Chapter 9 International Transportation Extent and Magnitude of Trade Foreign trade is related important in Taiwan because Taiwan is a small island, which is not with fertile resources. Trade with US., Japan, Europe, Mainland China International Transportation Process From the shipper’s perspective, the management of international transportation involves the planning, implementation, and control of the procurement and use of freight transportation and related service providers to achieve company objectives. Managing the international transportation process is more complex than that of domestic transportation because of the many differences between the trading nation’s transportation and customs regulations, infrastructure, exchange rates, culture, and language. Buyer-Seller Agreement The agreement between the buyer and seller determines the specific transportation criteria the seller must meet. These criteria include the product to be shipped, financial terms, delivery requirements (date and location), packing, the transportation method(s) to be used, and cargo insurance. Order preparation Order preparation involves either picking items ordered from inventory or manufacturing them. In either case, the seller must make sure the item prepared for shipping matches exactly what is ordered. Failure to comply with the product specifications contained in the buyer’s purchase order indicates the buyer’s refusal to accept the shipment or to pay the invoice. Documentation International shipments movement is controlled by paper; without proper documentation the shipment does not move. A missing or incorrect document can delay a shipment and/or prevent the shipment from entering a country. These documents are governed by the customs regulations of the shipping and receiving nations. Export License No special authorization is needed to export, but the president of the United States is authorized to control exports for national security, foreign policy, and items in short supply. In addition, licensing by a federal agency having jurisdiction over a commodity can exercise licensing requirements for a given product, such as the Department of Agriculture having jurisdiction over grain. Sales Documents Three sales documents are generally used in international trade A pro-forma invoice A commercial invoice A consular invoice All three contain essentially the same information: buyer, seller, product descriptions, payment terms, selling price, and other information requested by the buyer, bank, or importing country. Sales Documents The pro-forma invoice is issued by the seller to acquaint the importer and import government authorities with details of the shipment. It may be required to obtain necessary foreign exchange information and/or an import license or permit. The commercial invoice, issued by the seller, is a bill of sale for the goods sold to the buyer, a basis for determining shipment value and importing duty assessment, and a requirement for clearing goods through customs. The consular invoice is the same as the commercial invoice except it is a special form prescribed by the importing country and it must be completed in the language of the importing country. Financial Documents In the buyer-seller agreement, the credit extended by the seller to the buyer is delineated and takes the form of either a letter of credit or draft. The letter of credit, issued by the buyer’s bank, is a guarantee by the buyer’s bank to the seller that payment will be made if certain terms and conditions are met. These conditions include, for example, documentation, shipping date, time limits, and so on. If these conditions are not met, payment will be withheld. Financial Documents The draft is credit extended by the seller directly to the buyer. It is a written order for a sum of money to be paid by the buyer on a certain date. Upon presentation of the draft to the buyer’s bank, the buyer’s bank collects the money from the buyer, releases the shipment documentation to permit the buyer to receiver the shipment, and remits the money to the seller. Transportation Documents As with domestic shipment, international shipments require a bill of lading. The bill of lading acts as a contract of carriage, a receipt for the goods, and provides carrier delivery instructions. For water shipments, an ocean bill of lading is used; an airway bill is used for air carrier shipments. Transportation Documents In addition to the bill of lading, most international shipments require a packing list that provides detailed information of the package contents, dimension, and weight. A dock receipt is issued by a water carrier when the goods arrive at the dock, but are not loaded onto the ship immediately; this transfers accountability, or liability, form the domestic carrier to the international carrier. Transportation The transportation elements include the selection of carriers, ports/gateways, intermediaries, and the acquisition of insurance. At lease three carriers are involved in an international shipment: a domestic, an international, and an foreign carrier. Transportation Selection of the port or gateway involves consideration of handling, carrier availability, handling equipment availability, convenience, frequency of damage, and freight rates. Cargo insurance is usually purchased for international shipments because of the complexity of international claim settlement associated with multinational laws. The buyer-seller agreement defines whether the buyer or seller is responsible for securing cargo liability insurance. International Transportation Providers Will emphasize ocean and air transportation here. Attention is given to the transportation intermediaries who are critical components in most international shipments. Ocean Transportation Specific types of carriers that transport U.S. ocean-borne trade are Liners Tramps Private vessels Liners Liners are ships that ply fixed routes on published schedules. They typically charge according to published tariffs that are either unique to the ship line or are made by several lines in a particular trade route. Freight must be moved to the liner company’s terminal at the port after the shipper has arranged for the freight booking or reservation. This freight is loaded by machine if bulk or crane if containerized and stowed in accordance with ship weight and balance requirements. Liners Container movement is gaining over the traditional break-bulk method of ocean carriage. When goods have to be heavily crated and packaged for break-bulk movement, a container often provides much of that needed protection. Further, whereas a break-bulk ship might require many days to unload and load its cargo by small crane and manpower, an entire container ship can enter, unload, load, and clear a port in less than 12 hours. Because a ship is only earning revenue at sea, it is easy to see why containers have become a dominant form of packaged good shipping. Liners Container service, while saving port and ship time, has brought about different operating and management concerns for the ship company. For one, this service requires a large investment in containers because, while some are at sea, many others are being delivered inland or are being loaded there for movement to port. Although a ship might carry 1,000 containers, an investment of 1,500 to 2,500 containers is necessary to support that ship. Liners Another concern is control over the containers. Previous shipping line managements were portto-port-oriented. With inland movement of containers, control over this land movement becomes a necessity. The container itself is a large investment and is attractive to thieves in areas of warehouse or housing shortages. Liners The lighter-aboard ship (LASH) is a liner that carries barges that were loaded at an inland river point and moved to the ocean port via water tow. Another type of ship found in liner services is a rollon/roll-off ship, often referred to as a RORO ship. These ships carry trucks, trailers, and construction equipment much like a multilevel ferryboat. When in service with trailers, a RORO ship is like a container ship except that it has the wheel chassis attached to the trailer body en route. RORO ships are especially useful in carrying heavy construction equipment because they are unable to maintain an even keel while the equipment is being loaded and unloaded. Tramps The tramp ship is one that is hired like a taxi or leased auto. That is, it is a bulk or tank ship that is hired on a voyage or time basis. On a voyage basis, a U.S. exporter of grain will seek a tramp ship that will become empty at a desired U.S. port. It will then be hired for one-way movement to a foreign port. Port fees, a daily operating rate and demurrage, will be part of the charter contract. Time charters are usually longer-term charters in which the shipper will make or arrange for more than a oneway move. Such charters are made with or without crews being provided by the ship owner. Private Vessels Private ships are ships that are owned or leased on a long-term basis by the firm moving the goods. Another element of interest in international shipping is that of ship registry. Although a ship might be owned by an American and ply a route between the U.S. and the Persian Gulf, it might be registered in and fly the flag of Liberia or Panama. The owners derive certain benefits of taxes, manning, and some relaxed safety requirements by being registered in those countries, rather than in the United States, Canada, or wherever. Air Carriers Just as with domestic moves, air transportation offers the international transportation user speed. Four types of air carriers are available for international shippers: Air parcel post Express or courier Passenger cargo Air Parcel Post Air parcel post service is provided by the postal service of a country and is designed to handle small packages. There are restrictions as to the size and weight of the shipment handled by air parcel post, and these restrictions vary by country. In the US, the maximum size permitted is 108 inches of length and girth and no more than 70 pounds of weight. Express or Courier Service Express or courier service is provided by air carriers and is generally restricted to small shipments weighting less than 70 pounds. Speed is the essential characteristic of this service, with next-day or second-day delivery a standard service level. Example of major carriers providing this service include Federal Express, United Parcel Service (UPS), DHL, and Emery. Passenger Carriers Regularly scheduled international passenger flights haul freight in the “belly” of the plane. These carriers focus on the movement of passengers, but the excess capacity in the nonpassenger compartment permits the transporting of cargo along with passengers. Cargo capacity and cargo size are limited by the size of each plane, but the regular schedules afford the use of numerous flights between origin and destination. All-Cargo Carriers All-cargo carriers specialize in the movement of freight, not passengers. The airplanes are outfitted with larger hatch openings, cargo compartments, and floor-bearing ratings. Many air cargo planes have mechanized materialshandling devices on board to permit the movement of heavier cargo inside the plane. Some of the larger planes are capable of transporting a 40-foot container, trucks, and other motor vehicles. Generally, these carriers haul heavier shipments weighing more than 70 pounds. Ancillary Services Other service firms exist in addition to the basic modes that are available to the international transportation user. These ancillary service companies provide a variety of functions that offer the user lower costs, improved service, and/or technical expertise. Air Freight Forwarders International air freight forwarding firms operate in a manner similar to domestic air freight forwarders. The air freight forwarder books space on an air carrier’s plane and solicits freight from numerous shippers to fill the booked space. The air freight forwarder offers the shipper of small shipments a rate savings resulting from the advanced purchase of space. In addition, the air freight forwarder offers convenience to the shipper, especially when more than one airline must be used in an interline setting, or when ground transportation is necessary at one or both ends of the air move. International Freight Forwarders These firms arrange movement for the shipper. They do not necessarily act as consolidators or earn their revenues in that manner like domestic forwarder. International freight forwarders act as agents for shippers by applying familiarity and expertise with ocean shipping to facilitate through movement. They represent the shipper in arranging such activities as inland transportation, packaging, documentation, booking, and legal fees. International Freight Forwarders They charge a percent of the costs incurred for arranging these services. They play an invaluable role for shippers who are not familiar with the intricacies of shipping or those who do not have the scale or volume to warrant having in-house expertise in this area. Nonvessel Operating Common Carriers(NVOCC) Nonvessel operating carriers assemble and disperse less-than-container shipments and move them as full-container shipments. A shipper moving a small item would otherwise have to move it via break-bulk ocean carrier or air freight. The NVOCC consolidates this shipment with many others and gains the economies of container movement. Ship Agents Ship agents act on behalf of a liner company or tramp ship operator (either owner or charter company) to represent their interests in facilitating ship arrival, clearance, loading, unloading, and fee payment while at a specific port. Liner firms will use agents when the frequency of sailings are so sparse that it is not economical for them to invest in their own terminals or to have management personnel on-site. Land, Mini-, and Micro-bridges The land bridge system consists of containers moving between Japan and Europe by rail and ship. That is, originally, containers were moved entirely by ship between Asia and Europe across the Pacific and Atlantic Oceans and through the Panama Canal. Ship fuel and capital costs as will as trouble in Panama created economies in moving the containers by water to a U.S. Pacific Coast port, then by entire trainload across the United States to another ship for transatlantic crossing to Europe. This system reduces transit time and liner company ship investment. Land, Mini-, and Micro-bridges A mini-bridge is a similar system that is used for movements between, say, Japan and New York, Philadelphia, Baltimore, Charleston, New Orleans, or Houston. Rather than move all-water routes from Asia to these cities through the Panama Canal, a minibridge consists of transpacific water movement to Seattle, Oakland, or Long Beach, California, then by rail to the destination East Coast or Gulf Coast city. Land, Mini-, and Micro-bridges The steamship company can turn the ship around and return it to Europe faster than before. In fact, ship option enables the steamship company to offer weekly service between Europe and Houston using one less ship than is used in the all-water route. That ship can be redeployed onto another route altogether. The mini-bridge gives the steamship company effective freight-hauling capacity while saving the investment in one ship. Land, Mini-, and Micro-bridges Micro-bridge is an adaptation of mini-bridge, only it applies to interior nonport cities such as St. Louis.The origin or destination of the shipment is a U.S. interior, nonport city. Micro-bridges operate similarly to the NVOCC system. A container is loaded at the interior point for transference to the ship at the port. This avoids truck movement to the port for actual loading of the container at the port terminal. Shipping Conferences A steam ship conference is a voluntary organization of vessel-operating carriers whose main function is to set acceptable rates for steamships and shippers. The goal of the conference is to maintain a stable market and fair competition among carriers. Another important element of the steamship conference is to administer operating rules that guarantee the shipper a consistent level of service from participating lines. International Air The differences between International Air and domestic movement lie primarily in institutional factors relating to national agreements and the International Air Transport Association(IATA). This is an international air carrier rate bureau for both passenger and freight movement. Prices for both passenger and freight traditionally tend to be set at sufficient levels so as to cover most costs of the higher-cost or lower-load factor carriers. This system enhances a supply of service and brings a stability to the rate structure. Air Cargo Rate Air cargo rates are based on the value of service or the cost of service. The value of service is demand-based and considers the sensitivity of the cargo being shipped to freight rates. The less sensitive cargo is to rates, the higher the rate will be. On traffic lanes where demand is strong and plane capacity is limited, the air rates will be high, and vice versa for traffic lanes where supply exceeds demand. Also, products with high prices or emergency conditions surrounding the move will be charged high rates because the freight rate is a small portion(less than one percent) of the landed selling price. Air Cargo Rate Three types of international air carrier rates are based on the commodity shipped: general cargo, class, and specific commodity rates. The general cargo rate is a standard rate that applies to commodities for which there is no other applicable rate (class or specific). The general cargo rate is available for any commodity, can vary with distance and direction, and/or is applicable between specific origin-destination pairs. Discounts are available for larger shipment sizes and may or may not include ground transportation to and from the airport. Air Cargo Rate The class rate is applicable to cargo grouped into classes. The rate for a particular class expressed as a percentage of the general cargo rate, is usually lower than the general cargo rate and can be door-to-door or airport-to-airport. Air Cargo Rate The specific commodity rate is applicable to a specific commodity between a specific origindestination pair. The specific commodity rate is generally lower than the general cargo rate. A high minimum weight is usually required for each shipment. Because the air carrier utilizes the specific commodity rate to attract freight and to enable shippers to penetrate certain market areas, it may have a time limit. Air Cargo Rate Container rates are also available for cargo shipped in a container. The rate is cost-based, rather than value of service- or commodity-based. The rate applies to a minimum weight in the container. Some carriers offer a container rate discount per container shipped over any route of the individual carrier. The discount is deducted from the tariff rate applicable to the commodity being moved in noncontainerized form and a charge is assessed for returning the empty container. Liner Rate Making Costs Liner operation, as with most ship operation, is largely fixed and common in nature. It has been estimated that roughly 10 to 20 percent of the total costs of ship operation is variable and is in fuel, loading, and unloading costs. The liner ship is often specifically constructed for a particular trade route. That is, such things as ship size and type, dimension, hatches, cargo space configuration, and engine type are designed around the ports to be visited, cargoes to be moved, and even the wave patterns experienced in a particular trade. Liner Rate Making A majority of the total costs of operating a ship are fixed. Because cargo loading, unloading, and fuel are the only primary variable costs, the ship’s operation cost is roughly the same regardless of the commodity hauled. The problem of determining a cost per pound entails a difficult fixed cost allocation process, which can be arbitrary at best. Ship operators will often determine unit costs in terms of cost per cubic foot of ship space so as to better evaluate and price for the range of commodities handled. Tramp Ship Cost Rate Factors Tramp ships are generally not controlled by a specific route with a single commodity. Large oil tankers that are built for time charters for specific origin-destination markets are the exception. The basic tramp vessel might haul coal, grain, fertilizers, and lumber in the same year. Adaptability is necessary to minimize lost revenue possibilities that will arise. These vessels might not always be of low-cost, optimal design for any of the movements, but that is a basic trade-off to being flexible. This general construction means general internal features and hatches as well as the capability to enter into most ports of the world. Tramp Ship Cost Rate Factors The economies of ship construction are critical to the tramp vessel, especially the tanker. The nontanker vessel is generally built to hold between 5,000 and 8,000 tons of cargo.This is a good range for a majority of cargo lot sizes shipped by firms. The tanker, on the other hand, is usually designed for crude oil movements, and here the large tankers can competitively move oil at costs much lower than small vessels. In fact, many 200,000 deadweight ton (DWT) tankers have the same number of crew members as those carrying only 40,000 DWT. Tramp Ship Cost Rate Factors A major consideration of tramp owners is the nation in which the ship is registered. The nation of registry requires the shipowner to comply with specific manning, safety, and tax provisions. Liberia, Greece, and Panama are nations imposing relatively loose requirements in such areas. For this reason, many of the world ships are registered in these countries. Tramp Ship Rate Making Three primary forms of ship rental or chartering systems are in use. These are the voyage, time, and bareboat or demise charter. The voyage charter is one in which the shipowner mans, operates, and charters the vessel, similar to a taxicab. Shippers seek voyage charters for primarily one-way and sometimes two-way trips. The owner is constantly seeking charters subsequent to present charters to minimize empty moves to the next charter. Tramp Ship Rate Making The time charter is one in which the shipowner rents the vessel and crew to a shipper for use over a period of time that often includes use for several shipments. The owner has his or her ship productively tied up for a longer period of time than in the voyage charter and the shipper might judiciously arrange the moves, making the time charter more economical than several voyage charters. Tramp Ship Rate Making The bareboat or demise charter is one in which the owner usually rents the vessel for a long period of time while the chartering party supplies the crew and performs the physical operation of the vessel. In this setting, the owner is seeking to recoup capital and interest costs and to be assured that the ship will be safely operated. International Air Regulation Matters of concern in international air carriage relate to air safety and economic regulation. No single international regulatory body covers rate and route matters in the international air area. Instead, the pattern of route and rate establishment has evolved from national policy, use of the bilateral system of operating rights as negotiated after World War II by many nations of the world. Safety International air safety issues are addressed by the International Civil Aviation Organization (ICAO), which is part of the United nations. ICAO, headquartered in Montreal, is concerned with the technical and safety issues of aircraft operation. The organization has developed operating standards such as navigating practices, rules of the air, navigation charts, and communications. In addition, it is concerned with maintenance personnel and practices, meteorology, search and rescue, air accident investigation, and air traffic control. Future of International Transportation International transportation will grow in importance as more manufacturing and merchandising firms become involved in overseas sourcing and marketing. Long-standing domestic firms in many industries face competition against foreign-based manufacturers that can produce and load goods at customer docks as cheaply as the goods can be produced locally. This phenomenon is fostered by reduced trade barriers, relative currency fluctuations, and the competitiveness of ocean carriers.