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Non-Conference/ Independent Services
Not every shipping line operating a liner service is obliged to join a conference. Non-
conference shipping lines are referred to as independents.
Over the years some independents have provided excellent services to the South African
trading community. Others have failed and gone under.
A previous perception of independents is that they offered lower rates, would call at ports
which the Conference members did not, but were less reliable in keeping to their sailing
schedules. With the breakup of Conferences throughout the world this is no longer true:
individual lines must now be assessed on their merits.
Chartering
The word “charter” is simply to “let” or to “hire”.
Thus, a ship owner may “let” or “charter” his ship to another party. This other party then
“hires” or “charters” the ship from the ship owner.
For any particular ship there may be two chartering contracts, a chartering contract being
called a “charter party”.
Example
Ship owner charters a ship-to-ship operator who then charters the ship to cargo owner.
So, the first charter party is between the ship owner and the ship operator. The second
charter party is between the ship operator and the cargo owner.
The cargo owner could be an exporter, an agent for the exporter, an international trader or
any other “person/company” with an interest in the cargo. The cargo owner in this example
has chartered the ship from the ship operator and, in this capacity, is called the charterer.
However, it is clear that the ship operator has also chartered the ship and is, therefore, also
a charterer.
The term charterer is normally reserved to the party who is in control of the cargo, that is,
the party who wants the goods shipped from one port to another. Thus, the ship operator is
not generally known as a charterer although he “charters” his ships from ship owners.
Note that a cargo owner can charter a ship directly from a ship owner. Cargo owners do not
only deal with ship operators.
Charterers (cargo owners) do not always have sufficient cargo to use up all the space on a
ship. In these instances, they will negotiate with ship owners and/or ship operators to charter
only a portion of the cargo space on a vessel. These arrangements are called part charters.
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Ships can be chartered for a voyage (voyage charter), or a period of time (time charter) and
both these contracts will be looked at in more detail below.
When a ship has been successfully chartered, one refers to the arrangement as a “fixture”. A
ship owner is said to “fix” his ships.
(Note that charter party is commonly written as one word, but one also sees it written as
charter party. The name charter party originated from the French phrase “Carte Partie”
which meant a divided card. In the early days of mercantile shipping, the contract of carriage
was torn into two pieces, one to be retained by the ship owner and the other by the owner
or shipper of the goods. To obtain release of the goods at the destination point, the receiver
had to present the cargo owner’s section of the contract).
The Chartering Market
The essence of the chartering market is for ship owners, ship operators and charterers to do
business with eachother. Ship owners want to hire their ships to ship operators or charterers,
and ship operators want to fix the ships they are operating to charterers.
In specialist trades, which is another way of saying “product classes which require special
ships”, charterers are likely to know what ships are available and will deal directly with ship
owners and ship operators.
With commodities where the variety and supply of suitable ships is much greater, one finds
shipbrokers and charterer’s brokers playing a more significant role. On most occasions one
broker (shipbroker) will represent the ship owner in the negotiations, and another broker
(charterer’s broker) will represent the charterer.
The chartering market is entirely international in character, with owners and operators of
many nationalities, and ships plying trades throughout the globe. Rates are influenced by the
supply and demand of cargoes and ships worldwide, although regional differences occur from
time to time. There are no published tariffs. There are also no sailing schedules. It is in this
market that one finds extensive use of tramps.
To be effective in this kind of rapidly changing environment, brokers and agents need to be
diligent, and to keep a constant watch on international developments.
In days gone by, brokers and agents used to physically meet at places called exchanges, the
Baltic Exchange in London being the world’s most famous and prestigious. These days, with
the benefit of electronic communication systems, the role of the exchange has been much
reduced.
Chartering can be divided into two categories - Dry Cargo chartering and Tanker chartering
(also referred to as the “wet” charter market for obvious reasons). The principles of
chartering apply equally to both.
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The major difference is that the Tanker market is much more specialised, with crude oil and
refined petroleum being the dominant products and the market being controlled by a few of
the large petroleum companies. Sub-divisions of the Tanker market include vegetable oils
(e.g., for the production of margarine), liquidchemicals and liquid gases which require special
ships.
The Voyage Charter
When a charterer needs to move bulk goods from one or more ports of loading to one or
more ports of discharge, he is likely to charter a ship for a voyage. The contract between the
charterer and the ship owner or ship operator would be a charter party for that particular
voyage.
The voyage charter party would require that the ship owner or ship operator makes a suitable
ship available for the period of time required to travel between the various ports and to load
and discharge the goods.
The freight payable by the charterer to the ship owner/operator is normally a rate per ton,
based on the gross bill of lading weight – a ton being 1000kg. (Note: it is always important to
specify which ton applies, metric or long).
Freight rates on voyage charters indicate which party is responsible for various aspects of the
loading and unloading.
When rates are quoted FIO, which stands for “Free in and out”, the charterer is responsible
for the loading and discharging costs. Two variations of this are:
• FILO – Free in Liner out – where the charterer is responsible for the loading
costs, but the ship owner pays for the cost of discharging of the cargo.
(Generally used for bagged or general cargoes such as steel).
• LIFO – Liner in Free out – which is the opposite to FILO where the charterer is
responsible for the unloading costs, but the ship owner pays for the cost of
loading. (Usually applicable to bulk cargoes).
Bulk cargoes need to be stowed and trimmed properly to ensure safety and to maximise the
cargo load in the holds of the ship. Accordingly, one encounter two further variations of FIO
and these are:
• FIOS – Free in and out stowed – which means that the cost of stowing is for
the charterer’s account, and the cost of trimming is for the ship owner to pay.
• FIOST – Free in and out stowed and trimmed – which means that both the
stowing and trimming costs are for the charterer to bear.
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Another variation is FIOT – Free in and out trimmed. FIOT is used for loose dry bulk cargoes
such as coal, where stowing is not really a factor. The trimming costs are borne by the
charterer.
The choice of which term to use may depend on the trade route, the ports of loading and
discharge and the cargo handling facilities at those ports. The type and size of the
consignment may also be a factor. A full cargo load would probably be shipped on FIOS or
FIOST terms. For smaller cargo, the FILO or LIFO may be more appropriate. If a letter of credit
has been established, it would be important to check whether or not any specific conditions
have been stipulated.
On occasions a lump sum freight amount may be agreed upon which then places the onus on
the charterer to load as much cargoas possible within the “deadweight cubic metres” (dwcm)
and “dead weight tons” (dwt) limits of the ship.
Depending on the terms of charter, freight may be payable once the cargo has been loaded,
or after discharge at the port of destination, or some time (e.g., 5 days) after release of the
bill of lading. Whatever is agreed at the conclusion of the fixture will be recorded in the
charter party.
The Time Charter
A “time” or “period” charter is a contract which runs for a set period of time. Ship operators
generally enter into time contracts with ship owners. Periods can range from months to years.
A time charter provides the charterer with more flexibility although the ship owner may
impose product and/or trade area restrictions, these being recorded in the charter party.
Time charters can be arranged on what is called bareboat (or demise) terms when the
charterer becomes responsible for all crewing, maintenance, and repair.
The basis on which the charterer pays the ship owner is completely different to that applicable
to voyage charters. In the case of time charters, “hire” is charged out by the ship owner at a
“lump sum per day” or at “an amount per deadweight ton (dwt) per day or month”. Nowadays
a daily rate in US dollars is normally agreed upon.
Contract of Affreightment
A different form of chartering is by way of a “contract of affreightment”.
From a legal perspective, the term “contract of affreightment” covers any contract of
carriage, including bills of lading. In the context of chartering, however, a contract of
affreightment is an agreement to carry a quantity of goods over a given period of time. (e.g.,
500 000 MT bulk coal from Richards Bay to Rotterdam in 100 000MT bottoms fairly evenly
spread over the calendar year 2010. If the fixture was only for one cargo, then it would be
called a voyage charter).
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The conditions applicable to a contract of affreightment may be one of the standard forms of
charter party but it may also be specifically drawn up to incorporate elements from various
charter parties.
Liner Service Loyalty Agreements
Voyage charter parties are generally applicable to the tramp market. Freight forwarders
generally operate in the liner market, and it is in this market that loyalty agreements play an
important role.
Essentially such agreements involve the guaranteeing by the party who controls the cargo
(who in many cases is the freight forwarder) of first refusal rights to the cargo which is the
subject of the contract to the carrier (liner operator) who is named in the contract. In return
the liner operator will fix freight rates for the period of the contract which are lower than the
rates quoted to once off shippers or those who have lower volumes of cargo to offer.
These agreements are usually negotiated on an annual basis. In the event of wide fluctuations
in the freight market within the contract period they may be renegotiated prior to the expiry
of the contract period.
Factors which influence the freight rates at which such contracts are fixed are as follows:
• The amount of cargo which is available on the particular trade route in relation to the
amount of shipping space available to carry it. This is not always easy to predict.
• The number of liner carriers on the particular trade route who are competing for the
cargo.
• The levels of service which the liner operator is able to offer in relation to the needs of
the cargo in terms of frequency, speed of transit and reliability.
In terms of loyalty agreements which are negotiated freight forwarders act as retailers of
cargo space in the sense that they buy space in bulk and sell it in smaller quantities at a mark-
up.
Let us look at an example of how this will work in practice >>
A freight forwarder negotiates a rate of USD2000 per TEU for the movement of the groupage
cargo carried by that forwarder along a particular route. On average the forwarder’s
containers carry 19 cubic metres (m3) of cargo per TEU.
The average freight cost to the forwarder is thus USD2000/19m3 = USD105.26 per m3. In order
to make a profit on this operation the freight forwarder will thus need to offer any shipper a
rate of above the USD105.26 per m3.
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The criteria used to select a shipping service provider in terms of shipper and cargo
requirements (Criteria may include but are not limited to equipment capabilities, frequency,
port rotation and pricing).
As a standard procedure, a party wishing to move cargo from one point of the earth’s surface
to another would need to establish the following parameters:
• What is the commodity?
• What is the value of the cargo?
• What is the origin of the cargo and what is its destination?
• What are its physical characteristics in terms of weight/ volume ratio?
• Is the cargo in any way specialised- abnormal, perishable, and dangerous or a
combination of these?
• What type of cargo movements are we dealing with - bulk, break bulk or
containerised?
• If bulk, dry or wet?
• If containerised, FCL or LCL?
• What volumes of cargo are involved?
• Is this a one-off shipment or are we looking at ongoing cargo movement? If so, what
is the frequency of shipment required and what volumes need to be carried in each
shipment?
The above information is required by any carrier to whom cargo is offered for the purpose of
negotiating freight rates.
In evaluating the capability of a particular shipping line to carry a particular cargo or to enter
any service level agreement to carry cargo on a contractual basis, the cargo owner or freight
forwarder acting for the cargo owner would need to take into consideration the following
criteria:
• The commercial capability of the shipping line in terms of the length of time the
shipping line has served the particular route, the size and financial stability of the
company, levels of technical capability available for the planning and execution of
cargo movements.
• The services offered by the company: availability of cargo handling and carrying
equipment (particularly specialised equipment when required), frequency of sailings,
transit times, ports of call and port rotation (i.e., the order in which ports are called).
• In the case of containerised cargo, the intermodal capabilities of the shipping line- that
is, the ability of the company to move cargo from an inland point of origin to an inland
point of destination using a variety of modes of transport under the control of a single
transport document.
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• The service levels offered by the shipping line including (but not limited to) customer
service coverage, accuracy and speed of documentation, accessibility of track and
trace data and accessibility of personnel with decision making ability to resolve
problems.
When preparing for negotiations with shipping lines it is important to prepare a check list of
the requirements of the particular cargo movement in terms of the above requirement. It is
then the responsibility of those who negotiate on behalf of the cargo owner to ensure that
all requirements are met.
Important considerations for freight rate negotiations
What is a “fair” freight rate? What services are included in, and what services are excluded
from, a freight rate?
The levels at which freight rates are fixed at different times for different cargoes will, in
common with any other price levels, depend mainly on supply and demand.
In the case of freight rates, the supply is defined not only in terms of the availability of
shipping space but on the availability of shipping space in that particular segment of the
market. Referring back to “the Freight Market” above, a surplus for example of shipping space
in the bulk carrier tramp market will not necessarily lead to an increase in freight rates in the
RORO freight liner market.
Another factor to be taken into account when considering the supply side of this equation is
the availability of specialised equipment - as an example, when it is the citrus season in South
Africa (May to September) there is a high demand for reefer containers to carry this export
citrus from South Africa, primarily to Europe.
As a result, freight rates on reefer containers from South Africa can be expected to increase
during these periods. During the same season, because there is very little temperature
controlled cargo flowing from Europe to South Africa, demand for reefer containers to carry
cargo in this direction is low but the container operators still need to reposition the reefer
containers which have been used to deliver the citrus from South Africa to Europe back to
South Africa in order to meet the demand for the containers there. Accordingly, rates for
reefer containers from Europe to South Africa will be low during this season- in most instances
lower than the freight rates for General Purpose (GP) containers.
This also illustrates that freight rates are not necessarily static- they fluctuate all the time in
relation to supply and demand.
The demand side of the freight rate negotiation equation is the amount of cargo on offer - in
general, the more cargo there is on offer, and the lower the freight rate will be.
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It is for this reason that larger freight forwarders are, as a general rule, able to negotiate
better freight rates than smaller ones. In the world of containerisation, smaller forwarders
can in certain instances take advantage of the better freight rates which have been negotiated
by larger agents by co-loading their cargo with the larger agents.
Something to be considered when evaluating the freight rates offered by different carriers is
that the rates of different carriers may include and exclude different service elements.
When obtaining freight rates from different carriers, one of the procedures which must be
carried out is to establish if there are any surcharges applicable to the basic ocean freight rate
which has been quoted and, if so, how such surcharges are applied. Not all surcharges are
applied in the same way and the application of surcharges varies from carrier to carrier.
The concept of rate surcharges is not unusual for all modes of transport: surcharges may be
applied to air, road, rail, and sea freight rates. The individual who will be responsible for
freight rate negotiations will therefore need to gainan understanding of why they are applied,
what makes them vary from time to time, how they are applied and how they are used in sea
freight calculations?
Especially where intermodal rates are concerned, it is necessary to establish whether terminal
handling fees are included in, or excluded from, the freight rate quoted and then what
peripheral charges, if any, must be added to each rate in order to ensure that an all-inclusive
rate has been obtained. Such peripheral charges may include, but are not necessarily limited
to documentation, release fee, cleaning fee and empty container turn in fee. Some of these
can add considerably to the door-to-door costs of moving containerised cargo.
The process used to appoint a shipping service provider… with examples.
Taking these considerations into account, the process used to appoint a shipping service
provider is as follows:
1. Details of the cargo to be shipped are obtained in terms of the considerations
shown above.
2. Those shipping lines which serve the route(s) along which the cargo is required to
be transported and invited to submit proposals as to how they would be able to
ship the cargo.
3. At this stage those responsible need to ensure that they are comparing apples with
apples when evaluating the rates and services offered by different carriers. Time
is money. Cargo which is being transported from point of origin to point of
destination cannot be put on to a shop shelf; nether can capital goods whilst at
sea be used to manufacture goods which can be sold. As a general rule therefore,
the higher the value of a consignment (in relation to its mass or volume) the faster
its transit time should be.
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This logic therefore points to the conclusion that the shipper of higher value cargo will be
prepared to pay a higher freight rate for a quicker transit time.
Evaluation of ocean carriers is thus as much an evaluation of all the costs quoted as it is an
evaluation of the transit times, taking into account not only the quoted transit times but also
the reliability of each of the carriers being compared against their respective advertised
sailing schedules.
The professional freight forwarder, in ensuring that carriers are evaluated on a “like for like”
basis, will include all of these factors on to a spreadsheet which will facilitate an objective
comparison of those who are competing for the cargo.
4. Having made an evaluation of the carriers concerned in terms of the above, a short
list of two or three carriers can be drawn up. These will be approached with a view
to entering a contract (usually a year) to carry the cargo concerned. Here again,
when drawing up the contract it is important for the parties concerned to be clear
as to service levels, penalties for non-performance and what costs are included
and excluded from the contract.
Many carriers do not have their Head Offices in the countries in which these services are
concluded and thus it is important to agree, whose country’s laws will govern the contract
and in which country any litigation will take place.
Interpreting liner sailing schedules.
Nowadays, liner sailing schedules are readily available online from multiple sources. Just
‘Google’ ‘liner sailing schedules’ online and see what comes up.
The shipping lines serving South Africa’s trade routes are in a constant state of flux: depending
on the market, different shipping lines will enter and leave as the cargoon offer increases and
decreases.
In order to keep abreast of this constantly changing market, the professional freight
forwarder will need to consult the shipping press on a regular basis.
In this regard it is recommended that the numerous online publications which are available
be consulted regularly for news about services which are being introduced and/ or removed.
There are no shipping lines serving South African importers and exporters.
The trade routes along which the greater majority of South Africa’s internationally traded
goods flow are as follows:
• United Kingdom,
• North West Continent (in Europe),
• Mediterranean,
• Middle East,
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• Far East,
• Australasia and,
• United States of America.
It follows that the professional forwarder will ensure that knows in intimate detail the various
carriers serving these routes as well as the agents which represent the interests of those
carriers which do not have their own representation in this country.
In this context it is important to note that as far as sailing schedules are concerned, the
abbreviations of ports are normally expressed as three letter codes.
These three letter codes do however NOT necessarily correspond with the official three letter
codes used by IATA to denote the airports of different cities. Further, the sailing schedules
published by different sources may use different codes to identify ports. There is not
necessarily a uniformity of practice in this area.
When analysing a sailing schedule, it is therefore important to know which trade route is
being examined. Thus, for instance whilst AXA is the IATA 3 letter code for Anguilla in the
Caribbean, if one is looking at a sailing schedule for the Mediterranean, such a code is more
likely to identify AleXAndria in Egypt.
From an official point of view ports are given 5 letter codes with the first two letters denoting
the country and the last 3 the Port. 111
The sailing frequency, port rotation and transit times of a shipping service
How do we interpret sailing schedules?
In terms of ships’ movements, sailing schedules show not only the ports at which each vessel
on the schedule will call, but also the order in which each vessel will call at those ports.
In this context the concept of a range of ports is important. A range of ports can be said to be
a number of ports in the same region which are close to one another. Such a range may be in
the same country (e.g., Richards Bay- Saldanha Bay range) or in a group of countries (e.g.,
Antwerp- Hamburg range). Within a range of ports will be a series of ports and the order in
which a vessel calls at these ports is called the port rotation. Therefore, in the example of the
Richards Bay - Saldanha Bay range, vessels may call in the order Richards Bay, Durban, Port
Elizabeth, Cape Town, Saldanha Bay, or the other way around, depending generally on the
service on which the vessel is operating or other considerations.
Some shipping lines which provide liner services offer what is known as a “named day”
service, that is, the ships operating on the service will call at each port within a range on the
same day. For importers and exporters operating on “Just in Time” inventories this kind of
service has huge benefit.
111 https://www.freightos.com/freight-resources/seaport-code-name-finder/
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Sometimes the operator of a liner vessel may be persuaded to call at an additional port or
ports within a range if there is sufficient cargo to make the deviation worthwhile. For
example, a vessel serving the Richards Bay- Saldanha Bay range described above may, in
addition to the ports already mentioned, be persuaded to call at East London is there is
sufficient cargo. Such a call is termed on inducement. Some sailing schedules show the ports
which the ship operator is prepared to call on inducement.
A particular vessel operating within a liner service will operate between two ranges of ports,
example between the Durban- Cape Town range and the New York- Miami range. The transit
time of that vessel is defined as the number of days it will take for the vessel to sail between
any two ports within those two ranges (for example the Port Elizabeth- Jacksonville transit
time, the Cape Town- New York transit time and so on).
Where a liner service operates on a particular route, eachvessel within that service will transit
the respective ranges of ports within that service many times. Each time a vessel completes
a journey from one range of ports to another; this is referred to as a voyage.
Thus, a vessel serving the Durban – Cape Town to Antwerp – Hamburg range of ports will have
completed a North-bound voyage when it has sailed from Durban to Hamburg, assuming a
port rotation Durban – Cape Town – Antwerp – Hamburg. That same vessel will commence
its South-bound voyage when it starts loading cargo for South Africa whilst at the same time
discharging cargo loaded in South Africa when it calls in Antwerp.
As far as South Africa is concerned, sailings to and from North and South America are
designated Westbound and Eastbound respectively and, using the same logic, sailings to and
from the Middle and Far East are designated Eastbound and Westbound respectively.
Each voyage of every vessel has a numerical or an alpha numeric code. On sailing schedules
and Bills of Lading this voyage number is shown immediately after the vessel’s name,
examples Jolly Rosso 058, Laers Maersk 903A. There is no common method of coding voyage
numbers each shipping line has its own method.
It is very important that the correct voyage number is reflected on all documentation
because, in many computer-based applications (tracking and tracing, document submission
and so on) it is the voyage number which identifies the vessel, not the name. There is a parallel
here with airfreight - few airplanes have names; they are identified by the flight number.
The consequences of misinterpreting information contained in shipping schedules.
Misinterpreting information contained in shipping schedules can have a number of
consequences:
By not correctly identifying ports, cargo required in one place may be sent to somewhere
completely different. For example, think of the consequences of a forwarder booking cargo
to AXA in the belief that he is sending the cargo to Anguilla in the Caribbean whilst the carrier
with whom he is booking the cargo thinks that this cargo is booking the cargo to Alexandria,
Egypt.
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In the same way the insertion of an incorrect voyage number can have serious consequences-
documents may be rejected when being presented for payment to banks, leading to exporters
becoming financially embarrassed (at best), Customs declarations and port release
documents being rejected, thus causing delays in cargo movement and the possible
imposition of penalties, rents, fines and/ or overstay charges.
When using sailing schedule information to route cargo it is of the utmost importance to
verify information with the carriers concerned and to confirm the information received in
writing before any shipping arrangements are made. Another aspect which is very important
is that circumstances may well change causing sailing schedules to alter. It is therefore also
important at all times to ensure that sailing schedule information is kept up to date- at least
on a weekly basis and sometimes even on a daily basis.
There is a principle which says that the extra time and money spent in doing something
correctly the first time is always far less than the expenditure needed to fix mistakes
afterwards. This is very applicable to the interpretation of sailing schedules.
Identifying the roles of the parties involved in the carriage of goods by sea.
(Parties includes but is not limited to ship owners, shipbrokers, forwarders, clearing agents,
ships agents, marketing agents, owners’ representatives, stevedores, longshoremen, terminal
operators, and depot operators.)
The purpose of this section is to understand the roles of parties involved in the logistics of
importing and exporting. The United Nations Commission for Trade and Development has
stated that, in any international trade transaction, there are a minimum of 16 parties
involved. We are not going to discuss all of these: what we need to do here is look at the
roles of those involved in the actual movement of the goods.
In processing requests for the movement of goods from importers and exporters it is first
important to understand the general roles and responsibilities of the role players concerned.
AS a general rule it is the type of cargomovement (bulk, containerised FCL, containerised LCL/
groupage) which will determine the roles played by the respective parties involved in the
movement of the cargo. Thereafter we will look at individual transactions to identify which of
these parties will be involved in each transaction and their respective roles.
Whilst we look at a number of examples, it cannot be said that these are exhaustive: what
they do is to illustrate that in different types of shipment there may be different parties
directly involved.
What is also important to notice is that, from the perspective on the cargo owner (exporter
or importer as the case may be) there is a different emphasis in the roles played. As an
example, we will see that in bulk cargothe freight forwarder does not necessarily have a great
role to play but that this role becomes more prominent with both types of containerised cargo
(FCL and LCL/ groupage).
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Where specialised cargoes are concerned (abnormal, perishable, live, dangerous) the role of
the freight forwarder increases in importance from the point of view of the exporter/
importer.
Ship owner
The ship owner is the person or company “owning” ships.
Ships cost a great deal of money to buy or build and all ship owners will want to make a
financial return on their investment. They have a number of options.
One option is to hire (charter) the ships to a ship operator (see later). A second option is to
operate the ships themselves on a tramp basis (see later). A third option is to charter the ships
to a shipping line. A fourth option is to form one or more shipping lines. Other options include
a combination of these four alternatives.
In a South African context, two well-known shipping lines are the South African Marine
Corporation (Safmarine) and Unicorn Shipping Lines (Unicorn). These lines operate large
fleets of ships, some of which may be owned and some of which may be chartered in.
When a shipping line (ship owner) uses its fleet of ships to provide a regular, seaborne, cargo-
carrying service between ports, countries and continents, the service is described as a liner
service. Liner ships run to published sailing schedules which detail the ports being called on
and the anticipated days of arrival and departure.
The cargocarried on liner ships is normally of a “general” nature and in quantities that require
only a small portion of the ship’s cargo space. Thus, four container loads of sewing machines,
classified as “general cargo”, would be ideal cargo for a liner vessel. 100 000 tons of coal, on
the other hand, is quite clearly a bulk shipment and would not be shipped on a liner vessel.
Ship owners can also use their ships on a non-scheduled basis, commonly known as “tramps”
these ships are used particularly for bulk cargoes and large multi-ton shipments.
Tramp ships will be sent where the business is. The demand for tramps will depend on such
factors as the availability of suitable cargoes and the prevailing freight rates.
The owners of tramp vessels tend to be independent organisations and families (e.g., Greek)
as opposed to the large international or national companies which establish liner operations.
The role of the “tramp” service will become clearer to the individual as the course progresses.
Shipbroker
A “shipbroker” is an agent who acts on behalf of either a ship owner or a cargo owner.
When acting for the ship owner the shipbroker has the task of securing cargo for the owner’s
vessels at the most advantageous freight rates, terms, and conditions for the ship owner. In
this capacity the shipbroker is also known as the “owner’s broker”.
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When acting for the cargo owner, the shipbroker’s task is to find suitable ships or space on
ships to transport the cargo owner’s goods at the most advantageous freight rates, terms,
and conditions for the cargo owner. Shipbrokers acting for the cargo owner are also called
charterer’s brokers or charterer’s agents.
Shipbrokers earn commission on the freight paid to the ship owner and it is the ship owner
who pays this commission, not the cargo owner. The commission paid to a broker is also
known as “brokerage” and is normally around the very modest level of 1.25% of the payment
received by the ship owner.
A shipbroker can also act as the intermediary between a ship owner and a ship operator (see
below) when the latter wishes to charter a vessel, for his own purposes, for a period of time.
The Institute of Chartered Shipbrokers in London divides the shipbroker’s functions into six
disciplines:
• Dry Cargo Chartering
• Wet cargo chartering
• Ship Management
• Tanker Chartering
• Port Agency
• Ship Sale and Purchase
• Liner Agency
In the context of “Port Agency” and “Liner Agency”, preference is given to the word agent
over broker and the terms Ship’s Agent, Port Agent or Liner Agent are used in the place of
shipbroker.
Dry Cargo Chartering and Tanker Chartering involve the shipbroker in securing dry bulk and
liquid bulk cargoes for the ship owner’s bulk and tanker vessels.
Shipbrokers do not have to be involved in all six disciplines at the same time. In practice
shipbrokers tend to specialise. Specialisation can be by vessel type (e.g., tankers),
geographical area or product type/commodity.
Ship Operator
Ship owners with large fleets of ships can find it difficult to operate effectively on all trade
routes throughout the world at the same time. To overcome this problem, they may choose
to hand over the running of some of their ships to an organisation called a “ship operator”,
clearly with the objective of earning a better return on their investment.
The ship operator generally charters a ship from the owner for a fixed period of time, under
conditions set down in the charter party, which is a written agreement between the owner
and the operator.
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This arrangement highlights that the owner effectively “dispones” or “makes over” ownership
of his vessel to the ship operator for the period of the time charter. The ship operator
becomes the “disponent” owner of the vessel and, with some restrictions, is free to use the
vessels under his control in whatever manner he wishes.
The type of restriction imposed by the owner could be in respect of trade areas and/or cargo.
In other words, in terms of the charter party, the ship operator may not be permitted to
employ the owner’s vessels on certaintrade routes and certain cargoes may also be excluded.
Ship operators will charter out (hire) the vessels (in whole or in part – i.e., one or more holds)
under their control to cargo owners (charterers) who want their goods transported from one
port in the world to another. As with ship owners, ship operators will assume responsibility
for certain costs such as fuel, port charges and insurance. For their own protection shi p
operators must be members of a Protection & Indemnity (P&I) Club.
Three ship operators currently based in South Africa are MUR, Island View Shipping (IVS) and
Phoenix Shipping.
Charterer and Charterer’s Broker
In simple terms the word “charter” has the same meaning as “hire”. In the world of shipping,
one charters a ship. In the world of road transport, one hires a vehicle.
As mentioned above, a ship operator charters vessels from ship owners for a period of time.
In this respect the ship operator is a charterer, but, in practice, he is not referred to as a
charterer.
The term charterer tends to be reserved to the cargo owner who wishes to ship goods
between two or more ports and he “charters” a vessel, or part of a vessel, from the ship owner
or ship operator.
More precisely, the term charterer applies to the owners of bulk cargoes who hire space on
tramp ships. The cargo owner may be the producer of the goods, a trader who buys and sells
goods on the international market, or simply the buyer of the goods.
(Note that the cargo owner shipping goods on a liner service would be known as the shipper,
exporter, or consignor, and not as the charterer).
The contract between the charterer and the ship owner or ship operator is called a “charter
party”.
In the same way as the shipbroker is employed by the ship owner to find cargoes for his
vessels, charterers appoint brokers to find ships to carry the cargo owner’s goods.
Deals are struck between the shipbroker (owner’s broker) and the charterer’s broker, and
charter parties are agreed to and signed by, or on behalf of, the two principals – the ship
owner and the cargo owner (charterer). These deals are known as “fixtures”.
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Owner’s Representative
Many ship owners/shipping lines, in addition to having agents to do the port work and handle
the marketing activities in a foreign country, set up their own representative office in that
country.
The functions of the owner’s representative office will vary from one organisation to another,
and also from one country to another. However, the typical functions of a representative
office are:
i. supervision and monitoring of the agent’s activities
ii. business development and maintenance, for example:
• maintaining contact with major shippers and consignees
• securing support from specific industries such as the automobile
manufacturers
iii. commercial intelligence, for example:
• reporting back to the principal on local political, socio and
economic issues
• providing statistical information
Some ship owners employ only local South Africans to man their representative office but, in
many cases, they send one or two of their own nationals to supplement and/or manage the
team.
Over the years the nationalities of the foreign representatives who have worked and lived
here have included Japanese, American, Danish, Norwegian, French, Chinese and others.
Ships Agents
Ships agents are known by different names according to their duties and responsibilities.
Terms used to identify different types of ships agent are the port agent, the liner agent, and
the general agent.
As the name suggests, the port agent looks after all the requirements of the ship and the ship
owner associated with port activities. These include the arrangements for vessels to enter
and leave the port, ensuring that cargo is discharged and/or loaded as planned, pilotage,
bunkers, Customs clearance, ships spares and repairs, stevedoring and documentation.
When one talks of a Port Agent, it is normally in the context of attending to tramps and non-
liner vessels. Often the appointment is on an individual call basis, that is, the Port Agent is
appointed only for a particular vessel calling at the port in question. It does, of course, happen
that a Port Agent is repeatedly used by a ship owner or ship operator because of a history of
good service and reliability.
By contrast, a Liner Agent is appointed to represent a Liner operator over a geographic area
(e.g., all ports in a region), for an agreed period of time or on an open-ended basis.
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A key activity of a Liner Agent, and an essential difference between a Liner Agent and Port
Agent, is the capability of securing cargo for the ships, i.e., a sales and marketing. However,
included in the functions expected of a Liner Agent will be the port agency work described
above.
In many respects, a Liner Agent is also a General Agent. However, the responsibilities of a
General Agent extend to such matters as the appointment of sub-agents, claims handling, and
dealing with P&I and insurance issues - activities which may not be required of a Liner Agent.
Whereas a Liner Agent provides services related only to Liner activities, a General Agent acts
for his principal in a wider context which would be defined in the contract between the two
parties.
It is possible for shipping lines and ship owners to do their own agency work. Two examples
of this in South Africa are the Mediterranean Shipping Company (MSC) and Maersk.
Charterer’s Agent
As mentioned in the previous paragraph, ship owners appoint port agents to take care of their
vessels while in port for loading or discharging purposes.
For larger cargo, the charterer or cargoowner may prefer to nominate the port agent it wants
the ship owner to appoint. One reason for this is that the charterer’s nomination may be more
familiar with the cargo being carried.
A second reason may be that the charterer is the owner of the terminal(s) at which the cargo
is to be loaded or discharged. To ensure that this appointment takes place, the charterer
would make it a condition of the charter party.
Note that the agent so appointed is an agent of the ship owner and stands in a legal
relationship with that owner, and the ship owner is obliged to pay this agent according to
contract. All the charterer has done is to make a nomination. It does, however, put the agent
in a difficult position, particularly if a conflict of interest arises between the ship owner and
the charterer.
Having digested the fact that a charterer, through the process of nomination, can become
involved in the appointment of the port agent of ship owner, individuals need to note that
the charterer may still appoint an agent to look after his own particular interests. The
charterer would then be this agent’s principal and would be responsible for this agent’s
remuneration.
In summary, then, there can be a port agent:
i. appointed and paid for by the ship owner and accepted by the charterer.
ii. nominated by the charterer but appointed and paid for by the ship owner.
iii. appointed and paid for by the charterer, to look after the charterer’s interests;
and another port agent, appointed and paid for by the ship owner to attend to
the ship owner’s port requirements.
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Individuals should note the difference between the roles of the charterer’s broker (in finding
or fixing ships) and the charterer’s agent (as the appointed port agent).
Clearing Agent
The clearing agent provides services to importers (consignees) and exporters
(shippers/consignors) in respect of their international movement of goods. A clearing agent
is also known as a customs broker (particularly in the USA).
The main function of a clearing agent on imported shipments is to obtain clearance of the
goods through Customs and the subsequent release from port authorities, shipping lines,
groupage operators and depot operators so that the goods may be delivered timeously to the
importer.
Goods being exported from South Africa must also be cleared through Customs and the
clearing agent performs this function.
Clearing agents have been traditionally called “clearing and forwarding” agents because their
function combines elements of customs clearance and elements of forwarding.
On exports, clearing and forwarding agents arrange for the goods to be forwarded from an
inland point to the port of loading and then the on-forwarding to the country of destination.
On imports the clearing agent arranges the forwarding of the goods from the port of discharge
to the point of final destination.
Specific functions of the clearing agent include:
• accurate preparation of the bills of entry and other documents required by the
Customs authorities.
• providing expert advice on product classification, the application of the Customs tariff,
the Custom legislation.
• preparation of documents required by shipping lines, port authorities, container
depot operators and cargo consolidators.
• the disbursement of Customs duties, VAT, freight, cargo dues, port landing and
shipping dues, railage, road haulage and other payments to third parties as and when
required’.
• the handling of cargo loss and damage claims, and the protection of the cargo owner
from being time barred from claiming against insurance policies.
• ensuring that third parties timeously effect the delivery of sea-freighted goods.
• communication and feedback to the importer or exporter on the progress of
shipments.
• the daily management and control of shipments to ensure that these are handled
efficiently and cost effectively in the best interests of the cargo owner – namely the
exporter or importer.
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Charges raised for the service rendered are generally in the form of documentation and
agency fees. “Agency” fees may be based on the weight or value of a consignment, or the
disbursements outlaid. Some companies charge a finance fee in addition to agency.
Forwarder
The forwarder, freight forwarder or forwarding agent is the organisation which works on
behalf of the shipper, supplier, or exporter in the country of supply.
The forwarder may also be a consolidator and act as an NVOCC (non-vessel owning/operating
common carrier) or groupage operator.
The groupage operator or NVOCC, acting as a contractual carrier (i.e., not the actual carrier
which would be the shipping line) consolidates less-than-container-load (LCL) consignments
into economically viable full container loads.
Specific functions of a forwarder include:
• preparation of bills of lading and other shipping documents
• arranging transport from the point of supply to the port of shipment, a container
depot or other staging point
• packaging arrangements
• selection of carriers
• rate negotiations with carriers
• arranging marine insurance and completing declarations
• paying freight to the carrier and other disbursements to hauliers, container depots,
port authorities etc.
• attending to banking arrangements
• obtaining, or assisting the exporter in securing, documents such as certificates of
origin and cargo inspection certificates
• dispatching commercial and shipping documents in accordance with instructions
received from the importer or supplier.
• communication and feedback on the progress of shipments to supplier/shipper
The forwarder and clearing agent are sometimes members of the same international
company.
Most local South Africanclearing agents enter into an agency contract with an overseas-based
forwarding company in terms of which they work together to provide importers and
exporters with a country-to-country, “door-to-door” transportation service.
When the purchase terms between the buyer (consignee) and the seller (shipper) are CIF or
CFR, the seller normally appoints the forwarder. On ex-works or FOB contracts the buyer is
responsible for paying the freight to the carrier and holds the right to appoint the forwarder.
For their services, forwarders will charge documentation and agency fees, and earn
commission on freight.
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They may also make a mark-up on the freight, buying from the shipping line at one level and
selling to the shipper at another. This principle applies to the operation of a groupage service.
Stevedores and Longshoremen
The function of a stevedore is to load and discharge cargo from vessels when they are in port.
The loading and off-loading operation should be completed as fast as safety will permit, taking
into consideration the nature of the goods, the weight, size, and shape etc. In addition to
providing labour, a stevedoring company supplies handling equipment and skilled
supervision.
In areas where the port authority controls the dock sheds and the wharf cranes, the
stevedoring activity is restricted to the ship. For example, on goods being exported, the cargo
will be lifted from the quay side and conveyed onto the ship by port labour and equipment.
It is then up to the stevedores to ensure that the cargo is securely stowed in the correct hold
etc.
In the ports of South Africa most of the wharves are under the direct control of Transnet Port
Operations. There are however certain wharves/terminals which have been dedicated to
specific cargoes and the management of these terminals given to private enterprise. An
example of this is the granite wharf in Durban. Under these circumstances the terminal
operator is able to appoint the stevedores. The stevedores are then responsible for the entire
loading and/or off-loading operations, both ashore and on the ship.
Other parties who will have an interest in appointing the stevedores are the ship owner or his
agents, and the cargo owner or his agents.
The type of handling equipment which a stevedoring company requires includes grabs for
bulk goods, portable evacuators, buckets (skips) of several tons’ capacity, front-end loaders,
and industrial tractors to shunt rail trucks. The stevedore works closely with the Master or
Chief Officer of the ship in carrying out his duties and an important reference document is the
stowage plan. The Master is at all times responsible for the stowage of cargo on his vessel.
The most common method of charging for a stevedoring service is an all-in rate which will
vary depending on the commodity, the tonnage involved and the type of vessel. To this all-
in rate there may be added a variable labour charge to cater for delays caused by adverse
weather conditions, port congestion, shortage of rail trucks, lack of shed space, crane
breakdowns ashore and on board the vessel, and other causes.
In most of the English-speaking countries the cargo handler of the type described above is
known as the stevedore who is derived from the Spanish word for a packer - estivador. In the
USA stevedores are called “longshoremen”.
Container Depot/Container Terminal Operators
The introduction of containerisation in the 1970s spawned the need for three new types of
operations to the South African transport scene.
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One is the container terminal at which containers are loaded and offloaded. These terminals
are specialised in the sense that they have massive gantry cranes for the handling of
containers. Flat areas adjacent to the container berths are provided for stacking containers,
either after discharge or prior to shipment.
There are also special vehicular stackers (van carriers) who move the containers between the
gantry crane and the stacking area.
Containers are normally allowed to reside in the terminal for only short periods of time (e.g.,
one or two days) after which the terminal operator will raise “overstay” penalty storage
charges if they are not shipped or removed.
The second of the three operations is a “container park” or “container yard” where empty
containers are kept when not in use.
But the containerisation system needed more than just specialised berths, terminal areas,
and container parks. It also required places where containers could be loaded a nd/or
unpacked. Hence the third operation which containerisation brought along with it is the
container depot or “container freight station” (CFS) as it is known in many countries.
The main characteristic of a container depot is a large warehouse in which goods are loaded
into (stuffed into) containers or unloaded from (de-stuffed from) containers. It is not
principally a place for storing empty containers although one sees this in practice - the empty
ground around the warehouse being used for this purpose.
Imported goods arriving at a depot may or may not have been cleared through Customs. It
is, however, a requirement of Customs that all un-cleared containerised goods, imported into
the country, and are sent directly to a Customs licensed container depot.
It is not surprising, therefore, that a second characteristic of a container depot is the presence
of Customs Officers. The depot provides Customs with a mechanism to prevent un-cleared
goods from being released into the country until they have been checked, and the correct
duty has been brought to account. The depot is also the place where Customs will inspect un-
cleared goods if they decide it is necessary to do so.
Individuals will learn elsewhere that FCL/FCL shipments are designed to move from the
overseas loading point at the exporter’s premises, directly to the unloading point selected by
the South African importer, i.e., they do not have to go via a depot. FCL/FCL shipments which
are Customs cleared prior to arrival will be transported straight from the container terminal
to the importer’s unloading point. FCL/FCL containers which are not Customs cleared before
the ship’s arrival must be sent to a licensed depot and remain there until cleared. These
containers may or may not be unpacked at the depot – this is up to the importer to decide.
LCL/LCL shipments are containers which are loaded with consignments sent by many
independent exporters to their respective importing customers. Each of these individual
consignments must be Customs cleared. It is with LCL/LCL containers that the container depot
(depot operator) plays a major role, for these containers are sent direct to the depot for
unpacking.
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As and when each consignment is Customs cleared, so the goods may be collected by the
importer. True LCL/LCL operations have died out as this function has been taken over by the
groupage operators.
Container depots derive support from shipping lines, groupage operators and
importers/exporters. The services they provide, and for which a charge is made, include:
• unpacking normal cargo
• unpacking hazardous goods
• packing of goods for export
• attending to exports under Customs supervision
• temporary storage of goods
• cargo repairs and cargo repacking
• tallying
• attending to Customs examinations, including tailboard inspections
• transportation to the State Warehouse, and documentation relating thereto.
• container repair work
• bond store facilities
Duties and responsibilities of role players in specific transactions
In the shipments below it must be noted that the roles and responsibilities described are very
broad: it is the knowledge of the detailed processes and procedures which are required to
carry out the responsibilities described in these examples which make for a professional
freight forwarding operation.
In studying these shipments, it is important to find all of the localities mentioned on a map.
Shipment 1
An exporter wishes to export 30 000 tons of iron ore from Saldanha Bay to New York. Which
parties are involved and what are their roles?
Parties involved Roles
Exporter Responsible for making the goods available for shipment at Saldanha
Bay at the agreed time and preparation of the commercial invoices,
shipping instruction and any other documentation which may be
required from him by the forwarder, ship’s agent, or importer.
The ore would have been railed to Saldanha Bay from the iron ore mine
inland by the exporter.
If the exporter is responsible (in accordance with the Incoterms® 2010
Rules under which the iron ore has been sold) for the freight, then it is
generally the exporter who will have fixed the charter party under
which the cargo will be shipped.
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Parties involved Roles
The exporter will have appointed the freight forwarder to whom he will
issue the shipping instructions and the necessary documentation
required for the export clearance and shipment of these goods.
If required, it will also have been the responsibility of the exporter to
apply for any permits needed for the export of this commodity and any
exchange control authorisations.
Once shipment has been effected, the exporter may appoint the freight
forwarder to furnish documentary proof of shipment to the importer
or alternatively, the exporter may be required to need to present these
documents through his bank in order to obtain payment for the goods
under a documentary collection or a documentary credit. It is therefore
important that the freight forwarder obtains the Shipped on-board Bills
of Lading from the ships agent as soon after the vessel has sailed as
possible.
Close liaison between exporter and freight forwarder is required in
order to ensure a smooth and trouble-free operation.
Freight forwarder Will coordinate the movement of the goods from the time they arrive
at Saldanha Bay until they are discharged in New York.
The forwarder is responsible for the preparation and submission of all
documentation required for the Customs and Port Authority release of
the cargo, as well as the preparation of the Bills of Lading pertaining to
this shipment.
Shipbroker Depending on who is paying freight in terms of Incoterms® 2010 Rules
agreed for the transaction, will fix a charter party with the ship owner’s
broker on behalf of either the exporter or the importer which will make
a vessel available to carry the goods from Saldanha Bay to New York in
the period specified in the charter party.
Ship owner Will make the vessel which is the subject of the charter party available
for loading the cargo, carriage of the cargo and discharge of the cargo
in New York.
Under some charter parties (especially voyage charter parties) it is the
ship owner’s responsibility to provide the crew, fuel and other supplies
needed to operate the ship.
Ships agent In liaisonwith the freight forwarder and ship owner the ships agent will
be responsible for making all plans and husbandry arrangements for
the ship whilst in port- arranging berthing, fuelling, and victualling,
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Parties involved Roles
Customs and Port Authority entry and release of the vessel, and
provision of the labour required for the loading and discharge of the
vessel (see stevedores and longshoremen below) as well as the hire of
the bulk loading and discharging appliances required for this type of
cargo.
Once the cargo has been safely loaded on board the vessel in Saldanha
Bay and it has sailed, the ship’s agent will (depending on who is to pay
the freight is accordance with the Incoterms® 2010 Rules) collect the
freight at either origin or destination port, and, at origin port, sign the
Bills of Lading prepared by the forwarder.
The ships agent is responsible for lodging a copy of the ship’s manifest
with the United States Customs Authorities within a stipulated period
before the vessel is scheduled to dock there are stringent security
measures in place in all United States ports and failure to lodge this
manifest will result in the ship being refused permission to enter New
York harbour.
At New York, the responsibility of the ship’s agent is to make all the
arrangements for the entry, berthing and discharge of the vessel.
The ship’s agent will also (depending on who is to pay the freight is
accordance with the Incoterms® Rules) collect the freight and release
the cargo to the consignee against presentation of an original Bill of
Lading and proof of Customs and port authority release of the cargo.
Port authorities Transnet Port Operations (TPO) in Saldanha Bay will liaise with the ships
agent to ensure that a berth is allocated to the vessel and that the
vessel has access to the loading appliance.
On arrival of the vessel in Saldanha Bay it is PO’s responsibility to
provide the pilotage and tug services to bring the ship into harbour and
to berth it. On departure TPO will provide the pilotage and tug services
necessary to put the vessel to sea.
TPO will collect from the ship’s agent and freight forwarder all the
vessel and cargo dues payable for the use of the port services and its
equipment.
The Port Authority in New York will be responsible for providing similar
services and equipment (in reverse order) to those for which TPO was
responsible. These authorities will also collect the cargo and vessel
dues which apply in New York.
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Parties involved Roles
Customs In Saldanha Bay Customs will be responsible for clearing the ship
(through the ships agent) and the cargo(through the forwarder). In this
regard Customs may also act as the agent of other State authorities
such as Port Health, Immigration, and others.
In New York, the United States Customs authorities will be responsible
for ensuring that both the vessel and the cargo are cleared before the
vessel will be allowed into the New York Port Authority area of
jurisdiction. These clearances will be the responsibility of the ship’s
agent and Customs broker, respectively.
Stevedores Stevedores will be employed by the ship’s agent in Saldanha Bay to
ensure that the iron ore is loaded on board the vessel, that it is properly
stowed and trimmed, and the hatch covers are secured.
Longshoremen In New York, longshoremen will have the responsibility to ensure that
the vessel’s hatches are opened and that any separators or other
fittings used to secure and trim the cargo are removed prior to
discharge of the cargo.
Once cargo has been discharged it is then the responsibility of the
longshoremen to cleanthe holds and make them ready to load the next
cargo.
Clearing agent As mentioned earlier, it will be the responsibility of the New York based
(Customs Broker Customs broker to effect clearance of the cargo through United States
in USA) Customs authorities. Depending on the Incoterms® 2010 Rules under
which the iron ore was sold to the importer, the Customs broker will
act either for the importer or the exporter.
Importer The importer is the one who initiates the whole transaction by ordering
the goods and it is the importer who is responsible for receiving the
goods and paying for them.
Depending on the Incoterms® Rules under which the importer has
agreedto buy the iron ore, he may have the responsibility of appointing
all the parties necessary to ship and deliver the goods.
By receiving the original Bill of Lading from the exporter (or his bank),
the importer (or his agent) will present this document to the ship’s
agent in New York, together with any required port and Customs
clearances, and obtain release and delivery of the goods.
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Note: the above is a brief description of the roles and responsibilities of the various parties
involved in the logistics of a typical bulk shipment using a tramp shipping service under the
conditions of a charter party. With a shipment like this there needs to be very close liaison
between the freight forwarder and ship owners, ships agents, stevedores, and
longshoremen.
The following scenarios involve containerised cargoshipped on liner services where, although
the roles played by ship owners, stevedores and longshoremen are clear, the freight
forwarder is not directly as involved with these parties and thus they do not appear in the
explanations given.
Shipment 2
A South Africanretailer of television and electrical appliances wishes to import a consignment
of 20 X 6 metre containers of domestic refrigerators from Munich, in Southern Germany, for
delivery to a warehouse in Wadeville, Gauteng.
Parties involved Roles
Exporter Responsible for making the goods available for shipment at Munich at
the agreed time and preparation of the commercial invoices, shipping
instruction and any other documentation which may be required from
him by the forwarder and/or importer.
If the exporter is responsible (in accordance with the Incoterms® Rules
under which the refrigerators have been sold) for the freight, then it is
generally the exporter who will have appointed the forwarder to arrange
for the shipment of the goods.
If required, it will also have been the responsibility of the exporter to
apply for any permits required for the export of this commodity and any
exchange control authorisations.
Once shipment has been effected, the exporter may appoint the freight
forwarder to furnish documentary proof of shipment to the importer or
alternatively, the exporter may be required to present these documents
through his bank in order to obtain payment for the goods under a
documentary collection or a documentary credit. It is therefore
important that the freight forwarder obtains the Shipped on-board Bills
of Ladings from the ship’s agent as soon after the vessel has sailed as
possible.
Close liaison between exporter and freight forwarder is required in order
to ensure a smooth and trouble-free operation.
Forwarder In shipments like these the forwarder adds significant value in
coordinating the door-to-door movement of the cargo.
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Parties involved Roles
The forwarder’s involvement will commence on receipt of a copy of the
importer’s order on the exporter.
Depending on the Incoterms® Rules under which the goods were sold
the forwarder will act on behalf of either the exporter or the importer in:
• Tracking the progress of the goods to determine when they will
be ready for shipment.
• Negotiating door to door rates with carriers operating on the
Northwest Continent/ South Africa route and appointing the
most suitable (assuming that no loyalty agreement already
exists).
• Booking the space required on a vessel which will meet both the
cargo availability date in Munich and the transit time required to
move the cargo from Munich to the loading port (Hamburg or
Bremerhaven, as the case may be).
• Arranging with the terminal operator and/ or ships agent and the
exporter for the placement of the empty containers at the
exporter’s premises on the day or days when the containers are
to be packed.
• Arranging for the conveyance of the loaded containers from
Munich to load port. This inland carriage may be the
responsibility of the ocean carrier (carrier haulage) or the
forwarder (merchant haulage).
• Tracking of containers from exporters premises to on board
vessel at load port.
• Carrying out the processes and procedures required for Customs
and Port Authority clearance and release of the goods prior to
shipment.
• Preparation of Bills of Lading for presentation to, and signing by,
ships agent.
• Once vessel has sailed, having Bills of Lading signed by the ship’s
agent against payment of freight and other charges (such as
inland haulage and terminal handling), depending on the
Incoterms® Rules under which the goods were sold.
• Transmission of documents required for clearance and release of
the goods in South Africa to the forwarder’s office in South
Africa, the South African clearing agent, and/or the exporter (or
all 3 parties, depending on exporter/ importer requirements).
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•
Tracking containers from the time they depart empty from the
terminal operator in Munich until they are finally turned in
empty after delivery to the importer in South Africa, keeping all
parties informed on the movement status of the containers.
• In South Africa, the forwarder will issue a Delivery Release Order
to the clearing agent against payment of outstanding charges
and presentation of an Original Bill of Lading and proof of release
from South African Customs.
Ships agent The ships agent and forwarder maintain close liaison with regard to the
arrangements for the movement of the cargo.
Where the shipping line is responsible for the inland movement of the
containers (carrier haulage), this function will be carried out by the ship’s
agent.
In a number of instances, it is the responsibility of the ships agent to
prepare and submit the vessel plan to the port authorities. The vessel
plan is a plan of the ship showing where each container must be loaded.
The vessel plan is a vital document in ship operations as it is by carefully
planning the position of each container on the ship that an even weight
distribution is achieved and efficiencies of loading and discharging
containers are made possible.
The ship’s agent will also be responsible for all the vessel husbandry and
port operations discussed in the break bulk example.
It will also be the responsibility of the ships agent to ensure that the
ship’s manifest is lodged with the Customs authorities at each of the
South African ports at which the vessel carrying the cargo will discharge.
This manifest is required to be “acquitted” with South African Customs
within a stipulated period- that is, proof must be furnished to Customs
that all containers on board the ship were, by the end of the stipulated
period, either Customs cleared or moved to the State’s warehouse.
Marketing In this transaction the marketing agents of the shipping lines which had
agent the potential for carrying the cargo will have been intimately involved in
negotiating the rates and conditions for the carrying of this shipment.
These negotiations will have been undertaken either directly with the
importer or exporter (depending on the Incoterms® 2010 Rules under
which the cargo was sold) or the forwarder.
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Owners’ In concert with the marketing agent, the representatives of the owners
representative of the shipping lines concerned will have been giving their respective
marketing agents the mandates within which to negotiate rates, terms,
and conditions for the carriage of this cargo.
Terminal In the context of containerised cargo, container terminal operators are
operators an important part of the transport chain: in Germany they allocate the
empty containers which are required by the exporter in Munich and, on
the day, they are required, release the containers to the transporter
appointed to carry them to the exporter’s premises and to transport the
containers either to the load port or to a railhead for transport to the
load port.
Key to this phase of the operation is that the containers provided must
all be seaworthy and otherwise ready in all respects to be loaded with
the cargo in question.
In South Africa, the terminals (which are all operated by Transnet) will
be responsible for receiving the containers as they are offloaded from
the vessel by the port authorities, transporting them from the discharge
port and then either transporting them to the consignee and turning
them empty to an empty container depot or releasing them to a third-
party transporter for delivery and empty turn in.
In the case of merchant haulage these inland transport arrangements
will be the responsibility of the freight forwarder: in the case of carrier
haulage containers, the ships agent will be responsible for making the
arrangements.
In all cases however it will be the forwarder/clearing agent who will track
the containers, coordinate final delivery, and turn in.
Customs As far as the cargo is concerned, German Customs are responsible for
the export clearance of this shipment and the required documentation
will be prepared and presented by the freight forwarder.
In South Africa, Customs will be responsible for clearance of the
shipment, which will include collection of the import VAT and any duties/
surcharges payable. These will be declared on the import Customs
declaration prepared and submitted by the clearing agent (who may be
the same organisation as the forwarder).
As mentioned, Customs are also responsible for acquitting the ship’s
manifest within a stipulated period after vessel’s arrival in South Africa.
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Port Authorities The German Port Authorities will be responsible for receiving the
containers into the area designated for the vessel which will transport
them to South Africa. This area is called the export stack- it opens a
certain number of days before the vessel is due to load (before which
containers for this vessel may not be delivered into the terminal for
shipment) and it closes a short time (in most cases 24 hours) before the
vessel is due to load (after which containers may not be delivered into
the terminal for shipment on this vessel).
Prior to vessel’s arrival at load port, the ships agent and German Port
Authority will have affected the required berthing arrangements in a
similar way to the arrangements described for the berthing of the vessel
in Saldanha Bay in the previous example.
In addition to the aspects of ship’s planning and husbandry described for
TPO in the previous example, the Port Authorities at the load port must
ensure that containers are placed in the export stack in positions which
make it easiest to load them in accordance with the ship’s plan.
TPO in Durban take on the ship’s planning and husbandry described for
the New York Port Authority in the previous example. TPO will be
responsible for discharging the containers, releasing them, and
dispatching them to either Transnet Freight Rail or to an inland road
haulier for transportation and delivery to final destination. These
transport arrangements will be effected either by the ships agent (carrier
haulage) or the clearing agent (merchant haulage).
Clearing agent With this type of shipment there is a strong possibility that the
forwarding agent and the clearing agent are one and the same
organisation.
Nevertheless, it is important to understand that the forwarding agent
and the clearing agent have separate functions and that these functions
can be handled by unrelated companies.
The clearing agent, on receipt of the shipping documents (Bill of Lading,
commercial invoice, Certificate of Origin and so on) either from the
exporter, the forwarder, or the importer, must also obtain a written
clearing and delivery instruction from the importer. This will enable the
clearing agent to:
• Frame and submit the import Customs declaration and Port
Authority release documentation.
• Effect Customs and Port Authority clearance and pay VAT, duties,
and cargo dues on behalf of the importer.
• Obtain final release of the containers from the ship’s agent by
presenting and Original Bill of Lading, Customs and Port Authority
release and paying any outstanding freight and charges.
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• Arrange for the delivery of the containers to the importer for
unpacking and the empty container turn in.
Importer The importer is the one who initiates the whole transaction by ordering
the goods and it is the importer who is responsible for receiving the
goods and paying for them.
Once the order has been issued the importer will be closely monitoring
the progress of the shipment with the supplier and the forwarder.
Depending on the Incoterms® Rules under which the importer has
agreed to buy the refrigerators, he may have the responsibility of
appointing all the parties necessary to ship and deliver the goods.
By receiving the original Bill of Lading and other required shipping
documents (most importantly the commercial invoice, packing list and
Certificate of Origin) from the exporter, the exporter’s bank, the
forwarder or the clearing agent, the importer must issue a clearing and
delivery instruction to the clearing agent to enable that party to carry
out the functions referred to above.
The above is a brief description of the processes and procedures which must be undertaken
for FCL/FCL cargo movements using a liner shipping service.
In practice, each of these processes and procedures is very detailed and becoming a
professional freight forwarder is all about learning these, learning how the whole transport
chain links together and what to do when the unexpected happens at each phase in the
transport chain.
Shipment 3
A South African exporter of children’s toys wishes to send a consignment of 6m3/1200 kg to
a receiver in Omaha, Nebraska, USA from its factory in Brits, Gauteng. In this example we
describe the respective roles of the parties involved in a groupage shipment. We introduce
two new parties into the equation- consolidators (otherwise known as groupage operators or
NVOCCs) and depot operators.
Parties involved Roles
Exporter Responsible for making the goods available for shipment in Brits at the
agreed time and preparation of the commercial invoices, shipping
instruction and any other documentation which may be required from him
by the forwarder and/or importer.
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If the exporter is responsible (in accordance with the Incoterms® Rules
under which the toys have been sold) for the freight, then it is generally
the exporter who will have appointed the forwarder to arrange for the
shipment of the goods.
If required, it will also have been the responsibility of the exporter to apply
for any permits required for the export of this commodity and any
exchange control authorisations.
Once shipment has been effected, the exporter may appoint the freight
forwarder to furnish documentary proof of shipment to the importer or
alternatively, the exporter may be required to present these documents
through his bank in order to obtain payment for the goods under a
documentary collection or a documentary credit. It is therefore important
that the freight forwarder issues the Shipped on-board House Bills of
Lading once the Shipped on-board Ocean Bills of Lading have been issued
by the ship’s agent as soon after the vessel has sailed as possible.
Close liaison between exporter and freight forwarder is required in order
to ensure a smooth and trouble-free operation.
Forwarder In shipments like these the forwarder adds significant value in
coordinating the door-to-door movement of the cargo.
The forwarder’s involvement will commence on receipt of a copy of the
importer’s order on the exporter.
Depending on the Incoterms® Rules under which the goods were sold the
forwarder will act on behalf of either the exporter or the importer in:
• Tracking the progress of the goods to determine when they will be
ready for shipment.
• Negotiating FCL container freight rates for the depot to depot
(Pretcon, Gauteng to Omaha, Nebraska) movement of the FCL
container with carriers operating on the South Africa/ USA route
and appointing the most suitable (assuming that no loyalty
agreement already exists). Alternatively, if the forwarder in
question does not have sufficient cargo moving from Pretoria to
Omaha, he may elect to move the cargo in break bulk between
intermediate consolidation points (say City Deep or Durban and
New York or Chicago). As a further alternative the forwarder may
subcontract a consolidator (groupage operator) to consolidate the
cargo and deconsolidate it on arrival. In these instances, it will be
the consolidator who carries out the container logistics functions
described in the bullets below.
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Parties involved Roles
•
Booking the space required on a vessel which will meet both the
cargoavailability date in Brits, the time required to consolidate the
cargo with other consignments which are consigned to the same
destination and the transit time required to move the cargo from
Gauteng to the loading port (Durban).
• Arranging with the exporter to collect and deliver the cargo to the
consolidation point or the consolidation point on the day the
cargo is ready for shipment.
• Carrying out the necessary processes and procedures to have an
empty container moved from a terminal to the consolidation
depot and for the physical packing (stuffing) of the container in
the consolidation depot.
• Assuming that the cargo is containerised in Gauteng, once cargo
has been consolidated, arranging for the conveyance of the
loaded container from Gauteng to load Durban via either carrier
or merchant haulage.
• Tracking of the container from the consolidation depot to on
board vessel in Durban.
• Carrying out the processes and procedures required for Customs
and Port Authority clearance and release of the goods prior to
shipment.
• Preparation of the Ocean Bills of Lading for the FCL container for
presentation to, and signing by, ships agent and the preparation
of the House Bills of Lading and container manifest.
• Once vessel has sailed, having the Ocean Bills of Lading signed by
the ship’s agent against payment of freight and other charges
(such as inland haulage and terminal handling).
• Once vessel has sailed, signing, and releasing of the House Bills of
Lading for this consignment against payment and other charges,
depending on the Incoterms® 2010 Rules under which the goods
were sold.
• Transmission of documents required for the deconsolidation and
release process of the container in USA, mainly the Ocean Bills of
Lading, copy House Bills of Lading, container manifest and invoices
for charges to be collected to the forwarder’s agent in the USA.
• Transmission of the documents required for clearance and release
of the goods in Omaha to the forwarder’s office in the USA, the
USA Customs Broker (clearing agent), and/or the exporter (or all 3
parties, depending on exporter/ importer requirements).
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Parties involved Roles
•
Depending on which party he is acting for in terms of the
Incoterms® Rules, under which these goods were sold, tracking
the cargo from the time it leaves the exporter’s premises until it is
finally cleared and delivered in the USA, keeping all parties
informed on the movement status of the consignment.
• In the USA, the forwarder will issue a Delivery Release Order to
the Customs Broker (clearing agent) against payment of
outstanding charges and presentation of an Original House Bill of
Lading and proof of release from USA Customs and Port
Authorities.
• The forwarder will be responsible for acquitting the container
manifest with USA Customs within a stipulated time after arrival
of the carrying vessel in the USA.
Ships agent The ships agent will be carrying out the same functions with regard to the
movement of the container and the carrying the vessel as described in the
previous example (FCL/ FCL movement).
Where the shipping line is responsible for the inland movement of the
container (carrier haulage), this function will be carried out by the ship’s
agent.
The ship’s agent will also be responsible for all the vessel husbandry and
port operations discussed in the break bulk example.
As regards the manifest, it is the responsibility of the freight forwarder to
acquit the container manifest with US Customs and to furnish the ship’s
agent with documentary proof that this has been accomplished.
In the USA, the forwarder/ groupage agent will present the ships agent
with the Ocean Bill of Lading in order to obtain release of the container so
that it can be delivered to a depot and unpacked (see Container
consolidation/ deconsolidation depots below).
Marketing There is a great deal of commercial interdependence between forwarders
agent and and/ or consolidators and shipping lines with regard to the movement of
owner’s groupage containers and much of their relationships are based on the
representative number of groupage containers offered by forwarders and/ or
consolidators to shipping lines on the different trade routes. The
forwarder and/ or consolidator will have negotiated freight rates with the
shipping line’s marketing agent for groupage containers moving along this
route and, in order to secure this traffic, the forwarder and/ or
consolidator concerned will have negotiated a competitive freight rate
with the importer or exporter, depending on who must pay the freight in
terms of the Incoterm under which the goods are being purchased.
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Parties involved Roles
Terminal In the context of groupage cargo, container terminal operators are an
operators important part of the transport chain: in Gauteng, the Transnet container
terminal will receive the FCL groupage container from the forwarder or
container depot at which the container has been packed and transport it
to Durban for shipment.
Once discharged in the USA, the container will be taken to an unpacking
depot for de-stuffing and, once empty, will be turned in to an empty
container depot (park) until required again for export.
In all cases it will be the forwarder/ groupage operator who will track the
containers, coordinate final delivery, and turn in.
Container In South Africa, container depots may play a dual role in LCL/ groupage
consolidation/ export operations: they act as storage parks for empty containers and
deconsolidation thus, in this example, will be responsible for releasing an empty container
depots to the forwarder/ groupage operator responsible for consolidating the
cargo and stuffing it into the container.
Key to this phase of the operation is that the container provided must be
seaworthy and otherwise ready in all respects to be loaded with the cargo
in question.
The depot may also act as the agent of the forwarder or groupage
operator in physically packing (stuffing) the container. Alternatively, the
empty container may be delivered to the forwarder/ groupage operator’s
own premises for stuffing.
After stuffing, the full container will be delivered to the terminal operator
for transport to Durban and shipment.
On arrival in the United States the container will be delivered to either the
forwarder/ groupage operator’s own depot for de-stuffing and for final
release and delivery of the consignment. Alternatively, this function may
be carried out at a depot operated by a third party.
In either case the forwarder/ groupage operator will be required to
present the ships agent with an Original Ocean Bill of Lading and proof
that Customs and Port Authority requirements have been met in order to
obtain release of the container.
Customs As far as the cargo is concerned, South African Customs are responsible
for the export clearance of this shipment and the required documentation
will be prepared and presented by the freight forwarder.
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Parties involved Roles
In the USA, Customs will be responsible for clearance of the shipment,
which will include collection of any duties/ surcharges payable.
These will be declared on the import Customs declaration prepared and
submitted by the clearing agent (more commonly known as a Customs
Broker in the USA who in general may not be the same organisation as the
forwarder).
As mentioned, USA Customs are also responsible for acquitting the ship’s
manifest within a stipulated period after vessel’s arrival in the USA.
Port Authorities South African Port Operations will be responsible for receiving the
container into the area designated for the vessel which will transport it to
the USA. This area is called the export stack- it opens a certain number of
days before the vessel is due to load (before which containers may not be
delivered into the terminal for shipment) and it closes a short time (in
most cases 24 hours) before the vessel is due to load (after which
containers may not be delivered into the terminal for shipment).
Prior to vessel’s arrival in Durban, the ships agent and PO will have
affected the required berthing arrangements in a similar way to the
arrangements described for the berthing of the vessel in Saldanha Bay in
the break bulk example.
In addition to the aspects of ship’s planning and husbandry described for
TPO in the break bulk example, TPO in Durban must ensure that
containers are placed in the export stack in positions which make it easiest
to load them in accordance with the ship’s plan.
The New York Port Authority will also take on the required ship’s planning
and husbandry. It will be responsible for discharging the containers,
releasing them, and dispatching them to either a rail or an inland road
haulier for transportation and delivery to the unpack depot final
destination. These transport arrangements will be affected either by the
ship’s agent (carrier haulage) or the forwarder/ groupage operator
(merchant haulage).
Clearing agent/ As has been mentioned previously, with imports into the United States,
Customs Broker Customs clearance is carried out by Customs Brokers which are separate
entities from freight forwarders.
The Customs Broker, on receipt of the shipping documents (Bill of Lading,
commercial invoice, Certificate of Origin and so on), either from the
exporter, the forwarder, or the importer, must also obtain a written
clearing and delivery instruction from the importer. This will enable the
clearing agent to:
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Parties involved Roles
• Frame and submit the import Customs declaration and release
documentation.
• Effect Customs release and collect duties from the importer and
pay them to Customs on behalf of the importer.
• Obtain final release of the cargo from the forwarder/ groupage
operator by presenting an Original House Bill of Lading and
Customs release and paying any outstanding freight and charges.
• Arrange for the delivery of the containers to the importer for
unpacking and the empty container turn in.
Importer The importer is the one who initiates the whole transaction by ordering
the goods and it is the importer who is responsible for receiving the goods
and paying for them.
Once the order has been issued the importer will be closely monitoring
the progress of the shipment with the supplier and the forwarder.
Depending on the Incoterms® Rules under which the importer has agreed
to buy the toys, he may have the responsibility of appointing all the parties
necessary to ship and deliver the goods.
By receiving the original House Bill of Lading and other required shipping
documents (most importantly the commercial invoice, packing list and
Certificate of Origin) from the exporter, the exporter’s bank, the
forwarder or the Customs Broker, the importer must issue a clearing and
delivery instruction to the Customs Broker to enable that party to carry
out the functions referred to above.
In this shipment note that we have discussed a cargo consolidator or groupage operator: in
the USA, such parties are referred to as Non-Vessel Owning Container Carriers (NVOCCs). The
diagram below may provide further understanding of the respective roles of the parties
involved.
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The consequences of incorrectly identifying role-players and/or specifying their roles in
specific transactions.
In studying the section above it becomes clear that the successful movement of any
consignment from the time it leaves the exporter until it is finally delivered to the importer
involves many parties whose roles and responsibilities need to be clearly understood and
whose activities need to be carefully coordinated.
It is in not understanding these respective roles and responsibilities that unfortunate
consequences may result. Let us look at a few examples taken from the consignments
described in the previous section:
Shipment 1
In the shipment of the consignment of iron ore, the following consequences may result from
incorrectly identifying role players and/or specifying their roles:
In the event that the exporter and importer misunderstanding their respective roles with
regard to chartering of the vessel, cargo may arrive in Saldanha Bay with no vessel to load it.
In such a case huge rents and fines will be incurred until a vessel is chartered and the cargo
loaded.
The importer will in such a case may well receive the cargo very much later than planned
which in turn would lead to serious production delays at the iron/ steel works at which the
iron ore is required, in turn resulting in production delays for the customers of the iron/ steel
works.
If in this shipment a forwarder is not appointed and/or his responsibilities not clearly defined,
the consequences may be:
• That arrangements for the berthing and loading of the vessel are not made, in which
case there will be delays.
• The cargo is not cleared and released by Customs and the Port Authority, in which
case there will be delays in loading of the cargo until it has been cleared and released
for export.
• The Bills of Lading may not be released timeously and thus clearance and release may
be delayed at destination.
Shipment 2
Some examples of the consequences which may result from incorrectly identifying role-
players and/or specifying their roles in this shipment are:
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• If the role of the forwarder is not clearly understood by the exporter, then the exporter
may not wish to cooperate with him and information regarding the progress of the
manufacturing of the goods and their readiness for shipment may not be forthcoming,
resulting in insufficient time to book the cargo, place empty containers at the
exporters premises and carry out all the processes and procedures required to ship
them in accordance with the importers requirements. The resulting delays may result
in substantial loss of market to the importer if the goods are needed to meet deadlines
(trade fair, special promotion, Christmas sale and the like).
• If the forwarder has not had his role clarified with regard to issuing Bills of Lading,
having them signed and transmission of documents from Germany to South Africa
then the documents may arrive in South Africa too late to effect clearance of the
shipment prior to arrival, resulting in overstay charges.
• If the respective roles of the forwarder and ships agent are not clearly understood
with regard to which party is responsible for the inland movement of containers in
Germany and South Africa there will be delays and these may result in unnecessary
charges: the containers may also not meet the ship on which they were booked.
• If there is not a clear understanding on the part of the forwarder as to which party is
responsible for clearance of the goods in South Africa this may cause delays in handing
over of documents from the forwarder to the clearing agent and consequent delays in
clearance and release, resulting in overstay charges.
Shipment 3
Some examples of the consequences which may result from incorrectly identifying role-
players and/or specifying their roles in this shipment are:
• If the exporter does not understand the respective roles of the forwarder/ groupage
agents and all the intermediaries involved on the door-to-door movement of the cargo
he may make miscalculations of the transit times necessary to move the goods from
his premises to the exporter. As a result, he may make promises for delivery which
cannot be kept and consequently he stands in danger of losing his client.
• If the forwarder leaves anything to chance in planning the routing of the cargo and
ensuring that any sub-contractors he appoints, especially the NVOCC, understand
their respective roles in the greatest detail then cargo may be delayed or even lost
through incorrect routing. This will result in substantial delays or even losses which
the forwarder will need to make good. In groupage shipments such as this one the
onus is on the freight forwarder to have an in-depth knowledge of the respective roles
to be played by all parties
It is generally true to say that where problems arise with shipments, most of them are caused
by the fact that the respective roles of the parties involved was not clearly
understood by all concerned. In this section we have explored a few
examples- there are many, many more.
Please see infographics below for some interesting shipping information:
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112
112 https://unctad.org/en/PublicationsLibrary/rmt2019_en.pdf
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Topic 3.3: Principles of security and confidentiality in organisations [KT0303]
As seen above, the international trade business and operational cycle involves multiple role
players and stakeholders who have to communicate with each other and exchange
information in various ways in order for them to execute their functions properly. Therefore,
with so much information being exchanged, it becomes an unavoidable imperative to
consider issue of security and confidentiality in organisations.
Virtually every business, large or small, needs to protect sensitive information in the course
of engaging in business transactions, and confidentiality agreements are the most commonly
used mechanism to provide for non-disclosure of vital information.113
Another mechanism is through the incorporation or adoption of ISO standards.
ISO/IEC 27000:2018 (Extract)114
Information technology — Security techniques — Information security management
systems — Overview and vocabulary
0.1 Overview
International Standards for management systems provide a model to follow in setting up and
operating a management system. This model incorporates the features on which experts in
the field have reached a consensus as being the international state of the art.
ISO/IEC JTC 1/SC 27 maintains an expert committee dedicated to the development of
international management systems standards for information security, otherwise known as
the Information Security Management system (ISMS) family of standards.
113 https://iccwbo.org/resources-for-business/model-contracts-clauses/confidentiality/
114 https://www.iso.org/obp/ui/#iso:std:iso-iec:27000:ed-5:v1:en
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Through the use of the ISMS family of standards, organisations can develop and implement a
framework for managing the security of their information assets, including financial
information, intellectual property, and employee details, or information entrusted to them
by customers or third parties. These standards canalso be used to prepare for an independent
assessment of their ISMS applied to the protection of information.
0.2 Purpose of this document
The ISMS family of standards includes standards that:
a) define requirements for an ISMS and for those certifying such systems.
b) provide direct support, detailed guidance and/or interpretation for the overall process
to establish, implement, maintain, and improve an ISMS.
c) address sector-specific guidelines for ISMS; and
d) address conformity assessment for ISMS.
0.3 Content of this document
In this document, the following verbal forms are used:
• “shall” indicates a requirement.
• “should” indicates a recommendation.
• “may” indicates a permission.
• “can” indicates a possibility or a capability.
Information marked as "NOTE" is for guidance in understanding or clarifying the associated
requirement. “Notes to entry” used in Clause 3 provide additional information that
supplements the terminological data and can contain provisions relating to the use of a term.
1 Scope
This document provides the overview of information security management systems (ISMS). It
also provides terms and definitions commonly used in the ISMS family of standards. This
document is applicable to all types and sizes of organisation (e.g., commercial enterprises,
government agencies, not-for-profit organisations).
The terms and definitions provided in this document.
• cover commonly used terms and definitions in the ISMS family of standards.
• do not cover all terms and definitions applied within the ISMS family of standards;
and
• do not limit the ISMS family of standards in defining new terms for use.
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0 Normative references
There are no normative references in this document.
1 Terms and definitions
ISO and IEC maintain terminological databases for use in standardisation at the following
addresses:
• ISO Online browsing platform: available at https://www.iso.org/obp
• IEC Electropedia: available at https://www.electropedia.org/
3.1
access control
means to ensure that access to assets is authorised and restricted based on business and
security requirements (3.56).
3.2
attack
attempt to destroy, expose, alter, disable, steal, or gain unauthorised access to or make
unauthorised use of an asset.
3.3
audit
systematic, independent, and documented process (3.54) for obtaining audit evidence and
evaluating it objectively to determine the extent to which the audit criteria are fulfilled.
Note 1 to entry: An audit can be an internal audit (first party) or an external audit (second
party or third party), and it can be a combined audit (combining two or more disciplines).
Note 2 to entry: An internal audit is conducted by the organisation itself, or by an external
party on its behalf.
Note 3 to entry: “Audit evidence” and “audit criteria” are defined in ISO 19011.
3.4
audit scope
extent and boundaries of an audit (3.3)
[SOURCE: ISO 19011:2011, 3.14, modified — Note 1 to entry has been deleted.]
3.5
authentication
provision of assurance that a claimed characteristic of an entity is correct.
3.6
authenticity
property that an entity is what it claims to be.
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3.7
availability
property of being accessible and usable on demand by an authorised entity.
3.8
base measure
measure (3.42) defined in terms of an attribute and the method for quantifying it.
Note 1 to entry: A base measure is functionally independent of other measures.
[SOURCE: ISO/IEC/IEEE 15939:2017, 3.3, modified — Note 2 to entry has been deleted.]
3.9
competence
ability to apply knowledge and skills to achieve intended results.
3.10
confidentiality
property that information is not made available or disclosed to unauthorised individuals,
entities, or processes (3.54)
3.11
conformity
fulfilment of a requirement (3.56)
3.12
consequence
outcome of an event (3.21) affecting objectives (3.49)
Note 1 to entry: An event can lead to a range of consequences.
Note 2 to entry: A consequence can be certain or uncertain and, in the context of information
security, is usually negative.
Note 3 to entry: Consequences can be expressed qualitatively or quantitatively.
Note 4 to entry: Initial consequences can escalate through knock-on effects.
[SOURCE: ISO Guide 73:2009, 3.6.1.3, modified — Note 2 to entry has been changed after
“and”.]
3.13
continual improvement
recurring activity to enhance performance (3.52)
3.14
control
measure that is modifying risk (3.61)
Note 1 to entry: Controls include any process (3.54), policy (3.53), device, practice, or other
actions which modify risk (3.61).
Note 2 to entry: It is possible that controls not always exert the intended or assumed
modifying effect.
[SOURCE: ISO Guide 73:2009, 3.8.1.1 — Note 2 to entry has been changed.]
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3.15
control objective
statement describing what is to be achieved as a result of implementing controls (3.14)
3.16
correction
action to eliminate a detected nonconformity (3.47)
3.17
corrective action
action to eliminate the cause of a nonconformity (3.47) and to prevent recurrence
3.18
derived measure
measure (3.42) that is defined as a function of two or more values of base measures (3.8)
[SOURCE: ISO/IEC/IEEE 15939:2017, 3.8, modified — Note 1 to entry has been deleted.]
3.19
documented information
information required to be controlled and maintained by an organisation (3.50) and the
medium on which it is contained
Note 1 to entry: Documented information can be in any format and media and from any
source.
Note 2 to entry: Documented information can refer to.
• the management system (3.41), including related processes (3.54);
• information created in order for the organisation (3.50) to operate (documentation);
• evidence of results achieved (records).
3.20
effectiveness
extent to which planned activities are realised and planned results achieved.
3.21
event
occurrence or change of a particular set of circumstances.
Note 1 to entry: An event can be one or more occurrences and can have several causes.
Note 2 to entry: An event can consist of something not happening.
Note 3 to entry: An event can sometimes be referred to as an “incident” or “accident”.
[SOURCE: ISO Guide 73:2009, 3.5.1.3, modified — Note 4 to entry has been deleted.]
3.22
external context
external environment in which the organisation seeks to achieve its objectives (3.49)
Note 1 to entry: External context can include the following:
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• the cultural, social, political, legal, regulatory, financial, technological, economic,
natural, and competitive environment, whether international, national, regional, or
local.
• key drivers and trends having impact on the objectives of the organisation (3.50);
• relationships with, and perceptions and values of, external stakeholders (3.37).
[SOURCE: ISO Guide 73:2009, 3.3.1.1]
3.23
governance of information security
system by which an organisation’s (3.50)information security (3.28) activities are directed
and controlled
3.24
governing body
person or group of people who are accountable for the performance (3.52) and conformity
of the organisation (3.50)
Note 1 to entry: The governing body can, in some jurisdictions, be a board of directors.
3.25
indicator
measure (3.42) that provides an estimate or evaluation.
3.26
information need
insight necessary to manage objectives (3.49), goals, risks, and problems
[SOURCE: ISO/IEC/IEEE 15939:2017, 3.12]
3.27
information processing facilities
any information processing system, service or infrastructure, or the physical location housing
it
3.28
information security
preservation of confidentiality (3.10), integrity (3.36) and availability (3.7) of information
Note 1 to entry: In addition, other properties, such as authenticity (3.6), accountability, non-
repudiation (3.48), and reliability (3.55) can also be involved.
3.29
information security continuity
processes (3.54) and procedures for ensuring continued information
security (3.28) operations
3.30
information security event
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identified occurrence of a system, service or network state indicating a possible breach
of information security (3.28) policy (3.53) or failure of controls (3.14), or a previously
unknown situation that can be security relevant
3.31
information security incident
single or a series of unwanted or unexpected information security events (3.30) that have a
significant probability of compromising business operations and threatening information
security (3.28)
3.32
information security incident management
set of processes (3.54) for detecting, reporting, assessing, responding to, dealing with, and
learning from information security incidents (3.31)
3.33
information security management system (ISMS) professional
person who establishes, implements, maintains, and continuously improves one or more
information security management system processes (3.54)
3.34
information sharing community.
group of organisations (3.50) that agree to share information
Note 1 to entry: An organisation can be an individual.
3.35
information system
set of applications, services, information technology assets, or other information-handling
components
3.36
integrity
property of accuracy and completeness
3.37
interested party (preferred term)
stakeholder (admitted term)
person or organisation (3.50) that can affect, be affected by, or perceive itself to be affected
by a decision or activity
3.38
internal context
internal environment in which the organisation (3.50) seeks to achieve its objectives
Note 1 to entry: Internal context can include:
• governance, organisational structure, roles, and accountabilities.
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• policies (3.53), objectives (3.49), and the strategies that are in place to achieve
them;
• the capabilities, understood in terms of resources and knowledge (e.g. capital, time,
people, processes (3.54), systems and technologies);
• information systems (3.35), information flows and decision-making processes (both
formal and informal);
• relationships with, and perceptions and values of, internal stakeholders (3.37);
• the organisation's culture.
• standards, guidelines, and models adopted by the organisation.
• form and extent of contractual relationships.
[SOURCE: ISO Guide 73:2009, 3.3.1.2]
3.39
level of risk
magnitude of a risk (3.61) expressed in terms of the combination of consequences (3.12) and
their likelihood (3.40)
[SOURCE: ISO Guide 73:2009, 3.6.1.8, modified — “or combination of risks” has been deleted
in the definition.]
3.40
likelihood
chance of something happening.
[SOURCE: ISO Guide 73:2009, 3.6.1.1, modified — Notes 1 and 2 to entry have been deleted.]
3.41
management system
set of interrelated or interacting elements of an organisation (3.50) to
establish policies (3.53) and objectives (3.49) and processes (3.54) to achieve those
objectives
Note 1 to entry: A management system can address a single discipline or several disciplines.
Note 2 to entry: The system elements include the organisation’s structure, roles, and
responsibilities, planning and operation.
Note 3 to entry: The scope of a management system may include the whole of the
organisation, specific and identified functions of the organisation, specific and identified
sections of the organisation, or one or more functions across a group of organisations.
3.42
measure
variable to which a value is assigned as the result of measurement (3.43)
[SOURCE: ISO/IEC/IEEE 15939:2017, 3.15, modified — Note 2 to entry has been deleted.]
3.43
measurement
process (3.54) to determine a value.
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