Transportation Systems and Documents

April 25, 2020

Transportation Systems and Documents in International Trade

(Published in the Financial Express in 2019)  

Dr. Shah Md Ahsan Habib[1]

Generally international sales involve transportation of the goods, often over large distances, and sellers and buyers are typically located in different countries and the goods sold are often not in the physical possession of the seller, but in the hands of a third party. This means that either the seller or the buyer needs to make arrangements relating to the transportation and insurance of the goods sold. Above all, both parties to the sale-purchase contract need to perform their respective main obligations, that is, the delivery of goods in accordance with the contract (seller) and payment of the agreed price (buyer), while at the same time seeking to ensure contractual performance by the other party. Sales on shipment terms and the responsibilities of the different parties depend on the contract and incoterms agreed between the parties. Often banks have roles to play when payment methods are documentary collection and letter of credit (LC).  

Transportation is often referred to as an enabling factor that is not necessarily the cause of international trade, but as a condition without which trade globalization could not have occurred. Three components of international transportation facilitate trade: Transportation Infrastructure concerning physical infrastructures such as terminals, vehicles and networks. Efficiencies or deficiencies in transport infrastructures will either promote or inhibit international trade; Transportation Services concerning the complex set of services involved in the international circulation of passengers and freight. It includes activities such as distribution, logistics, finance, insurance and marketing; and Transactional environment concerning the complex legal, political, financial and cultural setting in which international transport systems operate.

Of the different modes, Sea mode is the most prominent with different variations. Containerized shipment has brought remarkable development in the trade transportation system and arrangement.  Containers are sealed at origin and opened at the destination, offering high security and minimum handling. Conventional cargo offers transportation services in bulk, in boxes and/or on palettes. This requires high quality export packaging, offers very low security and is damage prone due to multi-handling and exposure to weather conditions.Sea-Freight charteringcargo ships do not operate on regular routes and schedules and pick up cargo only when it is chartered from the ship operator. When a consignment represents several thousand tons or cubic meters, for instance bulk cargo like oil, coal, ore and grain, the normal procedure is to charter a vessel. Charter shipping has the lowest freight rate per unit of weight or measure. Sea-Freight Roll on / Roll off (RO/RO)derived from the traditional car ferry, where motor vehicles are driven on and off by their drivers and non-mobile traffic is loaded on flat racks. Lighter aboard Ship (LASH) is a system of water transport which is towed into ports and inland waterways to various shipping points where they are loaded with cargo and then returned to the ocean-going vessel.

Air freight is often used for high value/low volume shipments. The traditional method of air dispatch is to deliver a consignment covered by an individual air waybill to an air carrier (either direct or through a freight forwarder). In the case of large loads, it is possible to charter a full aircraft or arrange for what is called a split-charter if the load will not fill the aircraft to full capacity. Deliveries inland by Truck, Rail or ‘own-wheels’ may be the only viable option for supplying bulky loads. Road and rail freight are commonly used in the cross-border deliveries. Road freight is widely used in the inland delivery of goods to the port of export. The delivery charge is called the cartage or trucking fee. ‘Own-wheels’ is perhaps the least secure and may require careful planning and analysis on the availability of drivers, road and weather conditions, customs checks and general security in the area. Where Postal services are reliable, small parcels can often be sent more cheaply by air parcel post or even surface parcel post if the time element is not of primary importance. Multimodal Transportation is the movement of one unit load from origin to destination by several methods or transportation under one document without breaking up the unit load. The development of container traffic has made this possible, as containers can travel from end to end without being opened/unloaded/reloaded during the course of the journey. The advantage for those who make use of multimodal transportation is that they have one document only for the whole operation and that the operator is legally responsible for a satisfactory overall performance by his own staff and by the agents or branches that he is employing.

According to the International Chamber of Shipping, the international shipping industry is responsible for the carriage of around 90 percent of world trade using sea mode which continues to expand, bringing benefits for consumers across the world through competitive freight costs.  Thus, globalization is the realm of maritime shipping, with containerized shipping at the forefront of the process. Developing countries especially Asia continue to account for most global seaborne trade flows which is 60 percent of the total goods loaded (exports) and unloaded (imports); and developed countries account for around 35 percent of the global seaborne trade. And of the global total, Asia alone stands for more than 50 percent of the global total, according to the Maritime Review 2018.

In connection with issuance of a transport documents, it is well-known that the movement of goods by sea, air, land, rail or inland waterway involve two main steps which include making arrangement generally by the exporter/seller for handing over the goods to the carrier directly or through agents or freight forwarders; and issuing a transport document by acknowledging  that the good have been received for transportation, and stating certain terms and conditions upon which the carrier undertakes the transport of goods. Transport documents, issued by the carrier or agent of the carrier, and undertakes liability for the carriage of the goods, and arrange measures to support exporter/seller and buyer/importer in the process of the transportation of the goods to exercise certain controls. The journey involved, whether over land, sea and/or air, may introduce certain costs and risks that can be mitigated by appropriate methods of dispatch, insurance coverage, suitable packaging instructions, and by considering the roles and responsibilities of the parties involved in the chain of transport events up until final delivery to the client. Some transport documents covey title of the goods; other which do not, may allow measures to have control over the goods during the journey often upto delivery.

Association of banks in international trade transactions are well known and well recognized. Involvement of banks is even more in the context of Bangladesh where all kinds of trade payments are facilitated as part of the trade services by banks which can mainly be attributed to the explicit and implicit regulations of the country.  Moreover, trade payment methods like documentary credit and documentary collection where banks’ involvements are relatively higher or significant are widely in use in the country. Such greater involvement means greater risks and greater opportunities to earn on the part of banks. Challenges and risks associated with handling transport documents by banks are not new. There are several instances when banks or the exporting and importuning countries were affected due to fraudulent behaviors on the part of different stakeholders associated with transportation and payment processes in international trade transactions. Risks and challenges linked with global transportation systems and issues have also implications for banking industry. Considering the allied risks and challenges of international trade transactions in the country, it is important to identify global and the country’s risks and challenges related to the transport documents and transportation systems to draw lessons for ensuring safe and secured international trade operations.

[1] Professor and Director (Training), BIBM ([email protected]).

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