International Trade eLearning Suite for SMEs-InTeLS



Moving goods by sea

1.1.1       Introduction

                                 

This guide explains how to use ocean shipping to transport your goods. It shows how the international shipping system works and gives you the information you need to choose the shipping option that's right for you.

This guide also outlines the different vessels used for international shipping. It highlights the main factors affecting ocean freight costs and provides an overview of the key documents you'll need to transport goods by sea.

 

1.1.2       The different types of ocean shipping

                                 

Many different types of ship are used to transport goods around the world. The differences between them reflect the varied needs of international traders. In particular, different types of ship are used to carry different types of cargo, or to carry cargo in varied ways.

The different types of ship are summarised below:

  • Container ships (or "box ships") carry their cargo packed into standard 20'/40' containers that are stacked both on and below deck. Smaller "feeder" ships carry containers on coastal and inland waters.
  • Roll-on/roll-off (ro-ro) carriers carry both road haulage and passenger vehicles
  • General cargo ships carry loose-packaged cargo of all types.
  • Bulk carriers carry unpackaged goods - usually large volumes of single-commodity goods such as grain, coal, fertilizers and ore.
  • Tankers carry liquids (such as oil and gas) in bulk.

Merchant ships primarily do business in two different ways:

  • Liner vessels operate on fixed routes, to fixed schedules and usually with a standard tariff. Liner trades are dominated by container ships, roll-on/roll-off carriers and general cargo ships.
  • Charter ("tramp") vessels operate entirely according to the demands of the person chartering them. Their ports of loading and discharge are set by the charter, as is their cost, which depends on immediate supply and demand conditions. Most tankers and bulk carriers operate in the charter markets.

 UK FOOTNOTE

For more information about road haulage, see our guide on Moving goods by road .

 

1.1.3       How goods are carried on ships

                                 

There are three main ways in which goods are transported on ships. These affect how different ships are built.

In containers

The use of containers now dominates commercial international shipping. The advantages of packing goods into containers include:

  • the ease of intermodal transit, ie containers can be unloaded from the ship and transferred directly to a road or rail vehicle
  • opportunity to offer consumers a door-to-door service
  • speed and efficiency of loading and unloading
  • security of goods during transit

There are more than 20 internationally recognised types of container, including refrigerated units and open-topped containers, but there are two basic sizes. Their dimensions in metric terms are:

  • 20ft: 589cm (l) x 235 (w) x 239 (h) - volume 33.2 cubic metres
  • 40ft: 1,203cm (l) x 235 (w) x 239 (h) - volume 67.7 cubic metres

The largest container ships can accommodate more than 9,000 20ft containers.

As break-bulk

Break-bulk refers to any non-bulk cargo that isn't containerised (such as goods on pallets, or in crates or drums or sacks), which is loaded directly into a ship's hold. Break-bulk tends to be used for specialised trades (such as fresh fruit), or for trade to small ports that do not have the necessary infrastructure to handle containerised traffic.

Goods carried as break-bulk can be more susceptible to damage than containerised goods because they are stowed loose in a ship's hold. So strong packaging is essential, as is dunnage (loose packing material), which is placed around the cargo to protect it from damage during transit.

In bulk

Large shipments of certain commodities - such as coal, ore, wheat or oil - are typically carried in bulk, unpackaged in the ship's hold.

UK FOOTNOTE 

See the page in this guide on the different types of ocean shipping.

 

See our guide on Labeling and packaging your goods for export.

 

1.1.4        The main international shipping routes

                                 

Shipping routes reflect world trade flows. Sailings are most numerous and most frequent on routes where trade volumes are largest and demand is therefore greatest.

In liner trades to and from Europe, the busiest routes are to the Far East (especially China and Japan), passing through the Mediterranean, the Suez Canal and the Malacca Straits. The North Atlantic route, linking Western Europe and the USA and Canada, is also busy, and there are well-established routes to the Middle East, India, Australia and New Zealand, Central and South America, as well as to East and West Africa.

There are direct liner services from European ports to most other countries, and certainly to all the main trading economies. However, if your cargo is destined for a smaller port in one of these countries or for a port in a country with little trade with your country, there may not be a direct sailing available - in which case, your cargo will need to be transhipped to another local sailing at the end of the ocean voyage.

In bulk trades routes reflect the places of origin and consumption of the commodities carried. For example, many of the main oil routes begin in the Middle East and end in developed countries where demand for oil is greatest.

There will usually be a range of routes by which your cargo can reach its destination. It's worth exploring all the options available to find the one that best suits your needs in terms of price, speed, safety and contractual stipulations. This can be done by directly contacting those shipping companies that advertise sailings to your destination or by engaging freight forwarders to make arrangements for you.

UK FOOTNOTE 

See our guide on Using brokers and forwarders.

 

1.1.5       The costs of ocean shipping

                                 

A range of factors can influence the cost of transporting a consignment of goods by sea. There are two main elements: the ocean freight charged by the carrier, and costs associated with handling and clearing the goods at the ports of loading and discharge.

A number of factors can influence how these charges are calculated:

  • for liner traffic, freight is usually charged according to the shipping company's standard tariff, although larger or frequent shippers and freight forwarders may be able to negotiate preferential shipping rates
  • charter rates for other vessels depend on supply and demand conditions prevailing at the time when the charter is negotiated

However, there are many other factors that can impact on the final price, including:

  • different rates for specific goods and general cargo
  • congestion charges at busy ports
  • currency adjustment factor (CAF), to take account of exchange rate changes during the journey - shipping costs are usually calculated and quoted in US dollars
  • bunker adjustment factor (BAF), to take account of fuel price fluctuation
  • surcharges (like a security surcharge) levied by ports and/or by the shipping company to cover the costs of particular regulatory regimes

Another factor that affects the cost of shipping containerised cargo is whether or not you have a full container load (FCL) to transport. Shipping companies' tariffs are based on flat per-container rates, so it is clearly most economical to ship your goods in containers that are full. If you have a less-than-container-load (LCL) consignment, it may be worth consolidating your cargo with that of other traders, so you'll only pay for the weight or volume (whichever is greater) of your own goods.

Working out the most cost-effective way to ship your goods around the world can be a complicated task. As with most services, you can research the options yourself or pay a third party (such as a freight forwarder) to handle these issues for you, finding transport modes and routes that suit your needs.

UK FOOTNOTE 

For more information, see our guide on Using brokers and forwarders.

 

1.1.6       Key documents for transporting goods by sea

                                 

As with most aspects of international trade, using ocean shipping to transport your goods involves the completion of a wide range of documents. The list below is not comprehensive.

You will need an Export Cargo Shipping Instruction. This is the document by which you provide the shipping company with details of your goods and set out your instructions for the shipment. It follows up on the initial booking, when space will have been confirmed on particular sailings. The process is often concluded by telephone.

You will also need one of the following:

  • If the goods are hazardous , a Dangerous Goods Note (DGN). This document details the nature of any dangerous goods in a consignment and the hazards presented by them.
  • If the goods are non-hazardous , a Standard Shipping Note (SSN). This gives the port of loading the information it needs to handle your goods correctly. It's also used by the shipping company to check the actual information about the goods once they have been loaded into the container with the predicted information supplied beforehand.

In addition, you will also need one of the following:

  • A Bill of Lading . Issued by the carrier, this serves three purposes - it shows that the carrier has received the goods, provides evidence of a contract of carriage, and serves as a document of title to the goods. This is a unique historical document - several of its features date from the age of sail, and it's not always appropriate in the 21st century.
  • A Sea Waybill . This fulfils the same practical functions as the bill of lading, but does not confer title to the goods and is therefore quicker and easier to use. It's often used where there's a well-established trading relationship between buyer and seller or in transactions where ownership doesn't change hands, eg between divisions of a single company.

UK FOOTNOTE 

There is a lot of industry terminology that you may find unfamiliar if you're just starting - you can find explanations of many shipping terms on the Baltic Exchange website.

 

1.1.7       Cargo insurance for goods at sea

                                 

As with any commercial transactions, there are risks associated with trading internationally and it's important to arrange appropriate insurance cover.

You're likely to see the phrase "marine insurance". This doesn't only apply to ocean shipping - it also covers transport by road, rail and air.

In order for insurance cover to be valid, you have to be able to show that you have an "insurable interest" in the insured goods. This means showing that the goods are yours and that you bear the risks associated with them.

Shipping companies' liability for the cargo they carry is set by various international conventions and does not always equate to the full value of the goods. The level of protection this offers varies from market to market, so you should check what the position is.

Contracts of sale and insurance

The main risks that arise in international trade are loss, damage and delay (including detention at customs). How these risks are shared between buyers and sellers should be covered in the contract of sale (not the contract of carriage), using Incoterms.

Incoterms are a standard set of trading terms that indicate precisely when responsibility for costs and risks shifts from seller to buyer. This affects your insurance, because the more costs you're responsible for, the greater the insurance cover you'll need. For example:

  • In an ex-works (EXW) transaction, the seller is considered to have delivered the goods once they've been made available for collection at the factory or warehouse. From that point on, risk passes to the buyer, so the buyer should insure the journey from that point.
  • With a delivered-duty-paid (DDP) sale, the risk only passes to the buyer once the goods have arrived at their place of destination and have been cleared for import. In this case, the seller should insure the journey up to that point. There is no obligation under DDP for either buyer or seller to contract for insurance. Only two terms in Incoterms - CIF and CIP - require insurance to be contracted - in both cases it is the seller's obligation. It is recommended under DDP (and any other of the ten remaining terms) that buyer and seller agree who will be responsible for effecting the insurance contract as part of the delivery or sales contract.

Be aware that Incoterms are terms for contracts of sale and they do not apply to contracts of carriage.

Traders often tend to under-insure themselves, so it's recommended that you add 10 per cent to the amount of cover you think you need. You can also arrange cover for contingencies, eg the buyer refusing to accept your goods when they arrive.

 UK FOOTNOTE 

See our guide on Transport insurance .

For more information, see our guide on International Commercial Contracts - Incoterms