US 252435 – Apply basic
Invoicing and Accounting
Principles
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This Module is suitable for training towards the FIATA Diploma, TETA, QCTO
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Learner Guide compiled by:
Mark Goodger
Edited date – May 2017.
# Page layout by Reginald Moyo
Copyright © 2017 edition. Date of revision: May 2017.
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LEARNER GUIDE
Apply basic Invoicing and Accounting Principles
Unit Standard 252435
Level 3 Credits 6
OVERALL OBJECTIVES OF THIS MODULE
The person credited with this Unit Standard will be able to perform routine financial transactions
and calculations and need to apply the processes and procedures necessary to initiate the
recording of disbursements and revenues, and to understand the financial implications to the
organisation of each element in the transaction.
The qualifying learner is capable of:
• Explaining items of expenditure and revenue.
• Explaining fixed and variable costs.
• Performing invoicing operations and post amounts to the appropriate accounts.
• Reconciling and identifying individual transactions with statements of accounts.
• Identifying and disbursing the items on behalf of the organisation to be recovered in the
invoicing process.
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Table of Contents
INTRODUCTION ...................................................................................................................5
EXPLAIN ITEMS OF EXPENDITURE AND REVENUE .................................................................6
EXPLAIN FIXED AND VARIABLE COSTS. ...............................................................................17
PERFORM INVOICING OPERATIONS AND POST AMOUNTS TO THE APPROPRIATE ACCOUNTS.
.......................................................................................................................................... 23
RECONCILE AND IDENTIFY INDIVIDUAL TRANSACTIONS WITH STATEMENTS OF ACCOUNTS.43
IDENTIFY AND DISBURSE THE ITEMS ON BEHALF OF THE ORGANIZATION TO BE RECOVERED IN
THE INVOICING PROCESS. ..................................................................................................58
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INTRODUCTION
In all activities (whether business activities or non-business activities) and in all organisations
(whether business organisations like a manufacturing entity or trading entity or non-business
organisations like schools, colleges, hospitals, libraries, clubs, temples, political parties) which
require money and other economic resources, accounting is required to account for these
resources. In other words, wherever money is involved, accounting is required to account for it.
Accounting is often called the language of business. The basic function of any language is to serve
as a means of communication. Accounting also serves this function.
Accounting is a profession used to make financial and business decisions. Billions of dollars
exchange hands every day, in millions of separate business transactions. These are recorded and
reported on using a comprehensive set of guidelines, referred to as Generally Accepted
Accounting Principles (GAAP).
Accounting: n. The bookkeeping methods involved in making a financial record of business
transactions and in the preparation of statements concerning the assets, liabilities, and operating
results of a business.
System: n. A group of interacting, interrelated, or interdependent elements forming a complex
whole.
Accounting System: n. The people, procedures, and resources used to gather, record, classify,
summarize and report the financial information of a business, government or other financial
entity.
Double-entry bookkeeping: n. The practice of recording a business transaction in two equal
parts, called debit and credit entries. Debit refers to the left column and credit refers to the right
column, in an accounting journal.
Each transaction describes both:
1. the object of the transaction - such as rent, telephone, or payroll expense; sales, fee or
interest revenue.
2. the source of payment - cash or credit.
Money eventually changes hands in almost all transactions, either at the time of the transaction,
or perhaps at a future date in the case of items purchased on credit. (Adjusting and closing entries
are an exception and not typical, and represent special entries made by accountants to prepare
financial statements, and reset certain accounts at the end of a fiscal year.) Sometimes a
transaction involves cash directly, at the time of the event, such as a cash sale at a grocery store.
It is more common, and safer, to use a checking account for routine purchases. These are all
considered part of the Cash account. In the material covered below we will cover the main topics
relevant to basic invoicing and accounting principles.
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SPECIFIC OUTCOME 1
EXPLAIN ITEMS OF EXPENDITURE AND REVENUE
ASSESSMENT CRITERION 1
A definition of expenditure is provided in the context of freight forwarding and customs clearing.
When preparing invoices for a client it is important that a Forwarder is able to identify all the
amounts which it has outlaid on behalf of the client as well as the fees which they will be charging
out to the customer.
In order to be able to assess these it is crucial that the Forwarder is able to distinguish between
the items on an invoice which are disbursements i.e. expenditure and those which are income
i.e. revenue.
A Disbursement or item of expenditure is a payment which is made by a Forwarder, on behalf of
their client, to a third party during the process of moving their cargo. This could include a party
actually involved in the movement of the cargo e.g. a shipping line, a government authority such
as SARS-Customs and Excise or a third-party service provider e.g. insurance company.
The most common examples of disbursements would be the following:
• Origin / Destination charges paid to an overseas agent.
• Freight charges paid to a shipping line, airline, groupage operator or airfreight
consolidator.
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• Duty and VAT paid to Customs.
• Cargo Dues paid to Transnet National Port Authority.
• Terminal Handling Charge (THC) paid to the Transnet Port Terminals
• Cargo handling charges paid to a container depot.
• Transport charges paid to a road transporter or cartage operator.
• Insurance premiums paid to a broker or insurance company.
Some of this expenditure will have to be paid out on a cash basis and some will be able to be paid
out through a Credit facility which can be set up with the service provider.
Overseas agent:
You would usually have credit terms with your overseas agent who will issue an account at the
end of each month for settlement at the end of the following month i.e. a 30-day account. It
should also be kept in mind that this will involve charges in a foreign currency for which you will
be entitled to charge a Currency Fluctuation fee on these amounts to cover any changes in the
rate of exchange between invoicing to the client and payment to your overseas agent.
The rate for this fee will be set in line with the degree of volatility of the currencies involved as
even a small weakening of your currency against that of the other agent may result in you using
more local currency to settle their account.
Ocean Freight:
The payment of freight to the ship’s agent or to the de-grouping operator is against the
presentation of the invoice i.e. this must be done before they will allow your client’s cargo to be
released.
This is very important as this is often only a short while before the vessel arrives at the port of
discharge that all the charges are available and can be issued on an invoice for the agent to check
and then apply for payment approval in line with the company’s procedures and then for actual
payment to be made.
Any additional charges or any changes to the original charges can cause a delay in the receipt of
the invoice and therefore payment and possible in the release of the cargo with possible penalty
charges being incurred as a result.
It is important therefore that any queries with charges on the invoice are noted and brought to
the attention of the carrier in writing at the time so that these can then be followed up later and
resolved.
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Airfreight:
Most airlines will make credit facilities available as the time between departure, arrival and the
availability of the cargo is very short and it would cause major problems if payment then had to
be arranged before the carrier could release the cargo.
It is still very important even though payment is not immediate to make sure that the charges
reflected on the AWB are accurate and in line with your expectations to make sure those
discrepancies are dealt with quickly.
Consolidators however, like groupage operators, will require settlement of their charges prior to
release of the cargo to the clearing agent acting on behalf of the importer.
Customs Duty and Customs V.A.T:
Customs Duty and Customs V.A.T. are paid to SARS on the basis of the rate applicable at the time
the entry is submitted. It should be noted however that the rates of Duty can change and when
this happens the details will be published in the Government Gazette to confirm the legality of
the changes.
With Customs V.A.T. this is set, at present, at a rate of 14% and has not changed over a number
of years and, as and when this does happen, then this would have to be announced by the
treasury or minister of finance on behalf of the government in advance of it’s implementation.
There are a number of ways in which the above items can be paid to SARS.
From the agent’s point of view the best option is a Customs deferment facility which enables the
agent to have the amounts of Duty and VAT payable set against an agreed overall limit for the
30- day period of the deferment facility cycle.
It should be borne in mind however that an application for this type of facility, and the granting
of it by SARS, cannot be taken for granted.
This required the agent to submit, along with their application, their financial records which will
be studied by SARS to assess whether the amount of the deferment for which you are asking can
be supported by your financial circumstances.
If it can be then they could offer you the opportunity to set up this kind of facility on the basis
that you can obtain from your bank and provide a surety for the amount of the facility in question.
This is to ensure that, in the event of the agent ceasing business or being liquidated, SARS will
still remain a secured creditor and be paid any outstanding duties and taxes which are owed to
it on presentation of the surety.
If this is not the case then they may agree to a lower limit on the deferment which would mean
that you would have to monitor the facility much more closely to make sure that you do not
exceeded it.
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If this does happen then any SAD 500 which involves amounts in excess of the remaining
deferment balance will be rejected and the cargo not released.
There are some alternatives to this in terms of the payment of just VAT, if the goods are Duty
Free and payment by cash but the majority of the agents make use of the deferment facility and
use the E.F.T. (Electronic Financial Transaction) as the preferred means of payment.
Cargo Dues and THC:
The payment of Cargo Dues to the Transnet National Port Authority is mainly done on account
on the basis of the Cargo dues order although this can also now be paid directly to the ship’s
agent on the freight account as well.
With THC payment can be made directly to Transnet Port Terminals although this also can be
paid directly to the shipping line via the ship’s agent and will appear on the freight account.
It is important that you are aware as to whether merchant or carrier haulage is being used to
identify from whom this charge can be expected.
Depot Handling charges:
The payment channel used for these will depend on the type of cargo movement involved.
If this is LCL then these will usually be invoiced by the depot to the grouping or de-grouping
operator and these will then be included in their charges to the clearing agent acting on behalf
of the importer or exporter and must be paid prior to release of the cargo.
If this is for an FCL movement then the depot handling charges may be invoiced to the ship’s
agent as the container is on overstay and has been moved to a container depot for storage
purposes.
The ship’s agent will then include these on the freight account to the clearing agent and these
must be settled before the cargo will be released.
A third option may be when the clearing agent, on behalf of their client, has placed the container
and cargo into a depot pending final delivery or for temporary storage in which case the depot
will invoice the agent for these charges and these will most likely be settled via a monthly account
on credit terms.
Road transport charges:
Most hauliers and cartage operators will offer credit facilities to their clients as long as their
services are being utilised on an ongoing basis. If there is only occasional use then the provision
of this type of facility by the road transport operator cannot be taken for granted.
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This account would be opened on the basis of settlement on a 30 day from end of month
statement basis unless otherwise indicated and agreed upon.
Insurance Premiums:
The payment of the insurance premiums to a broker is also usually done on a credit account basis
as this is likely to be ongoing business and the agent is likely to have the prior approval of the
broker or insurance company before they would be allowed to sell this kind of product on their
behalf and can issue insurance certificates in their name.
In addition to the above there may also be other disbursements outlaid depending upon the
circumstances or situation such as penalty and / or storage charges if clearance is late or the
cargo not collected within the permitted time. We will examine these in a later Assessment
Criterion.
All the disbursements which the Forwarder outlays on behalf of the client will need to be
recovered from the Client by means of including these on the invoice when it is raised. When the
client settles the invoice, according to the agreed payment terms, the Forwarder is reimbursed
for the amounts which they have outlaid.
Some of these charges invoiced to the client may include an element of profit, often referred to
as a freight differential, which an amount is added to the basic cost price paid for the service
provided. Examples of these would be: freight charges, haulage / cartage and groupage handling
charges.
In other cases, exactly the same amount has to be charged out to the client as was outlaid by the
Forwarder as these charges are fixed by the service provider and cannot be uplifted to include a
profit element. This would include the likes of the Customs Duty and V.A.T., the amounts of which
would appear on the SAD 500 Customs declaration as well as the Cargo Dues and THC which are
fixed at the start of each April for a 12-month period.
ASSESSMENT CRITERION 2
A definition of revenue is provided in the context of freight forwarding and customs clearing.
Revenue is the amount which a forwarding agent earns from the fees which it charges for its
services. There are three main types of fees from which an agent earns revenue which are
Documentation, Agency and the Finance fee which is explained under a separate Assessment
Criterion.
Documentation is normally charged as a flat fee based on the preparation of the relevant
Customs entry, whether this is an import or export. The fee is based upon the completion of the
standard SAD 500 with a limit to the number of lines which are covered by the standard charge.
Due to the rationalization of the Tariff schedule the majority of entries nowadays are completed
using a much lower number of lines.
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There may, however, be situations where a large number of lines have to be completed and the
agent is entitled to charge for this extra work over and above the standard entry. In this case, the
charge would be at a fixed rate per line and would be in addition to the basic documentation fee.
An Example of this would be:
Documentation Fee = R 450.00 per Customs declaration (SAD 500) for first 10 items (lines).
Each additional item (line) over and above 10 lines = R 15.00 per line.
Ex Bond (XDP) entry = R 200 for first 10 items.
Each additional item over and above 10 = R 10 per item
The Agency fee can be calculated in a number of ways but the most frequent are either based on
a percentage of disbursements or based on the value for duty purposes of the goods being
transported.
An example of this would be:
Agency = 4% of disbursements
Total disbursements = R 85,000 x 4% = R 3,400.00
It is important to bear in mind is that, whichever fee is utilized, it has been agreed upon between
the agent and the client and it has been applied on a consistent basis both when preparing the
estimate as well as raising the final invoice for a shipment.
If the format of the invoice shows both the customs value of the goods and the total
disbursements separately it should not be a problem for the client to check this figure promptly
and identify any variation.
It is important to remember that this is a guideline and that there are other ways in which one
can charge agency depending upon the type of transport used and the size of the shipment.
Whichever formula is used it should be clearly identifiable.
For airfreight shipments, this might involve a flat rate per kilogram charge whereas ocean freight
shipments could be based on a “per container” rate if a large number of containers were moved
on one bill of lading.
In the latter case the value of the goods or disbursements could be unusually high and therefore
give rise to a large figure for the agency which the client did not feel was justified.
The two parties could either agree to a maximum figure for the agency fee or a fee per container
which would be a realistic reflection of the additional work involved in the management and
delivery of a large number of boxes.
Optional fees which may be raised by a Forwarder would include the following:
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• Customs Stop / Examination for following up a Customs Stop, finalising the Customs query
and obtaining release of the goods, including the arrangement of a Customs Inspection if
required and the availability of the required documentation.
This would usually be a flat fee e.g. R 200.00 per Customs Stop.
• Customs Attendance for actually attending a customs inspection
This would be for actually attending the Customs inspection of the detained goods at the request
of the importer and may well include the collection of the inspecting officer and returning them
to their place of work after the inspection.
This would also be a flat fee e.g. R 300.00 due to the time out of the office and the expenses
incurred in collecting and returning the officer.
• Preparation of a costing on the landed goods usually charged per line of the costing.
This must be done at the time when the Customs Declaration (SAD 500) is being framed so that
all the relevant input costs such as freight charges in line with the Incoterms® 2010 Rules
applicable, the Customs Duty, if applicable, and the Customs V.A.T. and other local destination
charges can be inserted to provide an actual accurate cost at which the goods have been landed
or delivered to the client.
The charge is again usually a flat fee but there are a number of ways in which a costing can be
worked out e.g. by Tariff Heading or product code and there will also be an additional fee for
each line over and above a minimum number for which the flat rate applies.
e.g. R 300 Flat fee with an additional R 15.00 for each line over 10.
• Courier fee.
This is generally charged by the clearing and forwarding agent for the dispatch of documents to
the overseas agent and would be set at a flat fee in line with a standard number of documents
to an international destination.
Some keep this fee the same for all international destinations whilst others will charge according
to the specific destination country to which the documents are being sent.
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• Liquidation of a provisional payment.
This would have originally been shown as “PPL“ - Provisional Payment Lodged and the liquidation
of this could be for a number of different reasons such as the export of goods which were
imported temporarily and now are being returned to their origin or it could be a temporary
deposit with Customs pending production of requested material e.g. a contract to prove the
agreement of a commission structure and the details of this.
It could also for the use of a temporary Customs Code pending receipt of this from SARS which
would be refunded on submission of a VOC (Voucher of Correction) substituting the temporary
code with the formal one now issued by SARS.
This would usually be a percentage of the amount involved with a Rand minimum to cover the
basic cost or carrying out this procedure.
• Application for a Customs refund or drawback of Duty.
This is for applying to Customs for the refund of over payment of Duty due to change in the rate
of Duty which has then been backdated or to claim back Duty which was paid at the time of
import which can now be claimed back due to the fact that the item has been exported as part
of a manufactured process.
This is usually also a percentage of the amount involved but will have a much higher minimum
than the liquidation of the Provisional Payment as the amount of work involved is often
considerably higher than that for a PP both in terms of the amount of Rand involved and also in
terms of the amount of paperwork required to support the application and the detail which this
has to contain.
ASSESSMENT CRITERION 3
The differences between expenditure and revenue are explained as they apply to freight
forwarding.
In the freight forwarding industry it is vital to be able to distinguish between items of expenditure
in terms of the amounts which you are charged by the service providers and other third parties
in the course of transporting your client’s goods and the money which the agent earns for the
services which they provide for managing the transport process on behalf of the client.
In this section, we will identify which are which so that you are able to identify the difference
between the two and explain these to the client.
It is also important to be able to distinguish between these two types of items when it comes to
assessing the total revenue which you have earned on the file to compare with the benchmark
which your company has set as well as the overall profit on the file which comprises both the
revenue and any freight differentials or mark ups which you have included in the agreed charges
and tariffs with your client.
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A third area where the difference between these two sets of items is important is in client
negotiations when the fees are negotiated for the forthcoming period, whether this is 6 months
or a year or their financial year.
It is important to go into these discussions knowing where you may have room to adjust the fees,
and by how much, whilst still maintaining your overall profitability level from the client.
This may also have to take into account all the business which the client has provided i.e. both
air and Seafreight, both imports and exports, to make sure that you look at the overall picture
and not just one department or division in isolation.
If you study the example of an invoice below then there are several aspects at which you could
look such as the individual totals and fees or work out ratios to see if they meet the required
targets.
The revenue on this file is R3,440.44 which, on its own, looks healthy in terms of the revenue
earned for just one file.
However, you then need to look at this in terms of the capital employed or, in this case, the
disbursements outlaid in order to make this revenue amount.
R 3,440.44 (Revenue) / R 67,565.23 (Disbursements) = 0.0509 x 100 = 5.1 %
This should then be compared to the company’s target to assess whether the revenue was below
or above the target ratio which has been set.
GMLS Logistics Cape Cameras
Ltd Invoice No 11204
Pty Ltd Client
30th May 2010
Origin London FOB Value (EUR) 35,000
Port of Loading Tilbury Tariff Heading 9006.52.00.1 Rates of Exchange
Destination Cape Rate of Duty: Free Currency Rate
Town
Place of Delivery Hermanus No of Packages 1 EUR 1.00 = 9.00
Incoterms® 2010 EXW Type of
Package: 6m
Rules Acton USD 1.00 = 7.25
Type of Total Weight
Movement FCL (Tons) 10
Type of Total Volume
Container GP
(cbm) 25
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Commodity Cameras FOB Value (ZAR) R 253,750
Currency Rate Total Rand VAT
100 100 725.00
Export Customs EUR 500 500 3625.00
275 275 1993.75
Origin Cartage EUR 75 75 543.75
1,500.00 1,500.00 13500.00
Origin THC EUR
200 200 1800.00
Documentation EUR 100 100 900.00
Ocean Freight USD
Bunker USD
Surcharge
Other Surcharges USD
Terminal ZAR 958 958.00
Handling Fee ZAR 2,028.08 2028.08
ZAR 2500 2500.00
Cargo Dues ZAR Free 0.00
ZAR 14% 39077.50
Haulage
R 67,651.08
Customs Duty
Customs VAT
Total
Disbursements
Documentation ZAR 200 per Bill of 200.00
Lading
1691.28
2.5% on
1353.02
Agency ZAR Disbursements
200.00
Finance Fee ZAR 2% of R 3,444.30
Disbursements R 71,095.38
Customs ZAR 200 per Bill of
Examination Lading
Clearing Charges
TOTAL
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It should also be noted that some agents would include the Finance fee as revenue whilst others
would not consider this as revenue as it only offsets the interest that the agent is paying to their
service providers on credit facilities which also incur interest.
As disbursements increase so will your main source of revenue, Agency, if this is based on the
total amount of these but this may also mean that the funding of these disbursements also
increases.
You may have to pay out amounts such as ocean freight and surcharges as well as settlement of
the Duty deferment facility well in advance of receiving the payment from the client thus causing
you to incur financing charges in the form of interest on an overdraft facility to fund this time
gap.
It is also important to be able to distinguish between these two types of items when it comes to
assessing the total revenue which you have earned on the file to compare with the benchmark
which your company has set as well as the overall profit on the file which comprises both the
revenue and any freight differentials or mark ups which you have included in the agreed charges
and tariffs with your client.
We have already established one of the main types of ratios used to assess the return on a file
so now we need to look at the overall profit on the file.
There may be some profit on the origin charges from overseas as you may well have a profit
sharing agreement with your clearing and forwarding agent on some of the charges here e.g.
haulage, documentation.
Others, such as origin THC, are fixed each year in the same way as RSA and are commonly
available so cannot be marked up.
On the ocean freight charges let us say for example that we also made USD 50 as a mark up on
the ocean freight as we only paid the shipping line USD 1,450.00 compared to the rate agreed
with this client of R 1,500.00 then this adds another USD 50 x 7.25 or R 362.50 to the overall
profit.
The Bunker and other surcharges are fixed so no profit is made on these but revenue is in the
form of agency charged on these disbursements.
The destination THC and Cargo Dues are set by Transnet so no mark up or profit is possible on
these and the Duty and V.A.T. is charged as shown on the Customs Declaration SAD 500 so these
are as paid to SARS Customs and Excise.
Haulage presents another opportunity for some profit so let us say that we also made R 250 on
this as we paid the haulage contractor R 2,250.00 compared to the R 2,500.00 agreed with the
client.
There may be some profit on the origin charges from overseas as you may well have a profit
sharing agreement with your clearing and forwarding agent on some of the charges here e.g.
haulage, documentation.
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Others, such as origin THC, are fixed each year in the same way as RSA and are commonly
available so cannot be marked up.
The overall profit ton this file would therefore be R 3,440.44 + R 362.50 + R 250.00 = R 4,052.94
and if this was compared to the overall total of the invoice then this would give you a profit ratio
of R 4,052.94 / R 71,007.67 = 0.057 x 100 = 5.7%.
A third area where the difference between these two sets of items is important is in client
negotiations when the fees are negotiated for the forthcoming period, whether this is 6 months
or a year or their financial year.
It is important to go into these discussions knowing where you may have room to adjust the fees,
and by how much, whilst still maintaining your overall profitability level from the client.
This may also have to take into account all the business which the client has provided i.e. both
air and Seafreight, both imports and exports, to make sure that you look at the overall picture
and not just one department or division in isolation.
The above demonstrates how you can measure the revenue and profit which can be made on a
file but it is also important to remember that this is based on a standard shipment involving most
of the charges and fees which you would find on most ocean freight FCL imports.
If additional charges, particularly penalties such as storage and overstay and demurrage, were
incurred and these could not be passed on to the client as they were incurred by the agent and
not due to the client’s actions then this could have a significant impact on the profitability of this
file.
If this container was not collected out of the port Terminal within the 3 days allowed for this then
overstay charges would be incurred including cross haul to the container depot, lift off lift on
charges, CTO fees and the first day of storage which are extremely punitive. If these were to come
to a total of R 2,800 all together then your profit on the file would actually be reduced to R
4,052.94 – R 2,800.00 = R 1,252.94 which is a very different matter as this would now be a ratio
on the file of R 1,252.94 / R 67,565.23 = 0.0185 x 100 = 1.85% i.e. a very different picture from
the original 5.1%!
It is therefore critical that whoever is managing the file makes sure that no unexpected costs are
incurred and, if they are, that the reason for this is clearly documented and recorded and
hopefully not the fault of the agent so they can legitimately be passed onto the client on the
invoice with an explanation as to the reason for them.
SPECIFIC OUTCOME 2
EXPLAIN FIXED AND VARIABLE COSTS.
ASSESSMENT CRITERION 1
Fixed costs are defined with examples.
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Fixed costs can be defined as those costs which do not change in line with increases or decreases
in production. In other words, costs which will occur no matter how many units are being
produced and even if no production is taking place these costs would still have to be paid.
In the case of the forwarding and clearing industry we would define production as the number
of shipments, or files, which are handled during the month.
Examples of Fixed costs would be as follows:
• Rent which is being paid for office space in a building.
• Salaries of the employees of the company which do not vary whatever the volume of work
handled. These are normally fixed at the start of the year and remain constant.
• Pension premiums which are outlaid by the company on behalf of its employees and are very
often linked directly, as a percentage, to the amount of their salary.
• In line with this would also be other “salary linked costs”, such as UIF payments.
• Leasing charges for the motor vehicles which are being paid for by the company and provided
for its staff.
• Administration costs for work which has to be carried out regardless of the amount of
business being handled. This also applies to contracts for services such as Cleaning which are
normally for period of at least a year or more and normally at an agreed rate for that period.
• Telephone charges which are payable independently of the number of calls made and are
based on the number of lines needed by the user i.e. monthly Rental of a line from Telkom.
• Interest on loans can also be considered as a fixed cost. The amount repaid may vary slightly
with changes in the interest rate but this has nothing to do with production. Whatever the
volume of business being handled the loan still has to be paid off.
Other Fixed costs which would apply to the freight forwarding industry in particular could
include:
• Warehouse Rental for storage of the client’s cargo.
• Office furniture and equipment for the warehouse such as racking and handling
equipment e.g. Forklifts and Pallet jacks.
• Security contracts for monitoring the warehouse including security staff and CCTV
equipment.
Most, if not all, budgets are focused on a period of one year and in the short term the fixed costs
listed above will not usually vary unless there are exceptional reasons for this to happen.
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The following graph shows the relationship between Fixed and Variable costs against production
as it indicates that Total costs and fixed costs will fall quite quickly as production increases. Fixed
costs will then level off but Variable costs, which were level whilst production started to increase,
will start to climb in line with production resulting in a steady, but slower, increase in Total costs
as the Variable costs increase.
ASSESSMENT CRITERION 2
Variable cost is defined with examples.
Variable costs, on the other hand are costs which alter directly in line with the levels of activity /
production taking place. As productivity increase so do variable cost and the opposite applies if
productivity decreases.
Examples of Variable costs would be:
• Communication costs e.g. telephone calls and faxes which would increase in direct proportion
to the number of extra files being handled. They would also decrease if fewer files were being
processed.
• Materials and consumables such as printing and stationary. The more files being handled the
more paper that will be used. The same also applies for items such as electricity where
consumption will fluctuate in direct relation to the levels of activity.
• Computer expenses would also fluctuate as you often are paying a fee per entry for the
processing system. The more entries being handled the higher the monthly fees.
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• Vehicle costs such as petrol will also change as the volume of work being handled grows.
More petrol for cars would also be needed as more entries being framed means more
documents have to be collected from, and delivered to, both the customs office and also to
your client`s premises.
• Overtime can also be treated as a variable cost as it is difficult to predict when this will be
incurred as well as what amount will be involved. When preparing a budget you have a good
idea when it may be incurred such as the end of the month or end of the financial year when
files and accounts have to be finalized by a deadline or just before the Christmas “shut down”,
for the holidays so it may be more prudent to include a figure in the budget for this but with
increase to allow for the factors and peaks described previously.
• Another cost which is difficult to anticipate and quantify in terms and when and for how much
you should budget is an Overdraft facility and the Interest this will incur when you make use
of it. If you are in the fortunate position to be able to use client’s payments to fund your cash
flow then you may not need such a facility at your bank.
However, in most agent’s cases there will be times during the year when they need such a
facility and the amount available, as well as the rate of interest, will be in line with the limit
agreed in advance with your bank and at the rate which was set. You will not be able to
predict in advance the Prime rate of interest applicable at the time when you need this facility
but with the additional amount of interest which is charged on all these types of facilities you
can bet it will not be cheap!
Adjustments may be required to the budget during the course of the year due to a change in the
factors involved e.g. less shipments being handled of the level of fees not keeping up with those
which were expected.
As it is difficult to increase your income at short notice to cover a shortfall the review of the
budget which would need to be done would concentrate on the revision of the Variable costs to
reduce expenditure in the short term to bring the budget back into line.
Examples of Variable costs which could be controlled are Telephone Calls where a limit is placed
on monthly expenditure or Petrol costs where a restriction or limit can be placed on using
company garage cards.
In the table below examples of both these types of costs are shown as well as the percentage
which these different costs make up, both of the types of costs i.e. Fixed and Variable as well as
of the total overall costs.
You can see from this that items such as salaries make up a very significant portion of both the
Fixed costs and the Total costs, especially compared to the other fixed costs
When you study the Variable costs these not only make up a much smaller portion of the overall
costs but the individual items are much more evenly spread in terms of the ratio of the individual
costs against the total variable costs.
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EXPENDI
TURE JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
FIXED 21000 21000 TOTAL Ratio
Costs 1050 1050
1200 1200
Salaries 21000 2100 21000 21000 21000 21000 21000 500 500 21000 21000 42000 R273,000.00 78.0%
0 1050 1050 1050 1050 1000 1000 1050 1050 1050 R 12,600.00 3.6%
1500 1500
Pension 1050 1050 1050
650 650
Office 1200 1200 1200 1200 1200 1200 1200 500 500 1200 1200 1200 R 14,400.00 4.1%
Rental
27400 27400
Cleaning 500 500 500 500 500 500 500 500 500 R 6,000.00 1.7%
Contract 500 300 300
750 450
Insuranc 1000 1000 1000 1000 1000 1000 300 500 1000 1000 1000 R 12,000.00 3.4%
e 1000 400 450
Car 1500 1500 1500 1500 1500 1500 1500 1750 1700 1500 1500 1500 R 18,000.00 5.1%
Finance
Telepho 650 650 650 650 650 650 650 650 650 650 R 7,800.00 2.2%
ne 500 500 500 500 500 500 500 R 6,000.00 1.7%
Rental
Interest 500 500
on loans 500
Total 27400 2740 27400 27400 27400 27400 27400 27400 27400 48400 R 349,800.00 92.8%
Fixed 0
costs
VARIABL
E Costs
Stationar 7300 300 500 300 300 1125 400 600 500 R 12,125.00 44.8%
y 200
125 250 300 750 125 125 125
Electricit 125 125 750 300 300 300 300 300 1000 R 3,550.00 13.1%
y 300 R 5,325.00 19.7%
550 500 600 500 750 650 350
Petrol 600 375 300
Telepho 200 500 600 R 6,050.00 22.4%
ne Calls
Total 1300 8300 1325 1925 1350 1500 2675 1575 1675 1975 R 27,050.00 7.2%
Variable R 376,850.00
costs
Total Costs
ASSESSMENT CRITERION 3
Three examples are provided where fixed costs could happen.
The clearest example of where fixed costs could occur is the workplace itself with the main
example being salaries which are usually set at the start of the year and remain valid for a period
of 12 months unless they are re-negotiated or an interim increase is approved.
Hand in hand with this goes the pension payment which, in most cases, is based on a percentage
of the salary in line with tax regulations or the agreed rate of the company’s pension plan so if
the salary changes then so will the amount of the pension payment.
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Rental is the third main item of expenditure incurred in an office, unless the company owns its
own building and does not pay rental to a landlord. The lease is usually set for a calendar period
of a minimum of 12 months but sometimes for a longer period e.g. 2 or 3 years with a fixed
percentage increase to take place at the start of each 12-month period of the lease.
ASSESSMENT CRITERION 4
Examples are provided where variable costs could be confused as fixed costs.
If variable costs are mistakenly identified as fixed costs then they will be viewed as not being able
to be adjusted in the short to medium term and therefore the options available, in respect of the
cost items which could be used to reduce expenditure, would be will be limited.
If Telephone Calls (Variable) were confused with Telephone Rentals (Fixed) not only would the
expenditure increase as the budget would include a higher cost figure as the cost of the calls each
month is always much higher than the amount spent on the annual line rental.
Other examples where confusion could occur would be wages for part time or temporary staff
(Variable) as opposed to Salaries for full time staff (Fixed) and sales commission (Variable) which
depends on the amount of business secured and will therefore vary in line with this factor and
should not therefore be confused as a Fixed cost.
We gave also recently looked at the relationship between financing and costs in terms of the
financing of charges which brings the cost of money into the picture so you will need to give
careful thought to this type of cost in terms of interest.
Interest on an overdraft facility is painful e.g. Prime + 5% or 15% at the current rate whereas
interest on a medium-term loan is more affordable because the banks know they will be receiving
interest over a longer period of time. You therefore need to compare the high rate of interest
which would paid over a short period of time on an overdraft with the lower rate of interest paid
over a longer time on a loan facility to see which is more suitable or affordable.
ASSESSMENT CRITERION 5
The consequences of a variable cost being confused as a fixed cost are explained with examples.
The main purposes of a budget are to set out your expected income for the forthcoming period,
usually 12 months, as well as your expected costs and then to compare these to see the overall
position for the 12-month period.
It is therefore very important that you are accurate and realistic with your figures in terms of the
real situation as opposed to the ideal position so that you can then assess the situation and
decide upon what action is required to deal with any situation which the budget presents.
Each month the actual income and actual expenditure will be inserted and can then be compared
to the budgeted position which you expected.
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A higher income compared to the one for which you budgeted is good and a lower level of
expenditure is good compared to the one for which you budgeted is good.
Likewise, a lower level of income is not good and a higher level of expenditure is also not what
you want to see. Once you have been able to look at these figures then you can decide what to
do to try and deal with the situation.
If you have a higher profit than budgeted you are heading in the right direction but only as long
as this is due to an increase in the income rather than both income and expenditure. If you have
a lower profit than expected the question is whether this is down to lower income or higher costs
or both.
This may require two main types of action which are firstly to try and increase your income
through more sales and shipments handled or to try and increase the fees which you charge.
The latter is not easy as these are usually agreed with your clients once per year so it may require
a combination of both of these to achieve the outcome which you want.
The other choice is to reduce your costs or expenditure which is also not easy as you budget to
keep these to a minimum from the start so there may not be much room to reduce them further.
To do this you would first look at the variable costs as these are more adjustable in the short
term than the fixed costs so you would look at reducing expenditure on consumables, petrol for
the staff, set a limit for telephone allowances during the month and so on.
If this was not sufficient then you would have to look at the fixed costs which could involve
salaries i.e. retrenchments so this would usually be considered as a last resort if the
circumstances dictated.
SPECIFIC OUTCOME 3
PERFORM INVOICING OPERATIONS AND POST AMOUNTS TO THE APPROPRIATE ACCOUNTS.
ASSESSMENT CRITERION 1
An invoice is prepared which has items of expenditure and items revenue for a sea freight
shipment for a full container load and import which has paid customs duty, duty schedule, and
the ocean freight is on a collect basis.
GLOBAL Shipping Ltd
Invoice
Date :10th May 2010 Client Invoice No 11275
Origin Germany Tariff Heading 9006.52.00.1 Rates of Exchange
Destination RSA Rate of Duty: 10% Currency Rate
Place of Delivery Cleveland No of Packages 5000 USD 1.00 = 7.83 7.83
Incoterms® 2010 Rules EXW Hamburg Type of Packages: Boxes EUR 1.00 = 8.86 8.86
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RISK MA FCL Total Weight (Tons) 10.00 Rand VAT
Cameras Total Volume (cbm) 25.00 4430.00
Type of Movement 225,750 FOB Value (ZAR) R 2,000,145 1772.00
Commodity Rate Total 664.50
FOB Value (EUR) Currency 500 11353.50
EUR 200 1,450.00 777.71
Origin Cartage EUR 75 99.33 886.00
Origin THC EUR 1,450.00 100.00 677.00
Documentation USD 6.85% 1540.20
Ocean Freight USD 100.00 TOTAL 2500.00
B.A.F USD 677 1500.00
Other Surcharge ZAR 1,540.20 200,014.50
Destination THC ZAR 2500 336,024.36
Cargo Dues ZAR 1,500.00 3,544.72
Road Transport ZAR 10% 565684.49
Empty Turn In ZAR 14% 200.00
Customs Duty ZAR 0.125% of Insured value 14142.11
Customs VAT ZAR 7353.90
Insurance 200 200.00
Total Disbursements ZAR 2.5% on Disbursements R 15,696.57
Documentation 1.3% on Disbursements R 581,381.06
Agency ZAR 200
Finance Fee
Customs Examination
Clearing Charges
If we take the individual disbursements shown on the above invoice we can identify them and
explain them as follows:
Origin charges:
Origin cartage:
This would be for the positioning of the empty container at the shipper’s premises for loading
and then the returning of the full container back to the terminal and into the export stack for
loading. This would usually be based on the size of the container and the location where the
container was loaded and would be quoted as a container rate.
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Origin THC:
This is the costs for the handling of the container in the terminal at the port of loading from the
time when it arrives at the terminal gates until the time when it is loaded on board the vessel.
The charge is again a container rate and is usually the same whether the container is being
imported or exported although there will be a higher charge for a 12m than a 6m container.
Documentation:
This will be for the export customs clearance in the country of origin which, under EXW
Incoterms® 2010 Rules, is for the account of the buyer.
All of the above will be based in a foreign currency so the rate for the service must be shown
firstly in the foreign currency and then converted into Rand at the exchange rate shown on the
invoice so that the client can check the calculation.
-It should also be noted that if there is more than one container or different size containers are
shipped together then these details must clearly be shown on the invoice to make sure the
invoice reflects this detail.
Main freight charges:
Ocean freight:
Always based in USD so the rate in USD must be shown on the invoice and then converted into
Rand using the rate of exchange indicated.
Surcharges:
The main surcharge on all routes is going to be the Bunker Surcharge or Bunker Adjustment
Factor (BAF) on the SA / NWC trade route.
The surcharge is going to be based in USD in the same way as the main ocean freight rate and
will be charged per T.E.U. so will need to be doubled if you are invoicing out for a 12m container.
In the case of the B.A.F. this will be a percentage of the basic ocean freight so the actual
percentage applied must be shown.
Other Surcharges could include a number of different types including port congestion, peak
season, special equipment and dangerous goods amongst the most common.
These are not individually identified but the amounts are shown against this charge on the invoice
so you need to make sure that you have the correct type of surcharge, the current rate for this
based on the sailing of the vessel and of course make sure that the number of containers is taken
into account if there is more than one.
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The Bunker surcharge is under constant review so you must make sure that the rates for this are
up to date on each trade route and for each shipping line.
Destination Charges:
Cargo Dues:
This is a charge which is unique to RSA so often causes queries as most other ports in the world
just charge a THC for the handling of the container in the port.
This is a container rate which increase at the start of April each year and replaced the old Ad
Valorem Wharfage which was charged as a percentage of the value of the goods.
The rate for export containers is always lower than for import containers and there is also a
different rate depending on whether you are moving 6 or 12m containers.
Destination THC:
As with the origin charge this is for the handling of the container in the terminal from the point
of discharge from the vessel to the placing of the container onto the collecting vehicle.
The rate will be the same for a 6m being imported or exported and the same for a 12m whether
it is imported or exported. This rate will apply as long as the container is handled at the container
terminal in the port but if it arrives or leaves through one of the other terminals such as Multi-
Purpose then the THC rates may well change.
Road transport:
The rates here are based on the size of the container and the final delivery point to which the
container is to be delivered. In the case of the latter this will usually be indicated by the suburb
to which the container is going but be careful that some suburbs of the cities in RSA are quite
large so may be covered by more than one rate so check to make sure that you have the correct
rate for the delivery address.
Empty Turn In:
This is a charge which is used for inland destinations but is not applied at the coastal ports.
It was originally introduced to compensate for the fact that many empty containers had to be re-
positioned from the likes of Johannesburg and Pretoria to the coast because once the imported
goods had been unpacked at these locations there was not enough export cargo to use all the
empty containers which were available.
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In order to use them again the empty ones had to be re-positioned empty back to the coast to
be used and the carriers therefore charged an Empty Turn In fee to contribute towards the costs
of doing this. The charge for this will be a container rate dependent upon the size involved.
Customs Duty and V.A.T.:
A significant number of commodities are now Duty Free in terms of the type of duty being applied
to them at the time of import or customs clearance.
However, there are still quite a number which are subject to Duty and the type of Duty applicable
e.g. Ad Valorem or Unit based and the rates of Duty vary widely. You therefore need to make
sure that you have the correct Tariff Heading or Commodity Code from the
SAD 500 Customs Declaration, as well as the correct Customs Value for the goods and the correct
amount of Duty as shown in field 47 on the Customs Declaration.
Along with this will also go the Customs V.A.T. which is paid at the same time on almost all
imported goods. The way in which this is worked out is explained elsewhere in these study notes
but you need to check the SAD 500 to make sure that the amount of Customs V.A.T. is transferred
from this declaration to the invoice to your client.
Both the Duty, if the goods are dutiable, and the V.A.T. are amongst the major disbursement
items on an invoice and therefore play a significant role in the amount of the agency and finance
fee if they are based on the total disbursements so it is imperative that these amounts for these
two items are reflected accurately on the final invoice to the client.
Insurance:
This is the premium charged by the agent for arranging or placing cover on the goods on behalf
of their client. It should be available on the file based on the certificate issued to the client which
will show the premium charged for the cover arranged. The important point is to check that this
has been calculated correctly which can be done by using the premium to work out the insured
amount and then checking this against the value of the cargo and the costs and charges for which
the importer is responsible.
In the above case the premium is 0.125% or R 3,544.72 which, if factored to 100%, gives you an
insured value of R 2,835,776.00
If you take the FOB value of the goods at R 2,000.145.00 and then add on the charges and fees
of R 581,301.06 you get R 2,581,446.06 and you then need to uplift this by a factor of 10% to
cover unexpected costs which gives you an amount of R 2,839,590.60 so you can be comfortable
that this cargo is sufficiently insured.
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Clearing Charges:
Documentation:
The fee for the framing of the Customs Declaration (SAD500), submission of same and release of
the cargo. This is charged as a flat fee as long as there are only a limited number of Tariff headings
involved, in which case there will be an additional fee per item or tariff heading.
Agency:
The main source of income for the agent usually charged on the basis of a percentage of the
disbursements.
The amount of disbursements can vary significantly depending upon whether the goods are
dutiable, the rate and amount of duty and the incoterms which dictate for which charges the
client is responsible so a minimum must be established to make sure that should the
disbursements below the agent will still earn a reasonable amount for the service which they
provide.
A maximum may also be considered for the opposite reason i.e. high amounts of duty, freight
and other charges which may result in a high agency fee which the client feels does not justify
the amount of work carried out by the agent.
Finance Fee:
The fee charged for the setting up and operating of a credit facility for the client. This is
sometimes charged at an annual rate for the specific number of days for which payment is
outstanding but often as a flat fee based on the prevailing Prime rate of interest to make the fee
easier to check.
Customs Examination:
This could also be known as a stop fee as it is charged for following up the detention of the goods
by Customs and Excise and the release of same. This may be a straight forward process or may
require a considerable amount of extra work depending upon the nature of the Customs query
so this fee is to cover this extra work.
GLOBAL FORWARDERS (Pty) Ltd 252435
Invoice SEA IMPORT
Groupage
American Box & Bag
Date: 1st June 2010 Client
Origin Karlsruhe Tariff Heading 4202 39 00 5 Exchange Rates:
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RISK MA Cape Town Rate of Duty: 30% Currency Rate
Tokai No of Packages 250 USD 1.00 = 7.83
Destination EXW Weight per Package (tons) 0.001 EUR 1.00 = 8.86
Place of Delivery LCL Volume per Package 0.009 R 446,156.38 FOB
Incoterms® 2010 Rules LV Bags Total Weight (Tons) 0.25
Type of Movement € 50,000 Total Volume (cbm) 2.25
Commodity Total
Ex Works (EUR) 168.75
112.50
Origin Cartage Currency Rate 75.00 Rand
Origin THC EUR 75 w / m 213.75 1495.13
Documentation EUR 50 w / m 14.64 996.75
EUR 75 Flat Fee 22.50 664.50
Ocean Freight
B.A.F USD 95 w / m TOTAL 1673.66
Other Surcharge USD 6.85% 114.65
USD 10 w / m 176.18
Collection Fee @ 5% ZAR 5% 157.82
Cargo Dues ZAR 85 w / m 191.25
De-grouping ZAR 175 w / m 393.75
Destination THC ZAR 150 w / m 337.50
DRO ZAR 130 Flat Fee 130.00
Cartage ZAR 125 w / m 281.25
Customs Duty ZAR 30% 133,846.91
Customs VAT - 14% ZAR 14% 87,446.65
Insurance ZAR 0.125% 938.82
Disbursements 228844.81
Documentation 500 500.00
Agency 2% of Total Disbursements 4576.90
Finance Fee 1.5% of Total Disbursements 3432.67
Customs Examination 200 200.00
Attendance 200 200.00
Clearing Charges 8909.57
237754.38
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In the above example a groupage shipment from Europe on EXW Incoterms® 2010 Rules is shown
and the disbursement details can be broken down as follows:
Origin Charges:
Origin cartage:
This is for the collection of the cargo from the shipper and delivering it to the container depot at
which the groupage container is to be packed. This is factored according to the number of freight
tons involved in this shipment which in this case is 2.25 as the volume is greater than the weight
of the cargo.
This factor would be applied to all rates indicating “w / m “after the tariff for that service.
Origin THC:
The cost for the terminal handling at the port of origin which is factored according to the amount
of freight tons involved.
Documentation:
The fee for the export customs clearance to get the goods released for export which is for the
account of the buyer on EXW Incoterms® 2010 Rules.
Main Freight charges:
Ocean freight:
The ocean freight charge will also be based on the number of freight tons involved but be careful
to check as to what is covered by this ocean freight rate. In some cases, this will also cover depot
handling at the origin container depot and may even include local collection or cartage depending
upon the groupage operator used so check the tariffs quoted to make sure all the charges are
covered either individually or by inclusion into one of the other rates.
BAF or Bunker Surcharge:
This is also charged on a w / m basis in line with the bunker surcharge or BAF charged on a T.E.U.
and must be multiplied by the number of freight tons involved.
Other Surcharge:
Any of the number of other surcharges applied per freight ton so you need to check this carefully
as groupage cargo will not be moved in a Flat rack or Open Top container so there cannot be
surcharges for special equipment.
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However, surcharges such as port congestion or peak season or even dangerous goods could be
applicable to groupage cargo so you need to check the details of this charge carefully to make
sure that the surcharge involved is valid.
Collection fee:
This is usually charged by the clearing agent for the collection of charges from the importer on
behalf of the overseas forwarding agent i.e. EXW to FOB charges. This is usually charged as a
percentage of the total amount of the charges to be collected and is to cover the costs of
remitting the money through the bank back to the forwarding agent.
The main area of variation here is the charges on which the collection fee is based as some agents
only include the origin charges and others may include the ocean freight charges as well so you
need to check which charges are included and ensure that the fee is calculated accurately.
Cargo Dues:
Cargo dues are based on the charge levied by the Transnet National Port Authority for the
maintenance and improvement of the port facilities and will also be charged according to the
freight tonnage involved in the shipment. Both these and the THC should be invoiced as individual
charges so make sure that the de-grouping operator also charges these amounts separately
rather than as an inclusive charge.
Depot handling:
This kind of handling is for the handling of the cargo in the container depot where the unpacking
of the container and release of the cargo takes place. This is based on a w / m rate and will include
a number of other charges incurred in the process of moving the container from the port terminal
to the depot such as the preparation of the CTO (Container Terminal Order) which allows the
container to be moved out of the terminal itself, the haulage of the container from the terminal
to the unpack depot and the actual unpacking which takes place at the depot.
The important thing is to check all the de-grouping tariffs carefully to make sure all the operations
which take place are covered but that none of the charges have been duplicated.
Release:
The de-grouping agent will need to authorize release of the cargo to the unpack depot and this
is only done once all the charges which are due to them have been paid. A DRO (Delivery Release
Order) will then be sent to the depot advising them that the cargo can be released from the de-
grouping agent’s point of view.
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Do not forget that the Customs release is separate to this so the issue of a DRO on its own does
not mean that the cargo can be released from the depot unless Customs release has also been
granted.
Cartage:
The charge for the collection and delivery of the cargo from the depot is covered in the cartage
charge. This can be charged out on a w / m basis but you need to check the tariff carefully as it
could also be a road freight ton i.e. per 1,000 Kg or 2 cbm or it could be per freight ton so check
which one has been quoted to or agreed with the importer.
Customs Duty and V.A.T.:
As with any goods imported into South Africa you need to check whether or not they are subject
to Customs Duty and, if so, what kind or kinds of duty are involved and what rate applies.
The amount of Customs Duty and VAT will be worked out when the SAD 500 is being framed and
the Customs FOB value of the goods has been calculated.
The amounts of the Duty and VAT will be shown on the SAD 500 and needs to be taken from this
document and inserted onto the invoice.
Insurance:
This is the premium charged by the agent for arranging or placing cover on the goods on behalf
of their client. It should be available on the file based on the certificate issued to the client which
will show the premium charged for the cover arranged.
The important point is to check that this has been calculated correctly which can be done by
using the premium to work out the insured amount and then checking this against the value of
the cargo and the costs and charges for which the importer is responsible.
Total Disbursements:
The sum of all the above charges makes up the total disbursements for the shipment on which
the agency and finance fees may well be based so it is vital that these details are entered correctly
and calculated accurately otherwise not only these, but also some of the fees, will be incorrect
and therefore may lead to non-payment or late payment of the invoice itself.
Clearing Charges:
Documentation:
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The fee for the framing of the Customs Declaration (SAD500), submission of same and release of
the cargo. This is charged as a flat fee as long as there are only a limited number of Tariff headings
involved, in which case there will be an additional fee per item or tariff heading.
Agency:
The main source of income for the agent usually charged on the basis of a percentage of the
disbursements.
The amount of disbursements can vary significantly depending upon whether the goods are
dutiable, the rate and amount of duty and the incoterms which dictate for which charges the
client is responsible so a minimum must be established to make sure that should the
disbursements be low the agent will still earn a reasonable amount for the service which they
provide. A maximum may also be considered for the opposite reason i.e. high amounts of duty,
freight and other charges which may result in a high agency fee which the client feels does not
justify the amount of work carried out by the agent.
Finance Fee:
The fee charged for the setting up and operating of a credit facility for the client. This is
sometimes charged at an annual rate for the specific number of days for which payment is
outstanding but often as a flat fee based on the prevailing Prime rate of interest to make the fee
easier to check.
Customs Examination:
This could also be known as a stop fee as it is charged for following up the detention of the goods
by Customs and Excise and the release of same. This may be a straight forward process or may
require a considerable amount of extra work depending upon the nature of the Customs query
so this fee is to cover this extra work.
Attendance:
The presence of someone at the customs inspection may be required and this will entail that
person taking time out of the office to do this. The agent will therefore levy a fee to cover the
cost of having this person out of the office and also possible having to collect the Customs officer
to take them to the inspection site.
The above clearing charges make up the revenue on the file and, together with the mark ups and
freight differentials, will make up the profit on the file.
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ASSESSMENT CRITERION 2
An invoice is prepared for an air freight export shipment which has items of expenditure and
items of revenue where the master airway bill is collect, insurance must be invoiced as well as
cartage collection charges.
AIR EXPORT GLOBAL FORWARDERS (Pty) Ltd
INVOICE
Date: 1st June 2010 Client GMLS Import / Export (Pty) Ltd Invoice No
11274
Place of Origin RSA No of Packages 22
Airport of Origin ORT
Type of Packages: Boxes Currency
ZAR = 1.00
Airport of Destination London Volumetric Weight per package
(kg) 3.5
Incoterms® 2010 Actual Weight per package (kg) 4.5
Rules: CIP
Commodity Shirts
FOB Value (ZAR) 45,000 Chargeable Weight (kg) 99
Currency Rate (per Kg) Total Rand
50.00
AWB Fee ZAR R 50.00 Flat fee 64.35
Cartage - Collection ZAR R 0.65
Airline Handling Fee
(Min) ZAR R 0.10 10.00
2475.00
Airfreight ZAR R 25.00
Fuel / Security
Surcharge ZAR R 0.25 24.75
418.00
Handover Fee ZAR R 19.00 per Parcel 110.00
Split Fees
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RISK MA ZAR 0.125% 67.18
Insurance ZAR 3219.28
Total Disbursements ZAR
Documentation ZAR R 300 Flat Fee 300.00
Agency ZAR
Finance Fee 2.5% of Disbursements (Min R 250) 250.00
Communication
Clearing Charges 1.75% of total disbursements 56.33
R 100 Flat Fee 100.00
706.33
TOTAL 3925.61
Generally speaking there are fewer parties, and resultant costs, involved in moving goods by air
than when moved by sea. The main aim of this mode of transport is to move goods from the
point of origin to their destination as quickly as possible and the fewer parties involved the
quicker and simpler this process will be.
The above invoice shows the types of costs which would be incurred when sending goods by air
to an overseas destination on a consolidation basis.
AWB Fee:
This is the fee for preparing the HAWB to cover the goods being transported from shipper to
consignee. This is usually charged as a flat fee.
Cartage – Collection:
The charge for collecting the cargo from the shipper and taking it to the consolidation point.
This will be based on a per Kg rate with a minimum charge as a flat fee.
Handling Fee:
This is a charge for the handling and packing of the consolidation which is most often charged on
a per Kg basis.
Airfreight:
The charge for the actual transportation of the goods by air charged at a per Kg rate based on
the chargeable weight of the cargo.
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There will be a minimum in place which should be carefully noted when low weight consignments
are being transported.
Fuel / Security surcharge:
In the same way that there are bunker surcharges by sea there will also be fuel surcharges by air
charged on a per Kg basis. There are also usually security surcharges for the procedures which
have to take place nowadays when cargo is moved by air.
Handover Fee:
Where the cargo is consolidated with other cargo there will be a handover fee, to cover the
handing over of the cargo to the clearing agent. This is charged as a flat fee per AWB.
Split Fees:
A charge for the work involved in separating the documents in the consolidation
Insurance:
The premium charged for placing cover on the goods which is based on a percentage of the
insured value of the cargo.
Clearing charges:
Documentation Fee:
In the same way as ocean freight the agent will charge a fee for the clearing of the goods through
Customs and release of same.
Agency:
The main fee charged on the basis of disbursements with a minimum in place to make sure that
the agent earns sufficient revenue even if the disbursements are low. This is more often likely to
be the case with airfreight as the sizes of the consignments are smaller than by sea and therefore
the disbursements are also not as great.
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Finance Fee:
The fee charged for the setting up and operating of a credit facility for the client. This is
sometimes charged at an annual rate for the specific number of days for which payment is
outstanding but often as a flat fee based on the prevailing Prime rate of interest to make the fee
easier to check.
Communication Fee:
This covers the costs of communication whilst managing the transport process and is more
frequently charge son airfreight than ocean freight. It usually takes the form of a flat fee per
HAWB
ASSESSMENT CRITERION 3
The expenditure items must be posted to the appropriate accounts for both the seafreight and
airfreight invoices.
The advent of, and improvement in, information technology systems has not only resulted in
most agents now operating automated invoicing programs but also in being able to link common
information so that this can appear on a number of different documents involving the same
shipment.
These details would include not only the name and address of the client but also items such as
the vessel name and voyage or flight number as well as the weight, volume and numbers of
packages. Client references, account numbers and document numbers could also be transferred
in the same way.
A second and equally important feature of an automated system is the ability to link common
items from different invoices onto the company’s financial records or ledgers.
This ensures that an up to date financial picture can be made available at any time to anyone
who requires it and is authorised to access this information.
Further time is saved where charges may have already been calculated and can be transferred
rather than being entered into the system again when the final invoice is prepared. A good
example of this are the charges raised by the de-grouping department which is responsible for
receiving documents and forwarding charges from overseas and then invoicing these on to their
own clearing department for inclusion in the final invoice.
In order to achieve these individual items shown on the invoice must be given an identifying
reference which is common to each and every invoice. This is called a Posting Code and it enables
the system to allocate the amount shown against the item to the correct ledger e.g. revenue or
disbursements.
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Within the main ledger it will be allocated to a sub-ledger e.g. Customs Duty, Customs VAT and
the main freight charge paid to the carrier, whether this is an airline of a shipping line, so as to
reflect the total of all amounts recorded against this code.
An added advantage is that it enables an agent to identify, if the program permits, how much
money is due to specific parties e.g. SARS, during a specific period of time.
If the agent has credit limits with certain of its service providers this will enable him to project
when these limits are likely to be reached and to ensure that additional funds are injected to
bring the account into good order. It also is of great assistance when it comes to preparing
budgets based on expenditure during a previous corresponding period.
These Posting codes are normally numeric i.e. based on numbers, but can also be based on an
“Alpha” system which uses letters in an abbreviated form to identify the particular charge.
Linking these codes will also enable the same charge to be shown wherever that figure is required
thus avoiding the need for the person who is raising the invoice to continually repeat the same
exercise.
It is therefore important that you familiarize yourself with the schedule of account codes which
your company applies as it is essential that the costs incurred are allocated to the correct codes
which will ensure that your profit figure and revenue is accurate as well will see in the next
section.
ASSESSMENT CRITERION 4
A record is made up of the over-recoveries of the items of expenditure which must later be taken
to profit.
Although an agent`s main sources of revenue are the Agency, Documentation and Finance
(Interest) fees these are not the only contributors to the overall profit on a file.
As with any other business there is a difference between the costs paid, in the forwarder’s case
for a service provided by a third party, and the price which is invoiced out for this to the client.
The Agent will negotiate with various parties such as cartage operators, shipping lines and
container depots with regard to the cost of their services and the period for which these costs
can be fixed. In some cases, such as the depots, these costs are often fixed for as long as a year
as this enables the depot to prepare a budget based on realistic revenue figures.
For the agent the benefit of such an arrangement is that he is able to offer his client a fixed rate
for the service knowing that this input cost is unlikely to alter for that period. It is in no one`s
interest to have to change rates on a regular basis and for this reason the agent will normally
charge a higher rate to his client than he is paying to the service provider. This is called the
“Freight Differential”.
Basic Freight rates are a different matter and here the agent is guided by market forces and the
prevailing rates on the Trade route on which the shipping line is operating.
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Over the years the number of shipping lines competing on some routes has decreased and more
lines have formed conference agreements where the same rate will be quoted by all shipping
lines participating in this agreement.
This is due both to some of the larger carriers merging or taking over one another whilst other
have merged to achieve savings by consolidating their costs. This makes it very difficult for the
agent to negotiate with different lines to achieve a more competitive rate.
In addition to this the shipping lines may deal with the importer or exporter directly if the volume
of business is sufficient to make it worthwhile. This is particularly the case with full container
loads where the lines are now able to provide a better rate directly to the shipper or consignee
than that which the agent can offer whilst also providing a very similar service to the one offered
by the agent.
Where smaller shipments are involved and these are being shipped on a groupage basis it is
normal practice to mark up or increase the rate at which the agent buys from the operator and
to propose a higher one to the client. It should be noted however that the amount of this increase
will need to be in line with the market standard otherwise you may find that another agent is
able to offer a more competitive rate.
Over the period of a year Freight differentials can add significantly to the revenue earned from
the standard fees charged by an agent. The Forwarding and Clearing industry is as competitive
as any other and the higher the levels of rates the higher the standard of service which a client
will expect.
If we look at the earlier examples we can identify the items which may include over recoveries
and therefore profit.
GLOBAL Shipping Ltd
Invoice
Date :10th May 2010 Client Invoice No 11275
Origin Germany Tariff Heading 9006.52.00.1 Rates of Exchange
Destination RSA Rate of Duty : 10% Currency Rate
Place of Delivery Cleveland No of Packages 5000 USD 1.00 = 7.83 7.83
Incoterms® 2010 Rules EXW Hamburg Type of Packages : Boxes EUR 1.00 = 8.86 8.86
Type of Movement FCL Total Weight (Tons) 10.00
Commodity Cameras Total Volume (cbm) 25.00
FOB Value (EUR) 225,750 FOB Value (ZAR) R 2,000,145
Currency Rate Total Rand VAT
Origin Cartage EUR 500 4430.00
Origin THC EUR 200 1772.00
Documentation EUR 75 664.50
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RISK MA USD 1,450.00 1,450.00 11353.50
USD 6.85% 99.33 777.71
Ocean Freight USD 100.00 100.00 886.00
B.A.F ZAR 677 677.00
Other Surcharge ZAR 1,540.20 1540.20
Destination THC ZAR 2500 2500.00
Cargo Dues ZAR 1,500.00 1500.00
Road Transport ZAR 10% 200,014.50
Empty Turn In ZAR 14% 336,024.36
Customs Duty 0.125% of Insured
Customs VAT ZAR value 3,544.72
Insurance
The first area of possible profit may be the overseas or EXW / FOB charges but this will depend
upon your agreement with your agent as to any profit sharing which takes place and the way in
which the profit on the FOB charges is split. Remember that the origin THC will be fixed therefore
there will be no profit from this item to share.
Let us say that you have bought the ocean freight from the shipping line for USD 1,425 i.e. that
you have made a profit on this of USD 25 X 7.83 = R 195.75.
The surcharges are usually at a set rate per container and therefore cannot be altered and the
same applies to the Cargo Dues and Destination THC.
On the road transport, there may be some profit depending upon the rate which you are able to
secure so if we bought for R 2,300 there would be another R 200 here.
The empty turn in is a fixed charge from the shipping lines and the Customs Duty and VAT are
charged as shown on the SAD 500 so there is no chance for any profit here.
This would mean that you would be able to add an amount of profit of R 395.75 onto your
revenue amount of R 15,696.57 making a total profit of R 16,092.32 for the file which is very good
in Rand terms but still only 2.85% as a percentage of the disbursements.
You must just be careful to make sure that, if the client feels that this is excessive, then you must
be able to justify the high amounts of fees.
In the case of the groupage cargo the profitable areas are slightly different to those for the FCL.
GLOBAL FORWARDERS (Pty) Ltd 252435
Invoice SEA IMPORT
Groupage
American Box & Bag
Date: 1st June 2010 Client
Origin Karlsruhe Tariff Heading 4202 39 00 5 Exchange Rates:
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RISK MA Cape Town Rate of Duty: 30% Currency Rate
Tokai No of Packages 250 USD 1.00 = 7.83
Destination EXW Weight per Package (tons) 0.001 EUR 1.00 = 8.86
Place of Delivery LCL Volume per Package 0.009 R 446,156.38 FOB
Incoterms® 2010 Rules LV Bags Total Weight (Tons) 0.25
Type of Movement € 50,000 Total Volume (cbm) 2.25 Rand
Commodity 1495.13
Ex Works (EUR) Currency Rate Total 996.75
EUR 75 w / m 168.75 664.50
Origin Cartage EUR 50 w / m 112.50
Origin THC EUR 75 Flat Fee 75.00 1673.66
Documentation 114.65
USD 95 w / m 213.75 176.18
Ocean Freight USD 6.85% 14.64
B.A.F USD 10 w / m 22.50 157.82
Other Surcharge 191.25
ZAR 5% 393.75
Collection Fee @ 5% ZAR 85 w / m 337.50
Cargo Dues ZAR 175 w / m 130.00
De-grouping ZAR 150 w / m 281.25
Destination THC ZAR 130 Flat fee 133,846.91
DRO ZAR 125 w / m 87,446.65
Cartage ZAR 30% 938.82
Customs Duty ZAR 14% 228844.81
Customs VAT - 14% ZAR 0.125%
Insurance
Disbursements
The EXW / FOB charges may give you some profit on the file but this is more likely to be the case
if your overseas agent actually handled the forwarding and you arranged the groupage container
yourself. There certainly is a possibility on the ocean freight where you may be able to build in a
small amount of profit per freight ton but not with the surcharges.
The cargo dues, destination THC, de-grouping and cartage charges all present opportunities for
additional profit based on these being marked up from the rates at which you “ bought “ these
from the de-grouping agent but you must always bear in mind that an agent works in a very
competitive market so how much you can mark these up depends upon what the going rates for
these services are in the market.
If you were able to make an additional R 75 per freight on these items then this would give you
2.25 x R 75 = R 168.75 on top of your clearing charges of R 8,909.57 giving you R 9,078.32 overall.
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This may not appear to be very much of an increase on your revenue but it all counts and whilst
on some files you may not make much profit to add to your revenue on others, with the right
combination of freight tons and freight differentials, you can add significantly to the revenue
earned from your clearing charges.
AIR EXPORT INVOICE
Date : 1st June 2010 Client GMLS Import / Export (Pty) Ltd Invoice No
11274
Place of Origin RSA No of Packages 22
Airport of Origin ORT
Type of Packages : Boxes Currency
ZAR = 1.00
Airport of Destination London Volumetric Weight per package
(kg) 3.5
Incoterms® 2010 Actual Weight per package (kg) 4.5
Rules: CIP
Commodity Shirts
FOB Value (ZAR) 45,000 Chargeable Weight (kg) 99
Currency Rate (per Kg) Total Rand
50.00
AWB Fee ZAR R 50.00 Flat fee 64.35
Cartage - Collection ZAR R 0.65
Airline Handling Fee
(Min) ZAR R 0.10 10.00
2475.00
Airfreight ZAR R 25.00
Fuel / Security
Surcharge ZAR R 0.25 24.75
418.00
Handover Fee ZAR R 19.00 per Parcel 110.00
67.18
Split Fees
Insurance ZAR 0.125%
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For the airfreight shipment there may not be as much room for additional profit as with the ocean
freight shipments due to the limited number of operations involved and the number of 3rd party
involvement.
Cartage certainly presents an opportunity but as shipments are much smaller this may not be a
large amount in terms of Rands.
The various fees charged such as handover and handling are set and therefore can only be used
as revenue if there are charged by the agent themselves.
This leaves the airfreight which will depend, in the case of a consolidation, as to the charge paid
overall for the ULD which, in turn, depends upon the utilisation and the average cost per Kg paid
for the cargo inside it.
In this case even if you could make R 2.00 per Kg on the freight this would add another R 198.00
to your profit on the file based on the chargeable Kgs of 99 which, added to the revenue of
bringing the overall profit up from R 706.33 would bring the profit on the file to R 904.33
SPECIFIC OUTCOME 4
RECONCILE AND IDENTIFY INDIVIDUAL TRANSACTIONS WITH STATEMENTS OF ACCOUNTS.
ASSESSMENT CRITERION 1
Ocean freight or air freight is identified as items of the organisations invoices.
It is also important that you are able to distinguish between items which are exclusively for
airfreight expenditure as opposed to those which are unique to ocean freight shipments.
The main carriage of freight will be either the basic ocean freight charge, levied per container or
per freight ton, or the basic airfreight charge levied on a per Kg basis.
However, in addition to this there are a myriad of other charges which go along with these main
charges, some of which go hand in hand with the main carriage of freight and others which and
depend upon a variety of factors in terms of which charges are incurred.
On the ocean freight side there is nearly always Bunker Surcharge or Bunker Adjustment Factor
to cover the fluctuations in the price of bunker oil for the vessel.
Other surcharges would include port congestion, Peak Season, Special equipment and Dangerous
goods being the most common ones but there are others so it is important to know which ones
should, or are being charged, and why.
There will also most likely be some sort of fee to cover the operation of the port security system
which would apply to most major international ports being utilised.
In addition to this you need to think about the fees or charges raised by the ship’s agent such as
release fees, haulage services fees, either carrier or merchant, cleaning fees for the container
and empty turn in fees if the container is going to an inland destination to be unpacked.
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On an airfreight shipment, in addition to the basic airfreight you would have the security
surcharge as well as a fuel surcharge, the latter being the equivalent of the bunker surcharge,
and additional charges dependent upon the type of cargo are being transported e.g. dangerous
goods.
Being able to identify the mode of transport involved on the basis of the charges you are given
or are provided is equally important as being able to identify the charges which should be
involved if you are only aware of the mode of transport by which the cargo was transported.
This enables you to immediately be on the same level of communication and understanding as
your client which helps towards establishing a better working relationship between the two
parties.
Reconciliation of a shipping lines statement with the invoices sent out to the client is critical for
three reasons.
Firstly you want to make sure that the amount which you have paid the shipping line or their
agent is the correct amount based on the rates which were negotiated with the client or quoted,
if an estimate was involved.
Having done this you then need to check the amount paid to the shipping line against the amount
charged out to the client which should provide you with an indication as to whether the original
charge had been over or under recovered.
This would involve the statement from the shipping line showing the amount which they had
recorded as being invoiced to you, the agent and the invoice issued by the agent to the client and
the comparison of the amounts on these two documents.
If there was an under recovery this would mean that you had invoiced out the client less than
you had paid to the shipping line which should not happen.
If this was the case then you would need to work out why this happened – did you pay the wrong
rate to the line or did you invoice out the wrong rate to the client. This could be for one of several
reasons.
You could have invoiced out for the wrong size of container although this should be picked up
quickly as the difference between the two amounts will be considerable.
You may have forgotten to invoice out one of the surcharges which you have paid to the ships
agent such as Bunker surcharge or peak season surcharge. This may be more possible as
surcharges are not all the same on all routes and you need to take care to confirm which ones
apply at the time of shipment to ensure that these are invoiced out correctly.
It should also be noted that the surcharges can change during the year i.e. they are not set for a
fixed period so any changes must be communicated to the client along with the date from which
this is effective. They are also fixed rates per T.E.U. (Twenty foot Equivalent Unit) so you cannot
make any profit from marking these up because this will be picked up very quickly.
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If you have under recovered then you should be able to recover the shortfall by issuing a
supplementary invoice to the client for the difference.
Ideally you should have over recovered the ocean freight which will mean that you have been
able to agree a rate with the client at a higher level than you are paying to the shipping line and
this can be taken to profit on the file.
ASSESSMENT CRITERION 2
Cartage is identified as an item of the company's invoices and statements from the transporter
taking into account all over-and-under recoveries.
There are very few consignments which are handled which do not, at some stage, involve the
services of a haulier or Cartage operator.
The can be part of the Origin charges which would include either the positioning of an empty
container at the Exporter’s premises for loading and returning to the Port Terminal to the
collection of the actual goods at the exporter’s premises for delivery to the container depot for
loading with other cargo into a groupage container.
Alternatively, it could involve operations in the Destination country i.e. delivery of the container
to the Consignee and turn in of the empty at the nominated container depot or collection of the
goods from the depot after the unpacking of the groupage container and then delivery to the
nominated address.
Charges for road transport can be raised in a number of ways. Full containers will normally be
charged out on a per 6m or 12m basis dependent upon the place of delivery of the cargo.
It should always be kept in mind that when transporting 6m containers you may not always be
able to place 2 containers together due to the fact that their combined weight may exceed the
permitted maximum laid down by the road traffic regulations.
Smaller consignments could be charged out on a per kilogram basis or per freight ton (1000kg or
1 cbm) or even per road freight ton (1000kgs or 2 cbm).
This would mean that a consignment which weighed 2000kgs and measured 5 cbm would be
charged out at 2.5 road freight tons (5.0cbm divided by 2) as this is higher than the actual weight
(2.0 tons).
For airfreight consignments, due to the fact that cargo moved by this Mode of transport are much
smaller due to the costs, the cartage rates will be charged on a per KG basis with a minimum and
possible based on a distance tariff rather than the actual place of delivery.
This will mean that the rate is based on the distance of the place of delivery from a central point
i.e. the airport from where the cargo is usually drawn for delivery.
The basis on which the cartage or haulage is charged should always be established and agreed
upon with the cartage operator or haulier to ensure that the client is quoted on the same basis
as the service provider.
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Cartage is always a potential source of additional revenue to the agent so this should be kept in
mind when ageing rates with your client.
In most cases, you should have an agreed tariff from your cartage operator which can be used as
a base for calculating the over and under recovery. These rates should be fixed for as long a
period as possible although with the constant monthly change in the price of diesel adjustments
may be controlled by a percentage factor altered at the start of each month in line with the
movement in the diesel price.
On the costing sheet you will use the rate agreed with the cartage operator as the base cost and
then this will be set against the rate agreed with the client for this service. At the end of each
month you will need to check the statement from the cartage operator with all the invoiced
amounts against the costs recorded on the file to make sure that these match.
If they do not then you need to work out why and obtain a refund if they have overcharged you
but if they match then the mark up between the amount paid and the invoiced amount to the
client can be taken to profit on the file.
ASSESSMENT CRITERION 3
All landside and surface charges are identified including port authority charges, airline charges,
depot charges and carrier's handling.
The most common of the third-party charges is the Terminal Handling Charge (THC) which is set
by the Transnet Port Terminals and which covers the cost of handling and stacking the containers
in the terminal area prior to the sailing, or after the arrival, of the vessel.
This is charged out on a “Per Container” basis with a higher rate for a 12m than for a 6m although
the rate applied for each size will be the same whether the container is coming into, or going out
of, the country.
Other factors which may affect the rate will be the type of cargo i.e. whether the cargo being
moved is Hazardous or Perishable and the weight of the cargo i.e. whether the load is deemed
to be abnormal and the cargo specifications exceed the specified standard limits and is therefore
considered “Out of Gauge”.
In connection with this operation a form known as a Container Terminal Order (CTO) has to be
completed and stamped to enable containers to be moved in or out of the port terminal and if
this is completed by the shipping line they will charge for this to be done. These are often referred
to as “Optional Service” fees.
Other charges which the Ship’s agent may invoice out are a Service Fee, whether the container
is being delivered on a “Carrier Haulage” by the lines themselves or “Merchant Haulage” where
the importer or their appointed agent organise the haulier.
Other landside fees which will be raised by the ship’s agent will be the Release Fee which will
also be raised on a per container basis as well as a Container Cleaning fee.
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Cargo Dues will also be incurred and these are set by the Transnet National Port Authority to
raise funds for the maintenance of the port infrastructure i.e. the fixed assets in the port area
including the quays, storage areas, warehouses and gantry cranes for working the vessels.
This rate will be charged on a “per container basis” with the 12m rate set higher than the 6m
rate. However, unlike the THC, the Cargo Due charge for export cargo is lower than the one for
import cargo.
If LCL cargo is involved then this will be either packed at a Container depot, if it is being exported,
or unpacked at one if it is being imported. Handling charges will be raised for this together with
the Cross Haul cost of delivering the container into, or collecting the container from, the Port
Terminal.
When it comes to airlines the landside charges are not nearly as varied as Shipping lines and
would usually be limited to handling charges at the airport where the ground handling agent
appointed on their behalf is required to organise the off-loading and unpacking of the ULD before
it is distributed or “drawn”.
This would be the airline handling agent itself if the cargo was transported directly with the
carrier but if it was part of the consolidation them break bulk and splitting fees would also be
incurred for the separation of the cargo and the documents relating to the consolidation.
On top of this there may well be other documentation fees raised by the carrier or the
consolidator, or even groupage operator, which also need to be taken into account and checked
to make sure that they are valid and correctly and accurately charged out.
It goes without saying that all of the above charges should be checked against the service
providers invoice to make sure that you have been charged correctly. This is especially so in the
case of the shipping lines who account for a number of these items.
The ships agent will invoice you for the release fees as well as service fees and THC, all of which
are fixed or set charges so it will be difficult to mark these up. The same applies to Cargo Dues
which are set once per annum and are available to anyone who asks.
These should be checked against the Transnet National Port Authority monthly statement on a
container by container basis to make sure that they are accurate as this will indicate whether any
over or under recovery has taken place.
Because these are fixed rates any variation is more likely to be because of a mistake in the
invoicing i.e. the rate invoiced was for a 12m instead of a 6m or you invoiced out for an export
container when it should have been an import rate so this can be sorted out very quickly and the
difference accounted for.
ASSESSMENT CRITERION 4
All customs and charges are identified and reconciled with bills of entries, statements and
deferment accounts.
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One of the key aspects when preparing an estimate, is the calculation of the Customs Duty, where
applicable, and VAT which will be payable on the items which are being imported.
The first step is to ensure that you have to hand all the basic information which will be required
to calculate these two amounts. This will include the foreign value of the shipment, along with
the currency in which it is quoted, the tariff heading(s) and rate(s) of duty for the goods, and the
exchange rate to be used to convert the foreign value into ZA Rand.
Since October 2009 South Africa has elected to use the F.O.B. value as the basis for determining
the customs value for both containerized and break bulk shipments and this must be clearly
identifiable on the commercial invoice from the supplier along with the currency in which the
goods are being sold.
If the Incoterms® 2010 Rules are not FOB named port then the clearing agent must be able to
identify or work this out by adding on the required charges to the EXW or FCA value to get the
FOB value or to be able to distinguish the FOB value separately from the “C”, or “D” Incoterms®
2010 Rules value so as to make sure the correct Customs value is used for calculating Customs
Duty, if applicable, and Customs V.A.T.
It should be noted at this stage that for estimate purposes an agent will normally use the bank
“Buy” rate of exchange rate which can be obtained either from the bank itself or the newspaper
or, sometimes, agents will circulate daily rates of exchange via their finance departments.
When it comes to preparing the Customs Declaration these rates will be provided by the Customs
and Excise division of SARS based on the “Shipped on Board” date as shown on the Bill of Lading.
You should note that for an estimate you will usually use the bank rate of exchange for the
currency e.g. USD 1.00 = ZAR 6.10 whereas on the Bill of Entry the rate issued by customs is on a
division basis e.g. ZAR 1.00 = USD 0.1639344.
It is important to make sure that both the correct rate of exchange and the correct currency are
identified when completing this conversion. If this is not done correctly and the amount of duty
is underpaid then the entry will be rejected and a penalty fine could be imposed on the agent in
addition to making good the underpayment.
If the duty is overpaid then the agent will have to submit an application for the refund of the
difference. This takes time to process and the client will feel that he is entitled to deduct the
overpaid amount from the invoice when it falls due for payment as the error was due to the
agent’s negligence.
To calculate the value for duty purposes you must take the F.O.B. value and convert it into Rand
using the rate of exchange provided. Having converted the foreign value into Rand you must then
multiply that amount by the rate of Customs Duty indicated by the tariff heading for the product.
This will give you a figure for the Duty payable.
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For example:
Foreign Value : GBP 10,000
Customs Rate of Exchange : ZAR 1.00 = GBP 0.8333
Rate of Customs Duty = 10%
Customs Value (GBP 10,000 / 0.8333) ZAR 120,000.48
Customs Value (Rounded Down) ZAR 120,000.00
Duty Payable (ZAR 120,000.00 x 10%) ZAR 12,000.00
Having calculated this you must then work out the value for VAT purposes.
To reach this you must take the Customs Value and add an upliftment factor of 10% as directed
by the customs authorities. This is the figure which is used to cover the transport costs from the
Place or Port of Export to RSA as VAT is a “local” Tax and therefore must be based on the value
of the goods here in RSA and not the value in the origin country.
To this total you need to add any customs duty which is payable on the goods. The total of these
three amounts is known as the “Added Tax Value” and it is this figure which is multiplied by the
current rate of 14%, to establish the amount of VAT which is payable.
For example: ZAR 120,000.00
Customs Value for Duty purposes
Add Upliftment factor of 10% ZAR 12,000.00
Total ---------------------
Add Customs Duty (ZAR 120,000.00 x 10%) ZAR 132,000.00
Total (A.T.V.) ---------------------
VAT payable (ZAR 144,000.00 @14%) ZAR 12,000.00
---------------------
ZAR 144,000.00
---------------------
ZAR 20,160.00
---------------------
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This would mean that the total payable to Customs on this shipment would be Customs Duty of
ZAR 12,000.00 + the VAT of ZAR 20,160.00 making a total of ZAR 32,160.00.
This amount would usually be calculated by means of a Customs Worksheet which is prepared at
the same time that the Entry is “Framed” i.e. the Customs Declaration (SAD 500) is completed by
the Clearing agent on behalf of the Importer.
The two amounts will be shown on the SAD 500 in Field number 47 (Calculation of Duties and
Taxes) and would, in most cases, be paid to Customs by means of the agent’s Deferment facility
which has been set up with SARS – Customs and Excise.
This is a facility which an agent can set up with Customs, subject to the assessment of their
financial position and a decision on the amount which the accounts show the agent can support.
This enables the Customs Duty and VAT to be deducted by Customs from this agreed amount
when a Declaration is submitted with Duty and Tax to be paid.
It is essential that you keep an accurate record of the amounts of Customs Duty and VAT outlaid
both to make sure that the balance of your deferment will cater for the amounts which are to be
paid against this and also that the amount payable each cycle can be verified as accurate in terms
of the amounts shown on each SAD 500 Customs declaration which is framed and submitted.
Based on a specific cycle, usually every 30 days, the agent will then settle all the duties and taxes
which are outstanding and the Deferment facility will be returned to its original amount.
The amounts of Customs Duty and VAT shown on the invoice to the client should match exactly
with the amounts shown on the SAD 500 Customs Declaration so this must be checked carefully
to make sure these amounts are entered onto the invoice accurately.
At the end of the cycle then these amounts should also be checked against the Customs
Deferment statement issued for your facility for accuracy. Although there is no opportunity to
make any profit from these items as they are invoiced out as incurred it is always possible that
human error could creep into the process therefore you cannot assume that no mistake will occur
on the charging out of these two items.
You will also need to be careful about the possibility of other types of duties being applied as
opposed to the most common types of General Duty and Value Added Tax. These could include
Anti-Dumping Duty charged on certain imported items which need to be recovered from the
importer.
ASSESSMENT CRITERION 5
Other disbursements charges are identified and reconciled with invoices from those parties
taking into account all over-and-under recoveries.
There are a number of extra, or other charges, which may be incurred but not as a result of
breaches of the terms and conditions of the parties involved i.e. penalty and storage charges.
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