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You must note that, when preparing an estimate, you will usually use the bank rate of
exchange for selling the foreigncurrency which will be the higher of the two rates offered i.e.,
Sell or Buy.
It is important to make sure that both the correct rate of exchange and the correct currency
are identified when completing this conversion. If this is not done correctly and the amount
of duty is underpaid, then the entry will be rejected, and a penalty fine could be imposed on
the agent in addition to making good the underpayment.
If the duty is overpaid, then the agent will have to submit an application for the refund of the
difference. This takes time to process, and the client will feel that he is entitled to deduct the
overpaid amount from the invoice when it falls due for payment as the error was due to the
agents’ negligence.
To calculate the value for duty purposes you must take the F.O.B. value and convert it into
Rand using the rate of exchange provided.
Having converted the foreignvalue into Rand you must then multiply that amount by the rate
of Customs Duty indicated by the tariff heading for the product which will give you a figure
for the Duty payable.
Insurance premiums
The Marine Insurance Act defines the Insurable Value as:
"The Prime cost of the property insured plus expenses of, and incidental to, shipping and the
charges of insurance upon the whole transaction".
The insurance premium is calculated as a factor (%) of the insured value determined by the
insurer and based on specific information provided by the party requiring the insurance cover.
This would include the following factors:
• The method of transport to be used i.e., air, sea, or land or even parcel post
• The type of product to be transported e.g., machinery, perishable, or dangerous goods
• The range of risks which need to be covered as specified in Cargo Clauses A, B and C
• The additional risks which may be required or must be covered at an additional
premium.
• Whether the cover is for a one-off shipment or covered by a Marine Insurance policy
• The claims record of the insured party.
• Any other relevant circumstances which might affect the level of risk involved.
It should also be noted that most forwarding and clearing agents offering insurance cover is
doing so on behalf of an underwriter or insurance company e.g.
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Mutual and Federal or Alexander Forbes and it is important that a request for cover is kept
on file together with the premium offered and the exclusions noted, and a copy of the
certificate issued to confirm all these various details for future reference.
Basis of valuation:
Imports – In the event of total loss the insurers are to pay for:
• The prime cost of the goods.
• The freight for which the insured is liable.
• The charges paid or incurred incidental to shipping (Clearing Charges, L / C fees).
• The insurance premium itself.
• Customs Duty and V.A.T. and similar charges – if incurred in anticipation of the arrival
of the cargo (*some clients omit the Customs VAT as they will claim this back from
SARS).
• Upliftment factor …………….% (Minimum 10%)
The insured party agrees to take all reasonable steps to obtain a refund of such charges and
return the net amount to the insurer.
Exports – The CIF or CIP value of the goods + upliftment factor (Minimum of 10 %) or else as
per the percentage specified in writing by the Buyer.
Inland transit – Invoiced selling price or replacement cost current at the time of loss,
whichever is the lesser.
Documentation and Agency fees
Having established the services for which an agent is entitled to charge fees it is important to
examine the basis on which these are calculated. The main fees fall into three categories
covered by Documentation, Agency, and Finance.
Documentation is normally charged as a flat fee based on the preparation of the relevant
Customs entry, whether this is an import or export.
The fee is based upon the completion of the standard SAD 500 with a limit to the number of
lines which are covered by the standard charge.
Due to the rationalisation of the Tariff schedule the majority of entries nowadays are
completed using a much lower number of lines.
There may, however, be situations where a large number of lines have to be completed and
the agent is entitled to charge for this extra work over and above the standard entry. In this
case the charge would be at a fixed rate per line and would be in addition to the basic
documentation fee.
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The agency fee can be calculated in a number of ways but the most frequent are either based
on a percentage of disbursements or based on the value for duty purposes of the goods being
transported. What is important to bear in mind is that whichever fee is utilised it has been
agreed upon between the agent and the client and it has been applied on a consistent basis
both when preparing the estimate as well as raising the final invoice for a shipment.
If the format of the invoice shows both the customs value of the goods and the disbursements
total separately it should not be a problem for the client to check this figure promptly and
identify any variation. It is important to remember that this is a guideline and that there are
other ways in which one can charge agency depending upon the type of transport used and
the size of the shipment. Whichever formula is used it should be clearly identifiable.
For airfreight shipments this might involve a flat rate per kilogram charge whereas sea freight
shipments could be based on a “per container” rate if a large number of containers were
moved on one bill of lading.
In the latter case the value of the goods or disbursements could be unusually high and
therefore give rise to a large figure for the agency which the client did not feel was justified.
The two parties could either agree to a maximum figure for the agency fee or a fee per
container which would be a realistic reflection of the additional work involved in the
management and delivery of a large number of boxes.
The Finance fee is sometimes referred to as the “Facility Fee” on the basis that it is the charge
for the agent to open and operate a credit facility. In addition to these there are a number of
other fees which can be charged either on the basis of specific services being supplied or,
should certain circumstances arise, where ancillary services need to be provided in order to
ensure the smooth passage of the cargo.
The consequences of omitting cost elements
The importance of ensuring that all cost elements are included in your costing cannot be
overstated. This is especially true of import shipments on EXW Incoterms® Rules as this may
be compounded by the fact that some of these charges are based in foreign currencies and
therefore liable to exchange rate conversions making the error even greater in Rand terms.
Even if the Incoterms® Rules are FOB the ocean freight will be in USD so here also there will
be more serious consequences once the omitted amounts are converted into Rand.
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Topic 4.3: Interpretation of Financial Statements
(Balance Sheet and Income Statements) [KT0403]
Analysis of Financial Statements 125
The main task of an analyst is to perform an extensive analysis of financial statements. In this
free guide, we will break down the most important methods, types, and approaches to
financial analysis.
This guide is designed to be useful for both beginners and advanced finance professionals,
with the main topics covering: (1) income statement, (2) balance sheet, (3) cash flow, and (4)
rates of return.
Image: Example financial analysis template.
#1 Income statement analysis
Most analysts start their analysis of financial statements with the income
statement. Intuitively, this is usually the first thing we think about with a business…we often
ask questions such as, “how much revenue does it have, is it profitable, what are the margins
like?”
In order to answer these questions, and much more, we will dive into the income statement
to get started.
There are two main types of analysis we will perform: vertical analysis and horizontal analysis.
Vertical analysis
With this method of analysis of financial statements, we will look up and down the income
statement (hence, “vertical” analysis) to see how every line item compares to revenue, as a
percentage.
For example, in the income statement shown below, we have the total dollar amounts and
the percentages, which make up the vertical analysis.
125
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As you see in the above example, we do a thorough analysis of the income statement by
seeing each line item as a proportion of revenue.
The key metrics we look at are:
• Cost of Goods Sold (COGS) as a percent of revenue.
• Gross profit as a percent of revenue
• Depreciation as a percent of revenue
• Selling General & Administrative (SG&A) as a percent of revenue
• Interest as a percent of revenue
• Earnings Before Tax (EBT) as a percent of revenue
• Tax as a percent of revenue
• Net earnings as a percent of revenue
Horizontal Analysis
Now it is time to look at a different way to evaluate the income statement. With horizontal
analysis, we look across the income statement at the year-over-year (YoY) change in each line
item.
In order to perform this exercise, you need to take the value in Period N and divide it by the
value in Period N-1 and then subtract 1 from that number to get the percent change.
For example, revenue in 2017 was $4,000 and in 2016 it was $3,000. The YoY change in
revenue is equal to $4,000 / $3,000 minus one, which equals 33%.
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#2 Balance sheet and leverage ratios
Let us move on to the balance sheet. In this section of financial statement analysis, we will
evaluate the operational efficiency of the business. We will take several items on the income
statement and compare them to the company’s capital assets on the balance sheet.
The balance sheet metrics can be divided into several categories, including liquidity, leverage,
and operational efficiency.
The main liquidity ratios for a business are:
• Quick ratio
• Current ratio
• Net working capital
The main leverage ratios are:
• Debt to equity
• Debt to capital
• Debt to EBITDA
• Interest coverage
• Fixed charge coverage ratio
The main operating efficiency ratios are:
• Inventory turnover
• Accounts receivable days
• Accounts payable days
• Total asset turnover
• Net asset turnover
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Using these ratios, we can determine how efficiently a company is generating revenue and
how quickly it is selling inventory.
Using the above financial ratios derived from the balance sheet will help you assess the
solvency and leverage of a business.
#3 Cash flow statement analysis
With the income statement and balance sheet under our belt, let us look at the cash flow
statement and all the insights it tells us about the business.
The cash flow statement will help us understand the inflows and outflows of cash over the
time period we are looking at.
Cash flow statement overview
The cash flow statement, or statement of cash flow, consist of three components:
• Cash from operations
• Cash used in investing.
• Cash from financing
Each of these three sections tells us a unique and important part of the company’s sources
and uses of cash during the time period being evaluated. Many investors consider the cash
flow statement the most important indicator of a company’s performance and it is hard to
imagine that until only recently companies did not even have to file a cash flow statement.
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Today, investors quickly flip to this section to see whether the company is actually making
money or not, and what its funding requirements are. It is important to understand how
different ratios can be used to properly assess the operation of an organisation from a cash
management standpoint. Below is an example of the cash flow statement and it is three main
components. Linking the 3 statements together in Excel is the building block of financial
modelling.
#4 Rates of return and profitability analysis
In this part of our analysis of financial statements, we unlock the drivers of financial
performance. By using the pyramid of ratios, we are able to demonstrate how you can
determine the profitability, efficiency, and leverage drivers for any business.
This is the most advanced section, and we recommend that you watch a demonstration of
how professionals perform this analysis.
Watch video on this link: https://youtu.be/O1SFesOJsxE
The key insights to be derived from the pyramid of ratios include:
• Return on equity ratio (ROE)
• Profitability, efficiency, and leverage ratios
• Primary, secondary, and tertiary ratios
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• Dupont analysis
2-Way net profit equity
Approach
RoE = margin x turnover
net income = net x revenue
average incom e
equity average
revenue equity
Current year 14.43% = 8.90% x 1.62
(Y3): 13.14% = 7.75% x 1.69
Previous
year (Y2):
3-Way RoE = net profit x asset x financial
Approach margin turnover
leverage
ratio
net income net revenue average
incom e total assets
average = x average x average
equity revenue
total assets equity
Current year 14.43% = 8.90% x 1.14 x 1.43
(Y3): 13.14% = 7.75% x 1.09 x 1.55
Previous
year (Y2):
5-Way RoE = tax x interest x operating x asset x financial
Approach burden burden profit turnover leverage
margin
EBT ratio
EBIT
net income net EBIT revenue average
incom e 88% total assets
average 84%
equity = EBT x x x average x average
total equity
revenue
assets
Current year 14.43% = 89% x x 11.34% x 1.14 x 1.43
(Y3): 13.14% = 89% x x 10.32% x 1.09 x 1.55
Previous
year (Y2):
By constructing the pyramid of ratios, you will have an extremely solid understanding of the
business and its financial statements.
Topic 4.4: Techniques for the purpose of allocating costs in international trade
transactions involving a number of commodities [KT0404]
The allocation of freight costs is no longer done manually but has been integrated in shipping
software and accounting systems. Herewith below is an example from the sage accounting
system of how freight costs can be allocated to inventory commodities.
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Allocating Landed and Freight Costs
The following allocation examples illustrate how the amounts to be allocated to inventory are
calculated using the Quantity, Weight, Volume, and Cost allocation methods. In each
example, assume that a landed cost or freight amount of $100.00 has been entered for the
receipt of inventory items A and B. In addition, the base inventory value of each line (the
amount that is posted to inventory if no freight costs are allocated) is the same in all three
examples.
The amount of freight cost allocated to inventory is calculated by adding the freight amount
and the prepaid freight amount. Landed cost amounts are taken directly from the Landed
Cost Entry feature, available inthe Receipt of Goods Entry window. In the following examples,
assume that only a freight amount or a landed cost amount has been entered for the receipt
of inventory items A and B.
The following are allocation methods:
Allocation by Quantity
You can allocate landed or freight costs by the quantity of items received in either or two
ways: by selecting Quantity per Item in the Allocate Freight on a Line-Item Basis field in the
Purchase Order Options window, or by selecting Quantity in the Allocation Method field in
the Landed Cost Type Maintenance window. In Receipt of Goods Entry, the quantity of all
items received on each purchase order is totalled. This total is used to determine the amount
of landed or freight cost to be allocated to the unit cost for each item.
The following table illustrates the calculation of the base inventory value, the landed cost or
freight amount allocated, the total inventory value (the amount posted to the Inventory
account), and the new unit cost for each line item.
Line Quantity Unit Base Inv. Freight Total Inv. New Unit
Item per Item Cost Value Value 2 Cost 3
Amt. per
Line 1
A5 $10.00 $50.00 $20.00 $70.00 $14.00
B 20 $7.50 $150.00 $80.00 $230.00 $11.50
Calculations:
1 The freight amount per line is calculated by multiplying the freight amount by the quotient
of the quantity per item divided by the total quantity of all line items, as illustrated below.
Line-Item A: $100.00 x (5 / 25) = $20.00
Line-Item B: $100.00 x (20 / 25) = $80.00
2 The total inventory value is calculated by adding the base inventory value and the freight
amount per line, as illustrated below.
Line-Item A: $50.00 + $20.00 = $70.00
Line-Item B: $150.00 + $80.00 = $230.00
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3 The new unit cost per item is calculated by adding the original unit cost to the freight amount
per line divided by the quantity per item, as illustrated below.
Line-Item A: $10.00 + ($20.00 / 5) = $14.00
Line-Item B: $7.50 + ($80.00 / 20) = $11.50
Allocation by Weight or Volume
The Weight and Volume allocation methods use the same calculation method; therefore, the
following tables and calculations apply to both methods of allocation. To allocate landed or
freight costs by the weight of items received, Weight must be selected in the Allocate Freight
on a Line-Item Basis field in the Purchase Order Options window. In Receipt of Goods Entry,
the weight of all items received on each purchase order is totalled. This total is used to
determine the amount of landed or freight costs to be allocated to the unit cost for each item.
The following table illustrates the calculationof the total weight per line, the landed or freight
amount allocated, the total inventory value (the amount posted to the Inventory account),
and the new unit cost for each line item. It is assumed that the unit weight for item A is 4
pounds and the unit weight for item B is 1.5 pounds. The original unit cost is the same as in
the previous example ($10.00 for item A and $7.50 for item B).
NOTE Items without weight or volume amounts will not be included in the allocation.
Line Quantity Total Wt. Base Inv. Freight Total Inv. New
Item per Item per Line Value Amt. per Value 2 Unit
Line 1 Cost 3
A5 20 lbs $50.00 $40.00 $90.00 $18.00
B 20 30 lbs $150.00 $60.00 $210.00 $10.50
Calculations:
1 The freight amount per line is calculated by multiplying the freight amount by the quotient
of the total weight per line divided by the total weight of all line items, as illustrated below.
Line-Item A: $100.00 x (20 / 50) = $40.00
Line-Item B: $100.00 x (30 / 50) = $60.00
2 The total inventory value is calculated by adding the base inventory value and the freight
amount per line, as illustrated below.
Line-Item A: $50.00 + $40.00 = $90.00
Line-Item B: $150.00 + $60.00 = $210.00
3 The new unit cost per item is calculated by adding the original unit cost to the freight amount
per line divided by the quantity per item, as illustrated below.
Line-Item A: $10.00 + ($40.00 / 5) = $18.00
Line-Item B: $7.50 + ($60.00 / 20) = $10.50
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Allocation by Cost
To allocate landed or freight costs by the cost of items received, select Cost per Item in the
Allocate Freight on a Line-Item Basis field in the Purchase Order Options window. In Receipt
of Goods Entry, the cost of all items received on each purchase order is totalled. This total is
used to determine the amount of landed or freight costs to be allocated to the unit cost for
each item.
The following table illustrates the calculation of the base inventory value, the landed or
freight amount allocated, the total inventory value (the amount posted to the Inventory
account), and the new unit cost for each line item.
Line Quantity Unit Base Inv. Freight Total Inv. New Unit
Item per Item Cost Value Value 2 Cost 3
Amt. per
Line 1
A5 $10.00 $50.00 $25.00 $75.00 $15.00
B 20 $7.50 $150.00 $75.00 $225.00 $11.25
Calculations:
1 The freight amount per line is calculated by multiplying the freight amount by the quotient
of the base inventory value divided by the total base inventory value of all line items, as
illustrated below.
Line-Item A: $100.00 x (50 / 200) = $25.00
Line-Item B: $100.00 x (150 / 200) = $75.00
2 The total inventory value is calculated by adding the base inventory value and the freight
amount per line, as illustrated below.
Line-Item A: $50.00 + $25.00 = $75.00
Line-Item B: $150.00 + $75.00 = $225.00
3 The new unit cost per item is calculated by adding the original unit cost to the freight amount
per line divided by the quantity per item, as illustrated below.
Line-Item A: $10.00 + ($25.00 / 5) = $15.00
Line-Item B: $7.50 + ($75.00 / 20) = $11.25
…126
126 https://help-
sage100.na.sage.com/2019/Subsystems/PO/POConcept/Allocating_Landed_and_Freight_Costs.htm
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Topic 4.5: Uses and forms of invoicing [KT0405]
Invoices
Invoices can be issued by both the clearing agent and the forwarding agent, but we will
concentrate on the process in the context of forwarding transactions i.e., starting in the
country of origin and moving from there to the destination country.
There are certain basic elements that must be incorporated when drafting or creating ana
invoice:
Client details
The first piece of information required will be the details of the client to which you are issuing
the invoice. It is critical that these are accurate and up to date and show the correct name for
the company involved and their address.
There may well be the name of a person identified for whose attention the invoice is marked
and carefully attention should be paid to making sure that this is the person who should
receive the invoice and , preferably, the person who also checks the details, the calculations
and approves it for payment.
Shipment details
These are the details of the cargo itself and all the information relating to it with the ma in
items being the description of the cargo along with the quantity, weight, volume, and value
followed by the various details relating to the places or ports of origin involved as well as
those in the destination country.
Supporting Voucher / Documentation
When an invoice is issued there will be a significant amount of additional paperwork which is
attached or sent along with the invoice to the client. This will include the SAD 500 Customs
declaration as well as copies of the transport document itself, the commercial invoice from
the supplier as well as the packing list, if provided.
Generally speaking, no supporting documentation will be provided to prove the rates charged
as these should be in line with those agreed with the client before the shipment was
dispatched and included in a rates agreement kept on file by both parties.
Where supporting vouchers could be included is to provide evidence of third-party charges
as proof of the amount paid as well as additional charges such as storage and penalty charges
which would only be known after the release or collection of the cargoand therefore no rates
can be agreed in advance for these as there are too many factors which influence the final
amount payable for these.
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Incoterms® Rules
This is one of the most important pieces of information required for invoices as it indicates
how the charges are to be split between the seller and the buyer so that the invoice is
accurate.
Chargeable Rates
Rates are essential for any invoice as these provide the main basis for the issuing of this type
of document.
Rates will, in most cases, have been established in advance of the shipment taking place either
through a rates agreement between the agent and the client which is recorded in writing with
a list of charges and fees applicable as well as a period of validity indicating when they
commence and when they end.
It is also possible that rates could have been provided earlier inthe form of an estimate which
had been prepared so it is important to check this, especially if it is a new client and no records
exist in the data bank of an account or rates agreement.
When referring to rates this will also take into account the fees i.e., the amounts which the
agent charges for their services as these should also have been set up prior to the shipment
taking place.
Statutory Charges and Levies
The best examples of statutory charges are the Customs Duty and Value Added tax which are
collected by Customs and Excise from the importer on behalf of the treasury.
It is quite possible that some, or all, of the goods being imported are not subject to Duty i.e.,
Duty Free but it is unusual that Customs V.A.T. is not charged so both of these have to be kept
in mind.
Third Party Charges
Depending upon the Incoterms® Rule involved for the shipment there may only a few or many
parties involved in the transporting of cargo, and it is important to know who these are, what
their role is, what they charge for the services which they provide and who collects the
money.
Take for example the THC (Terminal Handling Charge) in the port, which is set by the Transnet
Port Terminals, but which may be collected by one of a number of different parties depending
upon how the haulage is arranged.
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Estimates
These can be a critical source for information for the final invoice, especially if the client is a
new one, or a temporary one i.e., a one-off shipment or if they do not, or have not opened a
credit facility with the agent as the estimate will be the only source of the charges and fees
which were of for the handling of the shipment.
The estimate will also act as evidence as to whether any of the critical details such as the
cargo specifications, value, Incoterms® Rules and locations have changed which will explain
the reason for variances between the original estimate and the final invoice with the charges.
Procedural Instructions
All forwarders and clearing agents should have a manual which contain the procedures
involved for the preparation of the invoice in terms of the process which should be followed
and the sequence of these and then the requirements for checking and approving the invoice
when it has finally been completed.
It is essential that the invoicing clerk, or whoever is preparing the invoice, has read this, and
familiarised themselves with it and identified any queries which they have in connection with
the process and that these have been sorted out before the invoicing begins.
Posting Codes
In order to make sure that you have charged out the correct amounts, allowed and covered
all the cost incurred and ended up with the amount of profit on the file which you should do,
it is essential that any third party invoices are posted to the correct accounts in terms of the
creditor involved and that the charges have been recorded against the correct file.
If this does not happen then it is possible that you will end up with an inaccurate costing sheet
which is missing some of the costs incurred and therefore you may omit to charge these out
as no cost will appear to have been paid out.
Contractual Agreements
Any contractual agreements which have been signed should be noted when invoicing out
clients whether these relate to the charges and fees agreed or the terms and conditions of
trade or any other aspect involving the invoicing process to make sure that they are applied
in accordance with these.
Debtor and Payment Terms
The majority of clients pay their accounts on terms, the best example of which would be
payment 30 days from end of month statement.
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The collection of the charges from debtors is one of the most important parts of any
company’s operation as this is critical for the cash flow of the company to make sure that any
monies owed come in on time. This starts by making sure that the payment terms are
accurately recorded on the client agreement and the invoice is issued in line with what has
been agreed.
Credit Notes
The second is the issuing of a Credit note which is a document which can be issued by the
clearing and forwarding agent in situations where they are required to refund or give back to
the client an amount of money. This could involve only crediting certain items on the original
invoice or it could be a case of crediting the original invoice in its entirety.
In terms of the information which is needed to generate this type of document we will
examine this under the same sub-headings as for the invoice but the first piece of information
which has to be obtained is the reason for the issuing of the credit note i.e., why is the agent
having to refund the client.
Whilst the client would want to know the reason if the agent were to issue an additional
invoice for further charges it is also important that there is a reason provided on the file, and
on the credit note, as to why the client is being credited so that a query on this can be resolved
quickly by checking the explanation.
Supporting Voucher / Documentation
This may have a part to play when issuing a credit note although many of the main reasons
why supporting documentation would be relevant will be dealt with under other of the
headings below. It is important, once the reason for the issuing of this type of document
becomes known that the person preparing thinks about this, the parties or procedures who
were involved with the item(s) in question and what other documents could, or would, have
been issued.
Incoterms® Rules
The Incoterms® Rules are a distinct possibility when it comes to a credit note having to be
issued as this could involve the refunding of charges and fees if the wrong Incoterms® 2010
Rule has been used when preparing the invoice so it is crucial that this detail is checked
accurately if this is the reason and the explanation correctly set out on the credit note as
displayed on the supplier’s commercial invoice.
Chargeable Rates
Again, a likely source of the need to issue a credit note as the client was not charges in line
with the agreed rates so this would require reference to the record of rates and fees to make
sure that the original amount invoiced was incorrect and that the correct rate and amount
has been established and verified.
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Statutory Charges and Levies
It is always a possibility that Customs Duty and also Customs V.A.T. could be incorrectly
calculated or based on in accurate information and therefore charged out correctly.
If the cargo has been released before the error is noticed this may require a VOC (Voucher of
Correction) to be completed and submitted to SARS to pay additional Duty and VAT or to
obtain a refund or even to liquidate a provisional payment on behalf of the client.
Whatever the circumstances there may well be copies of these documents which need to be
attached to the credit note when issuing to the client as proof of the amount refunded and
the reason for the refund.
This may also be needed at a later date if there is any further query from Customs and Excise
as they have 24 months after the assessment date within which to query any details or
information on a Customs declaration.
Third Party Charges
Another possible reason for a credit note being issued, especially in the case of charges being
issued on the original invoice before the final amount of the charge is known. An example of
this may be storage which you know has been incurred but you have not been able to
establish the exact amount involved.
In this case you may have issued the original invoice with an amount on which turns out to
be higher than the final amount shown on the invoice from the depot or agent i.e., you have
over recovered the charge. You will therefore need the third-party invoice to show the client
that you have credited the correct amount for the difference between the estimated charge
and the actual one.
Estimates
In the same way if the reason for the crediting of some of the original charges is down to the
rates shown on the estimate as opposed to the rates shown on the final invoice then the
original estimate needs to be available on the file to support this in case of a query.
Procedural Instructions
In the same way that you have procedures for issuing invoices there are also procedures for
issuing credit notes. This is especially important as you are giving money back to your client
so the reason this is happening must be known and the required approval be sought to make
sure that the issuing of this kind of document is valid.
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Posting Codes
Whilst this may not be one of the most obvious pieces of information required for the issuing
of a credit note it is possible that an invoice which has been posted incorrectly results in a
client being charged for a cost which was not incurred on that particular shipment, so you
need to watch those costing codes carefully.
Contractual Agreements
One of the less common reasons for the issue of a credit note but nevertheless a possibility
so be aware of the agreements in place in case this is sited as the cause of the original invoice
being overcharged.
Debtor and Payment Terms
A distinct possibility as a cause of the credit note if the payment terms for the client are not
checked or are inaccurate or are changed at short notice e.g., 7 days with no interest rather
than 30 days with a facility fee but not amended on the agreed rates.
Costing
A costing is a document which is prepared for the client which will show all the charges and
costs, including fees, which have been incurred in the course of transporting their cargo and
then apportion these to the cargo according to a factor specified by the client.
This factor is most frequently the individual items or products shown on the commercial
invoice issued by the supplier which produces a landed cost for each of these items or
products incorporating all the charges which have been outlaid right up until the time when
the cargo is delivered to the client or collected by them.
This means that much of the same information is required as the costing is prepared at the
time when the Customs declaration is framed.
Thus, if a credit note is issued and goods have to be returned, a reverse costing process would
have to be undertaken.
Invoicing Approach
Having identified all the information which would be needed for the invoice and then having
obtained this information for the shipment in question you then need to check the client
instructions to make sure that you are applying these in line with the client agreement.
Many agents keep a client profile of some sort on record so that anyone issuing an invoice to
that particular client knows exactly what instructions should apply, especially in term so
factors such as payment and credit terms.
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Some agents use the door-to-door process where the one staff member deals with the
shipment from originright through to destination and delivery whilst others have an invoicing
clerk who is responsible for issuing all invoices.
Whichever of these systems is in use it is no good if one of these staff members is away or ill
and the invoicing process comes to a grinding halt because no one else knows how to invoice
or the individual client’s instructions.
It also follows that when there are any changes to these instructions these must be applied
straight away as leaving out of date details on the client profile could result in inaccurate or
incorrect invoices continuing to be issued until the amendments are put in place.
This would also result in having to issue further credit notes to correct these errors as well as
an increasingly dissatisfied client who is getting fed up with receiving invoices and costings
which are incorrect.
Having collected all this information it should then be possible to issue the invoice or credit
note or costing, but you still need to work through a check list to make sure that you have not
omitted any charges or are missing any details which are needed to complete the process.
If you go ahead and prepare any of these three documents knowing that not all the
information is available or provided then you are asking for trouble in that you are providing
a reason for the client to reject, or delay payment of, an invoice until this information is
available and included on the document.
You may be surprised some times as to the reasons which clients give for late, or even non,
payment of your charges or invoices so it is essential that you try and make sure that all the
detail are included, the reasons for any additional or third party charges are explained and
any documentation or even communication, such as emailed instructions from the client, are
available to motivate the validity of the charges and therefore not give the client an excuse
to delay or even short pay an invoice.
Based on the first set of criteria as soon as you identify any information which is not available
you need to think about the following:
• The form which this information would take i.e., cargo details, client details,
• From where you would usually obtain this information e.g., overseas or an agent or your
own records,
• In what form would this information usually be provided e.g., on a transport document,
on a third-party invoice or on one of the other commercial or trade documents e.g.,
supplier’s commercial invoice.
You then need to obtain this information and verify it before preparing the document itself.
Obtain an example of a real invoice from you are your supervisor and analyse it along with the above.
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Chapter 5 | Professional Organisations [KM-01-KT05]
The Topic Elements to be covered in the chapter referenced above include:
Topic Topic Element/Heading Knowledge Theory
5.1 History and functions of different national and KT0501
international organisations (FIATA, IATA, SAAFF, etc)
5.2 KT0502
Uses of different documents and forms
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 Explain the roles of different professional organisations IAC0501
in relations to international freight forwarding
operations IAC0502
2 Discuss the uses of different documents and forms
Topic 5.1: History and functions of different national and international
organisations (FIATA, IATA, SAAFF, etc) [KT0501]
These have already been addressed extensively in this learning material.
Topic 5.2: Uses of different documents and forms [KT0502]
These have already been addressed extensively in this learning material.
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Chapter 6 | General Knowledge of Transport and Related
Geography [KM-01-KT06]
The Topic Elements to be covered in the chapter referenced above include:
Topic Topic Element/Heading Knowledge Theory
6.1 Basic concepts of geography KT0601
6.2 Geography of ocean transport and port facilities KT0602
6.3 Approaches to mapping a trade route (different KT0603
transport modes)
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
IAC0601
1 Identify different locations and ports for different mode
of transport IAC0602
2 Explain different concepts used in geography
Topic 6.1: Basic concepts of geography [KT0601]
The basic concepts of Geography have already been addressed in this learning material.
Therefore, they will not be repeated at this stage.
Topic 6.2: Geography of ocean transport and port facilities [KT0602]
Ports and Port Sites 127
Ports are points of convergence between two geographical domains of freight circulation
(sometimes passengers); the land and maritime domains. While the maritime domain can
involve substantial geographic coverage related to global trade, the land domain is related to
the port’s region and locality. The term port comes from the Latin portus, which means gate
or gateway. Historically, ports emerged as safe harbours for fishing, and those with
convenient locations became trade hubs, many of which of free access and designed to
protect trade.
127 https://transportgeography.org/?page_id=3235
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As such, they became nexus of urbanisation, with several becoming the first port cities playing
an important role in the economic welfare of their regions. Today, many of the most
important cities in the world owe their origin to their port location. The port is
a multidimensional entity at start anchored within geography, but also dependent on its
operations, governance structure and embedded within supply chains.
South African Ports
Due to the operational characteristics of maritime transportation, port location is constrained
to a limited array of sites, mostly defined by geography. Since ports are bound by the need to
serve ships, access to navigable waterways has been historically the most important site
consideration. Before the industrial revolution, ships were the most efficient means of
transporting goods. Thus, port sites were frequently chosen at the head of water navigation,
the most upstream site, such as London on the Thames, Montreal on the St. Lawrence River,
or Guangzhou on the Pearl River. Ship draft was small, so many sites were suitable to be used
as ports.
Sites on tidal waterways created a particular challenge for shipping because of the twice-daily
rise and fall of water levels at the berths, and by the 18th century, the technology of enclosed
docks, with lock gates, was developed to mitigate this problem. Because ship transfers were
slow, with vessels typically spent weeks in ports, a large number of berths were required. This
frequently gave rise to the construction of piers and jetties, often called finger piers, to
increase the number of berths, per given length of shoreline.
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Port Dimensions
Port Sites
Loading Break-bulk Cargo, Port of New Orleans, early 20th Century
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Conventional and Emerging Container Terminal Configurations
Port Elizabeth Intermodal Complex, Port of New York / New Jersey
Conventional break-bulk terminals were mainly focused on direct transhipment from the
deep-sea vessel to inland transport modes. Direct transhipment is associated with short dwell
times (the average time the cargo remains stacked on the terminal and during which it waits
for some activity to occur), requiring only a small temporary storage area on the terminal.
Transhipment was very labour-intensive, with operations managed on an ad-hoc basis. It was
common due to the lengthy loading or unloading process to have goods move directly from
the land mode (trucks or rail) to the ship or vice-versa and ships staying at berth for several
days.
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The gradual shift from conventional break-bulk terminals to container terminals since the
early 1960s brought about a fundamental change in the layout of terminals as well as site
selection. Ports increasingly became impacted by global processes. Containerised
transportation has substantially changed port dynamics to favour the emergence of
specialised container ports. As compared to conventional break-bulk cargo ships,
containerships did not have onboard cranes, and container terminal facilities had to provide
capital intensive cranes and ample storage space to stack containers dockside. Finger piers
were no longer adequate, and berths were redesigned to accommodate for quick ship
turnaround and more effective dockside operations between the crane and the container
storage areas.
The usual dwell time of a containership is around 24 hours, implying that a containership
spends about ten times less in a port than an equivalent break-bulk cargo ship.
Containerisation has consequently become a fundamental function of global port operations
and has changed the structure and configuration of port terminals that tend to occupy more
space. While inland port sites (such as at the end of a bay or along a river) generally have the
advantage of being closer to the final market, they imply longer deviations from maritime
shipping routes. As terminals, ports handle the largest amounts of freight, more than any
other type of terminals combined. For handling freight, port infrastructures jointly have to
accommodate transhipment activities both on ships and inland and thus
facilitate convergence between land transport and maritime systems. In many parts of the
world, ports are the points of convergence from which inland transport systems, particularly
rail, were laid. Most ports, especially those that are ancient, owe their initial emergence to
their site as the great majority of harbours are taking advantage of a natural coastline or a
natural site along a river. All the main port constraints have a significant impact on their
operations, which are part of the port performance continuum.
• Maritime access, which refers to the physical capacity of the site to accommodate
ship operations. It includes the tidal range, which is the difference between the high
and low tide, as normal ship operations cannot handle variations of more than 3
meters. Channel and berth depths are also very important to accommodate modern
cargo ships. A standard Panamax ship of 65,000 deadweight tons requires more than
12 meters (40 feet) of depth. However, about 70% of world ports have depths of less
than 10 meters and are unable to accommodate ships of more than 200 meters in
length. Many ports are also impacted by sedimentation, particularly ports in river
deltas. This requires continuous dredging, which adds to the costs of port operations.
Some river ports may be impacted by periods of flooding and drought, while other
ports may be impeded or closed during winter because of ice conditions.
• Maritime interface. Indicates the amount of space that is available to support
maritime access, namely the amount of shoreline that has good maritime access. This
attribute is critical since ports are linear entities. Even if a port site has excellent
maritime access, namely deep-water waterways, there may not be enough land
available to guarantee its future development and expansion. Containerisation has
expanded the land consumption requirements of many ports. It is therefore not
surprising to see that contemporary port expansion projects involve significant capital
investments to create artificial port facilities providing more room for this interface.
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• Infrastructures and equipment. The port site must have infrastructures such as piers,
basins, stacking or storage areas, warehouses, and equipment such as cranes, all of
which involve high levels of capital investment. In turn, these infrastructures consume
land which must be available to ensure port expansion. Keeping up with the
investment requirements of modern port operations has become a challenge for
many ports, particularly considering containerisation, which requires substantial
amounts of terminal space to operate. Modern container terminals rely on a unique
array of infrastructure, including portainers, stacking yards serviced by gantry cranes,
and the vehicles used to move containers around the terminal, such as straddle
carriers. Container ports have also developed infrastructure to handle refrigerated
containers (reefers) with separated stacking areas. Many terminals are also
becoming automated, particularly for stacking areas that can be serviced
by automated cranes and vehicles.
• Land access. Access from the port to industrial complexes and markets ensure its
growth and importance. This requires efficient inland distribution systems, such as
fluvial barges, rail unit trains, and roads handling intense heavy truck traffic. The land
access to ports located in densely populated areas is facing increasing congestion. For
instance, the ports of Los Angeles and Long Beach have invested massively to develop
the Alameda rail corridor to promote inland access and reduce truck congestion. A
similar trend has taken place in Europe where ports such as Rotterdam and Antwerp
have been involved in the setting on an inland barge and rail shuttle services.
Harbour Types of the World’s Large Sized Ports
Economies of scale have incited the construction of larger ships, namely tankers, bulk carriers,
and containerships. Many port sites became unable to provide maritime access to cargo
operations. Since container terminals were constructed much more recently, they have
a better nautical profile as depth, and available space were fundamental factors in site
selection.
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There is thus a pressure to increase channel depth where possible, but this is a costly and
environmentally controversial endeavour. Berths and access channel depth have become
important constraints for maritime operations considering growing ship size.
There is also an array of problems related to port infrastructures. Ports along rivers are
continuously facing dredging problems, and the width of rivers is strongly limiting their
capacity since it provides constraints to navigation. Rarely a port along a river has the ability
to handle the new generation of mega-ships, namely Post Panamax containership.
These ships have put additional pressures on port infrastructures to accommodate growing
operational constraints in terms of volume and throughput. Ports next to the sea are
commonly facing a lateral spread of their infrastructures.
Several ports have growth problems forcing them to spread their infrastructures far from the
original sites. Older port sites associated with the centrality of cities are facing congestion
problems where the transport network has the least capacity to be improved.
The city and the port are often competing for the same land, which can create prioritisation
problems. Ports thus have a complex set of relationships, sometimes conflicting, with the
cities they service, often a function of the port and city size. While ports are sources of
employment and commercial interactions, they also generate externalities such as noise and
congestion near their access points. The pressure of many ports on their sites is even more
demanding than those of airports because they must be adjacent to deep water.
Such sites are very limited and may give rise to conflicts with the city that sees waterfront
land as potential high value residential and commercial areas, park space, or as
environmentally sensitive. Many ports are now constrained by urban and environmental
pressures, which did not exist when their initial facilities were developed.
Channel Depth at Major North American Container Ports
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Port / City Relations
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Port Functions and Traffic
The primary function of a port is to supply services to freight (warehousing, transhipment,
etc.) and ships (piers, refuelling, repairs, etc.). Consequently, it is misleading to consider a
port strictly as a maritime terminal since it acts concomitantly as a land terminal where inland
traffic originates or ends. Ports are at start cargo-oriented facilities involving a wide array of
activities related to their management and operations. The cargo base of a port can expand
through the intensification of its fundamental hinterland, the expansion of its hinterland to
new areas, and the development of transhipment. In addition to significant cargo-related
functions, many ports are also involved in other activities such as fishing, ferries, cruises, and
recreational activities (e.g., marinas).
Ports are becoming increasingly regional in their dynamics, which represents a new
development from their traditional local function, namely as industrial complexes. For
instance, the port of Hong Kong owes its wealth to its natural site and its geographical position
of a transit harbour for southern China. Shanghai assumes a similar function for central China
with the Yangtze river system. Singapore, for its part, has been favoured by its location at the
outlet of the strategic Strait of Malacca and is, therefore, a point of convergence of Southeast
Asian transportation.
More than 90% of the traffic it handles is strictly transhipments (cargoes moving from on
maritime service to another without exiting the port terminal). New York has traditionally
acted as the gateway of the North AmericanMidwest through the Hudson / Erie Canal system,
a function which Western European ports such as Rotterdam or Antwerp perform with their
access to the Rhine system.
A port throughput is linked to a variety of local and regional industrial activities as the largest
ports in the world are gateways to large industrial regions. However, comparing ports on
a tonnage basis requires caution as it does not indicate the nature and the value of the cargo.
For instance, a mineral port (e.g., iron ore), an energy port (e.g., coal or oil), and a commercial
port (containers) could handle a similar tonnage but significantly different value levels. They
will also be related to different commodity chains; bulk ports are separate entities than
container ports. In terms of the freight they handle, ports can be classified into two
categories: monofunctional ports and polyfunctional ports.
Monofunctional ports transit a limited array of commodities, most often dry or liquid bulks
(raw materials). The oil ports of the Persian Gulf or the mineral ports of Australia, Africa, and
in some measure, Canada, are monofunctional ports. They have specialised piers designed to
handle specific commodities and where the flows a commonly outbound, implying that they
are usually load centres.
Polyfunctional ports are vast harbours where transhipment and industrial activities are
present. They have a variety of specialised and general cargo piers linked to a wide range of
modes that can include containers, bulk cargo, or raw materials.
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About commercial 3,700 ports are in operation worldwide, but only less than one hundred
ports have global importance. There are about 600 container ports with 200 handling traffic
above half a million TEU. Maritime traffic thus has a high level of concentration in a limited
number of large ports, a process mainly attributed to maritime access and infrastructure
development.
Major ports have established themselves as gateways of continental distribution systems and
have access to high-capacity inland freight distribution corridors, notably rail. Such a position
is difficult to challenge unless a port is facing acute congestion for cing maritime shipping
companies to seek alternatives. Gateways have seen the development of port-centric logistics
activities that support export and import-based activities.
Port Sites and Functions
World’s Major Ports, 2016
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World’s Major Container Ports, 2015
Monthly Container Traffic at the Port of Los Angeles, 1995-2020
The world container throughput is the summation of all containers handled by ports, either
as imports, exports, or transhipment. As of 2017, about 750 million TEU were handled by
container ports, including the notable growth in containers transshipped at intermediate
locations as well as the repositioning of empty containers. This means that a container is at
least counted twice; as an import and as an export, but also each time it is handled ship-to-
shore, such as at a transhipment hub where it will be counted when unloaded and reloaded.
Empty containers, most of them being repositioned, account for about 20% of the world’s
throughput.
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Thus, throughput should ideally be counted in container moves, but for commercial and
strategic reasons, both port authorities and terminal operators prefer to communicate
throughput figures in TEU.
The world container traffic is the absolute number of containers being carried by sea,
excluding the double counts of imports and exports as well as the number of involved
transhipments. The throughput reflects the level of transport activity while the traffic reflects
the level of trade activity.
Regionalisation and Transhipment Hubs
The current development phase underlines that ports are going beyond their own facilities to
help accommodate additional traffic and the complexity of freight distribution, namely by
improving hinterland transportation. Port regionalisation is such an outcome and indicates a
higher level of integration between maritime and inland transport systems, particularly by
using rail and barge transportation, which are less prone to congestion than road
transportation.
The development of global supply chains increased the pressure on maritime transport, port
operations, and on inland freight distribution, which in turn has incited the setting of satellite
terminals and transloading activities in the vicinity of port terminals. Regionalisation is a
process that can take place both of the foreland and the hinterland to provide continuity
between the maritime and inland freight transport systems.
The Spatial Development of a Port System
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Port Regionalisation
The Insertion of a Satellite Terminal in Port Operations
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Foreland and Hinterland-Based Regionalisation
Modal Split at Selected European Container Ports, 2007
Also refer to the following link for more information:
http://www.worldshipping.org/about-the-industry/global-trade/ports
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Modal Split at Selected North American Container Ports, 2007
Inland accessibility has become a cornerstone in port competitiveness since it can be serviced
by several road, rail, and barge transportation systems. Those three options a particularly
present in Europe, while North America is dominated by road and rail hinterland access. Port
regionalisation is characterised by strong functional interdependency and even joint
development of a specific load centre and logistics platforms in the hinterland. This ultimately
leads to the formation of a regional load centre network, strengthening the position of the
port as a gateway.
Many factors favour the emergence of this phase, namely:
• Local constraints. Ports, especially large gateways, are facing a wide array of local
constraints that impair their growth and efficiency. The lack of available land for
expansion is one of the most acute problems. This issue is exacerbated by the deep-
water requirements for handling larger ships. Increased port traffic may also lead to
diseconomies as a local road and rail systems are heavily burdened. Environmental
constraints and local opposition to port development are also of significance. Port
regionalisation thus enables to partially circumscribe local constraints by externalising
them.
• Supply chain management. Global production and consumption have substantially
changed distribution with the emergence of regional production systems as well as
large consumer markets. No single locality can efficiently service the distribution
requirements of such a complex web of activities. For instance, globally integrated
logistics zones, including Free Trade Zones (FTZ) has emerged near many load centres,
but seeing logistics zones as a functionally integrated entity may be misleading as each
activity is part of a specific supply chain. Port regionalisation thus permits the
development of a distribution network that corresponds more closely to fragmented
production and consumption systems.
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Cargo at ports always required some transhipment to smaller ships used feeders to smaller
ports. For obvious reasons, it is impossible to connect all possible port pairs directly, so
transhipment is required to ensure connectivity within the global trading system.
Transhipment was initially developed to service smaller ports unable to accommodate larger
containerships, which is common because of the limited draft and port infrastructure.
However, as maritime networks became increasingly complex, specialised transhipment hubs
emerged. Transhipment requires significant yard space as containers are stored up for a few
days while waiting for the connecting ship(s) to be serviced.
The growth in global trade has involved greater quantities of containers in circulation, which
has incited maritime shipping companies to rely more on transhipment hubs to connect
different regions of the world. In such a context, many gateway ports were facing the
challenge of handling export, import, and transhipment containers. This went on par with
the growing share of transhipments concerning the totality of maritime containerised traffic,
from around 11% in 1980, 19% in 1990, 26% in 2000 to about 29% in 2010, and 28% in 2012.
The number of times a container is handled at a port is also increasing, underlining the setting
of complex containerised transport chains as well as the growing difficulties of transferring
cargo into large containerships.
Maritime shipping companies also elect for transhipment as a way to use more rationally their
networks; more ports are serviced without increasing ship assets. In a conventional deep-sea
container service, a maritime range such as the American East Coast or Northern Europe
involves several port calls. If the volume is not sufficient, this may impose additional costs for
maritime companies that are facing the dilemma between market coverage and operational
efficiency.
There are several factors why transhipment hubs are used, particularly with the growing size
of containerships that forces a lower number of port calls. By using an intermediate hub
terminal in conjunction with feeder shipping services, it is possible to reduce the number of
port calls and increase the throughput of the port calls left.
An intermediate hub (or transhipment hub) is a port terminal used for ship-to-ship operations
within a maritime transport system. These operations do not take place directly, which
requires the temporary storage of containers in the port’s yard, usually for one to three days.
The term offshore hub has often been used to characterise such locations because the cargo
handled at the port of destination is transshipped at a location commonly in a third country.
There are several patterns in which intermediate hubs can be inserted by connecting long
distance and short distance (feeder) maritime services, by connecting different long-distance
services and by connecting services calling different ports along with a similar maritime
range. Geography of transhipment hubs has emerged along with several regional markets
and with different levels of specialisation (transhipment incidence). The most common
market pattern is hubbing, where an intermediate hub links regional port calls to mainline
long-distance services. Intermediate hub terminals can thus become effective competitive
tools since the frequency and possibly the timeliness of services can be improved.
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By using an intermediate hub terminal in conjunction with short sea shipping services, often
organised along a sequence, it is possible to reduce the number of port calls and increase the
throughput of the port calls left. Transhipment also comes with a level of risk for the cargo
since containers are handled more times than for direct services. This is notably the case for
the chemical industry.
While, in theory, pure intermediate hubs do not have a hinterland, but a significant foreland,
the impact of feedering (mainly by short sea shipping) confers them a significant indirect
hinterland. Feedering combines short sea and deep sea containerised shipping at a hub
where traffic is redistributed, such as for the Caribbean. The usage of larger containerships
has to lead to the concentration of traffic at terminals able to accommodate them in terms
of draft and transhipment capacity.
Smaller ports, particularly those well connected to inland transport systems, become feeders
through the use of short sea shipping. As the transhipment business remains a highly volatile
business, offshore hubs might sooner or later show ambition to develop services that add
value to the cargo instead of merely moving boxes between vessels.
The intermediate hub enables a level of accessibility that incites them to look beyond their
conventional transhipment role. This includes actions to extract more values out of cargo
passing through and, as such, get more economic rent out of transhipment facilities. Such
strategies have led to some transhipment hubs, such as Gioia Tauro and Algeciras, to develop
inland rail services to capture and serve the economic centres in the distant hinterlands
directly.
A more common strategy is the development of port-centric logistics zones. The multiplying
effects of being an intermediate hub in terms of frequency of port calls and connectivity to
the global economy can thus be leveraged for developing hinterland activities.128
128 https://transportgeography.org/?page_id=3235
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Topic 6.3: Approaches to mapping a trade route (different transport modes)
[KT0603]
Global Sea Trade Routes
Data Source: World Shipping Council
Maritime trade routes are established sea lanes that are taken by ocean going vessels in the
course of transporting passenger or cargofrom port of originto their final port of destination.
These lanes are utilised for aesthetic reasons that ranges from ease of navigation, advantage
of distance, proximity to port facility, proximity to major markets etc.
The establishment of these routes has helped in the development of some coastal countries
that are in close proximity to them. One major example is the city state: Singapore. Singapore
is a country of about 5.6 million people. Pre-1960, Singapore was a poor nation that thrives
on fishing and minor regional trade. Its fortune was turned around when it tapped into the
volume of sea trade that was presented by the major sea lane that passes through its
Exclusive Economic Zone (EEZ). The water of Singapore lies on the busiest sea lane in the
world! – The Strait of Malacca. About 25% of world trade passes through these waters.
Presently, the port of Singapore holds the record for the largest transhipment port in the
world.
Major shipping routes of the world
• North Atlantic Ocean
• South Atlantic Ocean
• North Pacific Ocean
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• South Pacific Ocean
• Mediterranean Sea
• Cape of Good Hope
• Indian Ocean
• Oceania
North Atlantic Oceanic Route
This is one of the most strategic trade routes. It links the developed areas of Western Europe
with its counterpart in North America. Huge volumes of cargoes are transported through this
sea lane. Two of the major liner services on this route are Rotterdam-New York and London-
New York.
South Atlantic Oceanic Route
This is the route that links the North American, European Continents, South America, and
South Africa. It serves as the source of supply of industrial goods from North America and
Europe to South America while raw materials such as solid minerals and agricultural products
are transported on the return journey.
North Pacific Oceanic Route
This route links East Asia and North America (particularly the West Coast) together. When
considering volume and distance, it boasts one of the largest volumes per route and is also
longer in distance when compared to other trade routes. Examples of major liner services on
this route are Shanghai-Los Angeles and Yokohama-Los Angeles.
South Pacific Oceanic Route
It connects Australia, New Zealand, North America, and Western Europe with each other.
Routes of Mediterranean Sea
This route links Asia and the Australian continents with the North Atlantic Ocean routes. The
strategic importance of this route is that it joins together the maximum number of countries
in the world. Through this waterway the manufactured goods and raw materials of eastern
countries are transported to western countries while reversing the flow for industrial goods
to the East. One of the major Liner services on this route is Shanghai-Rotterdam.
Cape of Good Hope Route
It links Eastern Asia to North and South America, as well as Europe through the southern tip
of Africa. It is an alternative route to the Suez Canal for Ultra Large Crude and Container
Carriers as well as large bulk carriers that could not pass through the Suez. Most cargo that
passes through this route are either from the Indian Ocean route (Consumer Products from
the Far East) or the Middle East (Crude Oil).
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Indian Ocean Route
Indian oceanic waterways are used by the countries which fall in the vicinity of the Indian
Ocean. The major items exported through this route are tea, jute products, mineral ores and
import items that are mainly industrial products.
Oceania Route
This route is sandwiched between the Northern and the Southern Pacific Routes. It serves the
large numbers of islands that transverse the Pacific Ocean.
NOTE: * – The graphical analysis at the top is designed to give a brief outlook of major World
Trade Routes and does not represent the full picture of its totality. For example, the data
set does not contain huge volumes of dry bulk and crude oil shipments that passes through
The North Atlantic, South Atlantic, Cape of Good Hope, Indian Ocean, North and South Pacific
Routes. 129
Also read materials connected by the following link:
http://maritimesa.org/grade-11/category/11-1-the-maritime-world/11-1-2-trade-routes-
and-port-locations/
Types of Maritime Routes
Types of Maritime Routes
Maritime routes are structured according to the type of commercial service they support,
which comes in three main categories:
129 https://www.worldtradia.com/global-sea-trade-routes/
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• Port-to-port. Involves a more or less regular service between two ports, often moving
back and forth with unidirectional freight flows involving empty backhauls. This
structure has the disadvantage of offering limited connectivity and mainly represents
raw materials flows such as oil, minerals, and grain, between zones of extraction and
main consumption markets. Chartered ships usually load in one port and discharge
their cargo in one to three ports in proximity. Tramp ships (for hire) do not have a
specific network structure and service ports according to fluctuations in the demand
and the related availability of cargoes.
• Inter-Range. This configuration is characterising containerised cargo and involves a
regular itinerary between a sequence of ports where the maritime shipping line seeks
to optimise their ship use by electing to service ports having important trade relations.
A set of ports along one range (seaboard) is serviced and then an ocean is crossed with
the process being repeated along a sequence of ports for the other range. The most
significant inter-range routes are between East Asia, North America, and Western
Europe, the three main poles of the global economy.
• Multi-Ranges. Refer the large long-distance maritime services calling ports along more
than two ranges. Round-the-world services involve calling a sequence of ports, often
in both directions, so that the sequence involves a circum-equatorial trip around the
world. A limited amount of ports per range are serviced. This strictly concerns
container shipping and involves a series of transhipment hubs where regional cargo is
collected. The term pendulum route is often applied to a maritime service covering
three ranges, one of them often intermediary (in between). For instance, a service
calling a sequence of ports in East Asia, South Asia, and Europe is considered a
pendulum service. 130
TRADE ROUTES
Trade between an origin group of countries and a destination group of countries is referred
to as a trade route. 131
Top Trade Routes (TEU shipped) 2017
Route West East North South Total
Bound Bound Bound Bound
Asia-North America 7,490,000 19,482,000 26,572,000
Asia-North Europe 9,924,000 5,139,000 15,063,000
Asia-Mediterranean 5,504,000 2,409,000 7,913,000
Asia-Middle East 3,340,000 1,400,000
130 https://transportgeography.org/?page_id=2108
131 http://www.worldshipping.org/about-the-industry/global-trade/trade-
routes#:~:text=Trade%20between%20an%20origin%20group,to%20as%20a%20trade%20route.&text=Ther
e%20are%20about%20500%20liner,trade%20 routes%20of%20the%20world .
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North Europe-North 3,284,000 2,120,000 5,404,000
America 2,074,000
730,000 1,344,000
Asia-East Coast South 1,680,000
America 830,000 850,000 1,268,000
North 794,000 474,000
Europe/Mediterranean-
East Coast South
America
North America-East
Coast South America
Serving the Trade Routes
There are about 500 liner shipping services providing regularly scheduled service (usually
weekly) that enable goods to move between ports along the many trade routes of the
world.
ROUTE SERVICES
Asia-East Coast North America 19
Asia-West Coast North America 54
Asia-North Europe 20
Asia-Mediterranean 29
North Europe-North America 32
Mediterranean-North America
17
Asia-Middle East 43
Asia-South Asia 53
North America-Mid-East/South Asia 10
South Asia-Europe 20
Middle East-Eastern Europe 36
Oceania 46
East Coast South America 14
West Coast South America 31
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South Africa 19
West Africa 46
Total 487
Notes: Services may be counted on more than one route.
Source: Drewry Container Forecaster Q1 & Q2 2018
Summary
Main Maritime Shipping Routes
There is potentially an infinite number of maritime shipping routes that can be used for
commercial circulation, but the configuration of the global system is relatively simple. The
main axis is a circum-equatorial corridor linking North America, Europe, and Pacific Asia
through the Suez Canal, the Strait of Malacca, and the Panama Canal.
These routes are supporting the bulk of the traffic, but numerous other routes are existing
(namely for coastal shipping), depending on the origin and the destination of the maritime
shipment. Transatlantic and transpacific traffic concerns a wide variety of ports, so there are
numerous routes, most of them having a path along the great circle. Trans-Indianocean traffic
is dominantly intermediary traffic between Pacific Asia and Europe, implying a series of more
clearly defined routes, namely between the Strait of Malacca and Bab el-Mandab.
Maritime routes are a function of obligatory points of passage, which are strategic locations
that act as chokepoints. Physical constraints (coasts, winds, marine currents, depth, reefs, ice)
and political borders also play an important role in shaping maritime routes. As a result,
maritime routes try to follow the great circle distance.
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Core routes are those supporting the most important commercial shipping flows servicing
major markets. Secondary routes are mostly connectors between smaller markets.
In part due to geography, geopolitics, and trade, flows specific locations play a strategic role
in the global maritime network. They are labelled as chokepoints and can be classified into
two main categories:
• Primary chokepoints. The most important since without them there would be limited
cost-effective maritime shipping alternatives, which would seriously impair global
trade. Among those are the Panama Canal, the Suez Canal, the Strait of Hormuz, and
the Strait of Malacca, which are key locations in the global trade of goods and
commodities.
• Secondary chokepoints. Support maritime routes that have alternatives but would
still involve a notable detour. These include the Magellan Passage, the Dover Strait,
the Sunda Strait, and the Taiwan Strait. 132
132 https://transportgeography.org/?page_id=2067
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Chapter 7 | Special transport services [KM-01-KT07]
The Topic Elements to be covered in the chapter referenced above include:
Topic Topic Element/Heading Knowledge Theory
7.1 Forms and types of different and special transport KT0701
7.2 services KT0702
7.3 Types of documentation for special transport services KT0703
7.4 KT0704
7.5 Types of barges used in inland waterways carriage KT0705
Air transportation for perishable cargo
National and international carriage by inland
waterways
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 Identify and describe different forms and types of IAC0701
special transport services
2 Describe the packaging requirements for perishable IAC0702
cargo which is intended for transportation by air
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Topic 7.1: Forms and types of different and special transport services [KT0701]
Special transport services involve the transportation of goods, which are rather difficult to
carry, as the requirements thereof are complex.
This generally means that they cannot be shipped easily. This applies particularly to oversize
loads, or goods, which are extremely heavy etc. Special transport services thus require specific
expertise, know-how and tools in order to be conducted effectively.
When special transport services are to be rendered, some key questions should be considered
at the outset:
• Freight: What are you planning on transporting?
• Measurements: The weight and volume of your freight
• Place of loading: Where do you want your freight to be picked up?
• Place of unloading: Where do you want your freight to be brought to?
• Date: Which date do you want to ship the freight?
• Transport route: Do you prefer a certain route?
• Means of transport: Do you prefer a certain means of transport?
There are very the strict rules and regulations that govern specialised transport, and it often
involves a lot of paperwork. It is therefore essential to ensure that e.g., abnormal cargo is
transported in compliance with the rules and regulations on the following types of shipments:
• Cross-dock dangerous goods in-bond cargo movement
• Temperature controlled odd size/out of gauge/abnormal cargo.
• Crane truck
• High-value goods
• White-glove delivery
• Bulk cargo
• JIT/JIS packing and unpacking of containerised cargo.
Topic 7.2: Types of documentation for special transport services [KT0702]
Characteristics of Specialised Cargo
The movement of each type of specialised cargo presents a different set of policies,
procedures, and systems.
At this stage it is important to understand what it meant when we refer to each type of
specialised cargo.
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Dangerous Goods 101 – All You Need to Know
FORWARDER MAGAZINE EXTRACT 133
Hazardous and dangerous goods need to be handled with the appropriate care – self-
explanatory, really. Transporting these types of goods comes with (potentially) great risk, and
if the right procedures are not carried out, it may lead to fatality. From symbols and codes, to
how the rules and regulations were introduced, FORWARDER has put together a ‘hazardous
and dangerous goods 101.’
Dangerous or Hazardous?
Dangerous goods (abbreviated as DG) are generally items or substances that pose a risk to
health, safety, property, or the environment when being transported. Hazardous goods or
materials (abbreviated as HAZMAT) are substances – solids, liquids, or gases – that can harm
people, animals, property, or the environment, and therefore have to adhere to chemical
regulations.
Hazardous goods include materials that are radioactive, flammable, explosive, corrosive,
oxidising, toxic, pathogenic, or allergenic. Furthermore, physical conditions such as
compressed gases and liquids or hot materials can be classified as hazardous during certain
circumstances, for example a gas reaching a temperature that could make it inherently
dangerous.
133 https://forwardermagazine.com/dangerous-goods-101-all-you-need-to-
know/# : ~ : te xt= The %20GHS%20is%20a%20c lassific ation,about%20type s%20of%20hazardous %20produc ts
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The Globally Harmonised System of Classification & Labelling of Chemicals (GHS)
The GHS is a classification of hazardous and dangerous goods which is internationally known
and agreed. The GHS body is managed by the United Nations and uses standardised hazard
testing criteria, universal warning pictograms and safety sheets which contain information
about types of hazardous products. The regulations for hazardous and dangerous goods to be
carried by road are highly prescriptive.
The GHS label and standardised information took quite a while to become highly prevalent in
industry, but the system has been widely used as of 2017 in most major countries around the
world, including throughout the EU.
How did the regulations & dangerous goods legislation start?
The very first regulations created for dangerous goods classification was in a consultative
document, published in the late 1970s following the introduction of the Health and Safety at
Work Act in 1974. This document was, however, too complex, and was later changed in the
following three divisions…
• The Classification, Labelling and Packaging of Dangerous Substances Regulations
1984 (CPR)
• The Dangerous Substances (Conveyance by Road in Road Tankers and Tank
Containers) Regulations 1981 (RTR)
• The Dangerous Substances (Conveyance by Road in Packages) Regulations 1986
(PGR)
Fast forward to more recent times and a European agreement regarding the International
Carriage of Dangerous Goods by Road (ADR) came into force in 2004. The ADR agreement
grants permission for dangerous goods to travel between multiple countries, under the
condition that the full requirements are met.
According to IATA, Sub-Section 1.5 of the IATA Dangerous Goods Regulations (DGR) requires
training for dangerous good handlers and transporters. Required levels of training are
dependent on the occupational responsibility, but it applies to all industry workers involved
in air transport, freight forwarding, ground service providers and airlines.
NOTE: There have been significant changes to the 60th edition of the Dangerous Goods
Regulations (DGR), which went into effect 1 January 2019. Please ensure you have read the
most up-to-date document if you are involved in hazardous or dangerous goods
transportation.
Importing dangerous goods internationally
In the need for international dangerous goods transport, international standards must be met
as governed by the UN Committee of Experts, which are contained in a so-called ‘orange
book’, which covers all information from codes, classification, packaging, labelling and the
transport modes of dangerous goods.
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How are dangerous goods labelled?
Dangerous and hazardous goods are usually labelled with a diamond-shaped sign with a red
border to signify danger (regional versions also exist). The Globally Harmonized System of
Classification and Labelling of Chemicals lists the following signs depending on the type and
severity of the substance. Label elements include…
Symbols – These are GHS hazard pictograms, which convey information regarding health,
physical and environment. Harmful chemicals and irritants are marked with an exclamation
mark to warn for its danger. Pictograms are usually diamond-shaped, with red borders, white
backgrounds, and black symbols.
Signal words – Words that signify ‘danger’ or ‘warning’ are used to highlight hazards and
differentiate the severity between hazard categories. Only one word should be used per label,
and the word should only be used for the most severe hazards.
GHS Hazard statement – Standardised phrases that are allocated to categories which
describe the nature of the hazard. For products that contain more than one hazard, clear and
correct information displaying these hazards is required.
Product identifier – this is essentially an ingredient disclosure, which names (and numbers)
the hazardous product contents which should also incorporate the substance’s chemical
identity. Labels should also include a description of how corrosive or harmful it is to the body,
such as skin irritation, serious eye damage, germ cell mutagenicity etc.
Supplier identification – the contact details (name, address, telephone number) of the
supplier.
Classes of hazardous goods
Hazardous goods are classified into divisions. These classification descriptions are required to
be documented when handling and transporting the goods.
Class 1, Explosives
Explosives contain material apt to changing from its resting state into (very hot) gas. This
produces a rapid and violent chemical reaction, otherwise known as an explosion. When an
explosion occurs, the chemical energy (heat) rises to several thousand degrees, expanding
and forcing outwards. There is a range of low and high explosives, and not all chemical
reactions are triggered in the same way. Some react from violent shock (e.g., a high-speed
traffic accident), high temperatures (e.g., fire), and some even by low temperature.
There are six divisions of explosives in Class 1, ranging from high-explosive reactions to low.
These divisions are crucial when transporting loads, as the different types of loads will most
likely need different levels of care, safety procedures and transport specifications.
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Explosives are acknowledged as NEQ (Net Explosive Quantity) when documented during
transport, which is usually unconnected to the gross weight.
Division
• Mass explosion hazard
• Projection hazard only
• Fire hazard and minor blast or minor projection hazard
• Minimal hazard
• Blasting agents
• Very insensitive denoting articles
Class 2, Gases
Gases tend to be stored under pressure in order to reduce its volume, saving space when
transporting and storing. Should the pressure be released suddenly, the fast air release can
create high energy release and rocketing, putting the surroundings in danger. Furthermore,
as most gases are denser and heavier than oxygen, meaning that exposure of the gases in
confined spaces can cause suffocation. Some gases liquefy under pressure in normal
temperatures, such as chlorine and ammonia.
Gases are also separated into divisions due to their physical dangers:
• 2.1 Flammable gases
• 2.2 Non-flammable, non-toxic gases
• 2.3 Toxic gases
Class 3, Flammable liquids
Flammable liquids such as petroleum (petrol) and industrial processed (alcohol) are highly
flammable if exposed to a naked flame. Fuels are one of the largest tonnages of dangerous
goods transported in the freight industry. The flashpoint for petrol is -40º C, meaning it burns
at normal temperatures, whilst diesel’s is 65º C, which has to be heated to be able to burn.
The UN Class 3 limit is generally flashpoint 60º C, which is not classified as dangerous for
transport.
Flammable liquids are set in Packing Groups in reference to their boiling point and flashpoint.
Packing Group Initial Boiling Point Flashpoint (closed cup).
• I Below 35º C
• II Above 35 º C Below 23 º C
• III Above 35 º C >23 º C and <60 º C
Class 4.1/4.2/4.3
Flammable solids
Spontaneously combustible
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