requiring the applicant to pay at the designated or
determinable future date, a specified sum in lawful currency to the order of named party (the payee)
Single Draft – a draft requiring payment immediately on sight upon presentation to the
applicant/importer

Term draft – a draft requiring payment at a fixed or determinable future time.

Role of the Freight Forwarder in Letter of Credit

Issuance of Documents
The FF issues the certificate of origin, insurance documents and other required documents

Offer of Advice
The FF offers advice with respect to transport instructions within the letter of credit

Compliance with Dates

There are four important dates that the FF needs to pay attention to:

 Date of issue
 Date of expiry
 Date of last day to ship goods
 Last day to present documents

Compliance with the terms and conditions

The freight forwarder needs to make sure that all documents, especially the transport documents are in
compliance with the terms and conditions of the letter of credit.

Accuracy of documents
Main responsibility of FF is to make sure that all documents are complete and accurate

Types of letter of Credit

Confirmed Letter of credit
Confirmed or unconfirmed letters of credit are not types of letter of credit but clauses written within the
letters of credit. It contains a guarantee on the part of both the issuing and advising banks of payment to
exporter so long as the exporter’s documents is in order and terms of letter of credit are met.
Confirmation is only added to irrevocable letters of credit usually available with the advising bank. If
confirmation of letter of credit is desired the applicant must state this expressly in his letter of credit
application. The confirming bank assumes the credit risk of issuing bank as well as the political and
transfer risks of the importer’s country.

If a letter of credit does not contain a confirmation request by the issuing bank in certain circumstances
the possibility exists of confirming the letter of credit “by silent confirmation” without confirmation of
LoC the advising bank will forward the letter of credit to the beneficiary without taking on its own
commitment.

An exporter would request a confirmed LoC if it does not consider the financial strength of the issuing
bank or country in which it located to be acceptable risks.

Although more expensive, confirmed irrevocable letters of credit give the seller the greatest protection,
since sellers can rely on the commitment of two banks to make payment. The confirming bank will pay
even if the issuing bank cannot or will not for any reason honour the draft.
Unconfirmed letter of Credit
Under an unconfirmed letter of credit only the issuing bank assumes the undertaking to pay, thus
payment is the sole responsibility of the issuing bank. An unconfirmed documentary credit will be
communicated (advised) to the seller through a bank most likely located in the sellers country and the
related shipping other documents will usually be presented to the bank for eventual payment.

In dealing with a readily identifiable issuing bank in a developed country, an unconfirmed documentary
credit is very probably an acceptable safe instrument for most sellers. Some countries do not permit
confirmation of letter of credit issued by their banks.

Revocable letter of Credit

 Can be cancelled or altered by the importer/applicant after it has been issued by the applicants
bank, without the consent of the exporter/beneficiary up to the time the documents are
presented
 Is very rarely used and exporter should be very cautious as there is no guarantee that the
transaction will be completed
 A credit should clearly specify whether it is revocable
 Is not covered under UCP 600 article 3 attached
Merchandise letter of Credit
Are used for payment for services against such documents as invoices, vouchers, paid bills or other
records of work performed

Transferable Letter of Credit

Transferable letter of credit means that the original beneficiary can transfer all or part of the proceeds of
an existing credit to another partry, usually the ultimate supplier of the goods, located either in the
beneficiary or any other country. This letter of credit can also be used by middleme as a financial tool.
LoC can only be transferred once.
Standby Letter of Credit
Often called non-performing letters of credit because they are also used if the collection on a primary
payment method is past due. Standby credits can be used to guarantee repayment of loads, fulfillment
by subcontractors and securing the payment for goods delivered by third parties.

Revolving Letter of Credit

A commitment on the part of the issuing bank to restore the credit to the original amount after it has
been used or drawn down. This credit is used in cases where a buyer wishes to have certain quantities of
the order goods delivered at specified intervals such as in a multiple delivery contract.

Red Clause letter of Credit

A red clause credit has a special clause (red clause) that authorizes the confirming bank to make
advances to the beneficiary/exporter prior to the presentation of the shipping documents. In this credit
the buyer in essence extends financing to the seller/applicant and incurs the ultimate risk for all sums
advanced under the credit.

Bank to bank letter of credit

This is a new credit opened on the basis of an already existing, non-transferable credit. It is used by
traders to make payment to the ultimate supplier. A trader receives a documentary credit from the
buyer and then opens another documentary credit in favour of the ultimate supplier. The first
documentary credit is used as collateral for the second credit. The second credit makes price
adjustments from which the trader’s profit comes.

Advantages and Disadvantages of Letters of Credit

Advantages
 The issuing bank undertakes the exporter will receive payment under the letter of credit
provided that he meets all the terms and conditions of the LoC
 The Credit risk is shifted from the importer to the issuing bank
 The exporter is not obliged to ship against a letter of credit that is not issued as agreed
 Bank guarantees payment
 The importer is assured that for the exporter to be paid all terms and conditions of the letter of
credit must be met
 Importer has the ability to negotiate more favorable trade terms with the exporter
 A letter of credit improves cash flow for the importer as no payment in advance is required.
 An accepted draft is negotiable instrument. Exporters can immediately obtain funds for selling it
in financial marketplace.
 The exporter can mitigate the issuing bank’s country risk by requiring the bank in his own
country confirms the letter of credit
 The exporter minimizes collection time.
 The exporter’s foreign exchange risk is eliminated if the letter of credit is issued in the currency
of the exporter’s country.

Disadvantages
 The exporter may have trouble meeting strict documentary requirements. Non compliance with
the requirements stipulated in the letter of credit leaves the exporter exposed to risk of non-
payment.
  Line of credit or collateral must be available from time the letter of credit is issued until the date
of payment
 A letter of credit assures correct documents but not necessarily correct goods. There is no
assurance that the goods actually shipped are as ordered and there is no guarantee of quality.
 The exporter is exposed to commercial risk of the issuing bank and political risk in the issuing
bank’s country.

Process of Letter of Credit

Issuance
1. The tranding parties agree on letter
of credit as a method of payment
2. The importer requests that his bank
(issuing) issues a letter of credit in
favour of the exporter. At this time
the importer becomes the applicant
3. The issuing bank sends the letter of
credit to the advising bank. A
request may be included for the
advising bank to add its
confirmation. The advising bank
isusually located in the country
where the exporter conducts his
business may be the exporter’s bank, but does not have to be.
Often the first indiciation that a quotation or pro-forma has been accepted can be when the
Canadian exporter receives notification from a Canadian bank that they are advising of a letter
of credit. It therefore makes sense to include letter of credit instructions with your pro-forma to
a potential buyer overseas. The following can cause delays in issuance:
 A delay in issuing the import permit
 A shortage in the foreign exchange reserves
 A buyer who places the order is not in charge or does not have the authority to ope the
letter of credit. This is often the case in a large company like a chain store, in which the
finance department, not the import department is in charge of the letter of credit
applications
 The importer is in a tight financial position
 Domestic selling price of the import goods drops
 The currency of the importing country devalues
 The buyer who books the order is laid off
 The company is being acquired or is merging with another company.
4. The advising/confirming bank verifies the letter of credit for authenticaity and
sends it to the exporter/beneficiary
Flow of Goods
5. Upon receipt of the letter of credit, the exporter reviews the letter of credit to ensure that it
corresponds to the terms and conditions in the purchase and sales agreement, that the
documents stipulated in the letter of credit can be produced, and that the terms and conditions
of letter of credit can be fulfilled.
If the exporter is in agreement with the above, he arranges for shipment of the goods. At the
time of acceptance of the letter of credit the exporter becomes the beneficiary. The adivisng
bank informs the issuing bank of acceptance of kletter of credit by the beneficiary.

Flow of Documents and payment

6. After the goods are shipped the beneficiary presents the documents specified in the LoC to the
advising/confirming bank
7. The advising confirming bank confirms that the documents fulfill the terms of LoC and if
satisfactory according to the terms, accepts or negotiatespayment.
8. The adivisng confirming bank forwards these documents to the issuing bank.
9. The issuing bank examines the documents to ensure they comply with the letter of credit
10. If the documents are in order the issuing bank will obtain payment from the applicant for
payment already made to the confirming bank.
11. Documents are delivered to the applicant to allow him to take possession of the goods.

All credits must stipulate an expiry date and a place for presentation of documents for payment
acceptance or with th4e exception of freely negotiable credits, a place for presentation of documents
for negotiation. An expiry date for payment acceptance or negotiation will be construed to express an
expiry date for the presentation of documents. The letter of credit should state that the credit is
available for negotiation at either the issuing bank, nominate specified bank or is freely negotiable. If no
bank specified it is freely negotiable at any bank under UCP 600 article 6

In addition to stipulating an expiry date for presentation of documents, every credit which calls for an
transport document(s) should also stipulate a specified period of time after the date of shipment during
which presentation must be made in copmpliance with theterms and conditions of the credit. If no such
period of time is stipulated, banks will not accept documents presented to them later than 21 days after
the date of the shipment.in any event documents must be presented not later than the edxpiry date of
the credit. Th4e date of shipment will be considered to be the latest date on any of the transport
documents presented. Bank examine documents against the letter of credit and against each other. The
issuing bank, confirming bank, if any or nominated bank acting on their baehalf shall each have a
reasonable time not to exceed 5 banking days to examine the documents (UCP 600 article 14)

Documents under Letter of Credit

One major issue is consistency among documents in the different letter of credit transactions. It is very
important for an exporter to notice and correct any discrepancies before forwarding the documents to
the advising bank, the advising bank should also note inconsistencies before forwarding the document
to the issuing bank, and issuing bank to the importer. The following should be consistent throughout:

 Name and address of shipper

 Name and address of buyer/consignee
 Issuer’s name and address
  Description of goods, quantities, units
 Country of origin of goods
 Country oif destination of goods
 Invoice numbers, documentary credit numbers
 Certifications
 Legalizations
 Shipping marks and numbers
 Net weight, gross weight, volume
 Number of crates, cartons or containers.

The originals of specified documents should be provided unless copies are called for or allowed. If more
than one set of originals is r3equired, the buyer should specify in the credit how many are necessary
(UCP 600, Article 17).

A transport document must appear on its face to have been issued by a named carrier or his agent.

Unless otherwise noted in the documentary credit, banks are authorized to accept documents that are
authenticated, validated, legalized, visaed, or certified so as long as the document appears on its face to
satisfy the requirement.
Banks are authorized to accept documents that have been signed by facesmile, perforated signature,
stamp , symbol, or any other mechanical or electronic method.

If the credit does not name a specified issuer or specific content of a document, banks are authorized to
accept documents are presented so long as the date contained in the document are consistent with the
credit and other stipulated documents.

Unless otherwise noted in the documentary credit, banks are authorized to accept documents dated
prior to the issuance date of the credit, so long as all other terms of the credit have been satisfied.

Application for letter of credit

To issue the LoC, the importer must complete the application for documentary credit available through
a bank

Commercial Invoice
Commercial invoice is the key accounting document describing the commercial transaction between the
buyer and the seller (UCP 600 Article 18)

Marine/Ocean/Port to port Bill of Lading

A marine bill of lading is a transport document covering port to port shipments of goods (UCP 600
Article 20)
Non Negotiable Sea Waybill
A transport document covering port to port shipments it is not title document it is not negotiable and
cannot be endorsed (UCP 600 article 21)
Multimodal (combined) transport Document
A multimodal doc is a bill of lading covering two or more modes of transport (UCP Article 19)
Air transport Document Air Waybill
A non negotiable transport document covering transport of cargo from airport to airport

UCP 600 article 23

Insurance Documents of Insurance Certificate

A document indicated the types and amount of insurance coverage in force on a particular shipment. In
documentary credit transactions the insurance documents is used to assure the consignee that
insurance is provided to cover the loss of or damage to cargo while transit subject to policy terms of UCP
600 Article 28
Certificate of Origin
A document issued by a certifying authority stating the country of origin of goods

Inspection Certificate
A document issued by authority indicated that goods have been inspected prior to shipment and the
results of the inspection.

Regeional trade pact import/export declaration

A standardized export/import document used in common by members of a rtegional trade group
containing compliance administrative and statistical information. Typically issued by exporter

Shippers export decalation

A document prepared by the shipper and presented to a government authority specifying the goods
exported along with their quantities weight value and destination

ATA carnet
A document that allows the temporary importation of merchandize into member countries while
eliminating the value added taxes (VAT) duties and posting of security normally required at the time of
importation

Packing list
A document prepared by the shipper listing the kinds and qualities of merchandise in a particular
shipment

THE DRAFT

Top – Down
Shipment Date

Tenor

Currency and Ammount in Words

Issuing Bank and letter of credit number

Paying bank (confirmed letter of credit)

Beneficiary

Things that can go wrong

Reason to rejection of certain documents by Canadian banks is because the fundamental guarantee of
issuing bank is always based on the specific documentary details and terms of each individual credit. If
paying bank overlooks mistakes it becomes a liability for payment to the issuing bank

Options when documents do not comply

Usually the banks reviews the documents and calls the presenter with discrepancies. If the bank permits
there are several options available such as:

 Allow the exporter to correct the discrepancies, if possible, and if time allows
 Wire to the issuing bank for agreement to accept the discrepancies (the issuing bank will
generally refer to discrepancies to the applicant)
 Pay the exporter with recourse
 Forward the documents to the issuing bank without paying the exporter
 Accept in some countries an indemnity from the exporter and make payment immediately.

Discrepancies
There are a number of different types of discrepancies that may happen, such as the following:

General
 Documents inconsistent with each other
 Discription of goods on the invoice differs from that in the credit (UCP 600 articles 37c)
 Marks and numbers differ between documents
 Absence of documents called for in the credit
 Incorrect names and addresses
 Spelling mistakes must be kept same and ot corrected

Transport Documents
 Shipment maded between ports other than those stated in the credit
 Signature on bill of lading does not spicify on whose behalf it was signed
 Required number of originals not presented
 Bill of lading does not evidence whether freight is prepaid or collect
 No evidence of goods actually shipped on board
 Bill of lading incorrectly consigned
 To order bills of lading not endorsed
Insurance
 Insurance document presented of a type other than the required by credit
 Shipment is underinsured
 Insurance not effective for the date in the transport document
 Insurance policy incorrectly endorsed

Drafts
 Amount does not match invoice
 Drawn on wrong party
 Not endorsed correctly
 Drawn payable on an indeterminable date

Time
 Late shipment
 Late presentation of documents – after expiry (UCP 600 article 14)
 Credit expired
Amendment and payments
The exporter will ask for amendment if there are problems found, however to have irrevocable credit
amendment cannot always be possible. Amendments are not valid until the issuing bank, that
confirming bank and beneficiary accept.

Beneficiary can accept by presenting documents which reflect the changes dictated in the amendments
(UCP 600 Articles 9) (UCP 600 Article 10)

If amendments are made thy are usually paid for by the beneficiary and the deducted from the
proceeds.

Payment

It is important to realize both the exporter and Freight forwarder, that under an uncofrmed credit, one
cannot necessarily expect instant payment even when presenting perfectg documents.

If paying bank has not confirmed the credit, it is not obliged to honour beneficiary draft (ie pay or
accept) if the opening bank has insufficient funds or if the opening bank has otherwise failed to make
satisfactory arrangements with paying bank to provide for cover of payment.
A freight forwarders responsibility is to make sure that all transport document are accurate and in
compliance tot the letter of credit.

Article 39 UCP 600 you can assign another party all or part of the proceeds of a drawing/payment unre
credit.

Export packaging and warehouse

Objective

Identify the types and suitability of packaging for shipments moved by different modes of transport

Identify the marks and symbols and labels

Describe the importance of proper labeling and packing in preventing cargo loss

Explain the importance and advantages of unitizing freight

Step by step process of preparing cargo for stowage

Packing methods for different types of cargo considering special conditions and customer’s needs

Identify common types of warehouses

Layout and efficient flow of freight in typical warehouse

Liabilities involved in warehousing and storage in cargo

Types of packaging, marks labels, and symbols

Several types are used. Always check for damage to avoid damage of shipment

Corrugated Fibreboard Boxes

 Most common
 Inexpensive, lightweight, efficient
 Can withstand normal transportation hazards and protect contents from damage and loss
 Can degrade over time
 Tape used most commonly on top and bottom
 Has a BMC (box maker certificate) states the max size and
length / width and weight the box can hold
 Not reusable
 Not recommended for highly pilferable items as well as
ocean travel

Nailed wooden box

 Made with pieces of lumber sometimes reinforced batons attached by
nails or other suitable fastners
 Has a bottom four slize panels and attachable top
 Most satisfactory for ocean travel
 Protects against puncture breakage and crushing.
 Lines and sealed with waterproof seal
 Superimposed loads

The construction of Nailed Wooden Boxes

The following designs provide the most strengths .
ISPM 15 require wooden packaging material must
be heated in accordance with specific time-
temperature schedule that achieves minimum
wood core temperature of 56 degree C for a
minimum of 30 mins.

Crates
 Relatively inexpensive
 Theft proof, harder opening of crates
 Lower purchase price
 Good stacking properties
 High tolerance of vertical pressure
 Low strength to width ratio, lower than plywood
  Needs packaging volume for more strength which can in turn result in more cost
 Solid wood material will be disposed off after opening
 Two types of crates
 More material needed
 Can seldom be reused
 Solid wood splits fairly readily along the grain
 Open Crate Skeleton
o Used for Virtually indestructible content
 Sheathed Crate
o Protects contents from exposure of materials
o Provide substantial framework
o Reinforced in the floor of the crate
o On skid type crates

Cleated Plywood Boxes

 Stronger along the grain rather than along
 High uniform strength
 Minimal shrinking, swelling and warping
 High strength/weight ratio
 No splitting
 Large sizes available
 Low sensitivity
 The required adhesive may be toxic
 Higher price

Wire Bound Boxes and Crates

Use blocking and bracing to secure

Good for overpackaging

Steel Drums
Corrosion resistant

Good for transport of goods and chemicals

Provide tamper proof seals

Label properly when transporting dangerous goods

Fibreboard drums
 Used for foods/pharmaceuticals and chemicals
 Approved for transportation of dangerous goods
 Not suitable for high density materials
 Should be filled to top
 Palletized
 Never should be rolled.

Barrels Casks or Kegs

Not widely used in present

Always store liquids bung up

Reinforced with head cleats

Multi wall Sacs

Used for powdered granular and lump materials/dry chemicals

Heavy duty craft paper

Diff types
Bales
Not for high value shipment

Subject to pilferange/hook holes and water damage.

Marks and Symbols

Shipping mark
 Identification mark (initial letter of receiver or shipper or receiver’s company name
 Identification number (receivers order)
 Total number of items in the complete consignment
 Number of the package in the consignment (4/6)
 Place and port of destination
Information mark
 Country of origin (statement of origin is often mandatory. The country of origin must be stated
in accordance with the provisions of the particular countries)

Handling Instructions
 It must be able to provide information with respect to whether the package is sensitive to heat
at risk of breakage etc.

Tear off Here

Symbol intended for receiver only

Clamp here
Stating that the package may be clamped at the indicated points is logically equivalent to prohibition of
clamping elsewhere.

Temperature Limitations
According to regulations, the symbol should be provided with the suffix “degree C min” temperature
limit. The corresponding temperature or temperature limits should also be noted on the consignment
note

Do not use Forklift Truck Here

The symbol should also be applied to the sides where the forklift truck cannot be used. Absence of
symbol on other side of package amounts to permission to use forklift trucks on these sides.
Electrostatic sensitive Device
Contact with packages bearing this symbol should be avoided at low levels of relative humidity,
especially if insulating footwear is being worn or the ground/floor is nonconductive. Low levels of
relative humidity must in particular be expected on hot dry summer days and very cold winter days.

Do Not Destroy Barrier

A barrier layer which is virtually impermeable to water vapour and contains desiccants for corrsion
protection is located beneath the other packaging. This protection will be ineffective if the barrier layer
is damaged. Since the symbol has not yet been approved by the ISO, puncturing of the outer shell must
in particular be avoided for any packages bearing the words packed with desiccants

Sling Here
The symbol indicates merely where the cargo should be slung, but not the method of lifting. The
symbolare applied equidistant from the middle or centre of gravity, the package will hang level if the
slings are identical length. If this is not the case, the slinging equipment must be shortened on one side.

Keep Dry
Cargo bearing this symbol must be protected from excessive humidity and must accordingly be stored
under cover. If particularly large or bulky packages cannot be stored in warehouses or sheds they must
be carefully covered with tarpaulins
Centre of Gravity
The symbol itended to provide a clear indication of the position of centre of gravity. To be meaningful
this symbol should only be used where the centre of gravity is not central.

No Hand Truck here

The absence of this symbol on packages amounts to permission to use hand truck on them

Stacking limitation
The maximum stacking load must be stated as “ … kg max” since such marking is sensible only on
packages with little loading capacity, cargo bearing this symbol should be stowed in the uppermost
layer.

Fragile, Handle with Care

The symbol should be applied to cargo that can easily be broken. Cargo marked with this symbol should
be handled carefully and should never be tipped over or slung.
Use no hooks
Any other kind of point load should be avoided with cargo marked with this symbol. The symbol does
not automatically prohibitr the use of plate hooks used for handling bagged cargo.

Top
The packaged must always be transported handled and stored in such a way that the arrows always
point upwards. Rolling swinging severe tipping or tumbling or other such handling must be avoided. The
cargo need not however be stored “on top”

Keep away from Heat (solar radiation)

Compliance with this symbol is best achieved if the cargo is kepd under the coolest possible conditions.
In any event it must be kept away from additional source of heat. It may be appropriate to acquire
whether prevailing or anticipated temperature may be harmful. To prevent losses this label should also
be used for goods, such as butter and chocolate.

Protect from heat and radioactive Sources

Stowage as for the keep away from heat symbol. The cargo marked with this sumbol must be protected
from radioactivity
Palletizing Cargo
Palletizing is the most economical way to ship cargo to prevent items from being
lost or damaged during transport. It also decreases the amount of time to move
packages as mechanical equipment can just lift the pallets

Fit for Container

 Be aware of palletizing mixed freight can cause dead space on pallet
 Imagine how you will be able to fit the skids into the container

Do not Pyramid Stack

 Keep the top of the skid flat to minimize the loss or damage to cartons
 Do not pyramid stack

Angleboard
Place angled fireboard (angleboard) between the shipping boxes to prevent curshing and provde edge
protection

Cover
 Cover the top of the skids with plastic film to protect the freight from weather damage
 For ocean freight, wrap the skids in 70 gauge stretchwrap. Pass at least two bands (tightly
secured) through the skids voids and around all cartons
 If possible, use steel, rayon, polypropylene, nylon or polyester strapping to band the ocean
freight
  Use shock absorber connections or cushioned skids if applicable whjen bolting.

ISPM 15
The International Phytosanitary Measure (ISPM) guideline controls the import of wood packing. These
restrictions on wooden packing materials help prevent the sopread of pests like the pinewood
nematode (bursaphelenchus xylophilis) and the Asian Longhorned bettle. This seal of compliance is
colloquially known as the bug stamp

Plastic packing materials that do not contain wood are exempt from ispm 15 rules. Plastic pallets are
light weight, cost effective, durable strong impervious to acids fats solvents and odours resistant to
moisture, insects and fungi. They can also sithstand deep freezing and are easy to clean and handle with
equipment. Plastic pallets usually have a solid deck which helps protect the bottom of the shipment
from forklift damage and support the load. On the negative side the deck surface of the plastic pallets
tends to be slippery, making it difficult to fasten blocking to the deck or prevent product movement.

Corrugated pallets are an alternative to wood and plastic pallets they do not however stand to the rigors
of transportation very well.

Distribution
Palletized cargo dimensions are derived by the length, width and highest point of the pallet including the
pallet itself.

Palletizing may increase chargeable volume by 10% - 20% or more however palletizedf cargo has much
higher probability to reach its destination without damage or loss.
There is a variety of pallets of different sizes and forms the most common being a pallet (skid) with
dimensions of 48in / 40in / 6in

 Do not use broken pallets

 Distribute weight evenly
 Stack boxes squarely corner to corner to the skids edge to maximize compression strength but
do not allow shipping boxes to hang over the skid.

Weight and Size

Pallets exceeding 2,200 lb or 70 inches in higher or 119 inches in length or 80 inches in weidth may
require a prior approval from the carrier used for your shipment.

Unitizing Cargo
Unitizing is the assembly of one or more items into compact load, secured together and provided with
skids and cleats for ease of handling

The unitization method is an alternative to use of slings. It is mostly used for lumber /plywood
/hardboard /veneer. Usually stacked two or three units high. Can be applied to pipes or etc

Steel bands are strapped around the package then pulled tight with the use of tensioners.

In addition to damage prevention the unitization methods makes it possible to build a larger master
packages resulting in high handling efficiency. The steel bands are removed and disposed of after
discharge.
Preparing Cargo for Stowage
When a container is placed on board of a vessel journey, the countainer inside are subject to many
motions as seen in attached picture. Diligent securing of the container and proper container stuffing is
therefore very important. Proper container stuffing requires two main objectives:

1. Using all, or as much as possible, of the containers cube capacity

2. Protecting the cargo from loss or damage during transit

To avoid such problems, as cargo overflow or waste of space, it is essential to have a plan before the
cargo is loaded into the container.

Dunnage
Any type of material used to protect the ship and the cargo is used on general ships, inside containers
on container ships as well as inside various packaging. Generally rough finished low grade lumber is used
but you can also use burlap, cardboard, heavy paper or metal battens

Dunnage may also include plastic films, jute coverings, tarpaulins, rice mattings, inflatable bags, fabric,
foam, plastic, etc.

Depending on the use dunnage may be divided into floor lateral interlayed and top. The function of
dunnage is:

 To protect the cargo from moving which may result in damage caused by chafing
 To protect the underying cargo from contamination by a top cargo
 To segregate individual batches of cargo
 To protect moisture sensitive cargo, such as bagged cargo.
Heavy Machinery
When stuffing the container with heavy machinery or items with irregular shape, high density
components may reach the weight capacity of the container or the highway limitations imposed by
individual states and countries before achieving the desired cube capacity of the container

Ensure that heavy cargo is securely braced and blocked on all sides to prevent any lateral or lengthwise
motion since its concentrated weight will cause major damage if the load shifts. All shoring and bracing
must bear on a structural member of the container and not the panel sides of the container alone

Heavy cargo, though requiring no extra crating or boxing should be placed on cradles or skids so the
extreme weight is further distributed over a larger area.

Mixed Commodities
To achieve maximum cube use, more than one commodity will often be stuffed into the same container:
these rules should be obeyed:

 Never stuff a commodity giving off an odor with a commodity that would be affected by an odor.
 If wet and dry cargoes are stuffed in same container, use dunnage to separate the commodities
 Do not stow hazardous materials of diff classes in the same container if any segregation
requirements are shown in the IMDG (international maritimes dangerous goods) code for
different classes involved.

Perishables
The refrigerator container should be inspected for clearliness and should be precolled before loading
the cargo should not be packed tightly to the interior roof of the container or hard against the doors,
because sufficient air space must be left to provide proper air circulation within the container. When the
container is locked and sealed the date and time of loading and temperature setting is recorded.
Corrugated Fibreboard Boxes
Fibreboard boxes and cases that are unitized are normally the best cargo for stuffing and unstuffing
stabilizing in transit and warehousing. Better cargo cube capacity can be obtained by using a pallet load
height of 43 inches when stuffing palletized cargo, placed forklift opening in pallets or skids facing the
door of the container. Also provde a lift clearance at the top minim 4 inches, for items to be handled byt
a forklift. Avoid wedging or jamming cargo into containers.

The most recommended method of stacking fibreboard boxes is column stacking corner to corner and
edge to edge for greatest stacking strength

The stacking that causes the most problems is pyramids stacking and should therefore be avoided

Interlocking boxes can reduce their top to bottom compression strength up to 50 % except when the
content is rigid thus more stable. In addition to exposure to compression strength of boxes that
overhang or are not properly aligned with the pallet is reduced by as much as 30%

Bags Sacs and Bales

When stuffing bags, sacs or bales ensure they are laced or dunnage – either racks pallets or packing
material. The cargo should be stuffed in crosstier for greater stability.

 Use sufficient dunnage layers on the container deck to provide a sump area for condesate
drainage
  Separate bags,sacs or bales from other cargo by using partitions or auxiliary decks
 When stuffing bales provide dividers between rows and tiers to prevent chafing and friction
between metal bands or strapping
 Flatten bags

Drums
When stuffing drums place drums as tightly against each other to avoid shifting

Wooden Boxes and Crates

When stuffing a container with wooden boxes and crates, place the heavy items on the container floor
with pallet access openings facing the container door. If the crates are uniform size and weight they
should be stacked directly one on top of each other.

Stuff the smaller unpalletized boxes and crates in as much in the same manner as cartons and place
them on their sides or ends to maximize space.

Inspect the Container

Before loading the cargo into container, it is important to inspect the contaienrs interior and exterior
and check for:

Exterior

 Integrity bulges and dents

 Doors – locks
 Damaged lifting fittings
 Covers/hatch panels

Interior

 Watertight integrity – do the light test

 Fittings
 Cleanliness – especially when transporting perishable cargo the container must be odor free.

Size of cargo
When planning the stow, should take into consideration the measurement and weight of the cargo.
Generallya 20 ft container can hold as much as 28 to 30 cbm, while 50 does 56 to 60

Some countries have lower weight than the max container weight
General Rules
Prevent damage, place heavy items and wet commodities on the bottom with light and dry on top

Do not stuff dangerous cargo with incompatible items

Make sure weight distribution is even throught the container

If cargo does not fill the container, block and brace it.

Loading Air Cargo

G Force (G-force)
To prevent damage to and/or losses of cargo you need to pack the air cargo to withstand

 Aircrafts G force
 Pressure from adjacent cargo and tie down straps
 Manual handling and stacking
 Exposure to elements

Containers
Lower and main deck contaienrs are enclosed, come in various types. Follow same consideration as
ocean cargo

Palletize, unitize, containerize

These methods:

 Minimize manual handling

 Limit theft and pilferage
 Minimize stowage damage
 Provide water repellant coverings

Water damage protection

 Use waterproof paper and polyethylene liners
 Use desiccants
 Shrint wrap pallets when possible

Heavy cargo
 Check aircraft floor weight limits
 Provide skid for mechanical lifting
 Verify dimensions of aircraft doors

Perishables

 Allow adequate package ventilation

 Give complete instructions to carrier for proper handling
 Use direct flights where possible
 Try to time pick-up and delivery with airline’s arv/dep times

Liquid cargo
 Allow for expansion space for temepration and pressure variations
  Ensure caps seals and valves are tightly closed
 Apply orientation marks.

Insurance Claims

1. Handling and bad stowage

 Pack for the toughest leg of the journey
 Select proper packaging based on type of cargo
 Use proper dunnage/blockage/bracing/cushioning/overserve stacking weight limits,
unitize, palletize
 Use caution marks in English and destination country language, use international
handling symbols marks on 3 surfaces of exterior package
2. Containerized cargo loss
 Select proper container
 Inspect containers prior to loading
 Pack container to withstand the toughest leg and to prevent damage to goods container
and transport vehicle
 Lock seal and record seal numbers
 Document and conduct proper inventory
3. Pilferage and non-delivery
 Use only new and well-constructed packing
 Use gummed patterned sealing tape
 Apply shring wrapping strapping and banding
 Insist on prompt pick up and delivery
 Use blind and coded marking
4. Water Damage
 Apply preservatives corrosion inhibitors or waterproof wrapping into actual goods
 Use waterproof linings in interior/exterior packaging
 Use desiccant for moisture absorption
 Use large packing units with drain holes if possible
 Raise cargo on skids, pallets, dunnage

Shipment should be palletized when shipping unit exceeds 100 lb

Warehousing and storage

Warehousing and storage is important in supply chain. Constand advancement in technology and
increasing dmeands for efficiency have changed the industry.

Private Warehouse
 Operated by the company that owns the product being stored within the warehouse
 The company does not necessarily own the building but does own all the products that come in
and go out.

Advantages of private warehouses

 Control
 Flexibility of design and operations
  Less costly in the long run
 There is greater care in handling and storage, better utilization of expertise of technical
specialists
 Depreciation allowances on building equipment reduce tax payable
 Customer perceives the company as a stable and dependable supplier

Public Warehouse
 A business that provides short or long term storage to companies on a month to month basis
 Fees can be combination of storage fees and inbound and outbound transaction fees
 A public warehouse can charge per pallet or per each square foot that is used by a company

Advantages of public warehouses

 Zero capital investment

 Capability to expand market
 Adjust for season
 Provides specialized services (such as packaging and break bulk services) and have special
features that make them unique

Examples of warehouses:

 General non-food merchandise

 Food and non odor producing
 Refrigerated
 Cooler
 Household goods
 Controlled drugs and narcotics
 Tire and odour producing
 Dangerous goods

Contract Warehouse
 A variation of public warehousing and involves a long term mutually beneficial arrangement
where a unique and specially tailored warehousing and logistics service are provided to one
customer
 Handles shipping receiving and storage of products on a contract basis and will gradually require
a client to commit to a specific period for services
 Contracts may or may not require clients to purchased or subsidize storage and material
handling equipment

Advantages of public warehouses

 Zero capital investment

 Capability to expand market
 Adjust for season

Volume handled in a public warehouse allows consolidated freight rates.

Bonded Warehousing
A bonded warehouse is abuilding or other secured area in which dutiable goods may be stored
manipulated or undergo manufacturing perations without payment of duty. It may be government
managed or private enterprise. For private enterp. Bond must be posted to gov.

Upon entry of goods into warehouse the importer and warehouse proprietor incur liability under a
bond. This liability is generally cancelled when the goods are

 Exported or deemed exported

 Withdrawn for supplies to a vessel or aircraft in internation traffic
 Destroyed under customs supervision or
 Withdrawn for consumption domestically after payment of duty

While the goods are in the bonded warehouse, they may under supervision by the custom authority, be
manipulated by cleaning sorting repacking or otherwise changing their conditions by processing that do
amount to manufacturing. After manipulation within the warehousing period, the goods may be
exported without the payment of duty or they may be withdrawn for consumption upon payment of
duty at the rate applicable to the goods in the manipulated condition at the time of withdrawal. Bonded
warehouses provide specialized storage services such as deep freeze or bulk liquid storage commodity
processing and coordination with transportation and are an integral part of global supply chain.

Queens Warehouse
 Operated by the CBSA
 Storage and disposable of unclaimed abandoned detained and seized goods

Highway frontier examing warehouse

 Operated by CBSA
 For examination of unreleased imports at highway ports of entry

Customs Bonded warehouse

 Private owned and operated under a CBSA license
 Part of CBSA’s duty deferral program
 Customs bonded warehouse operators must provide a security (bond) in amount of 60 percent
of duties and taxes that would otherwise be payable at any time in the year following the
insurance of license
 There are two types of customs bonded warehouses: Public and private
 Imported goods can be stored duty and tax free until they are exported or consumed
domestically.

Sufferance Warehouse
 Privately owned and operated under CBSA license
 Used for temporary 40 day storage of imported goods pending CBSA release
 These are 14 sub types of sufferance warehouses.

Warehouse functions and designs

Receive inspection

Inventory Control

 Concerns how much inventory is on hand and available for shipment to customers, plants or
warehouses

Purchasing

 Typically performed by the manufacturing group affecting warehouse operations though the
types and volume of items acquired, and through the processing and record keeping functions
that accompany purchasing transactions

Order entry
  This is process of entering orders into firms order processing system. Incorrect entry often result
in duplication in the other warehousing and distribution activities

Storage

Put-away

This is physical process of taking goods received and placing them within locations inside

Replenishment

Process of relocating goods from a bulk storage area to an order pick storage area. An important
warehousing task is to keep tract of inventory levels efficiently

Checking

Clerical and administrative

Redistribution

Customer order selection

Packaging and marking

Staging consolidating and shipping

Cargo Insurance
Marine insurance has long and great interests. Bottomry is a load form defined as a mortgage of a ship.

April 24, 1384 – oldest marine policy covering

1734 – the lloyd’s list was first published

1769 – Lloyds of London was founded

Objective

History of Cargo insurance

Benefits of cargo insurance coverage

Carrier liability and limitations by mode of transport

Types of cargo insurance generally available

Roles and responsibilities of importers and exporters with respect to cargo insurance

Cargo insurance certificate

Insurance premium

Documentation needed for cargo insurance claims for submission to the insurance company

Timelines for claim submission

Principles of Cargo Insurance

Insurable interest Marine Insurance Act MIA
1. Physical object
2. Exposed to period in a maritime/air/land adventure
 3. Insured has a legal relationship to the object (benefit from preservation of or prejudice by its
loss)

Indemnify
 To replace that which has been lost
 To make good

Utmost Good Faith (Uberrimae Fidei)

 Both insurer and insured
 Disclose fully any circumstance that may affect acceptance of risk, conditions, or premiums.

Why Insure – Exporter

Competitive advantage in providing CIF/CIP service

 Cost to importer/control stays with exporter

Protection for exporter in CFR or FCA sales

 Goods shipped but not paid for may not receive payment (damage, bankruptcy, etc)
 Goods or documents rejected at destination, insurance risk may revert to exporter
 Seller’s interest’s insurance

Why Insure – Importer

 No hidden costs in CIF/CIP imports

 Coverage meets needs of importer
 Protection for importer of insuring with reputable insurer in Canada
- Importer is the customer
- Faster more efficient claims process

Why Insure – everyone

All carriers limit their libability

 Possible to increase limitations by declaring value at time of shipment

 Pay valuation charges

High value cargo: advise well in advance

 Carrier can refuse the cargo or take the risk (by obtaining special insurance – passed on in form
of higher freight rates)
 Carrier can make security arrangements

Why Insure – freight Forwarder

Without insurance, forwarder will be expected to help obtain compensation for customer

Importers and exporters don’t know or understand carrier liabaility they want to be indemnified

Freight forwarders want customers to be competitive to operate successful business and to be satisfied
… proper cargo insurance drives all three.
Marine Insurance Act
 Legal relationship of the insured to the object
 Physical Obejct
 Exposure to peril in maritime/air/land adventure.

Types of Insurance Coverage

Old Cargo Clauses

 All risks
 With average (WA)
 Free of particular Average (FPA)

New Cargo Clauses

 Institute Cargo Clause A

 Institute Cargo Clause B
 Institute Cargo Clause C

Deck cargo usually is covered on a free of particular average basis with the risk of jettison and washing
overboard included.

 Not duty payable on goods lost prior to arrival

 Damaged goods still subject to duties
Inherent Vice – A property in cargo which causes, or is liable to cause, loss or damage to cargo, without
any accident occurring (spontaneous combustion). It is always excluded by the insurer of the cargo
because of its inevitable nature.

Some Goods are susceptible to particular hazards and require special treatment
To Ensure against war, strikes, riots, etc., a specific agreement must be made for an additional premium

3 Institute war clauses

1. Institute war clauses (cargo) – from loaded on baoard to unladed from vessel +15 days but not if
transported over land
2. Institute war clause (Air) – on aircraft to off aircraft
3. Institute war clause (post) – sender’s premise to consignee’s premise
General Average
All parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of
the ship or cargo to save the while in an emergency.

Common Danger
A danger in which vessel, cargo and crew all participate; a danger imminent and apparently inevitable,
except by voluntarily incurring the loss of portion of the whole to save the remainder

The Act of general Average

There must be a voluntary jettison, jactus or casting away of some portion of joint concern for the
purpose of avoiding this imminent peril, periculi imminentis evitandi causa, or in other words a transfer
of peril from the whole to a particular portion of the whole.

The Adventure must be saved

This attempt to avoid the imminent common peril must be successful

Who pays
The owner of the property sacrificed or those, usually the owners, who have incurred an extraordinary
expense must be made whole.

What is an Average Adjuster

Cash deposit or an unlimited underwriter’s guarantee may be required before goods on board the ship
at the time of the general average occurrence are released to the consignee.
General Average Adjustment

Rating Considerations
Rating depends on individual underwriter’s appreciation of each risk

Rating and Cost Factors

The main points are

 Past experiences with both the insurer and client

 Origin, destination (port facilities, inland transit before loading and after discharge)
 Goods susceptible to 1) breakage, leackage, sweating 2) theft or pilferage
 If client is importer/exporter arranging own insurance: considers age of vessel, packing and
method of transport (ie. FCL vs breakbulk) Length of voyage, time of year, moral hazard of
importer and exporter.

Valuation and Rating

Valuation in policy

- Often CIF plus 10%

Rating is calculated

- Valuation x Rate (which is per 100 dollars)

 - All risk rate = $0.25 per $100.00
- War & Strikes = $0.03 per $100.00
- Total Rate = $0.28 per $100.00

Valuation

- $10,000.00
- Rate: ______ x 0.28%
- Premium $28.00

Responsibilities of importer and exporter

Only the owner of the goods (or his appointed agent) can insure them

Calculating of the Insurance Premiums

Calculate the insurance premium of CIF plus 10% for the following shipment

100 cartons valued US $10,000.00

Actual weight 60kg

Volume weight 150kg

Air Freight: US $5.00/kg

Premium Rate: 0.25%

Step 1 – Determine Chargeable Weight of shipment

Higher of Actual vs Volume Weights

150kg for this example

Step 2 – Calculate Freight Cost

US $5.00 x 150kg = US $750.00

Step 3 – Calculate Cost + Freight

US $10,000.00 + US $750.00 = US $10,750.00

Step 4 – Determine Rate

0.25% for this example

Step 5 – Determine estimated insurance premium as follows:

$10,750.00 x 0.25% = $26.88

Step 6 – Determine CIF value

$10,750.00 + $26.88 = $10,766.88

Step 7 – Determine 110% of the CIF Value

10% of 10,766.88 = 10766.88 * 1.1 = 11,854.57

Step 8 – Determine Rate

0.25% again
Step 9 – Calculate Insurance Premium
$11,854.57 x 0.25 = $29.64

Montreal convention Weight x 19 SDR

Endorsement – Term used to modify insurance to include risks not covered in basic policies by adding
suitable clauses and paying additional premium
Policy and Insurance Certificate
Providing Cover
 If you are using letter of credit as a method of payment the exporter should instruct the
importer to request certificate rather than policy in the letter of credit.
 Many larger freight forwarders are also insurance agencies – can issue policy (ie. Through its
own in house insurance company)

Certificate under open policy:

 Reduced administration
 Competition costs
 Local claims handling
 Improved flexibility billing options

Insurance Certificate
Issued per transaction

Under open Policy

Insurance policy
Letter of credit stipulates policy or certificate

Insurance policy:

 Issued once by insurer

 Specific policy or open policy

Two types of warranty

1. Implied
2. Express
Insurance Claims
Some causes for claims can be

 Improper or insufficient packaging

 Improper stowage
 Poor quality containers with holes, rust
 Marketing labels on high interest goods
 Fragile/sensitive goods not labeled.

Receive Notice of Claim from client

Intent to Claim Filed on time with carrier

Puts all involved parties on notice that a claim for loss may or may not be processed

Survey
 Notation on AWB – Creates irregularity report
 Verify seals, intact & correct seal number
 Examine tape, look for re-taping
 Examine tip, shock, tilt indicators
 Physical damage, crushed corners, cartons or containers or pallets
 Piece count
 Re-weight

Gather all Required Documents

 Endorsed insurance policy
 Original survey report
 Subrogation receipt
  Report cover letter – dated and signed
 Bill of lading, MAWB, pro bills and other contracts of carriage
 Commercial invoice(s) for entire shipment
 Packing lists
 Copy of delivery receipt (noted)
 Repair invoice or other
 Any photographs etc

Statement of Claim
 Future customer satisfaction depends on how the claim is processed
 If no insurance … no satisfaction

Follow Up
Claims processing 30 to 90 days

Summary
 Claim immediately for any loss
 Do not give clean receipts if goods in doubtful conditions
 Note damaged containers or seals
 Apply for survey immediately upon discover of damage
 Give notice in writing to the carriers within 3 days of delivery if loss not immediately apparent

Exercise

Full disclosure of all material facts to insurance underwriter is described as Utmost Good Faith

Insurance certificate – Document that acts as a contract between the insurer and the insured and
provides details of insurance coverage as well as transportation details of a particular shipment
Cargo Security and Dangerous Goods
Objectives

Explain the purpose and requirements of Canadian and international transportation and trade security
programs.

Identify security and weakness in supply chain, border security transport security and such

Identify security threats

Explain responsibilities of different parties in relation to cargo security

Dangerous goods

Classification system of dangerous goods

Roles and responsibilities of various parties with respect to transporting dangerous goods

Recognize labels safety marks and placards for dangerous goods

Outline the documentation required for transportation of dangerous goods

Security Measures
Companies register with applicable gov agencies

Partners in Protection (PIP) Voluntary

One issue the memoranda of understanding in pip program focus on is exchange of information

Members:
 1) Importer, exporter, air carrier, rail carrier, marine carrier, highway carrier, customs broker,
courier, warehouse operator (including marine terminal operator), freight forwarder , shipping
agent.
2) Must own or operate facilities in Canada that are directly involved in the importation or
exportation of commercial goods
Or must be a US highway carrier company that is a member of or is applying to the free and
secure trade (FAST) program into Canada
3) Must be good character and have a good record of compliance with the CBSA

Associates:

 Association
 Companies
 Groups
 Port Authorities
 Lawyers
 Consultants

Customs Trade Partnership Against Terrorism (C-TPAT)

Partners

 US importers
 US/Ca Highway Carriers
 US/Mx highway carriers
 Rail and sea carriers
 Licensed US Customs broker
 US marine port authority/terminal operators
 US freight consolidators
 Ocean transporation intermediaries and non operating common carriers
 Mexican and Canadian manufacturers
 Mexican long haul carriers
 Department of Homeland Security (US)
 Customs and Border Protection Agency (US)

To join this program, companies sign agreement to protect supply chain, identify security gap and
implement security measures and best practices.

Considered low risk and less likely to be examined

Harmonization of PIP and C-TPAT

Collaboration on a signle application process for both programs and standardization of policies,
procedures and sharing information

Mutual Recognition
The CBSA has signed mutual recognition arrangements with the following foreign programs
Canada’s Security Measure

Key elements
 A permanent high level federal-provincial-territorial forum on emergencies
 Appointment of National Security advisory council
 Cross cultural roundtable on security

Investment Needs
 Enhancing intelligence capabilities
 Securing critical government information systems
 Implementing the RCMP real time identification project
 Improving the national fingerprint system
 Implementing the passport security strategy

Structures and Strategies

 Creation of integrated threat assessment centre and government operations centre
 Creation of health emergency response teams
 Strengthening marine security
 Developing a critical infrastructure protection strategy in Canada
 Development of national cyber security strategy

Identification of Threats
Focus resources on high/unknown risks

Allow legitimate, low risk shipment to be cleared more quickly

Terrorism
 Identification and interception of terrorist and goods related to terrorism

Contraband
 Proceeds of crime
 Drugs alcohol tobacco
 Strategic export (arms, ammunition, etc)

Other
 Hazardous Waste
 Human and Animal Pathogens
 Goods under the Cites agreement (protection of wild animals and plants)
 Immigration
  Textile and apparel
 Denatured alcohol
 Dumped or subsidized goods under the Special Import measures Act (SIMA)

Risk Management
Customs have had to adjust to this drastic increase in traffic with present resources, by conducting
business through smarter risk management techniques

Risk management
 Non-intrusive inspection technology such as high energy x ray
gamma ray and radiation detection
 Targeting 100% of pre arrival cargo data
 Intelligence operations

Targeting Methodologies
Using established risk screening methods and internal and external data systems to identify high risk
contaienrs and cargo for examination targeting officers manually perform intensive screen of:

 Cargo manifests and bill of lading

 Conveyance reports
 Crew lists
 Stowage plans, etc

Import Reporting
The CBSA is requiring key data to be transmitted electronically before goods and conveyance arrive in
the country so that high risk shipments can be targeted for inspection and low risk shipments can be
cleared more quickly

Advance Commercial Information (ACI) – 24 hrs before loading marine

Phase 1 – marine mode

 Transmission methods
 VAN (value added network)
 A third party service provider
 Customs internet Gateway (CIG)
 CADEX

Direct connect to CBSA

Phase 2 – Air mode and marine shipments loaded in the USA

 Transmission Methods
 Air cargo and conveyance reporting uses EDIFACT format
 Air supplementary cargo reporting is available in both ANSI and EDIFACT formats

Phase 3 – eManifest
 Reporting of highway and rail shipments
Export Reporting
Must not have any risks to Canada therefore Canadian Exported goods must be reported to CBSA

3 main obj:

Collect accurate information on exports

Control of exports of strategic and embargo goods

Control outbound of goods and export from canada

Memorandum D20-1-0

Memorandum D20-1-1

Memorandum D3-1-1 on additional export reporting requirements for transportation companies

carriers and customs service providers

1)Canadian Automated Export Declaration (CAED)

Proof reporting for this method is a license, authorization and id numbers
2)G7 EDI export reporting
Proof of reporting for this method is an authorization and form ID numbers

3)Export Summary Reporting

SUM ID number

4)Form B13 A Export Declaration

Customs proof of report transaction number (stamp machine or manual CBSA stamp) paper based ofrm
B13A is being gradually phased out in favour of mandatory electronic export reporting

5)No Declaration Required (NDR)

Some goods do not have to be reported on an export declaration however CBSA may request the
presentation of an export declaration

International Ship and Port Security

International ship and port facility security code (ISPS Code) is a comprehensive set of security measures
for ships and port facilities

Canada’s response to the ISPS code

Canadian national security policy strengthens Canada’s marine security by: clarifying the strengthening
accountability

 Establishing networked marine security operation centres

 Increasing the Canadian force, RCMP, Canadian Coast Guard, Department of fishers and ocean
surveillance
 Enhancing Secure civilian and naval fleet communications
 Pursuing greater marine security co-operation with the US
 Strengthening the security of marine facilities

The Implementation of ISPS

Transport Canada’s Responsibilities

 Setting security levels

 Ensuring the approval of ship security plans and approving port facility security
 Verifying compliance with the ISPS code’s requirements and issuing the international ship
security certificate to ships
 Determining which port facilities are required to designate a port facility security officer
 Ensuring the completion and approval of port facility security assessments
 Exercising control and compliance measures
 Communicating information to the IMO and to shipping and port industries
 Determining when declaration of security is required

USA response to maritime security

Container Security Initiative (CSI)

 Identify high risk containers

 Pre-screen containers before they are shipped
 Use technology
Security Arrangements
 New additional xray machines at airports
 New explosive detection machines at airports
 Sniffer dogs to identify explosives narcotics etc.
 VACIS (Vehicle and Cargo inspection system)
 System to x ray whole containers at one time
 Stricter passenger screening

The Air Cargo Security Program

Ways to increase Cargo Security

 Prevent unauthorized access
 Challenge unauthorized persons
 Use passwords for computer systems
 Verify documentary information
 Safeguard documentation, computer access and their files
 Install high security locks
 Install alarm systems
 Arrange parking away from building
 Monitor doors and windows
 Ensure restricted access
 Install fences, lighting, CCTV
 Biometric scanners such as finger print, handprint etc
 Facial scanner, iris scanner or voice print
 Whole body imaging at some US airports
 Pressure chambers
 Tracking device for ocean and Air containers
Dangerous Goods
Dangerous goods are articles and substances which are capable of posing a significant risk to health,
safety, and property or environment

In Canada Transport Canada regulates the transportation of dangerous goods through the Canadian
transportation of dangerous goods act and regulation (TDGR) which is Canadian law

In the United states the department of transportation regulates the transportation of dangerous goods
through title 49 of united states code of federal regulations (49CFR) which is US Law

The Mont Blanc Explosion

1900 dead

9000 injured

6000 homeless

325 acres of Halifax destroyed

The mississauaga Train Derailment

More than 200,000 people evacuated

Valujet flight 592

105 passengers and 5 crew dead

Bow mariner
21 seamen dead

Lac Megantic rail Disaster

July 6th 2013, unattended 74 car freight train carrying bakken formation crude oil rolled down derailed
and exploded

47 dead

30 buildings destroyed

36 buildings had to be demolished to treat contamination

Main responsibility of shippers are to make sure that their cargo do not have dangerous goods or
labelled properly

Identification

1. Proper shipping name (PSN)

2. UN number
9 classes

3 packing groups

I = high danger

II = medium danger

III = Low Danger

Class 1 – Explosives
Division 1.1 – articles and substances having mass
explosion hazard

Division 1.2 – Articles and substances having

projection hazard but not a mass explosion hazard

Division 1.3 – Articles and substances having a fire

hazard and a mainor blast hazard and/or minor
projection hazard but not a mass explosion hazard.

Division 1.4 – articles and substances presenting no

significant hazard

Division 1.5 – very insensitive substances having a

mass explosion hazard

Division 1.6 – Extreme insensitive articles which do not

have mass explosion hazard.

Class 1 is divided into groups A B C D E F G H J K L N S

Class 2 – Gasses
Division 2.1 – Flamable gas

Division 2.2 – Non-flammable, non toxic gas

Division 2.3 – Toxic gas

Class 3 – Flammable Liquids

This class has no sub divisions
Class 4 – Flammable Solids
Division 4.1 – flammable solids self reactive substances and solid desensitized expolosives

Division 4.2 – substances liable to spontaneous combustion

Division 4.3 – Substances which in contact with water emit flammable gasses

Division 5 – Oxidizing substances and organic peroxides

Division 5.1 – Oxidizers

Division 5.2 – Organic peroxides

Class 6 – Toxic and Infectious Substances
Division 6.1 – Toxic substances

Division 6.2 – Infectious Substances

Class 7 – Radioactive material

This class has no subdivision but is divided into 3 categories depending on levels of radioactivity. Cat 1
lowest
Class 8 Corrosives
No subdivisions

Class 9 – miscellaneous Dangerous Goods

No subdivisions

Transportation and Packaging of Dangerous Goods

Section 5 states anyone handling dangerous goods must report them

Carrier’s Responsibilities
Acceptance or verification

Storage

Loading and unloading

Inspection

Provision of information

Reporting

Retention of records
Training

Shipper/exporter ‘s responsibilities
Recognize and identify cdangerous goods

Classify

Package

Apply markings and labels

Complete required documentation

Ensure regulation have been complied with

Ensure safety for transport

Importer’s responsibility
Ensure that the shipper / exporter of the dangerous goods shipment has complied with their
responsibilities as transport Canada and the courts would find it easier to pursue a charge against a
Canadian importer, rather than a foreign shipper/exporter.

Training
Validity of training certificate:

Air mode – up to 24 months

Oceans and ground modes – up to 36 months

IATA has developed a set of recommendations for air transport of dangerous goods called the IATA
Dangeours Goods Regulations

International Maritime organization (IMO) has developed a set of recommendations for the ocean
transport of dangerous goods called the IMO Dangerous Goods Code

Packing, Markings and Lableling of Dangerous goods

The vast majority of packaging carrying dangerous goods must meet stringent design and testing
requirements

UN ocean package
PSN

UN Number

UN specs

Hazard labels

Each package must have adequate size to fit all identification and markings. Must be able to survive 3
months under water.

UN combination package
UN = United nations packaging symbol
4G = Fibreboard box

Y = Packing Group II

145 = maximum gross weight in KG for which the design type has been tested

S = packaging contains solids or inner packagings

12 = the last two digits of the year during which the packaging was manufactured

CAD = The state authorizing the allocated of the mark

DB = the name of the manufacturer or other identification of the packaging specified by the appropriate
nation authority

Tanks
IMO Tanks and UN Tanks
Intermediate Bulk Container (IBC)

Single packages
Outer packages only, no inner packages.

Combination Packages
Inner packages inside an outer package

Placarding and Additional Markings, Labels and Placards

There must be 1 placard on each side on each end of the container

Elevated Temperature mark

Used to mark items shipped at elevated temperatures :

Liquids at or higher than 100 degree C

Solids at or higher than 240 degree C

Marine Pollutant mark

Used to mark substances that have potential to bio-accumulate in seafood or because of their
high toxicity to aquatic life.

Danger Placard

Used for carrying different classes of dangerous goods together on one truck or rail car.
Fumigation placard

Used for ocean containers that have been fumigated for pests

Magnetized material label

Used on packages containing magnetized items that may affect the airfract’s instruments

Cargo Aircraft only label

Used for items that are too dangerous to carry on passenger aircraft

Orientation Labels

Used on packages containing liquids – This way up!

Keep Away from heat label

Used for substances requiring protection from sunlight and heat

Lithium Battery Label

used as a warning not to transport damaged packages or items containing lithium batteries

Limited Quantities Mark

Used to identify shipments using limited quantity packaging

UN recommendations contain provisions for limited quantities of dangerous goods recognizing that
many dangerous goods when in reasonably limited quantities present a reduced hazard during transport

Cryogenic Liquid label

Used on packages containing super c old (cryogenic) liquids (I.e. Liquid Nitrogen)
Dangerous Goods Documentation
The shipper/exporter/importer must declare their shipment as dangerous goods on the transport
documents

The freight forwarder should not be involved in the actual completion of the documentation

Air
Shipper’s declaration for dangerous goods (form) form must be completed by the shipper (2 copies) for
each consignment of dangerous goods with some exceptions

It is to be completed in English, which translation into another language if required

The declaration may be printed in black and red on white paper with diagonal hatching printed vertically
in the left and the right margins in red.

The shipper must retain a copy of the declaration for minimum period of 3 months

Ground
No specific form required
The bill of lading is used as the dangerous goods transport document, with information related to
dangerous goods indicated on the form in precise sequence

Ocean
No specific form required

Multimodal Dangerous Goods Form that meets the requirements of SOLAS and MARPOL conventions in
generally used with information relating to the dangerous goods indicated on the form in a precise
sequence

Container Packing Certificate

Must be used for dangerous goods shipment that packed onto or into any cargo transport unit ( ocean
container flat trailer etc) intended for transport by sea
Fumigation
Transport documents associated with the transport of cargo transport units under fumigation should

 Show the date of fumigation and the type and amount of fumigation used
 The instructions for disposal of a residual fumigant

A closed cargo transport unit should

 Be identified with a warning sign

Applicability of TDGA and Regulations

Transportation of goods is strictly regulated because of their potential to cause serious accident.
Dangerous goods are safe, when properly identified, classified, packed, handled and transported.

Transportation of DG
Transporting dangerous goods to or from an aircraft, aerodrome, or an air cargo facility:

 The IATA shipper’s declaration for dangerous goods may be used as the ground shipping
document
 The vehicle may have to be placarded according to the TDGR requirement
 A 24 hour number and possibly an emergency response assistance plan (ERAP) number is
required on the transport document

Transporting dangerous goods to or from a ship, port facility, or a marine terminal:

Compliance with the IMDG Code for classification, markings and labeling, placarding, documentation

The vehicle may have to be placarded according to the TDGR requirement

A 24 hour number and possibly an emergency response assistance plan (ERAP) number is required on
the transport document

Basic Emergency Procedures

 Do not come in contact with the spilled material
  Isolate package
 Notify immediate supervisor
 Notify Emergency services
 Report the accident

Reporting
 Any DG accident, incident, or undeclared and mis-declared DG must be reported to trasnsport
Canada immediately
 A written report must be submitted to transport Canada within 30 days

Enforcement
Transport Canada has a group of inspectors to enforce the TDGR

They have similar authority to the police and can enter your premises to conduct an audit or
investigation

Offences
Summary Conviction

First offence – not exceeding CAN $50,000.00

Each subsequent offence – not exceeding CAN $100,000.000

Indicated offence

Imprisonment for a term not exceeding two years.

Non-Compliance
Catastrophic affects

Fines and financial losses

Permits
Transport Canada can issue a permit to a shipper for items that are normally forbidden

This permit must accompany the transport document

Retention of documents
Transport Canada requires that any dangerous goods documentation be retained for 2 year after the
date of shipment, however, standard business practice may require keeping documents for up to 7 years

Air waybill shipper’s declaration, acceptance checklist, bill of lading. House airway bill etc.

Hidden Hazards
Items that contain dangerous goods but are not apparent given the generic shipping name used.

 Auto parts (windshield, fenders, bumper, etc.)

 Household goods (clothing, furniture, solvents, paint, corrosive oven and drain cleaners etc.)
 Toolboxes (wrenches, hammers, compressed gases or aerosols, adhesives, etc.)

The container packing certificate identifies dangerous goods in shipment by sea

Canadian Transportation of Dangerous goods regulation – Canadian

Title 49 of the Code of Federal Regulations

Air Dangerous goods training certificate valid for 2 years

Ocean Dangerous goods training certificate valid for 3 years

1-3-3-1-4-2-3-2-3-1-2-2-1-3-2-3-3-4-4-1-1-1-4-1-2-3-1-2-2

Costing and Quoting

Objectives
Identify factors that affect cost estimates

Common layout of written quote

Information required to prepare a written quote

Quote for multimodal movement

Information that is required for shipment invoice

The rates
Actual Weight vs Volume Weight = Chargeable weight

Air Shipment rates can be based on

Per unit Load

Actual Volume

Special arrangements for project shipments

Specific commodity

Net arrangements with the airline

Rounding Off Rules

 Parts of the centimetre below 0.5 to be ignored
 Parts of the centimetre of 0.5 cm and over to be rounded to the next full centimeter
 For cubes of individual packages, calculation to be taken to six decimal places and rounded off at
the third decimal for a single package
 For multiple packages of like dims, the cube on one package to be taken to six decimal places,
multiplied by the number of packages and the total rounded off to three decimal places
 Lifting aids to be excluded
 Bumpers and exhaust pipes on motor vehicles to be excluded
 Bags or sacks to be stacked in a block of 12, 2 by 2 and three tiers high measured as a single
package
 Measurements of skids to be included in addition to the measurements of cargo on that skid

Revenue Theory
Freight Revenue:

 Determined by average rate and load factor or revenue tonnage

 Revenue = rate x revenue tons

Other sources of Revenue

 Stuffing and de-stuffing

 Local cartage
 Packaging
 Documentation preparation
 Marine insurance
 Warehousing
 Customs brokerage, etc

Factors influencing the price Quoted

o Transportaiton costs – the cost associated with conveying the freight from, to and between
activity points
o Freight costs – costs associated with the handling of the freight

Routing
 Transit time – the required onsite date will determine the mode and affect of the price

Liability limitations – CAN

 Packaging material must be appropriate for the mode

Value
 It is not always the case but the higher the value, the higher the cost by the carrier mostly
because there is the issue of security

Packaging
 Consider handling warehousing, de stuffing, etc

Volume Contracts
 Large Volume = Lower buy rate = lower sell rate = happy customer
Cost vs Service
 Know your market

Credit
 Build in slow payment charge

Costing Tools
 Carrier tariffs (supply and demand)
 Hidden costs
 Other departments (overseas agents, etc)

Preparation of a written Quote

CIP
Loading at the seller’s premise
 Packaging
 Documentation
 Insurance
 Loading, etc

Domestic Pre Carriage

 Cost of trucking
 Fuel Adjustments
 Currency adjustments
Customs Clearance
 Export charges
 Penalties, etc

Loading at carrier’s terminal

 Special lifting equipment
 Extra personnel, etc

Cargo Insurance
 Sellers Cargo Insurance

International Main Carriage

 Currency adjustment
 Steamship line fees
 BAF
 Commissions, etc

Unloading at terminal
 Check the contract

Customs Clearance
 Document preparations
 Import charges, etc
On-Carriage (on carriage)
 Avoid Dead Runs by knowing the exact place of delivery

Unloading
 Who pays in case of losses, damages, inspections

Other costs
 Providing extra services is welcome by clients

Rate Quotation Process

 Make sure it is paid on time
 Quotation must be clear to your client
 Note the variances to the bottom line costs

Step 1
 Gather all available shipment information
 Consider involved costs
 Include your mark up

Step 2
 Offer, negotiate, close (acceptance)

Step 3
 All departments in your company that will be involved in shipping the cargo must be copied with
the quotation details

Step 4
 If known, include the following
  Commodity
 HS code
 Quantity
 Weight
 Measurements, etc

Step 5
 Accounts receivable must be aware of known costs and possible additional costs

Step 6
 Customs brokerage in your company provides additional convenience to your client
 Customs broker needs to assess the amount of work necessary to clear the shipment

Step 7
Notify accounting of any loss, damage or other unexpected circumstances

Step 8

Direct costs:

 Freight charges
 Insurance premium
 Contaienr rental charges
 Storage charges
 Forwarding fees
 Consular fees
 Payment to the government
 Documentation fees,etc

Indirect costs:

 Salaries in your department

 Communication costs
 Depreciation costs
 Head office overhead, etc
The quotation – Shipment Details
Preparation of an Invoice

Invoicing is an important step for the forwarder as only billing of costs and overhead can guarantee his
company an income

 Understand terms of trade – risks and responsibilities of each party

 Set up an invoice style that suits the client
 Organize and have all reference available electronically
 Include costs paid by forwarder e.g. Carrier, communication storage, etc
 Include service charges assessed by the forwarder e.g. time spent on special request activities
 Include shipping costs with an appropriate margin for the forwarder.
 Include receipts for services bought by the forwarder
 Consider any indirect costs overhead incurred by the forwarder
 Include any other bills
 Present the costs in a clear and east to understand manner, one invoice per shipment
 Double check your math
 Be ready to be substantiate a charge
 Prepare and sent the invoice to the client prompt
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Alternative Transport Solutions

Objectives
Identifying customers needs and requirements for transport of freight

Importance of providing shipment alternatives to customer

Common constraints for transportation of freight

Freight solutions available to a customer, insurance, storage, routing and service providers
Select a transportation route appropriate for customer’s needs

Identify potential obstacles to implementation of shipment plans

Identify ways to deal with common obstacles in the implementation of shipment plans

Identifying Customer Needs

 Mode of transport
 Packaging
 Availability of Transport
 Cost
 Governments
 Time sensitivity
 Perishable goods
 Value of goods

Modes of transport
Ocean
Advantages:

 Probable lower unit cost

  Suitable for large and heavy shipments

Disadvantages:

 Longer transit times/weekly departures

 Approximate arrival times
 Higher cargo risks
 Limited carrier liability
 Higher packaging costs

Air
Advantages:

 Lower packaging costs

 Lower insurance rates
 Reduced risk of damage
 Lower inventories and warehousing
 Greater reliability on arrival times

Disadvantages:

 High unit costs

Truck
Advantages:

 Ability to serve more communities/go to remote places

 Door to Door delivery
 Flexibility

Disadvantages:

 Generally higher unit cost than rail

 More complexities with provincial and state regulations
 Not suitable for bulk cargo

Rail
Advantages:

 Added flexibility with intermodal containers and ocean carriers

 Pool car operators take smaller loads to allow rail option
 Suitable for heavy and over-dimensional loads

Disadvantages:

 No door to door option

 Fixed routes/schedules (Limited Flexibility)

Packaging
 Port congestions, Overbooked Carriers
  Natural Disasters
 Political Instabilities

 Strikes

NVOCC – Non vessel operating common carrier

A cargo consolidator in ocean trade who will buy space from a carrier and sub-sell it to smaller shippers.
NVOCC operators should confirm which ports are called upon.

The Either/Or
Always be prepared for eventualities

Availability of transportation
 Where is the Origin
 Where is the destination
 What type of transportation is available from the origin to the destination
Special Requirements
Is the cargo:

 Time sensitive
 Special equipment
 Special packaging
 Perishables
 High value
 Dangerous goods

Air
Is a direct flight available

What are the departure frequencies?

Is the location convenient, i.e. is the airport close, etc

Ocean/Land
Mini land bridge: an intermodal container hsipped by ocean vessel from country A to county B passes
across a large portion of Land in either country A or B

Land at Destination
The third primary route fof the trans-Siberian railway is the trans-Mongolian railway, which coincides
with the trans-Siberian as far as ulan-ude on Lake Baikal’s Eastern shore. From Ulan-Ude the trans
Mongolian heads south to Ulaan Baatar before making its may southeast to Beijing

Another Alternative
Winnipeg – Rail – Montreal – Ocean – Baltic Port – Rail – Ulaan Baatar

Departure Frequencies
How frequently does the available transportation offer departures

 Daily
 Weekly
  Bi-weekly
 Monthly

Rates
Market conditions dictate freight rates

More competion = lower rates

More carrier capacity = lower rates

While not as large as carrier costs, harbour/terminal charges need to be recognized

Consolidations are key to offering lower costs to importers and exporters while building larger margins
for the freight forwarder

If your organization does not offer consolidations then perhaps work with an NVOCC that does

Governments
Transit requirements

 Does the cargo require any special permits to pass through any countries en-route

Cargo weights

 Different countries en route may have different weight restrictions

Border crossings

 Customs authorities have the right to inspect any cargo that touches their soil even if the cargo
is only transiting

Cause Study 1

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