Knowledge Module 1 Learner Guide

SAQA 96368 Knowledge Module 1

3.44
measurement function
algorithm or calculation performed to combine two or more base measures (3.8)
[SOURCE: ISO/IEC/IEEE 15939:2017, 3.20]

3.45
measurement method
logical sequence of operations, described generically, used in quantifying an attribute with
respect to a specified scale.
Note 1 to entry: The type of measurement method depends on the nature of the operations
used to quantify an attribute (3.4). Two types can be distinguished:

• subjective: quantification involving human judgment; and
• objective: quantification based on numerical rules.

[SOURCE: ISO/IEC/IEEE 15939:2017, 3.21, modified — Note 2 to entry has been deleted.]

3.46
monitoring
determining the status of a system, a process (3.54) or an activity
Note 1 to entry: To determine the status, there may be a need to check, supervise or critically
observe.

3.47
nonconformity
non-fulfilment of a requirement (3.56)

3.48
non-repudiation
ability to prove the occurrence of a claimed event (3.21) or action and its originating entities

3.49
objective
result to be achieved.
Note 1 to entry: An objective can be strategic, tactical, or operational.
Note 2 to entry: Objectives can relate to different disciplines (such as financial, health and
safety, and environmental goals) and can apply at different levels [such as strategic,
organisation-wide, project, product and process (3.54)].

Note 3 to entry: An objective can be expressed in other ways, e.g., as an intended outcome,
a purpose, an operational criterion, as an information security objective or by the use of other
words with similar meaning (e.g., aim, goal, or target).

Note 4 to entry: In the context of information security management systems, information
security objectives are set by the organisation, consistent with the information security policy,
to achieve specific results.

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3.50
organisation
person or group of people that has its own functions with responsibilities, authorities, and
relationships to achieve its objectives (3.49)

Note 1 to entry: The concept of organisation includes but is not limited to sole-trader,
company, corporation, firm, enterprise, authority, partnership, charity or institution, or part
or combination thereof, whether incorporated or not, public, or private.

3.51
outsource
make an arrangement where an external organisation (3.50) performs part of an
organisation’s function or process (3.54)

Note 1 to entry: An external organisation is outside the scope of the management
system (3.41), although the outsourced function or process is within the scope.

3.52
performance
measurable result
Note 1 to entry: Performance can relate either to quantitative or qualitative findings.
Note 2 to entry: Performance can relate to the management of activities, processes (3.54),
products (including services), systems or organisations (3.50).

3.53
policy
intentions and direction of an organisation (3.50), as formally expressed by its top
management (3.75)

3.54
process
set of interrelated or interacting activities which transforms inputs into outputs

3.55
reliability
property of consistent intended behaviour and results

3.56
requirement
need or expectation that is stated, generally implied or obligatory.
Note 1 to entry: “Generally implied” means that it is custom or common practice for the
organisation and interested parties that the need or expectation under consideration is
implied.
Note 2 to entry: A specified requirement is one that is stated, for example in documented
information.

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3.57
residual risk
risk (3.61) remaining after risk treatment (3.72)
Note 1 to entry: Residual risk can contain unidentified risk.
Note 2 to entry: Residual risk can also be referred to as “retained risk”.

3.58
review
activity undertaken to determine the suitability, adequacy and effectiveness (3.20) of the
subject matter to achieve established objectives (3.49)
[SOURCE: ISO Guide 73:2009, 3.8.2.2, modified — Note 1 to entry has been deleted.]

3.59
review object
specific item being reviewed.

3.60
review objective
statement describing what is to be achieved as a result of a review (3.59)

3.61
risk
effect of uncertainty on objectives (3.49)
Note 1 to entry: An effect is a deviation from the expected — positive or negative.

Note 2 to entry: Uncertainty is the state, even partial, of deficiency of information related to,
understanding or knowledge of, an event, its consequence, or likelihood.

Note 3 to entry: Risk is often characterised by reference to potential “events” (as defined
in ISO Guide 73:2009, 3.5.1.3) and “consequences” (as defined in ISO Guide 73:2009, 3.6.1.3),
or a combination of these.

Note 4 to entry: Risk is often expressed in terms of a combination of the consequences of an
event (including changes in circumstances) and the associated “likelihood” (as defined
in ISO Guide 73:2009, 3.6.1.1) of occurrence.

Note 5 to entry: In the context of information security management systems, information
security risks can be expressed as effect of uncertainty on information security objectives.

Note 6 to entry: Information security risk is associated with the potential that threats will
exploit vulnerabilities of an information asset or group of information assets and thereby
cause harm to an organisation.

3.62
risk acceptance
informed decision to take a particular risk (3.61)
Note 1 to entry: Risk acceptance can occur without risk treatment (3.72) or during
the process (3.54) of risk treatment.
Note 2 to entry: Accepted risks are subject to monitoring (3.46) and review (3.58).
[SOURCE: ISO Guide 73:2009, 3.7.1.6]

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3.63
risk analysis
process (3.54) to comprehend the nature of risk (3.61) and to determine the level of
risk (3.39)
Note 1 to entry: Risk analysis provides the basis for risk evaluation (3.67) and decisions
about risk treatment (3.72).
Note 2 to entry: Risk analysis includes risk estimation.
[SOURCE: ISO Guide 73:2009, 3.6.1]

3.64
risk assessment
overall process (3.54) of risk identification (3.68), risk analysis (3.63) and risk
evaluation (3.67)
[SOURCE: ISO Guide 73:2009, 3.4.1]

3.65
risk communication and consultation
set of continual and iterative processes (3.54) that an organisation conducts to provide, share
or obtain information, and to engage in dialogue with stakeholders (3.37) regarding the
management of risk (3.61)
Note 1 to entry: The information can relate to the existence, nature, form, likelihood (3.41),
significance, evaluation, acceptability, and treatment of risk.
Note 2 to entry: Consultation is a two-way process of informed communication between
an organisation (3.50) and its stakeholders on an issue prior to making a decision or
determining a direction on that issue. Consultation is:

• a process which impacts on a decision through influence rather than power; and
• an input to decision making, not joint decision making.

3.66
risk criteria
terms of reference against which the significance of risk (3.61) is evaluated
Note 1 to entry: Risk criteria are based on organisational objectives, and external
context (3.22) and internal context (3.38).
Note 2 to entry: Risk criteria can be derived from standards, laws, policies (3.53) and
other requirements (3.56).
[SOURCE: ISO Guide 73:2009, 3.3.1.3]

3.67
risk evaluation
process (3.54) of comparing the results of risk analysis (3.63) with risk criteria (3.66) to
determine whether the risk (3.61) and/or its magnitude is acceptable or tolerable
Note 1 to entry: Risk evaluation assists in the decision about risk treatment (3.72).
[SOURCE: ISO Guide 73:2009, 3.7.1]

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3.68
risk identification
process (3.54) of finding, recognising, and describing risks (3.61)
Note 1 to entry: Risk identification involves the identification of risk sources, events (3.21),
their causes and their potential consequences (3.12).
Note 2 to entry: Risk identification can involve historical data, theoretical analysis, informed
and expert opinions, and stakeholders’ (3.37) needs.
[SOURCE: ISO Guide 73:2009, 3.5.1]

3.69
risk management
coordinated activities to direct and control an organisation (3.50) with regard to risk (3.61)
[SOURCE: ISO Guide 73:2009, 2.1]

3.70
risk management process
systematic application of management policies (3.53), procedures and practices to the
activities of communicating, consulting, establishing the context and identifying, analysing,
evaluating, treating, monitoring and reviewing risk (3.61)
Note 1 to entry: ISO/IEC 27005 uses the term “process” (3.54) to describe risk management
overall. The elements within the risk management (3.69) process are referred to as
“activities”.
[SOURCE: ISO Guide 73:2009, 3.1, modified — Note 1 to entry has been added.]

3.71
risk owner
person or entity with the accountability and authority to manage a risk (3.61)
[SOURCE: ISO Guide 73:2009, 3.5.1.5]

3.72
risk treatment
process (3.54) to modify risk (3.61)
Note 1 to entry: Risk treatment can involve:

• avoiding the risk by deciding not to start or continue with the activity that gives rise
to the risk.

• taking or increasing risk in order to pursue an opportunity.
• removing the risk source.
• changing the likelihood (3.40);
• changing the consequences (3.12);
• sharing the risk with another party or parties (including contracts and risk financing ).
• retaining the risk by informed choice.

Note 2 to entry: Risk treatments that deal with negative consequences are sometimes
referred to as “risk mitigation”, “risk elimination”, “risk prevention” and “risk reduction”.
Note 3 to entry: Risk treatment can create new risks or modify existing risks.

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[SOURCE: ISO Guide 73:2009, 3.8.1, modified — “decision” has been replaced by “choice” in
Note 1 to entry.]

3.73
security implementation standard
document specifying authorised ways for realising security.

3.74
threat
potential cause of an unwanted incident, which can result in harm to a system
or organisation (3.50)

3.75
top management
person or group of people who directs and controls an organisation (3.50) at the highest level
Note 1 to entry: Top management has the power to delegate authority and provide resources
within the organisation.
Note 2 to entry: If the scope of the management system (3.41) covers only part of an
organisation, then top management refers to those who direct and control that part of the
organisation.
Note 3 to entry: Top management is sometimes called executive management and can
include Chief Executive Officers, Chief Financial Officers, Chief Information Officers, and
similar roles.

3.76
trusted information communication entity
autonomous organisation (3.50) supporting information exchange within an information
sharing community (3.34)

3.77
vulnerability
weakness of an asset or control (3.14) that can be exploited by one or more threats (3.74)

NB - Only informative sections of standards are publicly available. To view the full content,
you will need to purchase the standard from the ISO.

ISO/IEC 27001
INFORMATION SECURITY MANAGEMENT115

When it comes to keeping information assets secure, organisations can rely on the
ISO/IEC 27000 family.

115 https://www.iso.org/news/ref2477.html

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ISO/IEC 27001 is widely known, providing requirements for an information security
management system (ISMS), though there are more than a dozen standards in the
ISO/IEC 27000 family.
Using them enables organisations of any kind to manage the security of assets such as
financial information, intellectual property, employee details or information entrusted by
third parties.116

Keeping sensitive company information and personal data safe and secure is not only
essential for any business but a legal imperative. Many organisations do this with the help of
an information security management system (ISMS). The international guidance standard for
auditing an ISMS has just been updated.

In an age of increasing data usage and the risk of information security breaches and cyber-
attacks, the benefits of an ISMS are clear. Not only can it help to minimise the chance of such
breaches occurring, but it can also reduce the costs associated with keeping information safe.

ISO/IEC 27001 is one of the world’s best-known International Standards for the requirements
of an ISMS, part of a series of standards designed to help organisations manage the security
of their information.

One of the standards in that series, ISO/IEC 27007, Information technology – Security
techniques – Guidelines for information security management systems auditing, provides
guidelines for effective audits of ISMS to ensure they are as robust and competent as they are
intended to be. It has just been revised to ensure it remains fit for purpose and align it with
updates to its complementary standard, ISO 19011, Guidelines for auditing management
systems.

The standard provides extensive guidance on auditing the requirements stated in
ISO/IEC 27001 as well as on the competence of ISMS auditors. It is also intended to be used
in conjunction with the guidance contained in ISO 19011.

ISO/IEC 27001:2013
Information technology — Security techniques — Information security management
systems — Requirements

This International Standard has been prepared to provide requirements for establishing,
implementing, maintaining, and continually improving an information security management
system. The adoption of an information security management system is a strategic decision
for an organisation. The establishment and implementation of an organisation’s information
security management system is influenced by the organisation’s needs and objectives,
security requirements, the organisational processes used and the size and structure of the
organisation. All of these influencing factors are expected to change over time.

116 https://www.iso.org/isoiec-27001-information-security.html

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The information security management system preserves the confidentiality, integrity, and
availability of information by applying a risk management process and gives confidence to
interested parties that risks are adequately managed.

It is important that the information security management system is part of an integrated with
the organisation’s processes and overall management structure and that information security
is considered in the design of processes, information systems, and controls. It is expected that
an information security management system implementation will be scaled in accordance
with the needs of the organisation.

This International Standard can be used by internal and external parties to assess the
organisation's ability to meet the organisation’s own information security requirements.

The order in which requirements are presented in this International Standard does not reflect
their importance or imply the order in which they are to be implemented. The list items are
enumerated for reference purpose only.

According to the ICC, many enterprises adopt modern information and communications
technologies without fully realising that new types of risks must be managed as a result. This
guide addresses this gap and outlines how enterprises of all sizes can identify and manage
cyber security risks.

Failures in cybersecurity are constantly in the press with reports of malicious actors
breaching enterprises large and small – seemingly at will and with ease. Enterprises are now
exposed to a growing source of risk as criminal actors, hackers, state actors and competitors
grow increasingly sophisticated in taking advantage of weaknesses in modern information
and communications technologies. The combination of information systems with various
external devices increases the level of complexity and threats to enterprise information
systems.

Enterprises not only face external threats but must also manage the risks of internal threats
to their information systems, with persons within the organisation able to corrupt data or
take advantage of enterprise resources from the comfort of their residence or the local coffee
shop. From a business perspective, it is vital that a company – large or small – be able to
identify their cyber security risk and effectively manage threats to their information systems.
At the same time, all business managers including executives and directors must recogni se
that cyber risk management is an on-going process where no absolute security is, or will be,
available.

Unlike many business challenges, cyber security risk management remains a problem with no
easy fix available. It requires a consistent application of management attention with a
tolerance for bad news and discipline for clear communication. Many excellent resources are
available providing comprehensive explanations on top cyber threats, yet suitable material to
assist business management in their approach to cyber security remains scarce.

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The ICC Cyber Security Guide has been prepared for management and information
technology teams to use in their dialogue together – featuring a security self-assessment
questionnaire and a set of five principles to reduce risk associated with cyber security
incidents. The principles are supported by a checklist of six essential steps every company
should take to set managers on a course towards information security excellence.

ICC has also launched an online appendix of resources to complement the guide serving as a
living resource to provide more specific advice as these materials are developed – from
standards of practice to technical standards and more.117

It is therefore essential for each organisation to keep its sight on the ever -growing and ever
evolving threats to confidentiality and security which have been greatly increased by the
advent of technology.

Protect Your Business: Document Security and Confidentiality

118

Information is power. In the wrong hands, the information
stored in your files can damage your business, your personal
life and the privacy of your employees and customers.
Increased identity theft and other security breaches have
emphasised the importance of maintaining control over access
to your records. Beyond simply protecting information for confidentiality, many businesses
also have privacy regulations imposed on them by government or industry groups.

Physical Security

At its simplest level, document security means physical protection of the records themselves.
Many filing systems use supplies that offer inherent protection to documents. File folders
with fasteners or built-in pockets hold papers safely inside and prevent documents from
accidentally falling out. Expanding files and wallets with protective flaps offer protection
during transportation. Self-adhesive pockets applied to folders hold small items such as
business cards or digital media safely inside file folders.

Access Security

Limiting the number of employees who can access records provides a high level of document
security. Locked file cabinets or file rooms with security systems in place help prevent
unauthorised personnel from using confidential records. Document tracking using bar code
technology can restrict user access to entire filing systems or to specific folders. Usage
histories reveal who has taken files from the filing system, and how long they have used them.

117 https://iccwbo.org/publication/icc-cyber-security-guide-for-business/
118 https://www.smead.com/Director.aspx?NodeId=1636

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A balance must be achieved between making sure adequate protection is in place and
hampering quick access to information by legitimate users. Cumbersome security procedures
can lower productivity and encourage non-compliance.

Confidentiality And Privacy

Protecting the information of customers and employees is a responsibility that no business
should take lightly. Entities must comply with legislation and regulations that prevent certain
information from being available to unauthorised persons. Numeric indexing systems avoid
readable text on file labels that would identify patients. Human Resources departments must
follow guidelines to ensure that medical and investment information is only available to
authorised personnel.

When designing a filing system, be sure to address the appropriate level of protection for
your records. Building in security measures can avoid big headaches by keeping your critical
information away from those who would use it against you.

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Chapter 4 | Basic Principles of Finance and Accounting [KM-01-

KT04]
The Topic Elements to be covered in the chapter referenced above include:

Topic Topic Element/Heading Knowledge Theory
4.1 Basic principles and concepts of financial accounting KT0401
4.2 Principles of costing and estimates (Intermodal surface, KT0402

4.3 shipment, airfreight) KT0403
Interpretation of Financial Statements (Balance Sheet
4.4 KT0404
and Income Statements)
4.5 Techniques for the purpose of allocating costs in KT0405
international trade transactions involving a number of

commodities
Uses and forms of invoicing

By the end of this chapter, you should be able to demonstrate an understanding of the
following Internal Assessment Criteria or Learning Outcomes relevant to this topic:

No. Learning Outcome IAC
1 Calculate profit from the financial statements IAC0401
2 Detail the processes involved for allocation of costs in IAC0402
international trade transactions involving a number of
commodities IAC0403
3 Explain the processes involved in determining the
commodity invoicing

***

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Topic 4.1: Basic principles and concepts of financial accounting [KT0401]

Introduction to Accounting

You likely have a general concept of accounting. Information about the transactions and
events of a business is captured and summarised into reports that are used by persons
interested in the entity. But you likely do not realise the complexity of accomplishing this task.
It involves a talented blending of technical knowledge and measurement artistry that can only
be fully appreciated via extensive study of the subject.

You may also know what a surgeon does, but you can certainly appreciate that considerable
knowledge and skill is needed to successfully treat a patient. If you were studying to be a
surgeon, you would likely begin with a basic human anatomy class.

In this chapter, you will begin your study of accounting by looking at the overall structure of
accounting and the basic anatomy of reporting. Be advised that a true understanding of
accounting does not come easily. It only comes with determination and hard work. If you
persevere, you will be surprised at how much you discover about accounting. This knowledge
is very valuable to achieve business success.

Definitions

Let us begin with a more formal definition of accounting: Accounting is a set of concepts and
techniques that are used to measure and report financial information about an economic
unit. The economic unit is generally considered to be a separate enterprise. The information
is reported to a variety of different types of interested parties. These include business
managers, owners, creditors, governmental units, financial analysts, and even employees. In
one way or another, these users of accounting information tend to be concerned about their
own interests in the entity.

Business managers need accounting information to make sound leadership decisions. Owners
and investors hope for profits that may eventually lead to distributions from the business
(e.g., “dividends”). Creditors are always concerned about the entity’s ability to repay its
obligations. Governmental units need information to tax and regulate. Analysts use
accounting data to form opinions on which they base investment recommendations.
Employees want to work for successful companies to further their individual careers, and they
often have bonuses or options tied to enterprise performance. Accounting information about
specific entities helps satisfy the needs of all of these interested parties.

The diversity of interested parties leads to a logical division in the discipline of accounting.
Financial accounting is concerned with external reporting to parties outside the firm. In
contrast, managerial accounting is primarily concerned with providing information for
internal management. One may have trouble seeing the distinction; after all, aren’t financial
facts being reported? The following paragraphs provide a closer look at the distinctions.

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Financial Accounting

Consider that financial accounting is targeted toward a broad base of external users, none of
whom control the actual preparation of reports or have access to underlying details. Their
ability to understand and have confidence in reports is directly dependent upon
standardisation of the principles and practices that are used to prepare the reports. Without
such standardisation, reports of different companies could be hard to understand and even
harder to compare.

Standardisation derives from certain well-organised processes and organisations. In the
United States, a private sector group called the Financial Accounting Standards Board (FASB)
is primarily responsible for developing the rules that form the foundation of financial
reporting. The FASB’s global counterpart is the International Accounting Standards
Board (IASB). The IASB and FASB are working toward convergence, such that there may
eventually be a single harmonious set of international financial reporting standards (IFRS).

This effort to establish consistency in global financial reporting is driven by the increase in
global trade and finance. Just as standardisation is needed to enable comparisons between
individual companies operating within a single economy, so, too, is standardisation needed
to facilitate global business evaluations.

Financial reports prepared under the generally accepted accounting principles (GAAP)
promulgated by such standard-setting bodies are intended to be general purpose in
orientation. This means they are not prepared especially for owners, or creditors, or any other
particular user group. Instead, they are intended to be equally useful for all user groups.

As such, attempts are made to keep them free from bias (neutral). Standard-setting bodies
are guided by concepts that are aimed at production of relevant and representationally
faithful reports that are useful in investment and credit decisions.

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Managerial Accounting

Managerial accounting information is intended to serve the specific, and varied, needs of
management. Business managers are charged with business planning, controlling, and
decision making. As such, they may desire specialised reports, budgets, product costing data,
and other details that are generally not reported on an external basis. Further, management
may dictate the parameters under which such information is to be accumulated and
presented. For instance, GAAP may require that certain product development costs be
deducted in computing income; on the other hand, management may see these costs as a
long-term investment and stipulate that internal decision making be based upon income
numbers that exclude such costs. This is their prerogative. Hopefully, internal reporting is
being done logically and rationally, but it need not follow any particular set of mandatory
guidelines.

A Quality System

Both financial accounting and managerial accounting depend upon a strong information
system to reliably capture and summarise business transaction data. Information technology
has radically reshaped this mundane part of the practice of accounting over the past 50 years.
The era of the “green eye-shaded” accountant has been relegated to the annals of history.
Now, accounting is more of a dynamic, decision-making discipline, rather than a bookkeeping
task.

Ethics

Because investors and creditors place great reliance on financial statements in making their
investment and credit decisions, it is imperative that the financial reporting process be
truthful and dependable. Accountants are expected to behave in an entirely ethical manner.
To help insure integrity in the reporting process, the profession has adopted a code of ethics
to which its licensed members must adhere. In addition, checks and balances via the audit
process, government oversight, and the ever vigilant “plaintiff’s attorney” all serve a vital role
in providing additional safeguards against the errant accountant. Those who are preparing to
enter the accounting profession should do so with the intention of behaving with honour and
integrity.

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Others will likely rely upon accountants in some aspect of their personal or professional lives.
They have every right to expect those accountants to behave in a completely trustworthy and
ethical fashion. After all, they will be entrusting them with financial resources and confidential
information.

The Accounting Equation

The basic features of the accounting model in use today trace roots back over 500 years. Luca
Pacioli, a Renaissance-era monk, developed a method for tracking the success or failure of
trading ventures. The foundation of that system continues to serve the modern business
world well and is the entrenched cornerstone of even the most elaborate computerised
systems. The nucleus of that system is the notion that a business entity can be described as a
collection of assets and the corresponding claims against those assets. The claims can be
divided into the claims of creditors and owners (i.e., liabilities and owners’ equity). This gives
rise to the fundamental accounting equation:

Assets = Liabilities + Owners’ Equity

Assets

Assets are the economic resources of the entity, and include such items as cash, accounts
receivable (amounts owed to a firm by its customers), inventories, land, buildings, equipment,
and even intangible assets like patents and other legal rights. Assets entail probable future
economic benefits to the owner.

Liabilities

Liabilities are amounts owed to others relating to loans, extensions of credit, and other
obligations arising in the course of business. Implicit to the notion of a liability is the idea of
an “existing” obligation to pay or perform some duty.

Owners’ Equity

Owners’ equity is the owner’s stake in the business. It is sometimes called net assets, because
it is equivalent to assets minus liabilities for a particular business. Who are the “owners?” The
answer to this question depends on the legal form of the entity; examples of entity types
include sole proprietorships, partnerships, and corporations. A sole proprietorship is a
business owned by one person, and its equity would typically consist of a single owner’s
capital account. Conversely, a partnership is a business owned by more than one person, with
its equity consisting of a separate capital account for each partner. Finally, a company
or corporation is a very common entity form, with its ownership interest being represented
by divisible units of ownership called shares of stock.

Corporate shares are easily transferable, with the current holder(s) of the stock being the
owners.

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The total owners’ equity (i.e., “stockholders’ equity”) of a corporation usually consists of
several amounts, generally corresponding to the owner investments in the capital stock (by
shareholders) and additional amounts generated through earnings that have not been paid
out to shareholders as dividends (dividends are distributions to shareholders as a return on
their investment). Earnings give rise to increases in retained earnings, while dividends (and
losses) cause decreases.

Balance Sheet

The accounting equation is the backbone of the accounting and reporting system. It is central
to understanding a key financial statement known as the balance sheet (sometimes called
the statement of financial position).

Let us look an international example stated in US Dollars!

The following illustration for Edelweiss Corporation shows a variety of assets that are
reported at a total of $895,000. Creditors are owed $175,000, leaving $720,000 of
stockholders’ equity. The stockholders’ equity section is divided into the $120,000 that was
originally invested in Edelweiss Corporation by stockholders (i.e., capital stock), and the other
$600,000 that was earned (and retained) by successful business performance over the life of
the company.

Does the stockholders’ equity total mean the business is worth $720,000? No! Why not?
Because many assets are not reported at current value. For example, although the land cost
$125,000, Edelweiss Corporation’s balance sheet does not report its current worth. Similarly,
the business may have unrecorded resources, such as a trade secret or a brand name that
allows it to earn extraordinary profits. Alternatively, Edelweiss may be facing business risks
or pending litigation that could limit its value. Consideration should be given to these
important non-financial statement valuation issues if contemplating purchasing an
investment in Edelweiss stock. This observation tells us that accounting statements are
important in investment and credit decisions, but they are not the sole source of information
for making investment and credit decisions.

Assets ($895,000) = Liabilities ($175,000) + Stockholders’ equity ($720,000)

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How Transactions Impact the Accounting Equation

The preceding balance sheet for Edelweiss represented the financial condition at the noted
date, but each new transaction brings about a change in financial condition. Business activity
will impact various asset, liability, and/or equity accounts without disturbing the equality of
the accounting equation. How does this happen? To reveal the answer to this question, look
at four specific cases for Edelweiss. See how each impacts the balance sheet without
upsetting the basic equality.

Case A: Collect an Account Receivable

If Edelweiss Corporation collected $10,000 from a customer on an existing account receivable
(i.e., not a new sale, just the collection of an amount that is due from some previous
transaction), then the balance sheet would be revised to show that cash (an asset) increased
from $25,000 to $35,000, and accounts receivable (an asset) decreased from $50,000 to
$40,000. As a result, total assets did not change, and liabilities and equity accounts were
unaffected, as shown in the following illustration.

Case B: Buy Equipment via Loan

If Edelweiss Corporation purchased $30,000 of equipment, agreeing to pay for it later (i.e.,
taking out a loan), then the balance sheet would be further revised.

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The Case B illustration shows that equipment (an asset) increased from $250,000 to $280,000,
and loans payable (a liability) increased from $125,000 to $155,000. As a result, both total
assets and total liabilities increased by $30,000.

Case C: Provide Services on Account

What would happen if Edelweiss Corporation did some work for a customer in exchange for
the customer’s promise to pay $5,000? This requires further explanation; try to follow this
logic closely! Retained earnings is the income of the business that has not been distributed to
the owners of the business. When Edelweiss Corporation provided a service to a customer, it
can be said that it generated revenue of $5,000.

Revenue is the enhancement resulting from providing goods or services to customers.
Revenue will contribute to income, and income is added to retained earnings. Examine the
resulting balance sheet for Case C and notice that accounts receivable and retained earnings
went up by $5,000 each, indicating that the business has more assets and more retained
earnings. Note that assets still equal liabilities plus equity.

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Case D: Pay Expenses

Expenses are the outflows and obligations that arise from producing goods and services.
Imagine that Edelweiss paid $3,000 for expenses. This transaction reduces cash and income
(i.e., retained earnings), as shown in the Case D illustration.

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In General

In the life of any business entity, there are countless transactions. Each can be described by
its impact on assets, liabilities, and equity. Note that no properly recorded transaction will
upset the balance of the accounting equation.

Terms

In day-to-day conversation, some terms are used casually and without precision. Words may
incorrectly be regarded as synonymous. Such is the case for the words “income” and
“revenue.” Each term, however, has a very precise meaning. Revenues are enhancements
resulting from providing goods and services to customers. Conversely, expenses can generally
be regarded as the costs of doing business. This gives rise to another accounting equation:

Revenues – Expenses = Income

Revenue is the “top line” amount corresponding to the total benefits generated from all
business activity. Income is the “bottom line” amount that results after deducting expenses
from revenue. In some countries, revenue is also referred to as “turnover.” As you will see,
revenue is summarised first in the company’s income statement.

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Topic 4.2: Principles of costing and estimates
(Intermodal surface, shipment, airfreight) [KT0402]

In order to generate revenue and profits, companies must charge customers for their
products and services.

The last hundred-plus years have seen a primarily agriculture-based economy give way to
industrialisation. This revolution took root and continues to sweep around the globe.
Following the growth in manufacturing production, there has been an even greater
proliferation of support and service roles. In some economies, perhaps as few as 10% of
workforce members are now actively producing a tangible end product. As a result, it has
become very important to measure costs associated with services provided to others.

The Service Sector

Most employees in the private sector are engaged in nonmanufacturing activities like
accounting, sales, computing, and administration. New businesses have developed in the
areas of law, healthcare, food services, electronic information delivery, transportation,
entertainment, and others. Clearing and forwarding thus falls with the scope of the service
industry.

The cost of services, whether provided in the private sector, not-for-profit, or governmental
arenas, must be determined with some reasonable degree of accuracy. The growth, indeed,
dominance, of these sectors of the economy underscores the need to extend costing methods
beyond the traditional manufacturing setting.

Managers need to be keenly aware of this as they plot their ultimate financial strategies.
Great care must be taken to avoid dysfunctional decisions based on erroneously high or low
costing. There are many theories and methods, but none of them replaces a savvy decision
made by a well-informed manager who understands the nuances of job costing.

Freight Forwarder: Understanding Costs and Fees 119

Freight Forwarders do ‘jobs’ which their customers cannot do for themselves. Doing that job
comes with a cost to the freight forwarder that is why it is important for one to understand
the costs and fees that should be included in a forwarder’s shipping estimate.

Typical Freight Forwarder Cost Structure

Having even an elementary idea of the costs involved when offering services, a freight
forwarder canhelp save time and money, and more importantly help you craft the best value-
added services for your customers at competitive rates. As a start, these are the basics you
must be aware of:

119 https://www.freightos.com/freight-resources/freight-forwarder-calculating-costs-and-fees/

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Cargo Type

The simplest costs to understand are the ones associated with the type of cargo to be moved.
If a product is perishable, OVERSIZED, or hazardous and requires a special container or careful
handling, it is obviously going to cost more to move.

Less obvious is a product that requires regulatory oversight. Items such as medical drugs and
agricultural products typically require some type of permit which is obtainable at a fee.

It is important to ‘know’ the exact nature of the cargo to avoid any surprises down the road.

Weight and Volume

The weight of a shipment is equally important as the volume of a shipment because either
one can determine the cargo’s chargeable weight.

The cost to ship cargo is determined by comparing the actual weight and the volumetric
weight. The greater of the two is the one that is used to determine how much will be charged.
If a customer’s goods are light, but take up a lot of space, they might be more expensive to
ship than something very dense, but smaller.

Weight and volume are two important considerations people make when
sourcing goods.

Packing and Palletisation

A shipping container is like a puzzle – when it is loaded, the pieces (i.e., the cargo) need to fit
precisely in order to make the best use of the space.

This is achieved through proper packing and palletisation.

Most forwarders offer this service at an additional charge. However, it is important to ensure
that the legislation (in terms of packaging compliances) of the country where the goods are
being shipped to, is well understand by the relevant role players.

It is also important to understand the different options when it comes to the containers
themselves.

Container Costs

Generally speaking, containers come in two sizes:

• 20-foot equivalent (TEU)
• 40-foot equivalent (FEU)

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Where a shipment gets placed depends on its size.
But what happens if a customer does not require the full capacity of a container?
The fact is that most shipments do not require a full container load (FCL), so they are
combined with other shipments in a single unit and a customer is only charged for space that
their goods occupy. This is called less-than container load (LCL).
Note: Air freight containers have their own sizes.
Carrier Costs
The carrier cost is the expense associated with sending a shipment by land, sea, or air and
moving it to its destination.
There are two factors that influence this cost:

• Distance Travelled
• Route Popularity
Distance travelled is an obvious influencer as it stands to reason that sending something
further away is more costly than sending it to a nearby location.
But routes that are more frequently travelled tend to be less expensive than less common
routes. In those cases, sending goods further might be cheaper.
Documentation Fees
There are over one hundred documents that can play a role in freight shipping.
However, only about 9 acres critical to know and understand…unless you are shipping
plutonium.
As a freight forwarder, you are expected to know exactly what documents need to be included
with a particular shipment and documentation fees should always be included as part of an
initial quote.

If the goods require special documents, then the freight forwarder costs will
be greater.

Insurance
All carriers are required to have liability insurance, but a shipment is vulnerable and is
exposed to greater risk if it does not have additional coverage.

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A prudent freight forwarder will always prudently advise a customer to consider insurance on
their shipment and may make it available as an add-on service.

Customer can also purchase cargo insurance from a third-party insurer if the freight
forwarder does not offer it.

Administration Charge

A freight forwarder simplifies the complex process of sending freight where it needs to go.
For that, they take a much-deserved fee in order for them to remain viable and in business.

Think about it: the organisation, coordination, and management of shipping freight takes a
lot of time to perform and even longer to perfect.

Just keep in mind that in the mind of a client, a higher administration charge does not
necessarily correlate with a higher level of service.

Additional Freight Forwarder Charges

Surcharges and fees – Additional costs can come up at any point in the shipment process, be
it before, during, or even after main transit.

Common additional freight forwarder charges include the Currency Adjustment Factor (CAF),
Fumigation Fee, etc.

Others, like the War Risk Surcharge, are much, much less common.

Common Freight Charges

Freight Charges and Freight Fees: Tips and Advice On Common Freight Shipping Costs,
Charges, and Fees

When it comes to charges, there is no ‘one size fits’ all off-the-shelf solution to freight and, as
such, determining the cost of a freight forwarder service to its clients is not simple.

That is why it is important to ask the right questions in order to understand the full scope of
the service that a customer might require.

That is because there are literally dozens of variables that go into calculating the cost of a
freight forwarding service. Some forwarders include certain costs upfront, while others offer
them as an option.

According to Freightos research,120 there is an average of over 20 freight fees and surcharges
in every international freight quote. But what do all those initials mean anyway?

120 https://www.freightos.com/freight-resources/freight-charges/

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Herewith below is a list different international freight fees and surcharges, by who generally
charges the fee, what stage of the shipment it relates to, a short description of what a
customer would actually be paying and tips relating to different surcharges.

You may click on each link below in order to understand what each term means in greater
detail.

Common Freight Costs and Freight Charges

Before Main Transit

Some of these charges may also apply after Main Transit.

• Cargo Insurance
• Customs Bond
• Booking Fee
• ISF Filing
• Container Fumigation Fee
• Pickup Fee
• Customs Duty (at Origin)
• Terminal Handling Charges
• Security Surcharge
• Congestion Surcharge
• Consolidation Fee

Main Transit

• Ocean Freight/Air Freight Charge
• War Risk Surcharge
• Bunker Adjustment Factor (BAF)
• Currency Adjustment Factor (CAF)
• Panama Transit Fee
• Peak Season Surcharge

Destination

• Customs Clearance Fee
• Customs Duty (Destination)
• Merchandise Processing Fee (MPF)
• Harbour Maintenance Fees (HMF)
• Pier Pass Charge
• Alameda Corridor Surcharge (ACS)
• Demurrage and Detention / Warehouse Fees
• Telex Release/EDI Fee
• Delivery Fee
• Chassis Usage Fee
• Container Cleaning Fee

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Now let us look into this in greater details with some practical examples and calculations.

Sea Freight – Application of Rates and Surcharges

Important Terms

Shipping, Berth or Liner Terms: Is an expression covering assessment of ocean freight rates
generally implying that loading and discharging expenses will be for ship owner's account,
and usually apply from the end of ship's tackle in port of loading to the end of ship's tackle in
port of discharge.

Liner operators quote their freight rates on a liner term basis. A series of highly specialised
operations are required in the process of loading cargoes efficiently into a ship and securing
those cargoes in the ship's hold for safe transportation to the port of destination. Another
series of equally highly specialised operations must take place in order to extract the cargo
from the ship's hold and place them safely on the quayside at the port of destination. All these
costs are collectively known as “terminal handling charges” - THC.

Payment of freight: The word "freight" has two alternative meanings: it may be used to refer
to the movement of the cargo; by road, rail sea or air, or it may be used to denote the charge
raised by the carrier for the service of transportation.

Freight currency: In the context of international carriage by sea, the "tariff currency", is the
United States Dollar. It is common practice in the shipping industry that freight is payable as
the consignment/cargo is loaded on board the intended vessel.

Immediately the cargo has been placed on board, the shipping company is entitled to full
payment, even though the ship may sink along the quayside at the loading berth. The amount
of freight due is paid either at the port of loading in exchange for the issuance of the original
bills of lading, or at the port of discharge in exchange for the release of the consignment from
the shipping company's custody. When freight is paid in any currency other than the "tariff
currency", the amount due in that "tariff currency", will be converted at the rate applicable
on the date of shipment or such other date as agreed upon by the carrier. 121

System Rebates on Ocean Freight: The return of a portion of the freight charges by a carrier
or a conference shipper in exchange for the shipper giving all or most of his shipments to the
carrier or conference over a specified period of time (usually 6 months). Payment of the rate
is deferred for a further similar period, during which the shipper must continue to give all or
most of his shipments to the rebating carrier or conference. The shipper thus earns a further
rebate which will not, however, be paid without an additional period of exclusive or almost
exclusive patronage with the carrier of conference. In this way, the shipper becomes tied to
the rebating carrier or conference. Although, the deferred rebate system is illegal in U.S.
foreign commerce, it generally is accepted in the ocean trade between foreign countries.

121 http://www.exporthelp.co.za/modules/16_logistics/sea_freight_payment_terms.html

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Freight Forwarder’s Commission: In previous times freight forwarder were accustomed to
receiving a booking commission of between 2% and 5% of the basic ocean freight on cargo
which was booked with shipping lines and more particularly conference lines. In more recent
times however the practice has been discouraged and, in some countries, outlawed.

It is therefore important for the freight forwarder to establish whether such commissions are
payable on a particular route by the carrier with whom the freight forwarder is proposing to
book cargo.

Freight Tons and CBM 122

CBM stands for CuBic Metre. This is the most common unit used for the measurement of
volumetric cargo. Metric Tons on the other hand refers to the weight of cargo (e.g., 1 Metric
Ton = 1000 Kilograms).

Freight Ton or Revenue Ton is derived by calculating the weight or volume of the cargo and
the freight is charged based on whichever is higher.

When you have the dimensions of the package, first of all convert the measurement into cubic
metres.

Normally dimensions are in Length x Width x Height.

If for example the dimensions of a cargo crate is:

3.2m x 1.2m x 2.2m meters then the CBM is simply 3.2m x 1.2 mx 2.2m = 8.448 CBM.
As mentioned above, if the rate is quoted as for example USD 12.00/per freight ton and the
weight of the package is 1200 kgs = 1.2 tons, then the freight rate for this will be:

8.448 cbm x USD 12 = USD 101,376.00 or

1,2 tons x USD 12 = USD 14.40

Since the CBM rate is higher, the freight rate of USD 101,376.00 will apply.

Application of Surcharges and Sea Freight Calculation Guidelines

It is quite common to find that, having obtained a freight rate from a carrier, certain
surcharges needed to be added to, or subtracted from, the freight rate which has been given
in order to arrive at a final freight figure.

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. It is important to gain an 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.

122 http://freight.tips/how-to-calculate-cbm-and-freight-ton-weight-or-measurement-wm/

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These notes deal with the surcharges commonly found in sea freight. There are sea freight
surcharges which are imposed in circumstances which are not covered here.

It is very important that, when obtaining freight rates from different carriers, to also 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.

Why Are Surcharges Applied?

There are two reasons: (1) nature of the cargo and (2) circumstances. We will discuss each in
turn.

1 – Nature of the cargo

If the nature of a particular shipment of cargo presents the carrier with any complexities
regarding its handling and/ or compliance with additional regulations or other measures that
would not be experienced with general cargo, then we can expect a surcharge to be applied.
A few examples should make things clearer:

Dangerous Goods Surcharge and Perishables Surcharge

These types of goods always require special attention and so if goods are classified as either
dangerous or perishable then we can expect that a surcharge will be payable over and above
the basic ocean freight.

Where perishable goods are containerised, there is usually a Special Equipment Surcharge
payable for the provision of specialised, reefer containers.

Other goods which may fall into this category are fragile goods and/ or valuable goods.

Abnormal Cargo Surcharges

Shipping lines, in common with other carriers, lay down certain limitations on the weight of a
piece and/ or its dimensions. Cargo falling within these limitations is considered to be
“normal” and cargo falling outside of the limitations is considered to be “abnormal”.

The reason for the imposition of this type of surcharge is that large and heavy pieces of cargo
require specialised equipment to handle them and the carriers responsible for handling them
need to source this equipment at extra expense. The larger and heavier a piece of cargo, the
more expensive is the equipment needed to handle it.

Please note that these limitations only apply to single, indivisible pieces of cargo. For example,
a consignment made up of a number of cartons whose total dimensions would be considered
abnormal will not be treated as an abnormal consignment unless the dimensions of any one
of the cartons exceeded the dimension limitations.

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Abnormal surcharges take a number of forms.

For break bulk cargo we have:

• Long Length Surcharge and Heavy Lift Surcharges

These are applied when cargo exceeds the length limitations laid down (Long Length
Surcharge) or the weight limitations laid down (Heavy Lift Surcharge).
Obviously both these surcharges will be imposed on those consignments which are
both abnormally heavy and long. Interestingly there are seldom surcharges imposed
on break bulk cargo which is abnormally wide or high.

For containerised cargo we have:

• Out of Gauge (OOG) Surcharges

Shipping containers are built to standard dimensions. Where cargo is so big that it will
stick out of the container (bear in mind that flat rack or open top containers are used
to carry OOG cargo), then OOG Surcharges will be applied.

If cargo exceeds the height of the container it is said to be Over Height (OH) and an
OH Surcharge will apply. If cargo exceeds the width of the container it is said to be
Over Width (OW) and an OW Surcharge will apply. If cargo when loaded into a
container sticks out on both sides, then the OW surcharge will be double that of the
OW surcharge applicable if the cargo only sticks out on the one side.

Where OOG Surcharges imposed, a Special Equipment Surcharge can be expected for
the supply of flat rack or open top containers.

2 – Circumstances

When carriers decide on the freight rates they will charge, they base their considerations on
the conditions prevailing on the route on which that rate will apply. So, for instance a shipping
line may decide on a freight rate of USD70 per freight ton for shipping break bulk steel coils
from South African main ports to European main ports.

This freight rate is decided upon taking a number of factors into account, all of which have an
effect on that shipping line’s operating costs. In this example the major factors will be:

• The range of exchange rates against which the Euro, Rand and the US Dollar are
moving against one another,

• The prevailing range of prices of ship’s fuel oil (known as “bunkers”) ,

• The existence or absence of war or other disturbances (such as strikes) which affect
the operations of ports being served by the shipping line,

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• The volumes of ships and cargo being handled by the ports concerned and their
respective capacities to handle those volumes without undue delays and port
congestion.

There is clearly no certainty about how these factors will change over time but the one thing
which is certain is that if there is a significant change in any one of them it will have a marked
effect on the operating costs of the carrier concerned.

Example:

If the exchange rates of the US Dollar against the Euro and Rand weaken significantly, then it
means that our shipping line will still be earning the same amount of US Dollars for carrying
the steel coils, but it will be paying increasing amounts of Euros and Rands for the expenses
incurred by its ships when in Europe and South Africa.

If our shipping line does not do anything about this and the US Dollar exchange rate continues
to weaken then the shipping line will eventually be operating at a loss and will go out of
business.

So, what must be done? To “smooth out” the adverse effects of changes in the factors
described above, carriers impose various surcharges. These surcharges will change over time
to reflect how the factors are changing. If there are significant currency movements affecting
shipping line operating costs, then a Currency Surcharge (CS) or Currency Adjustment Factor
(CAF) will be imposed, and the amount of the surcharge will vary over time as the rates of
exchange of the currencies concerned move against one another. In the same way a Bunker
Surcharge (BS) or Bunker Adjustment Factor (BAF) will be imposed if the price of ships fuel oil
increases beyond certain limits. The level of this surcharge will change over time with the
price of ship’s fuel…oil.

Other surcharges which may be imposed because of adversely changing circumstances are
War Surcharge and Port Congestion Surcharge or Congestion Surcharge.

How Are Surcharges Applied and How Are They Used to Calculate Freight?

See an example of charges below >>

Item Rate Calculation Result
Basic Ocean Freight USD 2000 per USD 1200 x 1 USD 2000

6m/20ft container

Surcharge USD 4000 per USD 2400 x 2 USD 8000
12m/40ft containers USD 100

USD 100 per USD 100 per
6m/20ft container x 1

USD 200 per USD 200 per USD 400
12m/40ft container x 2

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Most of the calculations below are based on similar formats. In studying them, please note:

• how freight tons are calculated,

• how break bulk, LCL or groupage rates are calculated using freight tonnage,

• how rates per TEU are converted to rates per container depending on the size or type
of container used,

• how surcharges are applied.

In carrying out freight rate calculations an invaluable tool is a spread sheet: individuals are
strongly advised to become proficient in the use of spread sheets (especially the application
of formulae (formulas) in carrying out freight calculations and costing estimates.

Dangerous Goods Surcharge

Dangerous goods surcharges are normally imposed as a rate per freight ton (in the case of
break bulk, LCL or groupage cargo) or (in the case of FCL cargo) as a rate per container
(6M/20ft or 12M/40ft as the case may be).

Sea freight calculations can broadly be divided into two main components: breakbulk and
containerised. In this section we deal with how you should calculate the freight costs of both
of these two types of sea freight.

Break bulk cargo calculations >>>

Break bulk cargo, is cargothat is unitised, palletised, or strapped. This cargois measured along
the greatest length, width, and height of the entire shipment. The cargo is also weighed.
Shipping lines quote break bulk cargo per "freight ton", which is either 1 metric ton or 1 cubic
metre, which ever yields the greatest revenue.

Example:

A case has a gross mass of 2 mt (metric tons).
The dimensions of the cargo are:
2.5m x 1m x 2m
The tariff rate quoted by the shipping line is: USD 110.00 weight or measure (freight ton)

Step 1

Multiply the metres 2.5 X 1 X 2 = 5 cbm (Compare to the mass = 2 mt).

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Step 2

Calculate the freight with the greater amount either the mass or the dimensions.

5 cbm x USD 110.00 = USD 550.00 vs 2 mt x USD 110.00 = USD 220.00

Freight would be paid on the measurement and not the weight. All shipping lines carrying
cargo in a break-bulk form insist on payment based on a minimum freight charge which is
equivalent to one freight ton, one cubic metre or one metric ton.

Full Container load calculations and surcharges

Freight rates for containers are based on the container as a unit of freight irrespective of the
commodity or commodities loaded therein, (FAK) Freight All Kinds. The shipping lines quote
per box (container) either a six or twelve metre container. From time to time, abnormal or
exceptional costs arise in respect of which no provision has been made in the tariffs. For
example, a shipping line cannot predict the movement of the US Dollar or the sudden increase
of the international oil price. These increases have to be taken into account by the shipping
line in order to ensure that the shipping line continues to operate at a profit. These increases
are called surcharges. All shipping lines accordingly retain the right to impose an adjustment
factor upon their rates taking into account these fluctuations. All surcharges are expressed as
a percentage of the basic freight rate. Surcharges are regularly reviewed in the light of
unforeseen circumstances, which may arise and bring cause for a surcharge increase.

Bunker Adjustment Factor (BAF)

"Bunkers" is the generic name given to fuels and lubricants that provide energy to power
ships. The cost of bunker oil fluctuates continually and with comparatively little warning.

Example:

Freight rate: Port Elizabeth to Singapore – USD 1,250.00 per 6M container
+ BAF 5.2%
1 – USD 1,250.00 X 5.2% = USD 65.00
2 – Add the two amounts together
3 – Total Freight rate: USD 1,315.00

Currency Adjustment Factor (CAF)

The currency adjustment factor is a mechanism for taking into account fluctuations in
exchange rates, these fluctuations occur when expenses are paid in one currency and monies
earned in another by a shipping company. The currency adjustment factor is a mechanism for
taking into account these exchange rate fluctuations. It is always expressed as a percentage
of the basic freight and is subject to regular review.

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Example:

Freight rate: Port Elizabeth to Singapore – USD 1,250.00 per 6M container
+ CAF 6.3%
1 – USD 1,250.00 X 6.3% = US Dollar 78.75
2 – Add the two amounts together
3 – Total Freight rate: USD 1,328.75

War Surcharge

The outbreak of hostilities between nations can have a serious effect upon carriers servicing
international trade even though they may sail under a neutral flag. Carriers sailing within the
vicinity of a war zone may impose a war surcharge on freight to compensate for the higher
risks involved and the higher levels of insurance premium, which they may be obliged to pay.

Example:

Freight rate: Port Elizabeth to Singapore – USD 1,250.00 per 6M container
+ WAR 5%
1 – USD 1,250.00 X 5% = USD 62.50
2 – Add the two amounts together
3 – Total Freight rate: USD 1,312.50

All of the above surcharges may be applied to a single freight rate >>

Example:

Freight rate: Port Elizabeth to Singapore – USD 1,250.00 per 6M container
+ BAF 5.2%
+ CAF 6.3%
+ WAR 5%
1 – Total amount of surcharge 16.5%
2 – USD 1,250.00 X 16.5% = USD206.25
3 – (add to freight rate) = USD 1,456.25

Port Congestion Surcharge

Congestion in a port for a period of time can involve considerable idle time for vessels serving
that port. When a ship lies idle, this creates a huge amount of loss for the ship's owner.
Shipping lines therefore have the right to impose a surcharge on the freight to recover
revenue lost. Another factor which influences port congestion surcharge would be labour
disputes. Port congestion surcharges are calculated as a percentage of the freight rate as
expressed in the previous examples.

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Consolidation services

The consolidator or groupage operator hires a container from a shipping line and then sells
that space to his clients/exporters. The benefit for the exporter is that small quantities which,
would not fill a full container load, can be shipped by sea freight in a shipping container as an
alternative to air freighting the goods. The consolidator would charge per metric ton (mt) or
cubic metre (cbm), which ever yields the greatest. Example: USD 89.00 Weight or Measure.
The shipping line would have a contract of carriage with the consolidator and in turn the
consolidator would have a contract of carriage with the exporter. The consolidator would be
issued with a combined through bill of lading from the shipping line and then present the
exporter with a house bill of lading.

The bill of lading

The bill of lading (an important shipping document) has been and will continue to be referred
to repeatedly across this learning material.

The bill of lading performs the following functions:

• A contract of carriage between the shipper of the cargo and the carrying shipping
company.

• The name of the shipper and the receiver of the goods the consignee.

• The contents of the packages as declared by the shipper.

• Shipping details such as: port of loading and the port of discharge.

• The bill of lading is a freight invoice and indicates if the freight costs have been prepaid
by the exporter or will be paid by the importer, "freight collect".

• The bill of lading states the number of packages, weight, and dimension of the
shipment.

• It is a document of title to the goods stated thereon.

Every original bill of lading signed by or on behalf of the shipping company is a document of
title to the underlying goods. This special function of a bill of lading is achieved by a form of
words which state: "In witness whereof the undersigned on behalf of the shipping company
has signed three bills of lading all of this tenor and date, one of which being accomplished the
others to stand void". "Accomplishing" the bill of lading requires the surrender to the shipping
line or its agents in the port or place of destination one of the signed original bills of lading
duly endorsed by the consignee/importer. Unless and until one of the original bills of lading
as described above is surrendered, the shipping line will not release the cargo to the
consignee/importer. Upon surrender of any one of the originals the other originals bills of
lading become void.

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Endorsed bills of lading.

Bills of lading can only be issued with the words "shipped on board” if the cargo has actually
been loaded onto the named vessel at the port of loading. By insisting that the exporter
supplies the importer with a "shipped on board" bill of lading, the importer obtains conclusive
evidence that the goods have been loaded on board the intended vessel.

Some importers insist that the exporter presents "shipped on board" bills as a condition for
payment. "Received for shipment", bills of lading can be issued as soon as the goods have
been delivered into the custody of the carrying shipping company or its agent either at the
point of receipt or at the port of loading. Thus, a 'received for shipment", bill of lading will
only indicate the ship in which the cargo is intended to be loaded on. The risk remains that
the loading may, for many reasons delayed or the cargo may not be loaded at all.

Banks responsible for the payment of funds in payment for goods under letters of credit will
not release the funds if the bill of lading has been endorsed "received for shipment".

Railage rates

The movement of containers by rail within South Africa is now controlled by Transnet Freight
Rail which has replaced the old Transnet Freight Rail division who used to operate the railway
network.

Currently, Transnet Freight Rail123 railage rates not published but are rather subject to
negotiation either on an ad hoc basis (spot contracts) or by longer-term contracts called a
Transport Agreements.

When setting/negotiating prices Transnet Freight Rail will take into account:

• the customer/product/ service required,
• the operating requirements to provide the service required (FLS),
• operating costs,
• market related prices,
• competition.

(FLS stands for Freight Logistics Solution)

Transnet Freight Rail regards pricing as only one of many devices to counter competition.
Emphasis is placed on predictability, reliability, and value-added service.

Pricing on wagon business can be based on any one of the following units of measure:
Consignment / ton / train / rail wagon / transaction.

Rail rates do not include the cost of loading or off-loading, which activities are assumed to be
performed by the consignor/consignee.

123 http://www.transnetfreightrail-tfr.net/Customer/Pages/TFR-Services.aspx

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Transnet Freight Rail Standard Conditions of Carriage

There are special Service Conditions for the packing, loading, acceptance, transport, and
delivery of dangerous goods and/or, hazardous goods, explosives, perishable goods, and
abnormal loads carried in rail wagons or freight containers.

Transnet Freight Rail must be told in advance if a Consignor wishes it to carry any of these
items in order that the special Service Conditions can be complied with.124

Road transport rates

The type of haulier involved in transporting cargo can range from being one of the main
service providers in the case of overland transport between main cities or over border
between countries to the smaller, but no less important, role of delivering or collecting the
container to or from the terminal. It may involve moving containers to or from Johannesburg
to the coastal ports or transporting smaller consignment between the depot and the clients’
premises.

In all instances there are a number of factors which have to be taken into account when
deciding whether transport by road meets the needs of the client or whether another means
of transport is more suitable.

Firstly, the gross weight of the cargo as well as the container weight is crucial in establi shing
whether the cargo can be moved by road. Regulations stipulate the maximum permitted
weights which can be carried on South African roads and if the gross weight exceeds this then
this type of transport could be ruled out as an option unless a special vehicle is utilised.

Restrictions are not only guided by weight but also by size. There are limits both on the width
and the height of loads carried on the road. Sometimes permission to move by road will only
be given on the basis of a permit for which the operator must apply in advance.

In other cases, special vehicles such as a low loader may have to be arranged due to the large
weight or size of the consignment. This will invariably incur additional costs due both to the
need for the thorough preparation and planning of the journey and the type of vehicle being
utilised.

The transit time allowed for the cargo to reach its destination can be a crucial factor as road
transport enables the cargo to be delivered from door to door whereas other forms of
transport, e.g., rail and airfreight, require the cargo to be moved to or from a terminal or
siding prior to dispatch or after receipt.

Further regulations are also in place controlling the times of the day when trailers can move
if the payload is deemed to be abnormal and requires a permit to be transported. This may
involve holidays and weekends as well as movement during the day or night.

124 http://www.transnetfreightrail-tfr.net/Business/Pages/Conditionsofcarriage.aspx

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When taken into account these may result in a much longer journey time than expected and
may dilute any advantage which may have appeared to favour movement by road.

When considering the transit time, one should also take into account both the loading and
off-loading facilities. Some exporters and importers will not be able to load or off-load certain
types of vehicles due to the nature and location of their facilities.

This could be due to restricted access to their premises or unsuitable road conditions or even
lack of a loading bay or equipment e.g., forklift. It is essential that these factors are checked
with the client to avoid a wasted journey or delays in the movement of the cargo.

You should always be aware that transport by road does not normally include either the
loading or off-loading of cargo so arrangements and costs for these are not covered by a
haulier or cartage operator in their prices.

The Forwarding or Clearing agent is sometimes asked to arrange labour where loose cartons
have to be handled or cranes where lifting is involved. These types of operations must be
carefully planned and co-ordinated so that they can be carried out without delaying the
shipment.

The number of vehicles involved in a delivery must also be taken into account, particularly
where off-loading facilities are limited or there is a time restriction.

If a number of trucks are required, then delivery or collection will have to be carefully planned
and co-ordinated so that there are no delays as this could result in the hauliers charging
detention fees due to their vehicles not being available on time.

Some commodities such as liquids and perishable goods may require special handling and
storage which cannot be supplied by other forms of transport. This includes both tankers and
refrigerated trucks where, over the years, specialised vehicles have been developed to cater
for the required conditions and the quantities which have to be moved.

This has also meant that multi-modal transport could be expanded into these areas through
refrigerated and tank containers, other examples are insulated, ventilated and bulk
containers.

Additional advantages of road transport can be seen when goods have to be moved from one
country to another overland. There may be organisational restrictions such as different
railway authorities or technical barriers such as different gauge sizes on the railways. This may
mean that cargo has to be transferred or rolling stock has to be changed whereas a trailer can
move through without the load being handled.

Charges for moving containers by road are usually based on a box rate basis i.e., full
containers will be charged out on a per 6m or 12m basis dependent upon the final destination
of the cargo and the distance of this location from the place where the container was loaded
onto the delivery vehicle.

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It should also be noted that you cannot assume that any 2 x 6m containers will automatically
be able to be loaded onto the same trailer as this will be dictated by the combined weight of
the containers and contents and may result in heavy loads having to be moved on their own
due to the fact that no light container was available to “twin “with the heavy container.

This will mean that you may have to pay for the whole trailer even though it is only carrying
one container thus incurring a much higher rate.

Heavy containers may also require “centre mounting “i.e., being placed in the middle of the
trailer to spread the weight which could also result in having to pay for a full deck just to move
a single 6m container.

This could also mean having to re-position such a container as it cannot be off loaded from
the centre of the trailer so this also must be considered when planning the delivery or
collection of the shipment.

Road Freight Ton

Smaller consignments could be charged out on a per kilogram basis or per freight ton (1,000
kg or 1 CBM) or even per road freight ton (1,000 kg or 2 CBM) so it is important to check which
factor your cartage operator or haulier is applying as this would be critical to your costing.

This would mean that a consignment which weighed 2,000kg and measured 5 CBM would be
charged out at 2.5 road freight tons (5.0 CBM divided by 2) as this is higher than the actual
weight (2.0 tons).The basis on which the charges are to be raised should always be
established and agreed upon before contracting with a haulier or cartage operator.

Abnormal loads will normally be quoted on the basis of the individual weights and
measurements as these will be instrumental in finalising the type of vehicle to be used,
whether permits and escorts are required, and any other special services supplied.

As with other forms of transport any movement by road involving hazardous cargo will incur
a higher rate and will need to be transported by a properly certified road transporter who is
licensed to carry this type of cargo.

It may be possible to obtain a better rate if the haulier needs return loads for his vehicle as
he may be prepared to negotiate on the rate to ensure that he at least covers his costs.

In addition to this the use of locally based road transporters i.e., based close to the point of
collection should always be considered as these will often provide a better rate than one who
has to travel empty on the outward leg and therefore will have to cover their costs from one
leg of the journey only rather than over both legs.

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Summary

Freight Ton

When goods are being moved by various different modes of transport the agent must be able
to calculate the correct cost for each individual part of that overall movement. In order to do
this the agent must know the basis on which the charges are raised – this is normally referred
to as the freight tonnage if the goods are being moved by sea and chargeable weight if the
goods are being transported by air.

The “Freight Ton’’ means the weight in tons (one ton = 1,000kg) or in cubic metres, whichever
provides the higher amount of freight payable.

Remember also that the client may well be looking to the freight forwarder for guidance and
advice as to the most suitable or economical form of transport for his shipment. Correct
calculation of the costs will mean that the client is able to make a quick and well-informed
decision as to which option to take.

It should also be born in mind that the information needed to calculate these figures must be
provided by the client in full i.e., both the measurements of the item (length, width, and
height) as well as the weight of the item must be supplied to enable the agent to identify on
which basis the estimate is to be prepared.

It is preferable to calculate the measurements either in Centimetres or in Metres but,
whichever is used, to ensure that the type of measurement is clearly identified.
To illustrate this concept when transporting by sea we can examine the following examples
of two Shipments:

(a) A crate of machinery which weighs 3500kg (or 3.5 tons) and which has a volume of 2.5
Cubic Metres (CBM). In this case the Freight Tonnage will be 3.5 tons based on the
weight of the shipment.

(b) A case of plastic pipes which weighs 800kg (0.8 tons), but which has a volume of 1.2
Cubic Metres. In this case the Freight Tonnage will be 1.2 tons based on the volume
of the shipment.

If the figures provided by the client are lower than the actual size or weight, then the client
could end up paying more than they expected and therefore earning less profit than
budgeted. If they were able to prove that the estimate was wrongly calculated, then they may
hold the agent responsible for the excess.

If the actual weight or measurements are over estimated, then the client may end up
including a higher freight cost in his offer to his potential buyer and may not get the order
because his price is too expensive.

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Container commodity rate

• Freight All Kinds (FAK) container rate.
• Port to port rate

All shipping lines raise a charge for the transportation of cargoon their vessels and this charge
is normally referred to simply as Ocean Freight. This is always based in United States Dollars
by the shipping lines although this may be converted into a local currency by the forwarding
or clearing agent when preparing the estimate for the client.

The basis on which this charge is raised will differ depending mainly upon how the cargo is
being moved, e.g., containerised, or break-bulk, and whether the containerised cargo is an
FCL or LCL movement.

In addition to this there are other charges which will be raised by the lines such as Freight
Surcharges, Landside and Ancillary charges which will depend upon a variety of factors.

Freight rates are rarely published both for reasons of confidentiality and the fact that they
will differ from route to route as well as depending upon the direction in which the sailing is
taking place e.g., North, or Southbound, East, or Westbound. It is therefore very difficult to
draw up a standardised tariff which applies to all commodities, clients, and routes.

Whether or not the cargo is being moved on a containerised or Break-Bulk basis the shipping
line will require a description of the cargo which is to be carried before being able to offer a
rate. Currently the majority of freight rates is offered on an, “FAK” or Freight “All Kinds” basis
and is therefore not commodity specific.

The exception to this is the USA where rates are based on the product or commodity and have
to be registered with the Federal Maritime Commission prior to sailing.

It is still important that the lines are informed of the nature of the cargo in case there are
other factors which may influence the rate which is to be offered.

An example of this would be where the cargo is Perishable or Hazardous. In the latter case,
the Shipping lines policy may prevent them from accepting certain kinds of cargo at all due to
the high risk.

If they are prepared to transport the cargo it will almost certainly be at a higher rate due to
additional paperwork and attention needed for this type of product.

When cargo is moved on an FCL basis then the shipping line will also need to know the size of
the container to be used e.g., 6m (20ft) or 12m (40ft). In addition to this they will need to
know the type of container which will be needed. If this is not a GP (General Purpose)
container but rather special equipment, then this will also affect the basic freight rate as well
as resulting in surcharges being raised.

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A good example of this is a Flat Rack container where the width and / or height of the cargo
may exceed the standard measurements of the container. Surcharges will be raised where
the cargo is over-width and / or over-height as these will prevent the Shipping line from
stowing other containers next to or above the Flat Rack and therefore losing additional
revenue.

The rate for the FCL will normally be quoted on a per container basis, either 20 or 40ft. On
some routes the rate for a 40ft will be double that for a 20ft whilst on other routes the rates
will not work out in the same ratio due to the levels of demand and the preference for one or
other size of container on that particular service.

It should also be borne in mind that when a large number of containers are being moved
together at the same time then you may well be able to negotiate a lower freight rate with
the shipping lines due to the volume.

Type of Movement

People often get confused between the varied terminologies which exist in the forwarding
industry. The METHOD of transport means air, land, or sea whilst the MODE of transport will
be one of air, rail, road, or sea, hence the term multimodal meaning using more than one of
these different modes of transport when moving the cargo.

The type of MOVEMENT involved refers to the way in which the cargo is being moved so this
could be containerised by sea in which case the terms would either be FCL (Full Container
Load) or LCL (Less than Container Load) with the latter often referred to as groupage when a
number of LCL consignments are grouped together into one container.

If the cargo is moving by sea but is not containerised then the option is Break Bulk, meaning
packaged but not containerised e.g. cartons of fruit on pallets or large crates of machinery
which are loaded directly into the hold, and if there is no packaging at all it would be referred
to as Bulk e.g. wheat, maize, or even crude oil, which are often moved under a charter party.

If the cargo is moving by air, then this is often referred to as UNITISED meaning that it is
loaded into a ULD or Unit Load Device or just palletised if it is being moved on a freighter or
cannot fit into a ULD.

The MEANS of transport refers to the vehicle used to convey the cargo. If this is by rail, then
this will be a rail wagon on which the containers are placed and if by road then this could be
a horse and trailer or truck depending upon whether the cargo is containerised or loose.
If the cargo moves by air, then this would be an aircraft and when cargo is moved by sea then
this would be referred to as a vessel and not a ship or boat!

The above details are critical as the identification of the mode of transport and the type of
movement involved already provide a good indication as to what type of costing is involved.

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You may well find that the client or potential client does not always have a clear idea as to
which mode of transport is required or whether or not FCL or LCL would be the most suitable
type of movement for their cargo but this is the reason for one of the main roles of a
forwarder in terms of advising the client on the most suitable mode and movement for their
goods.

Cargo Specifications

In a significant number of cases your client will indicate how the cargo is to be moved but, in
some cases, they will not know or not be sure and that is why they come to a clearing and
forwarding agent.

You must first establish the number and type of packages as well as the type of packaging i.e.,
wooden crates, pallet cartons; plastic drums so that you know the quantity of cargo involved
in the shipment.

Then you must obtain details of the measurements and the gross weights of the packages
which, for surface transport, would ideally be in metres and Tons. If the client has not already
indicated the type of movement involved then this information will show whether or not the
cargo is likely to be LCL or FCL and, in the latter case, into what size and type of container it
can be packed.

These days packages have become more standardised so you will often find that a set number
of packages will make up a pallet load or that even if there are a number of packages being
moved these will be of a uniform size but be careful to check this when the client provides
details rather than just assume that all the packages are the same.

This applies especially when crates are involved as these often indicate larger or heavier
pieces of cargo are involved and therefore the gross weights and dimensions may vary from
crate to crate, so you need written confirmation of each crates’ specifications.

As a rule, once the gross weight of the cargo reaches around 14,000 Kg or 14.00 CBM then it
is likely to be more cost effective to move the cargo as an FCL than LCL, but you often have to
prepare costings by both types of movement to see which one provides the most economic
option. You should also take into account other factors such as the stowage and protection
of the cargo as the container will only be half full and also the value and security of the cargo
in terms of being packed into its own container for the whole journey rather than being
handled in and out of the container as well as in the depots at either end.

Cargo description and value

Two other very important details of the cargo are its value and the description, especially
when it comes to imported cargo.

A detailed description will enable the goods to be classified under a specific Tariff heading
and from this you will have to determine whether or not the goods are liable for Duty.

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If they are, you must then establish from the Tariff Heading, the type of tariff to be applied
which would be either Ad Valorem i.e., based on the value of the goods or Unit based i.e.,
based on a specific type of unit related to the product e.g., a litre of alcohol for wine and
spirits or kg for tobacco? It would also enable you to identify the rate of duty which was to be
paid on the goods.

It should also be noted that the description of the goods may be directly relevant to the rates
and charges involved as, although most shipments will be moved under the F.A.K. rate, any
perishable goods may involve reefer containers with their higher rates and dangerous goods
will incur the appropriate surcharge as well as requiring clearance for loading in line with the
IMDG guidelines.

Mode of transport

Rail transport would be most suitable to clients who are moving large numbers of containers
and who have their own spur i.e., a separate siding at their own premises into which a number
of wagons can be moved for discharge or unpacking.

Aside from this the majority of other movements by rail will be as part of a multimodal
containerised shipments being exported from inland to the coast of from the coast to inland
destinations and the railage will be established as per the above parameters.

Generally speaking, if the goods are not containerised then most shipments move by road
rather than rail because of the ease with which they can be both delivered and collected as
opposed to railage terminals or yards which are often less centrally located and more difficult
to access.

The movement of goods by road is also likely to be part of a larger multimodal transport
process in the same way as rail i.e., from the coastal port or to the coastal port but it could
also be between two main cities or towns or even across borders going all the way through
to central African countries.

Costings for these are much more straightforward as the loads are moved from origi n to
destination on the same vehicle rather than being transferred from one vehicle to another at
borders or other locations.

You therefore need to establish from where the goods are being collected or where the trailer
is being loaded and also the destination of the trailer in terms of the yard at which it is to be
unloaded and you have the main points for your costings in terms of where this should start
and finish.

Incoterms® Rules

One of the most critical factors when planning a costing is to establish where the costs start
for your client and where they end, and this will be done by means of the Incoterms® Rules
which have been agreed upon by the seller and the buyer.

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Whether your client is the seller or the buyer you must have the 3 letter Incoterm to indicate
up to which point the seller is responsible for the costs and from which point the buyer takes
over this responsibility.

Each Incoterm is followed by either the name of a place or a port without which you will not
be able to identify the point where the transfer of costs takes place and therefore where the
costing will finish or start.

Size and type of container

Once you have established that the type of movement will be a FCL then this will also require
you to take note of the number, size and type of the container(s) involved.

If you have more than one container then you must remember to make sure that all rates are
multiplied by the number of containers involved so that the total for all the containers is
reflected.

You must also make sure that in the shipment details at the top of the costing you clearly
indicate these details for the reader to note.

The size of the containers is also very important as you must ensure that you apply the correct
rate for the shipment whether this is a 6m or a 12m and it is also quite possible that you may
be dealing with a shipment with a mix of sizes i.e. both 6m and 12 m so you need to be careful
not to get the rates mixed up and to apply these correctly.

Lastly the type of container could be vital in terms of the accuracy of the costing and making
sure that you have covered all the additional charges.

Flat racks and open Tops will incur special equipment surcharges as well as possibly extra
height and, in the case of Flat racks, one or possibly two extra width surcharges.

The consequences of failing to include these in your costing could be very dramatic!

• Place of receipt
• Port of loading
• Port of discharge
• Place of delivery

Do not forget to check where your responsibility starts and ends in terms of the transport of
the cargo.

In many respects this will be dictated by the Incoterms® Rules with which the client provides
you when they request the costing but this will often only indicate the origin or destination
of the cargo e.g. FOB (named port of shipment) will tell you the name of the port from which
the goods are shipped but will not tell you the port of discharge to which they should be
consigned.

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EXW (named place) will tell you the name of the place from where the goods are to be
collected but will not tell you where the goods are to be loaded or where they may eventually
be delivered.

It should also be noted that in a number of countries there are a number of different ports
which may be used and in others different shipping lines may sail or arrive at different ports
e.g., in the U.K. where the conference lines may use Tilbury and MSC may use Felixstowe.

Also remember that the ports involved will also indicate whether surcharges such as port
congestion will be involved and the rates for these must be obtained.

*** Costings must always be structured to include all elements.

Landside charges

In addition to the rates which are levied for ocean freight shipping lines can invoice out a
number of other fees which may be collected on behalf of third parties. There could also be
a variety of costs incurred by the client if he does not meet the conditions specified whilst
utilising their containers.

The exact fees may depend upon whether the shipment is an import or export, whether it is
consigned to an inland destination and whether the cargois transiting through RSA to another
country. It may also depend upon whether the customs release has been issued by the time
the container is available for collection.

Shipping lines can also raise a charge for haulage if this is arranged on a “Carrier Haulage”
basis with the lines being the “Carrier”. This is as opposed to “Merchant Haulage” where the
clearing agent or consignee would arrange the collection or delivery of the container.

This could be from the Exporters premises to the port or from the port to the Importers
delivery address and, as with the THC; this will normally be quoted on a per container basis
based on the collection or delivery point.

The rate will vary depending upon the geographical location of this point but as a guideline
the further away this is from the port the more time the journey will take and the higher the
cost of the trip.

In addition to the above the shipping line will also raise charges for the processing of certain
documentation in order to facilitate the movement of the cargo. A Container Terminal Order
(CTO) has to be completed and stamped to enable containers to be moved in or out of the
port and if this is completed by the shipping line, they will charge for this to be done. These
are often referred to as “Optional Service” fees.

A Release fee will also be raised on a per container basis either by the shipping line i tself if
they have their own offices or by the ships agent if they are represented. This will again be on
a container basis with a maximum fee per Bill of Lading.

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If the cargo is for delivery to an inland destination, then the empty container will usually be
returned to an inland container depot after unpacking. This will incur a “Turn In” fee which
will be raised on the basis not only of the container size but also dependent upon the type
and sometimes the route on which the container is being used.

This is to cover the cost of the additional time which it takes for the container to be re-used
as well as the possibility that the empty container may have to be re-positioned to the coast
to be re-used if there is insufficient demand from inland exporters.

It should be noted at this stage that there is a difference between standard charges which are
incurred in the process of the normal movement of the container and the penalty charges
which could be incurred as a result of not adhering to the conditions of container utilisation
and haulage issued by the shipping lines.

When preparing an estimate for your client you will normally include charges that will form
part of the usual movement of the cargo rather than optional ones or ones which depend
upon certain situations occurring. It is important that the clients are aware that additional
charges may be raised if they do not comply with the terms and conditions of use.

A good example of this would be the loading or unloading of containers where a speci fic
amount of time is allowed for this process (3 hours per 20ft, 4 hours per 40ft) and where
“Trailer Detention” charges could be incurred if these periods are exceeded.

Alternatively, if a container is delivered for loading or unloading and this operation does not
take place then a “Futile Trip” charge could be raised.

Further examples are the releasing of the container where a “Late Clearance” charge will be
levied if the container is not cleared before the container is available and where there i s a
delay in the payment of the lines charges in which case a “Late Payment of Freight” fee will
be raised.

Additional fees could also be incurred should the empty container not be returned to the
nominated depot within a prescribed period.

This period will change depending upon the final destination of the container. Alterations to
documents, after they have been issued, such as a change to the port of discharge on a Bill of
Lading will and delivery of Export containers outside of the stack times are also examples of
situations where service and penalty fees would be raised.

Depot handling and Storage charges

Nowadays container depots offer a substantial range of services starting with the handling of
cargo and containers as well as the storage of same and also other ancillary services
depending upon the needs of the customer.

Some of these services are mainly to meet the requirements of the container owners and
shipping lines and will not usually be required by Forwarding or Clearing agents.

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SAQA 96368 Knowledge Module 1

These include the handling, washing, repair and storage of containers as well as additional
services such as stock control and container documentation such as the CTO (Container
Terminal Order).
For this exercise we will concentrate on those services which are most often used by the
Forwarding and Clearing industry either by direct instruction or via their service providers
such as shipping lines and groupage operators.

The most frequently used service which a depot will provide will be the packing and unpacking
of containers. This will mainly be containers which are being handled on behalf of groupage
operators and will be for export and import movements, respectively.

This will also include the preparation of manifests for the export boxes as well as out-turn
reports for the import containers to confirm all items have not only been received but also
that they are in good condition.

Rates for this service are charged on a “per freight ton” basis with a minimum of 1 freight ton
although the rate itself will fluctuate depending on the packaging of the consignment. If the
goods are properly packed and secured and can be easily handled e.g., on pallets then you
will pay a standard rate. If the consignment is made up of loose items e.g., cartons or sacks
than you should expect to pay a higher rate to cover the additional time and labour which
would be needed to ensure this is done correctly.

Packing and unpacking charges for full containers are quoted per container but are often only
available on request as it is that the depot knows exactly what is to be packed. The nature of
the goods and the packaging will indicate to them whether additional labour or special
handling equipment is required.

It will also enable them to establish if palletisation is needed where goods are delivered loose
as well as any additional packing material or strapping if the cargo needs to be secured and
lashed to ensure it does not move whilst in transit.

All these services can be provided but the charge for both labour and materials for each one
must be obtained and included in the estimate. If you are not sure what may be involved, you
should discuss the situation with the depot management and make sure everything is covered
before quoting the client.

The second major service which a depot offers is that of storage, the need for which can arise
for a number of different reasons.

Storage is often required for cargo which has been unpacked but not yet collected. A period
of 3 free days is normally allowed, including the day on which the container is unpacked, after
which storage will be charged on a per freight ton per day basis.

This rate may increase the longer the cargo remains uncollected, and it is therefore
imperative that shipments are cleared through customs prior to arrival of the vessel and that
the cargo is collected as soon as possible after the container is unpacked.

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SAQA 96368 Knowledge Module 1

Storage may also be required for full container loads which have been discharged from the
vessel, but which have remained in the Port Terminal beyond the permitted period of 3 days,
hence the term “overstay”.

Containers are only permitted to remain in the port area for a limited amount of time after
discharge and, if this is exceeded, the ship’s agents, on behalf of the shipping lines and in
accordance with the terminal rules, will arrange for them to be moved to a depot to be stored.
The cost of handling the containers, moving them to the depot and the storage from then on
will all have to be paid prior to the container being released. All of these are charges are on a
per container basis with the storage increasing at a daily rate until the container is due to be
collected.

These charges are punitive, particularly if there is more than one container involved, but it is
done in order to motivate early clearance andcollection. The amount of storage space in most
ports is limited and if containers are not moved promptly then it will eventually lead to a
deterioration in the performance levels of the operators which affects all users.

It is also possible that a client may specifically request the Clearing agent to arrange storage
of a container. This is often due to the fact that they are not able to take delivery of the
container.

A good example is the holiday period over Christmas where companies shut down on a
specific date. Whenever possible the client should be advised of the cost in advance so that
it can be included in the final invoice and paid without causing a query.

Temporary storage may also be needed in a depot for cargo which is to be packed at a later
date or which has to be delivered to the consignee over a period of time rather than
immediately after arrival.

This may be due to that fact that the importer or exporter only has space to handle limited
quantities of stock and requires temporary or additional facilities to hold the cargo.

Most container depots now offer Bonded storage facilities for goods which are to be cleared
into a bonded warehouse in the first instance or pending either export or re-export. It should
be noted that rates for this type of storage will always be higher than for normal warehousing
due to the fact that additional security and documentation is required to operate such a
facility.

Other services offered by a depot will include the packing of specific items such as motor
vehicles where special care is required or where packaging is damaged and requires repairing
prior to loading or after unpacking. This may alsoentail marking or re-marking and this service
will normally be charged out at a per unit rate dependent on the kind of packages involved.
The sorting of cargo may also be needed prior to loading for which the depot will charge a fee
per freight ton.

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SAQA 96368 Knowledge Module 1

When Customs instruct that an inspection must be done prior to release of the cargo then
this is often carried out at the container depot. If the cargo is a small consignment, then this
could be a matter of examining an individual package and its contents.

If the shipment is a full container, it may need only a tailboard inspection or, if customs so
direct, the complete unpack and re-pack of the container.

This need for an inspection can only be advised to the client once the Customs Entry has been
processed but he should be advised that any resulting charges will be for his account.
Lastly, where damaged cargo is involved, the client or agent may request the depot to take
photographs for use as evidence in an insurance claim. This can be arranged but the fee
should be confirmed in advance.

Port and Terminal charges

There are a number of different charges which would be incurred when using facilities and
equipment in the port, port terminal or when using other harbour facilities such as the Multi-
Purpose Terminal in the case of Break Bulk, or even Bulk cargo.

Cargo Dues will be incurred in the port, and these are set by the Transnet National Port
Authority to raise funds for the maintenance of the port infrastructure i.e., the fixed assets in
the port area including the quays, storage areas, warehouses, and gantry cranes for working
the vessels.

This rate will be charged on a “per container basis” with the 12m rate set higher than the 6m
rate. However, unlike the THC, the Cargo Dues charge for export cargo is lower than the one
for import cargo.

These rates are adjusted regularly (e.g., annually), thus when preparing a costing any time
after the start of March this should be kept in mind and the client notified so that, even if the
new rates are not yet available, the client is aware that an increase is on its way and can allow
for this and therefore not have grounds for disputing this when the final invoice is issued.

The other main charge incurred in a port terminal is the Terminal Handling Charge (THC)
which is raised by the Transnet Port Terminals, and which covers the cost of the lifting,
handling, and loading operations.

This will commence on the receipt and lifting of the export container from the delivering
vehicle into the terminal for stacking and loading or from the discharge of the container from
the vessel until it is placed onto the vehicle for removal from the terminal.

This is charged out on a “Per Container” basis and the rate will differ depending upon the size
of the container. The rate will also depend upon whether the cargobeing moved is Hazardous
or Perishable or if the weight of the cargo and container is deemed to be abnormal and the
cargo measurements exceed the specified standard limits and is therefore considered “Out
of Gauge”.

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SAQA 96368 Knowledge Module 1

In addition to the above there will also be a charge for the processing of documentation which
enables a container to be either delivered into or removed from the terminal. This document
is called a Container Terminal Order (CTO) and has to be completed and stamped to authorise
a container to be moved in or out of the port.

This documentary authority is steadily being converted to an electronic format and therefore
no longer always requires presentation of the actual document as opposed to electronic proof
of the shipment on the IT system which serves to confirm the validity of the booking and also
permission to access the terminal to deliver or collect the container.

This document can be completed by any one of a number of parties from the ships agent to
the clearing agent to the road transporter themselves for which a fee will be raised on a per
CTO basis so if you are not the party completing this you need to allow for this charge on a
per container basis.

Duties and Value Added Taxes

One of the key aspects when preparing an estimate, is the calculation of the Customs Duty,
where applicable, and VAT which will be payable on the items which are being imported.

The first step is to ensure that you have to hand all the basic information which will be
required to calculate these two amounts. This will include the foreign value of the shipment,
along with the currency in which it is quoted, the tariff heading(s) and rate(s) of duty for the
goods, and the exchange rate to be used to convert the foreign value into ZAR Rand.

The clearing agent must therefore be able, using the suppliers’ commercial invoice as a base,
to identify the price paid or payable for the goods together with all charges up to the ships
rail in order to calculate the FOB value. This will be shown on the customs worksheet which
is produced at the time the Customs declaration or SAD 500 is framed together with any
additional charges such as insurance and freight. This is termed the CIF & C value and is shown
in Box 12 of the SAD 500.

Any of these charges, such as insurance premium and international freight, which are non-
dutiable can be excluded from the VDP but any charges which are dutiable must be left in and
this value, rounded up or down in line with the customs policy, provides the base from which
to calculate the Duty, if payable, and the VAT on the imported goods.

This invoice value can be referred to as the transaction value as it is the value which has been
paid, or is payable, for the goods being exported to South Africa.

It should be noted at this stage that for estimate purposes an agent will normally use the bank
“Buy” rate of exchange rate which can be obtained either from the bank itself or the
newspaper or, sometimes, agents will circulate daily rates of exchange via their finance
departments.

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education 249
Training Authority (TETA). v 2021